Must read! I hope no one says I didn't try and warn people.
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DJ IN THE MONEY: GHL Techs CEO Saw 10c-20c Stk,Not $5.07 One
By Maxwell Murphy
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Here's something you don't see every day: A chief
executive who thinks his company's shares are vastly overvalued.
In fact, Gene Hew-Len, founder and CEO of GHL Technologies Inc. (GHLT), says
fair value for the stock is probably 96% or more below where it is right now,
and its profit profile and balance sheet suggest he's right.
On its Web site, GHL calls itself a holding company specializing in the market
for global positioning systems and telematics. It trades on the unregulated Pink
Sheets, and according to a sparse, 2005 annual report posted on the Pink Sheets
Web site, it had revenue of $606,316 in 2005 and earnings of $36,006. Yet GHL
sports a market value of nearly $180 million right now (it was recently worth
more than $330 million, and that's nearly 90 times the revenue GHL's predicting
it'll bring in this year).
GHL's first-quarter numbers haven't been finalized and audited, says Hew-Len.
Catherine Ann Wolf, a CPA in Belfair, Wash., listed on GHL's 2005 annual report
as its accountant, didn't return a phone call.
Shares traded around $5.07 at last glance Wednesday and peaked at $9.44 in
mid-June. Hew-Len told Dow Jones Newswires it's worth maybe 10 cents to 20 cents
a share right now.
Aside from the lack of profits and revenue to justify such a high valuation,
GHL has been losing customers. In particular, it lost a contract earlier this
month to provide installation and maintenance service for products made by GPS
company Trimble Navigation Ltd. (TRMB), and immediately after lost another
contract to service the vehicle fleet of Titan America, a unit of Greek cement
powerhouse Titan Cement Co. (TITK.AT). Hew-Len thinks GHL will also soon lose a
gig to work on the U.S. fleet of Mexican cement giant Cemex S.A. (CX).
The reason for the lost contracts is misleading press releases GHL has put out
about their relationships with these companies.
Hew-Len says Trimble and Titan thought GHL was marketing its stock as part of
a pump-and-dump scheme (where people hype the stock to a lofty value then sell
out at a profit before anybody realizes it's a scam). Hew-Len denies GHL has
been doing this.
Earlier this month, Titan put out a release taking issue with the size, scope
and stage of its relationship with GHL and GHL's performance during their
dealings. GHL ran a clarification on its Web site but didn't widely disseminate
a press release.
GHL's mid-May release announcing the Titan deal called it a
"previously-secured, multi-year agreement" that was now in its "pilot phase." In
its clarification, GHL said, "In fact, Titan America is evaluating (GHL
subsidiary) EVI's capabilities to provide installation and maintenance of
GPS/telematics global positioning technologies for its fleet vehicles. EVI began
servicing a portion of the Florida fleet this past February and the
month-to-month agreement is still in its evaluation phase."
Disputing The Press Release
Titan vice president Graham Fox calls the original GHL release announcing a
deal with Titan "a pack of lies." He says Trimble told Titan it severed all ties
with GHL, and so Titan then told GHL it would stop using GHL to install and
service Trimble units in Titan vehicles.
Trimble representatives didn't respond to multiple calls seeking additional
comment, but Hew-Len confirms all this. Cemex also didn't return several phone
calls.
Hew-Len says he gets the impression from dealings with Cemex, subsequent to
the Titan brouhaha, that it's only a matter of time before Cemex officially
follows suit. He says Trimble is telling its customers, when they ask, that GHL
is not a licensed installer and servicer of its products, and so he expects
companies that use Trimble products will look elsewhere for those needs.
Hew-Len says he and his wife own most of GHL's 28 million restricted shares,
which he says he can't sell until April 2008. He runs GHL out of his home in
Bremerton, Wash., which he says has a small garage where he builds police
vehicles for nearby municipalities. He says his 37 employees around the U.S.
also work from home and do their GPS work in the field on call.
Despite the contract losses, Hew-Len says GHL should still meet its targets
for 2006 of at least $3.7 million in revenue and net income of $2.9 million.
Hew-Len claims to know nothing about how the stock has been propelled to
current levels and says he's not sure what to do about it. He says he fears his
stock has been manipulated and worries that his lack of experience in running a
public company may have caused him to fall in with the wrong investors in a
private placement conducted not long before GHL went public in late April.
Newsletter Hypes GHL's Prospects
In May, a promotional newsletter called The Street Stock Report authored by
Michael Cohen was widely distributed, hyping GHL's prospects. The mailer claimed
something called MG Marketing Enterprises paid more than $1 million for Cohen to
issue the report. Since, according to Hew-Len, the investors in the private
placement were the only ones with freely tradable shares, it makes sense to
conclude those investors paid the fees.
Hew-Len says he'd never heard of Cohen, MG Marketing or the newsletter before
it was published. Further information on MG Marketing Enterprises wasn't
available, and contact information for Cohen and Street Stock couldn't be found.
No further information about any of these entities was in the newsletter or on
Stock Street's Web site, which is dedicated entirely to GHL. None of the parties
turn up in database and Internet searches, and an email sent to the Webmaster of
the Street Stock Web site was returned due to delivery failure.
GHL has about seven million shares that are freely traded in the market as a
result of that private placement. Several hundred thousand shares change hands
on an average day, but the stock has seen volume spike to 5 million shares to
upward of 10 million on days GHL released news of the now-faltering contracts.
Those seven million shares were initially placed at around 7 cents each,
according to documents obtained by Dow Jones Newswires, and were bought by EU
Equity Holdings Inc. and KLO Financial Services, two firms that seem to have no
other record of public investment. Both provided Washington, D.C., addresses on
the subscription documents, but not phone numbers, and the signatures of their
presidents on the documents are illegible and names aren't typed out below them.
Neither firm turned up in the D.C. business registry or in searches of the
Internet and several databases. A person responsible for leasing in the building
KLO calls home confirmed KLO leases space there, but wouldn't provide its phone
number, and a leasing agent at EU's building didn't return a call.
Dow Jones Newswires has learned a Spanish outfit called Vega Star Capital, run
by a man called Francisco Abellan, a.k.a. Frank Abel, acted as an intermediary
between GHL and the two firms. Hew-Len confirms he was placed in touch with Vega
Star, which then set up the deal with KLO and EU, after going to a Yahoo! chat
room on investing strategies and inquiring about good ways to take a small
company public. He says he was instant messaged by a stranger who suggested
Hew-Len allow the person to pass on GHL's contact information to Vega Star.
Abellan, reached at a Spanish telephone number, declined to discuss EU and
KLO, but he describes them as accredited investors (he wouldn't say where and
who accredited them, or anything else about the pair, citing confidentiality
agreements). He says he received a small amount of shares for his role in
facilitating the private placement, which he disposed of as soon as the stock
began trading. He doesn't know whether EU and/or KLO paid for the promotional
newsletter, he says, but he says he didn't.
Abellan, says EU and KLO sold their stakes long ago, and since the shares
began life at $1.50 that means the pair made a major killing, even if they
shelled out $1 million or more to a promoter. He thinks the stock rose thanks to
its until-recent inclusion on the Regulation SHO Threshold Security List, a
short-selling regulation that tracks stocks with significant failures to deliver
on shorted shares.
Because stocks on this list are often more costly to sell short, they can be
driven higher by short sellers buying the stock back to cover open positions.
Whether anything untoward happened with GHL's stock is a matter for regulators
and authorities, not journalists, but it's pretty clear that investors
speculating on GHL today don't know the whole story.
(Maxwell Murphy is one of four "In the Money" columnists who take a
sophisticated look at the value of companies, and their securities, and explore
unique trading strategies.)
-By Maxwell Murphy, Dow Jones Newswires; 201-938-5173;
maxwell.murphy@dowjones.com |
