Respect Your Universe Inc. (OTC:BB: RYUN, Stock Forum), a Nevada company that aims to cash in on the Mixed Martial Arts craze by launching its own “fighter infused” clothing line, is looking like a target for short sellers.
Even though RYUN has no revenue to speak of and only $448 in cash, the stock has been on a tear lately, climbing to over the $1.90 from under 20 cents in early May. The 52-week low is 16.5 cents.
But even falling back to close at $1.45 on Friday, the stock has reached a level that seems high for a company with a market cap of $43 million, based on the 25 million shares outstanding.
RYUN’s rocket-like rise is sweet news for the people who scooped up some of the 4.6 million shares that were issued between December 2010 and April 2011 at 10 cents a share.
But Investors who have bought in at the higher levels are taking a huge gamble on the expertise of the former Nike Inc.’s (NYSE: NKE, Stock Forum) executives who are now leading the Las Vegas startup. RYUN chief executive officer Christopher Martens, for example, served as Nike’s global director of apparel in the 2008 Beijing Olympics.
RYUN chief operating officer Erick Siffert worked at Nike for over 19 years, developing new sourcing strategies.
Cindy Lecomte, RYUN’s newly appointed brand merchandising director, previously worked in management level at Reebok International Inc. (a division of Adidas Group) and Abercrombie & Fitch Co. (NYSE: ANF, Stock Forum).
It’s hardly surprising that anyone in the sporting apparel trade would decide to pursue this line of business. Mixed martial arts, a flashy combination of boxing, wrestling and muay thai, is sweeping across North America, eclipsing boxing in its wake. On a recent Saturday night in Toronto, 55,000 customers showed up at the Rogers Centre to watched an MMA event, making it the most watched (in person) sporting event in that city so far in 2011.
Eyeing the possibilities in the MMA arena, RYUN is looking to sell a line of clothing to athletes and fans of the sport that includes shirts, shorts and hoodies.
According to company documents, “fighter infused and tested apparel for the everyday athlete and MMA fan will be the company’s competitive advantage.
RYUN said it is planning to launch its 2011 fall product line soon, but didn’t say exactly when.
However, in regulatory filings the company said it does not have sufficient funds to satisfy the minimum cash requirements that are needed to implement its business plan over the next 12 months, meaning it is dependent on future financings that are bound to be dilutive to existing shareholders.
“If we do a financing it will be with strong investors for the long term,’’ said Rob Thomas, the company’s director of investor relations. “Obviously, since we are a startup, we are in talks with people,” he said.
“We will not scare shareholders, or piss them off,” he said.
Meanwhile, the company warned that it can’t speculate on the amount of revenues that it will be capable of generating in the near future.
“For these reasons, our auditors stated in their report for the year ended December 31, 2010 that they have substantial doubt we will be able to continue as a going concern,’’ the company said in a regulatory filing.
Regulatory filings contain the warning that RYUN plans to operate in an industry that is subject to intense competition and change in consumer demand. Its operations are subject to significant risk and uncertainties, including financial and operational risks and business failure.
In the three months ended March 31, 2011, the company reported a loss of $226,596 or $0.01 a share on zero revenue, compared to a year earlier loss of $250,867 or $0.01 a year earlier on zero revenue.
As of March 31, the company had only $448 in cash, current liabilities of $681,430, and negative working capital of $680,982.
RYUN anticipates that it will continue to generate significant losses from operations in the near future.