Here's Bob again on NEET..
napeague.com
Suspicious Stocks
Monday, December 18, 2000
NetCommerce Inc. (OTCBB:NEET)
Last Thursday evening, I received an E-mail message announcing that "Groups releasing NEET Monday." Apparently, this went out to a number of investment newsletter publishers - as you may know, I've received these before.
The message goes on to state "When leaders work together good things happen. FEVI was a cooperation play today." For the record, Far East Ventures (OTCBB:FEVI) is reported to be in the prepaid phone card business, although historically it has no revenues and a history of losses. Although it had been coasting along selling at about $0.14 per share, on Thursday, December 14th, it suddenly shot up to the $0.20 area, but has been declining since.
Anyway, right on schedule, this morning I began receiving more E-mail messages with "STRONG BUY ALERT ON NEET" as the subject. Looks like the pump is turned on!
What's the "Story?"
This morning's E-mail messages all report that "A major restructuring is underway with the sales force outsourced, overhead cut by $65,000 per month, and most importantly, the acquisition of a company almost four times their size."
The messages goes on to explain that:
"On November 17, 2000 the company announced a letter of intent to acquire NewData Strategies of Dallas TX. NewData is a $11 million per year business and one of only 18 Microsoft Solution Provider & Partner of their size in the country. This acquisition is expected to close after the first of the year and have a profound impact on this company."
And they finish with the statement that:
"Tax loss selling has been brutal to this company, as it has so many small stocks this year. With less than 3 weeks left in the year that will soon come to an end and the company will start a new calendar year with a major acquisition therefore starting the new year as basically a new company."
What's wrong with this "Story?"
According to its most recent 10-K Report, filed on September 12, 2000, NEET is "a provider on the Internet of local city guides, local advertising and innovative edge e-commerce applications." This is a highly competitive business, and it is likely that it is feeling the impact in the overall slowdown in Internet marketing.
This company appears to be under a lot of financial pressure:
Not only NEET never been profitable, its two-year financial history shows that its expenses have been rising much faster than its revenues. In addition, its operating cashflows are very negative and are being offset by continuing sales of stock. In other words, the company spends more cash than it takes in, and raises the additional cash by selling more stock.
The company's first quarter 10-Q Report, filed on November 20th., shows that both of these trends are continuing. However, in its defense, an October 13th press release states that it is cutting costs, and the E-mailed blurb states that it has reduced its overhead by almost $200,000 a quarter. But, in order to bring its pure operating expenses (excluding expensed development costs) back into line with its current revenues, it needs to cut about $1.0 million a quarter out of its sales, marketing and administrative expenses.
Tax Loss Selling....?
"Tax loss selling" appears to have absolutely nothing to do with NEET's performance in the market this year. Back in March of this year, NEET briefly traded at $3.00 a share, but it then began a steady sell-off that has brought its market price down to its current level around $0.07 a share - a 97% decline! This does not appear to be the result of "tax loss selling" but instead it is probably due to a steady flow of recently-issued stock into the market.
Why would NEET be "promoted" now?
It is of course not clear who exactly instigated this promotion effort. In fact, it is unlikely that the company is directing this effort itself, as a substantial number of "consultants" have received stock in lieu of payment, and it is possible that one or more of them has instigated this effort, so as to create a stronger market in which they can liquidate their positions.
However, there are a number of reasons why this might be taking place. On December 1, 2000, NEET filed an S-8 Registration Statement, so as to register 9.8 million shares of new stock so that they can be immediately traded. These shares will be used to compensate the company's senior management and certain consultants.
In addition, "Note 10 - Stockholders' Equity" of its 10-K Report states that:
As of May 31, 2000, warrants to purchase 668,000 shares of common stock were outstanding at an exercise price of $5.00 per share. The warrants are exercisable at the option of the holders on or before December 31, 2000.
This may be an effort aimed at getting these warrants exercised by pushing NEET up above $5.00 a share.
And last but not least, this might be an attempt to push NEET's stock price upward so as to use shares as the currency with which to purchase its announced acquisition.
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