(Editor’s Note: This article covers stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.)
Nuvilex, Inc. (OTCQB: OTCQB:NVLX) is a biotech company fueled almost entirely by a marijuana mania that pales in comparison to the irrational and excessive price fluctuations we discussed in Feb. 2013. We began our previous article with a quote from Benjamin Graham that applies today more than ever not just to Nuvilex but also to the irrational movements made by other weed stocks including mCig, Inc. (OTCQB: OTCQB:MCIG), Growlife, Inc. (OTCQB: OTCQB:PHOT) and Fusion Pharm, Inc. (OTCPK: OTCPK:FSPM):
Influential economist Benjamin Graham once said, "Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble ... to give way to hope, fear and greed."
The difference this time around is that Nuvilex has been a recent subject to a vast number of stock promotional campaigns. The promotional activities are so intertwined in Nuvilex that Tim Matula, a current Board of Director at Nuvilex, was previously employed by Velatel Global Communications, Inc. (OTCQB: OTCQB:OTCQB:VELA) and according to his LinkedIn profile he had a number of responsibilities including the "hiring third party investor relations and public relations firms."
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Mr. Matula is also currently the Senior Vice President of Global Strategy for LiveDeal, Inc. (NASDAQ: LIVE), which was highlighted in a recent SeekingAlpha article for being a promoted stock.
Before we get into the fundamentals of the company, we felt it was important to educate investors about the severe risks of owning shares in promoted stocks like Nuvilex. We touched on this subject in a past report and to no surprise, the stock fell by 97% since then.
Whenever an unrelated third party shareholder foots a big cash budget to kick-off an investor awareness campaign, it should be an ongoing concern in the minds of investors.
About The Company
Nuvilex, Inc. holds rights to use a technology referred to as Cell-in-a-Box for the treatment of cancers and diabetes. The Cell-in-a-Box technology was developed by Austrianova, a private company with a 14.5% ownership stake by Nuvilex. Rather, in 2013 Nuvilex acquired exclusive worldwide and patented rights to use the technology.
The Company also has plans to use the Cell-in-a-Box technology to deliver cancer-fighting agents based on cannabinoids. On Feb. 12, 2013, Nuvilex incorporated Medical Marijuana Sciences, Inc. to act as a wholly-owned subsidiary for their proposed Cell-in-a-Box use as a treatment to life threatening diseases using cannabinoids.
Company Financials
The Company generated zero revenues for the six months ending Oct. 31, 2013. The latest quarterly report also discloses a net loss exceeding $10 million and a $50 million accumulated deficit. Assets on the balance sheet consisted of an investment in SG Austria valued at $2,549,427 along with $396,594 cash. While this cash position may seem insufficient to cover ongoing net losses, the Company recently entered into a $27 million financing which we will outline in a later section.
The number of shares outstanding increased by 22% during the six-month period between April 30, 2013 and Oct. 31, 2013 and shares issuances consisted of the following:
Balance, April 30, 2013 | 482,106,348 |
Shares issued for compensation | 12,270,000 |
Shares issued for services | 960,000 |
Shares issued for settlement of debt | 26,075,000 |
Shares issued for cash | 13,000,000 |
Conversion of preferred to common stock | 54,000,000 |
Balance, Oct. 31, 2013 | 588,411,348 |
Share Dilution
Nuvilex share dilution will likely continue to increase based on a Feb. 14, 2014 purchase agreement whereby the Company has the right to sell Lincoln Park Capital Fund, LLC up to $27,000,000 in shares of its common stock. To date, 8 million shares have been issued to Lincoln for proceeds of $2 million. This represents a roughly 50% discount to current market prices. The purchase price of shares in the future will generally be based upon the prevailing market prices subject to a discount to market in certain circumstances.
Press Releases Filled With Fluff
The Company and affiliates of the Company issued a total of ten press releases during Feb. 2014:
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Fluffy press releases are nothing uncommon for promoted penny stocks. To no surprise, Nuvilex repeatedly mentions marijuana in the headline to garner investor interest, even if the press release contains no material information about Nuvilex's business. The icing on the cake for Nuvilex was the Feb. 2, 2014 press release alluding to the National Football League, not coincidentally just several days after the Super Bowl.
The disturbing part about these press releases is that several of them appear to be written by Stock Market Media Group ("SMMG") and lack the necessary compensation disclosure according to Section 17(b) of the Securities Act of 1933. According to Section 17(b), SMMG would be required to disclose payment within each of the above press releases written.
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Tim Matula's Public Company Track Record
Nuvalex is not the first promoted stock that Board of Directors member Tim Matula has been affiliated with. In fact, he was previously on the Board of Directors for another purported medical marijuana company, Plandai Biotechnology, Inc. (OTCQB: OTCQB:PLPL). On a side note, PLPL also employed Stock Market Media Group to perform investor relations work.
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We mention PLPL first because it is also part of the marijuana bubble. The stock climbed from under $0.20 to more than $3 before retracing by 50%. We believe NVLX will experience a similar 50% drop once the marijuana bubble pops.
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Tim Matula also acts as the Senior Vice President of Global Strategy for LiveDeal, Inc., another actively promoted stock that SMMG was paid to promote. So far the stock has fallen 40% from its highs but some believe it will continue to fall.
Tim Matula's career in the public company arena also includes Velatel Global Communications, Incorporated. As Director of Corporate Communications, Mr. Matula was responsible for a number of tasks that appear to be either directly or indirectly related to public and investor relations. One could reasonably argue that his corporate communications efforts failed miserably since the stock declined by 97% during his tenure.
With the exception of VELA, all of the public companies above have the following similarities:
- Affiliation with Tim Matula;
- Retention of Stock Market Media Group ("SMMG");
- 40-50% retracement in stock price after a price spike.
It is our opinion that Nuvalex, Inc. will join this list of public companies once it drops by 40-50% in share price.
Nuvilex: A Heavily Promoted Penny Stock
Given that the company had zero revenues, more than $50 million accumulated deficits and a history of stock dilution, it seems there is not much of a bullish case for Nuvilex. Despite its history of losses, NVLX has been one of the most actively promoted stocks during the past several months.
In our opinion, all marijuana stocks will fall back to their intrinsic values once the legislation hype dies down. However, it will be the promoted marijuana stocks like NVLX that likely will fall the farthest. When a stock is promoted, a third party is paying cash to advertisers in hopes of unloading shares that were received at fractions of a penny. While there may be some inflated marijuana companies whose executives have good intentions, our experience suggests the shysters in the murky OTC markets surround themselves with promoted stocks.
Between Jan. 15-Feb. 27, 2014 we received well over 100 promotional emails touting NVLX. Many of them have legal disclaimers such as this one:
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The legal disclaimer above discloses $15,000 payment by Cream Consulting, allegedly a non-controlling third party for NVLX.
In a previous section, we highlighted the similarities between Nuvilex and two promoted stocks that have fallen 40 percent and 50 percent from their respective highs. Interestingly, Cream Consulting is the same non-controlling third party that is paying stock promoters to tout these two related companies, LIVE and PLPL.
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On Feb. 26, 2014, a Nuvilex press release issued by BrokerBank Securities, Inc. alluded to a comprehensive research report on NVLX written by chartered financial analyst Osman Ghani. This report contained a bullish case for the company and presented a lofty price target, but the report is completely biased because Ghani was paid to write it.
Business Losing Money, Stock Up on Hype
The legalization of recreational and medicinal marijuana is one of the most widely discussed topics of 2014, and investors are looking to cash in on the green rush. Unfortunately, to date, an overwhelming majority of marijuana stocks are small businesses that are losing money and are fueled solely by hype. FINRA recently warned the investing public about marijuana stock scams, and as a follow-up to our February 2013 report, we wanted to expose what we believe will be the next inflated marijuana stock to burst.
We can find no material events that have altered the intrinsic value of Nuvilex, Inc. shares during the past several months, with the exception of a dilutive financing and possibly the 14.5-percent acquisition in Austrianova -- although it is unknown whether this acquisition will benefit shareholders.
Our investigation has led to the conclusion that shares of NVLX common stock are grossly overvalued and have been fueled by little more than hype and paid stock promotion. We have identified major red flags with Cream Consulting, Tim Matula and their connections to promoted stocks LIVE and PLPL.
After the publication of our last report on a promoted stock, that stock declined by more than 50 percent in less than two trading days. We urge you to consider selling NVLX before this stock promotion bubble inevitably bursts.
Disclosure: I am short NVLX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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