When we last wrote about Legend Oil & Gas Ltd. (OTC:BB: LOGL, Stock Forum) in October, an aggressive paid promotion campaign had sent the stock rising to $2.16, giving the company a market cap of close to $100 million.
That was just before a series of reports by U.S. short seller Isaac Silbermann sent the stock plunging to less than 60 cents in late November.
Seattle-based Legend, which has an office in Calgary, and oil and gas properties in Alberta and British Columbia is “overvalued and overhyped,” noted Silbermann in a series that appeared on the SeekingAlpha financial opinion website
He went on to say that Legend is headed by senior executives who received pay increases last year that seemed questionable for a money-losing company that generated $70,000 in revenue during the third quarter of 2011.
According to regulatory filings, President Marshall Diamond-Goldberg saw his monthly compensation rise to $26,250 from $8,400 last July, 2011. At the same time, Chief Financial Officer James Vandeberg got a pay hike that increased his compensation to $20,833 per month from $5,000.
Those pay increases put Diamond-Goldberg and Vandeberg on track to pay themselves significantly more than the company’s producing oil and gas properties in Western Canada and Kansas have been able to generate in operating margin on an annualized basis, Silbermann said.
In his reports, Silbermann was unequivocal in attributing Legend’s stock performance to paid promotions.
But as we enter 2012, the stock has rebounded to around the $1 level, a move that coincides with a promotional stock alert that was recently emailed by OTC Picks.com, a U.S. investor relations website that is neither licensed nor qualified to officer investment advice, but was paid $5,000 by a third party, according to a disclaimer in the footnotes.
The OTC Picks.com email features an investment report by Don McShane, a well known paid promoter. His report is almost hysterical in tone and describes LOGL as a strong special situation, supposedly with “explosive growth potential.’’
In The McShane Letter, he tells investors that the time to GET IN is now, “especially following the recent drop triggered by a malicious short-selling scheme,” he said.
The phrase malicious short selling is an obvious reference to the Silbermann articles, which the company has described as “inflammatory” and designed to instill “investor panic.’’
For his part, Silbermann made no bones about the fact that he had taken a short position in the stock, which he said was worth no more than 10% of its market cap on November 21, 2011.
What the latest promotion fails to mention is that Legend Oil generated only $67,243 in revenue during the quarter ended September 30, 2011 when it posted a net loss of $475,828 or $0.01 per share. That compared to zero revenue in the equivalent year earlier quarter when Legend posted a loss of $44,330 or $0.00 per share.
Also, company revenues are being driven primarily from oil production in Kansas, which totalled only 832.3 barrels during the quarter ended September 30, 2011. That’s an average of only 9.2 barrels per day.
As noted by Stockhouse in our previous short report, Legend Oil signed a letter of intent in July, 2011 with Calgary-based International Sovereign Energy Corp. (TSX: T.ISR, Stock Forum) to acquire all of ISR’s land and production in Canada for $17 million in cash and shares.
The asset package included natural gas leasehold properties in Medicine River and Berwyn in Alberta and Clarke Lake in British Columbia, as well as various light oil properties in Red Earth and Swan Hills Alberta, and in Inga, B.C.
To fund the $8.9 million cash portion of the acquisition costs, Legend drew down $5.4 million from a $6 million credit facility provided by the National Bank of Canada. The loan is secured by security interests in all of the Canadian assets.
In its regulatory filings, the company said it does not have sufficient cash to repay the loan in full if the bank were to demand repayment earlier than planned. If that were to happen, the company said it would be forced to sell assets or renegotiate with the bank.
In addition, the company has disclosed that the $6 million borrowing base under the credit facility is subject to an annual review by the bank and there is no assurance that the facility will continue to be available.
The latest review was scheduled for January 1, 2011. But there has been no announcement from the company as to its outcome.
History cannot always be used as a determinant of where stock valuations may be headed in the future.
But it may be worth noting that Diamond-Goldberg previously served as President and director at Jayhawk Energy Inc. (OBB: JYHW, Stock Forum), a U.S. Bulletin Board company that has seen its stock price plunge to 5.8 cents this week from 18 cents a year ago.
He was also a corporate secretary and a director at Uniontown Energy Inc. (OTCBB: UTOG, Stock Forum). Uniontown was trading at $2.40 in April 2011, but has seen the value of its stock crash to 17 cents this week.
For his part, Vandeberg has previously served as a CFO and director at both Linux Gold Corp. (OBB: LNXGF, Stock Forum) and REG Technologies Corp. (OBB: REGRF, Stock Forum).
Reg was trading this week at 12.4 cents, in a 52-week range of 21 cents and 0.063 cents. Linux closed this week at $0.027 cents, compared to the yearly range of $0.063 and $0.0115.
For the record, Legend said in a recent statement that neither of its officers and directors, nor anyone acting on their behalf has paid for stock promotion articles. It said a fall in the stock price would result in personal gain for Silbermann because he is (was) short the stock.