Hindenburg - An Oldie But a Goodie NEWBIES, beware.Wow, $1,000,000 a month cash burn with declining sales. Breathtaking. A dry cleaner closed for covid only lost its lease payment.
MO
SOURCE: Hindenburg: CFA pros.... https://hindenburgresearch.com/nextech-ar/
"Our investigation found that NexTech, a company that proclaims to be a leader in augmented reality, has virtually no credible business prospects and appears to be focused almost entirely on promoting its stock, and insider self-dealing.
The company is on a paid promotion spree, engaging at least 8 promotional outlets. It has pumped out 112 press releases over the past year – equating to a press release every ~2.2 trading days.
Contrary to management’s claims that its customers “have nothing but rave reviews”, we spoke to customers and found that many of them – including ones featured by the company in its glowing press releases – were either entirely unaware they had a relationship with the company or had never actually implemented the product.
We identified multiple brazen related party transactions, including one where the CEO and COO acquired a business personally, only to turn around and sell it to the public company months later, likely netting millions at the expense of shareholders.
The company has a significant share lockup coming due next month from a recent toxic financing and has displayed multiple other red flags, such as recent CFO and COO departures.
We think NexTech has been thoroughly “pumped”. We now expect a “dump”. We believe its equity is worthless.
Initial Disclosure: After extensive research, we have taken a short position in shares of NexTech AR. This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report.
Basics on the Company and the Bull Case
NexTech claims to be an “augmented reality” (AR) company that aims to use its technology to disrupt the markets for advertising, education, eCommerce, and entertainment. As of the time of this report, the stock trades at a fully diluted market cap of ~$150 million and has spiked about 900% since it came public via spin-off in mid-2018.
The stock’s explosive run looks largely due to promotion-driven excitement over its rapid revenue growth and aggressive projections. For example, one paid promotion site described the latest quarter’s results as “more than $2.5 million in revenue for the period, 44 times more than the same quarter last year.”
A recent presentation given by NexTech’s CEO on another paid promotion site similarly highlighted 4390% revenue growth and estimated over 3x revenue growth this year alone: [19:50 minute-mark]
According to the company, the product is working incredibly well. The CEO says in one webcast that his company sees “nothing but blue skies” for eCommerce and that it has been “signing up customers at a very rapid rate”. It is claimed that augmented reality provides up to 2,000% more product engagement, 400% more add to cart rates, and 50% fewer product returns than traditional eCommerce. (11:09-mark)
NexTech charges $79/month for the subscription to its AR advertising platform and claims it expects to hit breakeven cash flow imminently.
Introduction: Numerous Related-Party Transactions, Heavy Stock Promotion, Vaporware Products and Inorganic Revenue “Growth” Driven by Acquisition of 2 Websites that Sell Vacuum Cleaners and Pet Supplies
Despite the rosy picture painted by management, we find that reality looks quite different.
As part of our investigation, we spoke with over a dozen of NexTech’s customers and deal partners. Contrary to management’s claims that its customers “have nothing but rave reviews”, we found that many customers touted in the company’s glowing press releases were either entirely unaware they had a relationship with the company or had never actually implemented the product.
NexTech has been aggressively promotional, having issued 112 press releases in the past year, and has engaged at least 8 paid stock promotion sites that tout the stock.
The company’s eye-popping revenue “growth” has almost entirely been the result of acquiring companies with pre-existing revenue. Last year, the company bought 2 small eCommerce sites that sell vacuum cleaners and pet supplements. As of last quarter, these eCommerce sales accounted for 99.8% of revenue [Pg. 16]
These acquisitions have allowed the company to report staggering (but essentially meaningless) year over year growth rates.
Meanwhile, we have also identified sketchy related-party transactions taking place at the company. For example, NexTech’s CEO and COO acquired the vacuum cleaner website into a newly-formed private entity, then almost immediately flipped the entity to the public company, likely pocketing millions at the expense of shareholders for simply stepping in the middle.
The company recently completed a financing round priced at an absurd ~70% discount to market prices. When factoring in the value of warrants, the round was essentially a “free money round” for the unnamed lucky beneficiaries. Those shares unlock next month, at which point we expect they will be aggressively dumped onto unsuspecting investors.
Overall, we think NexTech has been thoroughly pumped, and investors will soon experience the “dump”.
Background: NexTech AR was a Spin-Out from A Cannabis Penny Stock That Now Trades at ~$0.03, Down ~98% From its 5 Year Highs
NextTech spun out of a cannabis company (as all great technology companies do) called Future Farm Technologies (CSE:FFT), on August 31, 2018, and became a standalone public company.
Future Farm aspires to be a “leading supplier of pharma-grade health and wellness products, including those made from hemp”. It, too, is heavily promotional, having issued over 180 press releases in its short ~3-year tenure as a public company.
As one example, during the height of blockchain mania, Future Farm announced an agreement to purchase a “blockchain cryptocurrency application for cannabis payment platform”. The stock spiked to almost $1.40 on the buzzword-laden release, but now trades at ~3 cents, a near 98% collapse.
Background: NexTech’s CEO, Evan Gappelberg, Has a History of Stock Promotion and Business Failures, Including a Key Role in the Future Farm Debacle
NexTech’s CEO is Evan Gappelberg. Gappelberg owns a securities firm called Atlas Advisors, incorporated in 1999, which offers various services including paid stock research and promoted CEO interviews. Former members of the Atlas Advisory team now work at other stock promotion outfits such as:
[paid promotional message] (a stock promoter currently paid by NexTech)
Investology (example)
Venture Research, LLC (example)
Investor relations firm Blueshirt Group
Prior to Atlas, Gappelberg’s biography mentions his early Wall Street experience at an unnamed firm, stating that he worked as “Senior Vice President of Finance where he underwrote Take Two Interactive Software, Inc.”.
A quick search shows why the firm’s name was left unsaid. Take Two was one of the only success stories underwritten by Whale Securities, a bucket shop that racked up an impressive number of regulatory sanctions (1) – including allegations of transacting business as an unregistered broker dealer, failing to comply with NASDAQ trading rules and failing to supervise its employees."
Source: Hindenburg