Thursday was a banner day for short sellers targeting Poseidon Concepts Corp. (TSX: T.PSN, Stock Forum), and there may be more to come.
News that about two thirds of the oil field company’s previously posted revenue this year should not have been recorded as revenue on its financial statements sparked a mixed of anger and frustration as the stock fell 69% to 27 cents on volume of 15.6 million shares, leaving the company with a market cap of $22 million, based on 81 million shares outstanding.
Prior to Thursday’s collapse, the stock had traded in a 52-week range of $16.88 and 85 cents.
“This is probably the ugliest story that we’ve seen on Bay Street since Sino-Forest,’’ observed Martin Braun, senior investment strategist at Toronto money manager J.C. Clark Ltd., in an interview with the Globe and Mail newspaper.
“They’ve now decided that a lot of revenues never were revenues. That’s not good,’’ he said.
One Stockhouse Bullboard poster wondered why the TSX doesn’t halt trading and start an investigation. “This situation casts a black mark on the TSX and its regulators. Shame on them!” wrote Upside123 in a Poseidon Concepts post.
Poseidon is the product of a reorganization that saw its predecessor Open Range Energy Corp. (TSX: T.ONR, Stock Forum) split into two separate companies. One is a natural gas exploration and production company. The other pays dividends and is engaged in energy service and supply.
The arrangement won shareholder approval in November, 2011.
On Thursday, Poseidon said up to $106 million of its $148.1 million revenue for the nine months ended September 30, 2012 should not have been recorded as revenue in its financial statements.
It also said that a result of recording the foregoing revenues, up to $102 million of the company’s accounts receivable as at September 30, 2012 should not have been recorded in the company’s financial statements as accounts receivable.
As a result, financial results for the first three quarters of 2012 must be restated. The company also said all previous guidance with respect to its business can no longer be relied upon.
This admission comes less than a month after law firms in Calgary and Toronto filed a proposed class action against Poseidon, and certain of its officers and directors. The proposed class action includes persons who acquired securities of Poseidon Concepts prior to December 27, 2012.
They include participants in a $82 million bought deal financing, comprised of 6.4 million shares and priced at $13 a share.
The financing syndicate was led by National Bank Financial Inc. and closed in early February, 2012.
The suit alleges that the defendants made statements that were materially false and misleading with respect to the company’s financial position, financial performance, and cash flows. The suit also alleges that the defendants overstated the company’s income, while reporting inflated assets.
Among other relief, the proposed action claims $251 million in damages.
Poseidon has said the company and the defendants named in the suit “intend to vigorously defend the lawsuit.’’
Meanwhile, Canaccord Genuity analyst John Tasdemir cut his rating on the stock to “sell” from “hold,” citing zero forward guidance from management.
It means the stock is likely to fall even further in the coming days.