Someone Left The Door Open At Kindergarten
December 2, 2013: 3D Printer stocks are all the rage in the legitimate (read: not promoted penny stock) market right now and the market may soon be flooded with all sorts of products for home and business use. Don't expect Makism 3D Corp's (MDDD) proposed "Wideboy" product to be one of them, but those taking advantage of the dream of three young men barely out of diapers, wonder if you wouldn't mind buying into the story for just a month or two. You see, there are a few vultures out there who got some stock for next to nothing as original shareholders of the shell and on a financing scheme that will never be completed. They would like to cash in their chips at the expensive of boys with an idea and the public eager to believe in them.
We're going to assume (although we could be wrong and these boys may be willing accomplices to a sham) that MDDD President and CEO, Luke Ruffell; CFO, Matthew Lummis, both of who are 26 years old; and, company Secretary Feroz Khan, who is all of 21 years old, don't realize that they are about to be taken for a ride. A scary ride that will see their dreams shattered; their Wideboy 3D printers never get built; and, their collective reputations in tatters. Much like the proverbial children taking candy from strangers, these boys will become victims of naivety, a consequence of their youth and inexperience. A harsh lesson is about to be taught and school is now open.
At this time, we'd like to refer you to an article from our Pumps & Dumps 101 series, "Does A Promotion Mean The Company Is A Fake", and particularly the discussion about the poor schmoe (or schmoes in this case) with an idea and who is taken advantage of by a vulture masquerading as a financier. We believe that is what we have here.
Let's take a look at the many, many red flags found within this deal.
MDDD was begat from the shell known as Advanced Cellular Inc. (ADDU), created through an August, 27, 2010 S-1 filing by Attorney William O'Neal. It is noteworthy that in 2006, O'Neal was banned by the SEC for writing fraudulent opinion letters in order to remove the legends from restricted stock, as well as for illegally selling restricted stock into the market. There's your first red flag.
Original President, Nir Eliyahu, still owns 9 million shares of what is likely unrestricted stock, after agreeing to cancel an additional 41 million shares he held, in the transaction to acquire Umicron Ltd. Red flag number two.
Umicron, was a private British company, created by Ruffell in December 2012, presumably to manufacture and sell 3D printers. In other words, MDDD's only asset is a company that is one year old. There's a third red flag.
20,000,000 original shares were sold through the S-1 for a total of $31,250, or 0.0015625 per share. As of this writing, those shares have appreciated by 64,000% and will be the shares the public is buying during the Pump & Dump campaign. That is a very big, fourth red flag.
Obviously, Ruffell and company were going to need help to produce their printers. As of August 31, 2013, and according to the Form 8-K filed with respect to the acquisition of Umicron, the company's finances were not encouraging:
• cash: $6,782
• total assets: $19,667
• total liabilities: $1,250
• no revenue since inception
• net loss since inception: $132 thousand
And there's red flag number five. There's barely an operation there.
Naturally, the boys, finally of drinking age, think that they know everything, as we all did at that age, and see no reason why the world wouldn't beat a path to their doors, promising gobs of money just for the privilege of benefiting from their genius. While youthful arrogance is not a crime, it is how they find themselves in a bad deal. According to the previously referenced Form 8-K filing, on October 29, 2013, coincident with the vending of MDDD into the Advanced Cellular shell, the company entered into a Securities Purchase Agreement with an unnamed, offshore investor for 1,000,000 shares of stock at a purchase price of $0.60 per share, or a total of $600,000. However, of that money, only $350,000 was paid upon the execution of the Agreement. We'll call that red flag number six.
According to the company, it intends to use the $350K for "general corporate purposes, including working capital needs". OK, but we just don't see how that is enough to produce a line of printers, especially considering that they are to be ready for the shelf by February, as we'll discuss below. Red flag number seven.
And then there's the caveats to the equity financing agreement:
Caveat #1: According to the agreement, the investor has approval rights with respect to the appointment of new officers or directors of MDDD (read; he will control the Board) and future financings. In other words, if the company needs more money, they will pretty much have to go this guy and get more money under his terms
Caveat #2: When and only when, MDDD has sold ten Wideboys, is the investor obligated to pay the remaining $250,000 for the 1,000,000 shares of stock. Well wait a second, don't they need that money to build the printers? And if not, then why didn't they just get $350K in financing to begin with? And who is going to believe that they are going to set up an entire manufacturing system to build only ten printers? Once the printers are built and prove to be saleable, the company is off to the races and $250K is peanuts! If you understand the Catch 22 here, then you will have the same reaction we have to this financing agreement, which is, "Yeah, no!"
Caveat #3: Dig this: If the investor does not pay the remaining $250K (and he never will) once the ten printers (cough, cough) are built and sold, MDDD maintains the right to recover 500,000 of shares of the stock issued to the investor. Are you kidding? Those are Regulation S shares and will be loooooong gone! Of course, the investor can always buy them back from the market at a dime, or a nickel or even at a tenth of a penny, if the very real possibility of a trading suspension, and subsequent relegation to the grey market, has been issued by then.
We'll call these red flags eight, nine and ten.
Presumably on the promise of adequate funding, and according to their own press release, MDDD believes, or at least says it believes, that its range of 3D Printers, the Wideboy, Wideboy Pro and Wideboy Mega, will start hitting the shelves in February 2014. Of course when that deadline passes with not even a single printer for sale, and shares are trading down to a nickel, the perpetrators of the new Pump & Dump campaign, headed up by Providence Media, publisher of Paragon Report, Bedford Report and many other newsletters, will be long gone with the pockets of their jeans well stuffed with street investors' cash. With the next set of financials for the company not due until mid-February 2014, gullible investors turned bag holders will not realize that they have been had and that the company is not viable until it is too late.
Shares of MDDD have traded actively since the consummation of the Umicron acquisition. During November shares began trading at about a dollar, irrationally trading up to $6 a share, before retracing their way back to the buck range, at which the company's market cap is about $63 million. At $6, the market cap was $370 million. It is difficult to argue that these are ridiculous valuations considering the financial status of the company, especially when you consider that there are plenty of legitimate public companies in the 3D printing space which offer actual asset value. For example, Mediabistro, Inc. (MBIS) which trades on the NASDAQ has only a $10 million market cap and quarterly revenues of almost $3 million. Organovo, Inc. (ONVO) , trading on the NYSE MKT, has a larger $480 million market cap, but $53 million in cash and some revenues to boot. These are actually operating companies which were never promoted and did not need fraudulent gimmicks to bring attention to their companies.
While MDDD's choice of the name, "Wideboy", for their line of 3D printers may have been a decision made purely on the geometric aspects of the printers, we think it is quite prophetic of the end result of investments in the stock. You see, "wide boy" is a British slang term for a man who is prepared to use unscrupulous methods to progress or make money. Think about it.
