by Travis Johnson, Stock Gumshoe | October 1, 2013 1:16 pm
Patrick Cox[1] has mysteriously disappeared from Agora[2] Financial’s publications, he’s no longer at the helm of the always-interesting Breakthrough Technology Alert[3] … 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[4], also edited by Ray Blanco[5]), 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[6] 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[7] 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,[8] 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[9]’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[10]) … 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.
Source URL: https://www.stockgumshoe.com/reviews/breakthrough-technology-alert/agoras-best-13-cents-you-could-ever-spend-stock/
Copyright ©2024 Stock Gumshoe unless otherwise noted.
Patrick Cox is now working with John Mauldin at Mauldin Economics.
Take care.
Ah, they were both big lovers of the Star Scientific story, too. Looks like Mauldin is building up, he’s got a couple Casey folks on board, too.
Right, I knew I’d read it somewhere recently!
We share holders are hoping that big pharma will license their technology. That’s the moon shot expectation. Otherwise, nickel and dime contracts as an entree with a side order of retail merchandise as a possibility. Or a buyout.
For this DNA Anti-Product Verification system to work, they need to develop not only a marking system (the easy part), but also a industrial level Mark-Reading system and a way to prevent over-marking or re-marking.
Effective Anti-counterfeit Protection will require that Marked merchandise be readable at all point in the supply chain, as well as by the consumer himself. that means that distributors would have to tool up with this costly automated Mar-reading system. Since its not an electronic mark on an RFID chip that can be read wirelessly over the airways due to mere proximity, these DNA marks will have to be individually scanned—think a conveyor belt outfitted with DNA Mark Readers, i.e., DNA Samplers. — That’s right, each DNA Mark will have to come into physical contact with the Sampler-Reader.
In distribution process, this would cause the bottleneck of all bottlenecks. Total BS !!!
If that doesn’t make it obvious — let’s just say it out-loud. This stock and this company are a total scam.
Please remember this is not DNA sequencing but rather verification. DNA used is a botanical (plant) DNA. It can be applied, rather imbedded in inks, sprays, fibers, etc. and recorded (tagging) during the application/production of the product.
There are now DNA integrated circuit chips (electronics) which have been developed to read the DNA tagging at the customer verification end. This will result in hand held portable scanners for comparison validation. There have been several violators already identified. The real problem is standards, mil specs, industry standards patents etc and getting this down to earnings which is all most investors care about.
For those that care, there is an Adnas web site and RSS blog with further info.
In the conference call transcript I skimmed through, they indicated that they do have handheld scanners that can verify whether there is DNA in the chips — they’re working on scanners that can actually identify the DNA, I don’t know how hard a job that will be for these small samples. For now, if they want absolute verification I think they have to send it to APDN’s lab and it would presumably take at least a couple hours so I assume it’s a random spot-checking thing where it’s currently being used.
Their expenses and research investment keeps increasing, and income is decreasing. They may have too many irons in the fire or focus is on symposiums rather than sales earnings.
Good concept but where’s the beef unless their focus is to be a buyout candidate.
Makes you wonder how all the big product firms manage to source their components such that counterfeiting is not a problem, yet the defense industry has been getting ripped off by middlemen. It is noteworthy that the Defense industry only requires its use on a rather limited range of semiconductors sourcing. Definitely not everything they buy.
Well, for probably a huge percentage of semiconductors it’s not that big a deal. Lots of commodity products, lots of very cheap chips, knockoffs are probably close to indistinguishable. And yes, the universe that’s required to use APDN is small, it seems they’re really hoping that their customers who get in the door start to see it as a competitive advantage and start using it for more of their product lines where it’s not required.
They are not alone pursuing plant DNA coding/decoding. Researchers at the Lisbon University are also working on this technology. Counterfeiting is a problem safetywise in very few applications (aircraft parts, military etc.) so the market is very small. Maybe not a scam, but upside very limited. I think they will run out of cash or be heavyly diluted.
Assuming all discussed system features are true…. It sounds like each lot of product would have a different DNA marker code embedded. The scanner can’t possible know all the valid DNA marker coeds unless it is networked to a database of all the valid DNA codes. All the scanners would need access to that database, so it would need to be world-readable. And all legit manufacturers would need to insert their valid marker codes into the database as well. So the next counterfeiting vector is to attack that database and insert your own code, then your counterfeit product will have a code that is approved by the master DNA marker database. Not as hard as it sounds, just because of how many people will need write access to that database. Some individual, at some mfg co will be the weak link and allow the fraudulent addition of bogus numbers into the database of good numbers.
Although it initially sounds great, This whole system is just trading one problem for another. Not even the NSA can keep their secrets secret when there are so many people with access to them, this system will have the same flaws.
http://xkcd.com/538/
The examples are oversimplified. A marker tag can also be represented by a glyph which is a pictorial representation of a set of data which is assigned to that marker tag. Furthermore different colors can be/are tied to that marker which will appear under a UV light . Since there are trillions of DNA markers, replicating a specific DNA marker would not be cost effective. If bogus, the supplier is quarantined.
Just think, your email glyph could be used to represent a block of thousands of markers.
Well, talk about tunnel vision! Does anyone have a clue how much knockoff pesticides and herbicides enter the U.S. market each year? You don’t have to look it up, it is substantial. Every year the patents expire on dozen of branded chemicals. One case that comes to mind is Monsanto’s ROUNDUP, since it has gone off patent numerous generic manufacturers are producing glyphosate. It is the largest volume herbicide sold in the world, and yes growers buy it. Why?, they get it dirt cheap. When Monsanto held the patent, it cost $100/gal. (distributor’s cost). Now growers can purchase for $10-$20 per gallon. The product is cheap to make (.05 per gallon for the good stuff). The knock off costs .01/per gallon to produce this “bathtub” junk. Why? They don’t put the reqired amount of the AI in it (active ingredient). The grower can buy this for $2-$3 per gal. And no they don’t know it is fake. Most of this product is manufactuerd off shore, so there is no broad based cheap way of checking it when it enters the country, So the bottom line is the folks who play by the rules get screwed, the grower gets screwed, he has to rebuy the thousands of gallons to replace the junk he purchased and then pass the added cost increase on to you and me.
This is just one generic product that gets beat on, there are dozens more. The responsibility to insure you are getting what you pay for falls on the goverment. Enough said.
Think about other goods produced off shore: jeans, shoes, watches, etc. etc.
At lease there IS a company that is addressing this problem, all of the details to implement it are minor vs the $ lost on these FAKES being sold in our country.
buyer beware ….
I’ve already benefited from one of Ray’s recommendations, up 98% in less than two months! Also another small company like this one with even less financial information available. Small companies are always risky… I am a new subscriber to Ray’s service but I have to keep on eye on this one due to prior success.