November 16 2006
If stock promoters had to pay for postage, just imagine how quickly their enthusiasm would diminish. But snail mail is passé, and e-mail is free – which explains why spam and stock hype is plentiful. Recently, our computers have been flooded with spam messages touting Matrixx Resource Holdings, Inc. (OTCBB: MXXR). Traffic was particularly lively between November 10th and 12th, when promoters urged investors to "do yourselves a favor" and make that big score" by buying shares of Matrixx before an expected run-up on November 13th.
And lo and behold, the prediction came true. Approximately 660,000 shares of Matrixx common stock were traded on Friday, November 10, 2006. On Monday, November 13th, after a weekend of hype, trading volume soared to almost 17.4 million shares. The spam e-mails provided no meaningful information that would justify the sudden interest in Matrixx stock, but they did produce an environment that allowed someone to dump millions of shares..
This is not the first time around for Matrixx and its band of promoters. Almost one year ago, StockPatrol.com published its first report on the Company – then called Vinoble, Inc. See, Vinoble, Inc. (OTCBB: VNBL) - Trick or Treat in This Treasure Chest? At the time, the spammers were calling Vinoble a "small treasure," and claiming the Company was involved in the "Red Hot homeland security sector" and the "Oil/Energy Industry."
Vinoble certainly was small, but it was no treasure. Over the years it had undergone a series of transformations - shifting control, changing names, seizing new business plans – all without appreciable success. In it first incarnation, as Erly Industries, Inc., the Company processed rice – and ended up in bankruptcy. In March 2000, the Company came under the control of a group headed by notorious shell company promoter, Richard Surber, and reverse-merged into Torchmail Communications, Inc., which lacked even a reasonable pretense of an operating business.
After another reverse-merger in October 2002, the Company became Ohana Enterprises, Inc., and promised to deliver a "virtual interview" service that would facilitate screening of job candidates. This was followed by an aborted reverse-merger with an entity called RestauranTech in April 2004. In October 2004, the Company changed its name to Vinoble to "better reflect…our new business purpose." Which was what, exactly?
Success continued to elude the Company. Vinoble soon declared plans to acquire a security business, market a Radio Frequency Identification (RFID) technology that would protect "high profile" persons from terrorists, and develop gold, oil and gas properties in Canada and Louisiana. A band of promoters began to sing the Company's praises – despite the absence of results or revenues.
As of June 30, 2006, Vinoble had $26 in cash. Although the Company had no revenues, it incurred general and administrative expenses of more than $16.6 million between July 1, 2001 and June 30, 2006.
Enter Matrixx
Same Old Trixx
Echoing the transformation from Ohana to Vinoble, on July 14, 2006 the Company changed its name to Matrixx Resource Holdings "to better reflect the Company's business strategy"
By any name, the Company has been singularly unsuccessful in its efforts to develop a profitable business. Plans to acquire a security company or employ RFID technology apparently have been abandoned – but the Company continues to pursue its dream of striking gold, or gas and oil. On July 14, 2006, the Company completed two ventures. The first transaction, purchase of a 98% interest in something called the Hazard Lake Property in Ontario, Canada from Overseas Investment Banking Alliance SA, a Panamanian corporation, had originally been announced by Vinoble in July 2005. Matrixx agreed to pay $397,000 for the Hazard Lake Property - $197,000 in cash and the balance in 2 million shares off the Company's common stock.
At the time it originally disclosed this transaction, the Company claimed that "a gold resource valued at nearly $8,000,000" was in the ground, but conceded that further exploration would be needed to update this finding. The Company's most recent public filings do not contain any information that would confirm the value of the property.
The second transaction involved acquisition from an entity identified only as Sterling Grant Capital Inc. of a 5% minority interest in an oil property located in Lafourche Parish, Louisiana (the "Clovelly prospect") – another deal announced almost a year earlier by Vinoble. As consideration for its interest in Clovelly, the Company agreed to pay $15,000 in cash and issue 2 million shares of common stock to Sterling Grant Capital. The Company also agreed to pay certain costs in connection with development of the property.
As a kicker to the deal, Matrixx retained Sterling Grant Capital as a consultant to advise on development of additional oil and gas properties. A Form 8-K filed by Matrixx on July 20, 2006, did not disclose terms of that consulting arrangement, indicate who controlled Sterling Grant, or say whether Sterling Grant enjoyed any further relationships with other parties to the transaction.
To facilitate the Hazard Lake and Clovely deals, and other acquisitions, the Company had entered into an agreement with GarcyCo Capital Corporation, a privately-owned Nevada corporation. Under that agreement the Company would acquire certain property and businesses from GarcyCo in exchange for 12.5 million shares of Matrixx common stock. Some of those shares – 4 million – were used for the Clovely and Hazard Lake acquisitions.
But that was just the tip of the GarcyCo relationship. In addition, GarcyCo was issued 100 shares of non-revocable, Series A Convertible Preferred Stock and 100 shares of non-revocable, Series B Convertible Preferred Stock. That handful of shares gave GarcyCo effective control of the Company. The Series A Convertible Shares could be exchanged for 50.1% of Matrixx's common stock – at a time chosen by GarcyCo. In the meantime, each of the Series B Convertible Shares was given 1,000,000 votes on all corporate matters – so GarcyCo would be able to control the Company until the Series A Preferred Shares were converted.
In other words, it appears that the Company had handed control to GarcyCo in exchange for the promise of $500,000 in funding and potential acquisitions.
You're Doin' Fine Texhoma
The Hazard Lake and Clovelly deals were mostly old news – consummation of arrangements negotiated by Vinoble in mid-2005. Then, in August 2006, the Company announced a pair of new ventures – each with another tiny penny stock company that has been widely touted by spammers and promoters.
Matrixx's new venture partner was a tiny oil company called Texhoma Energy, Inc. (Pink Sheets: TXHE). StockPatrol.com readers already are familiar with Texhoma. In October 2006, promoters began to circulate e-mails promising "big" developments at Texhoma. Some of the e-mails contained phony press releases that were "about" to be released by Texhoma. The fabricated press releases claimed, among other things, that that Texhoma had obtained a license to develop gas fields in Eastern Siberia. Another phony press releases said that Texhoma had discovered oil reserves worth an estimated $120 million at its "Clovely site."
Texhoma's management sought to distance itself from the bogus messages - but not before investors fell for the scam and the Company's stock price climbed from $0.09 to $$0.12 a share. See Texhoma Energy, Inc. - Predicting the Future; Update: Texhoma Energy, Inc. - It's Only A Day Away; and Update: Texhoma Energy, Inc. - No News. No Surprise.
The kinship between Texhoma and Matrixx appears to run deeper than the promoter's reference to a "Clovely" site. On August 29, 2006, Matrixx agreed to pay Texhoma $150,000 in exchange for a 42.5% working interest in a developmental Texas gas property known as the Buck Snag Field. A Form 9-K filed by Matrixx on September 1, 2006, says that the full purchase price has been paid – although it does not indicate whether payment was in cash or shares of Matrixx. Although the Company projected certain expenses for the project, it did not indicate potential revenues.
On August 29, 2006, Matrixx agreed, in principal, to a second transaction with Texhoma. This time, Matrixx would acquire a majority working interest in two wells in Texas (the (Marvel properties) for $60,000. The two companies finalized this arrangement on October 5, 2006.
How did Matrixx pay for the properties? Matrixx has disclosed one potential source of funds. In September 2004 the Company entered into a funding agreement with GarcyCo. Under that agreement, the Company agreed to issue at least 2 million shares of its common stock to GarcyCo Capital in exchange for $500,000 in cash, payable in installments. The number of shares issued to GarcyCo would increase based upon the value of the Company's stock when each installment payment came due - which is exactly what occurred. By July 18, 2004, the Company had received $500,810 from GarcyCo and had issued 18,543,373 shares in exchange.
Unfortunately, it does not appear that much of that funding remains in the Matrixx coffers. The Company received $353,810 prior to June 30, 2006 – and on that date the Company's balance sheet indicated that only $72 remained.
The GarcyCo funds may have provided capital for the acquisitions, but how will Matrixx finance the expenses of its pending projects? On June 30, 2006, Matrixx had $72 in the bank. Has the Company obtained significant funds since that date? The Company has not filed any more recent financial statements. On November 15, 2006, Matrixx advised the SEC that its Form 10-Q Financial Report for the quarter ended September 30, 2006 could not be filed on time "due to financial constraints, limited administrative assistance, and recent acquisition activity.
In the meantime, the Company has issued the following press releases detailing modest progress at its drill sites:
An August 10, 2006 press release described logistical problems at the Clovelly prospect, but suggested that "a gas flow and pressure" had been encountered during drilling. The Company did not attempt to quantify the value of that development.
An August 11, 2006 press release said that drilling had begun at the Buck Snag Field property – interesting timing since the Company later claimed it acquired its interest in Buck Snag on August 29th.
On August 16, 2006, the Company disclosed that drilling had reached its target depth at Buck Snag, adding that "the No 1. Schurring well will be logged, and the results will be furnished upon completion of the report."
On August 17th, the Company announced a "double zone gas discovery" at Buck Snag and said "the No. 1 Schiurring well reached total depth of 4,400 feet."
On August 28, 2006, Matrixx declared that "the No. 1 Schiurring Well on the Buck Snag Field Prospect has been completed and has opened for sales."
On August 30th, the Company announced its plan to drill a "twin" hole next at the Clovelly Property to address issues that had arisen during drilling of the initial hole at the Allain-Lebreton No. 2 well.
A September 11th press release disclosed that Matrixx had agreed to acquire a minority working interest in an oil and gas prospect known as the Sandy Point Prospect located in Brazoria County, Texas. This property would be operated by Sunray Operating Company – which also operated the Buck Snag and Manvel properties. Matrixx agreed to reduce its interest in Buck Snag and Marvel in exchange for a piece of the Sandy Point venture.
An October 23rd press release announced completion of the Manvel acquisitions – although it did not mention the Texhoma transaction.
On November 1st, the Company said that drilling at Sandy Point would begin within weeks.
All of these announcements reflected a degree of activity, and several contained technical jargon concerning drilling depths, sand structures and potential discoveries – but did they demonstrate progress or the prospect of profits? None of the press releases suggested that profits were imminent.
Indeed, other public information suggests that two of the more promising projects already have faltered. While the reports about progress at the No. 1 Schiurring Well at Buck Snag were encouraging, they evidently were premature. On October 24th, Texhoma reported that "the No. 1 Schiurring well that was recently completed and reported as being a dual gas discovery has developed mechanical problems causing excessive water production and has now been plugged and abandoned." As best we can determine, Matrixx has not issued a press release or filed any public document reflecting the demise of No. 1 Schiurring.
Ditto for the Allain-Lebreton No 2 Well at Clovely. According to Texhoma, the well "had to be plugged and abandoned due to drilling tools that became stuck in the well when a heavy drilling fluid was required to control the gas inflow into the well." As best we can determine, Matrixx has not issued any report confirming the demise of that prospect.
Even if some of the prospects are viable, a compelling question remains. How will the Company finance its efforts?
Share the Spam
Matrixx and Texhoma are two penny stocks with something fundamental in common – in addition to their shared interest in unproven and failed drilling prospects. Each company has been the darling of aggressive promoters who distort facts, falsify prospects, and saturate the market with spam e-mails. It is not possible to determine whether the same unscrupulous promoters are behind both spam campaigns – but the coincidental timing, and intertwined relationship of the two companies certainly is intriguing.
The Matrixx spammers, like those who touted Texhoma, promised that the Company would soon issue press releases disclosing positive developments. One recent e-mail claimed that "results from (Matrixx's) latest drilling will be announced very soon," adding that "inside word is that the results will exceed expectations!" Surely, the promoter was not referring to the disappointing results at Clovely and Buck Snag.
Not surprisingly, the promoters failed to include any information about the Company's history of failures or current financial condition.
Each of these-mails predicted that the news "could be out" as early as November 13th. No news "came out" on November 13th, but someone "got out" of their Matrixx position that day. Almost 17.4 million Matrixx shares were traded on November 13th; another 8.7 million traded the following day.
Can this Company succeed? It will need more than $72 in cash - which is what it had in the bank on June 30, 2006. It will take a good deal more money to produce oil. These days, $72 may not even pay for a full tank of gas.
Who was fueling the spam? Most likely, the same individuals who were dumping millions of shares, or their associates. Matrixx may finally have projects on its plate, but plugged holes do not portend promising results – and spam promotions tend to leave buyers with empty pockets.
