Patrick Cox has mysteriously disappeared from Agora Financial’s publications, he’s no longer at the helm of the always-interesting Breakthrough Technology Alert … but that doesn’t mean this newsletter has disappeared. In fact, they’re sending out the latest florid pitch for their hot idea and not even discounting the price — under Cox most of the ads for this letter had “discount” prices of $600-800 or so, but this latest pitch is trying to sell us the newsletter for $2,000.
That’s a lot. Particularly in an era when the big publishers are all climbing all over themselves to bring in more and more readers at lower and lower prices, getting entry level folks at $29, $39 or $99. This isn’t an “entry level” newsletter, of course (for that they have Technology Profits Confidential, also edited by Ray Blanco), but that’s still a steep price.
The basic idea of these “upgrade” newsletters that are priced at over a thousand dollars a year is that the stocks or options they trade are less liquid, and more risky, so they need to keep the readership low to make sure they don’t dramatically impact the price and can get their subscribers in and out of trades (and, the cynic will say, make sure they’re only getting people who can afford to lose money). And that is the case with Breakthrough Technology Alert, which presumably is still looking at the same kinds of stocks as it was during Cox’s reign — little tiny biotech and technology stocks that have earth-shaking ideas and breakthroughs, but not usually any mundane stuff like cash, or profits, or usually even much in the way of revenue. This is the world of big ideas and big risks.
So what’s Ray Blanco teasing now? Here’s a taste:
“The best 13 cents you could ever spend…
“The inside story of how – starting this December 12th – a tiny technology company could deliver gains that most people only dream about….
“If you have the courage to act on what you’ll discover here today, you could grow rich in the process.
“Shares of this leading tech firm trade for just 13 cents each. That means you could pick up more than 2,700 shares for as little as just $325.
“So unlike investing in the big blue chips, this breakout doesn’t take a fortune to get started.
“If their technology works out, I wouldn’t be surprised to see a starting stake triple. Or even rise 10-fold.”
So … who wouldn’t want to know about that stock, right? Well, I can’t promise that I’ll give you the full lowdown on it … but we’ll look at the clues and tell you the name and ticker, at least, and then you can figure out for yourself whether or not it’s right for you and your money. Fair enough? Oh, and I won’t charge you $2,000.
Do we get some more clues about this company? Sure we do … how else could they convince you it’s real enough to cough up that kind of money? Here’s what the ad says:
“Their technology is a scientific breakthrough. Its accuracy was audited by the Department of Defense late last year.
“The DOD’s findings?
“According to the government’s own report:
“This technology worked 100% of the time.”
OK, so whatever this company’s selling at least works. More?
“The Defense Logistics Agency just mandated that all supplies provided to the Department of Defense use this small firm’s technology.
“Not 25% of supplies. Not even half. It’s an important point, so I’ll repeat…
“All items coming into the defense industry supply chain must have this company’s technology applied.
“Said a different way, this tiny firm… with just 44 employees… has been granted a rare monopoly status by the United States government.”
Oh, crud … that sounds familiar, I think this must be the same one Patrick Cox was spouting off about last Winter. Let me check some more clues to be sure, though.
“… in mid-September last year the company’s share price more than doubled in just a two-week period!
“But the big gains… the life changing gains… should be yet to come.
“On December 12th, my research leads me to believe the next big announcement will be made about this tiny company.
“That’s fast-approaching right around the corner.
“If I’m right, the news will come directly from the CEO and top brass themselves. They’re hosting a small meeting with an elite group of analysts and investors.
“You have a chance to be among the few with ‘a seat at the table.'”
Anything else we can double check?
“Last year, their sales increased 91% — and that was BEFORE the Department of Defense’s mandate.”
And then, yes, we get the confirmation that this is still the same stock — it’s an anti-counterfeiting technology, and we get a long spiel about how critical counterfeit detection has become for the Department of Defense in particular, with their extremely high standards and the prevalence of knockoff Chinese chips and parts in their subsystems that come in from contractors, as well as a pitch about the critical risk of counterfeit pharmaceuticals. And this little company, we’re told, already has their foot in the door with the military supply chain and could become critical to dozens of other industries. Here’s more from the ad:
“… the small company I’ve been telling you about today… is using DNA based technology to stop counterfeiting. Here’s how it works…
“Instead of using human DNA, like the ones in criminal cases, this company has found a way to use plant based DNA to mark and identify products.
“Specifically, to battle the $600 billion counterfeiting industry — from fraudulent computer chips, to knock off Gucci handbags, to fake Viagra.
“Just as a person’s DNA cannot be matched, plant DNA is just as unique. And what they do with this DNA is nothing short of mind-blowing…
“In short, the scientists at this company sequence plant DNA into a secret code. They then insert this sequence into a specific product…
“The DNA can be inserted into fabric… on labels… even in liquid. Their technology can be build right into the manufacturing process directly.
“For example, this company can work directly with a computer chip manufacturer to insert plant DNA into the chips. Or a pharmaceutical company to ensure authenticity of its medication.
“Then the company gives the end-user a handheld scanner. When shipments arrive, the end-user simply scans the product for the specific DNA sequence.
“If the sequence matches, the company knows the product is authentic. If it fails… the end-user is easily able to identify a fake item.”
OK, fine, so we don’t even have to pull the Thinkolator out of the garage to tell you that yes, this is still Applied DNA Sciences (APDN)
Which is indeed a biotech/information technology company. They develop secure and almost-impossible-to-duplicate codes based on plant DNA, which can be mixed into inks or otherwise applied to critical items at the point of manufacture or distribution — then the items can be swabbed (like a regular DNA test) to check them at the end of the distribution chain to confirm that they are indeed real, non-counterfeit items, a test that can be done and re-done several times and traced back to original manufacturers or distributors or whoever it is that hires APDN to create their unique code. They also have a security business, mostly in Europe, including a spray that can be used to mark items or, apparently, perpetrators, but that’s not the real central business.
And the stock is not at 13 cents anymore — that was two weeks ago, it’s now at nine cents. This is a teensy little company, with a market cap of well under $100 million, so it can bounce around a lot even if nothing in particular is happening. Last year’s big push by Patrick Cox for this stock, which used much of the same copy that they’re publishing now over Ray Blanco’s signature, came right after the big news that APDN was getting into the defense microchip supply chain … and at that time, Patrick Cox called it the “best 19 cents you’ll ever spend” and the shares were briefly driven up to close to 30 cents thanks to that huge Breakthrough Technology Alert marketing compaign.
And what’s happening now? Well, they did just report their best quarter of revenue — but that was $645 thousand. And it did represent growth, but nine months after their DNA marking technology was apparently written into law by the Defense Logistics Agency it’s a little surprising that this is just 20% revenue growth over the same quarter in 2012 … a quarter when there was no DLA mandate. They’ve also had to ramp up substantially in terms of facilities and employees, apparently, because that 20% revenue growth was accompanied by almost 100% growth in operating expenses (which came in at a bit over $3 million, so you can see the revenue has to climb a lot to cover that nut), and over the years they’ve done a lot of stock and warrant sales, both common and preferred stock, to finance their cash flow needs — the company has an accumulated loss over the years of about $180 million now, so they at least probably won’t owe much in taxes if they ever become profitable. This is all from their latest 10-Q SEC filing, by the way — the press releases don’t go into much detail on the expenses (shocking!), and even the SEC filings don’t really get into details on what kind of unit revenue they might get from their customers … though they do clarify that the jump in revenue was due to the DLA business ramp-up this year, countered somewhat by the end of the pilot project with the Logistics Management Institute.
So the DLA contract is either not as financially significant as they would have us believe unless it’s ramped up to larger suppliers or other categories of products, or it’s just taking a lot longer to really get their technology built into the supply chain so that it can generate real revenue. They certainly believe it’s the latter, but I also have absolutely no understanding of how they make money or how much scale they need to get to profitability — they have had to raise money recently to build up capacity and new facilities for the increased demand, and they’ve more than doubled their headcount (it’s still tiny, less than 50 people), but this is clearly still a “story” — not a business that you can value based on any kind of current or projected financial performance.
And yes, the December 12 teaser bit is teasing Applied DNA’s presentation at a security investor conference in New York, a presentation that will be slotted in somewhere between 8:45 am and 4:45 pm. I wouldn’t expect it to move the share price nearly as much as Agora Financial’s attention can, though — they teased this as the key catalyst last year too, when they presented at this same conference on December 13. The stock did shoot up at that time, but I think that’s as much because Cox’s massive email promotions and the unraveling of those promotions here at Stock Gumshoe were happening at exactly the same time.
At this point, I suspect that the company needs to show something far more dramatic than incremental revenue growth to get any love from investors — the story is in place, but as of yet the story has no real dollar specifics or projectable growth trajectory that I can see. I don’t even understand how much they can charge for marking a microchip or a case of microchips, or whether that additional incremental cost is going to be a deterrent in their goal of getting the technology widespread in the industry (beyond the DLA mandated use of their marking technology in a particular category of microchip products).
That probably means we need to see either massive distribution deals with large players in Defense or in product marking technology, or, at the very least, some kind of clear discussion of the financial picture for their Defense business and the speed with which it might possibly become profitable. They do have a cool technology, they do have some customers and more contract feelers out, they do have strong insider ownership (but not insider buying) … what they don’t have is some clarity about how this goes from a gradually building 20-30% revenue growth story to one that explodes into 1,000%+ growth — and unfortunately, it looks to me like they probably need 1,000%+ revenue growth in the next couple years to approach profitability and start to look compelling based on any kind of conventional valuation metrics.
APDN’s technology has been available for several years, most of the key products they’ve been trying to sell have been touted since 2009, and the stock has bounced around on news and exciting new business lines and potential contracts for much of the last four years. The DLA mandate was by far the biggest deal they’ve had so far, with probably one of the more counterfeit-aware buyers, but the stock jump that DLA deal caused over the past year, from five cents to almost 30 cents, has largely retraced itself as investors have lost some patience while they wait for mandates and stories and excitement to turn into exponential revenue growth and, one day, profits.
And of course, the question always is: if this company is going to be mission-critical to the semiconductor, textile and pharmaceutical industries (there’s no evidence of that yet, but that’s the big overarching promise of the promotional material), why wouldn’t it be bought by a major distributor if the whole company is valued at less than $100 million?
I’m sure I know this company far less well than either Patrick Cox or Ray Blanco, but so far all I can see is a great story that can’t seem to adhere itself to any financial reality yet … that doesn’t mean it can’t become financially viable at some point in the future, but clearly investors are at least a bit skeptical. Think it’s worth a gamble, and they’re just getting started on a long ramp-up? Is it worth a few dollars of your hard-earned money? Let us know with a comment below.