MHUT <--Insidetruth.com
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March 27, 2002
Attention All Business Editors: Insidetruth.com initiates Medi-Hut Co., Inc. (NASDAQ: MHUT), with a target of
one used syringe per shareholder
NOTE TO EDITORS: The following is an investment opinion issued by InsideTruth.com
San Diego, CA * March 27, 2002 InsideTruth.com initiates coverage on Medi-Hut Co. Inc.(NASDAQ:MHUT), with a STRONG SELL rating and a price target of 15c in next 12 months.
COMPANY DESCRIPTION:
Medi-Hut Co., Inc. describes its business thusly: "Medi-Hut Co., Inc.sells, at wholesale, drugs and medical products that are provided to the Company by various suppliers. Medi-Hut also manufactures and sells at wholesale its Elite Safety Syringe. is a passive device that incorporates a transparent sleeve into which the needle will automatically retract after use. The Company sells some of the medical products and over-the-counter drugs under private labels. The Company sells its products to distributors or wholesalers that then sell the products to pharmacies or directly to customers through mail order"
The company also claims to be a generic manufacturer of a synthetic estrogen product it claims will be marketed later this year as a hormone replacement therapy drug.
FINANCIAL DATA & STATS:
Shares Outstanding : 14.4 million
52 Week High/Low : $ 13.99 / $ 1.65
Closing price 3/22/02 : $ 4.30
Market Cap: $ 61.92 million
Gross Revenue ( 3 months, unaudited ) : 10.1 million
Net Revenue (3 months, unaudited ) : 0.6 million (4.6c per share)
Cash / cash per share: 5.91 million, .41 per share *
Quick assets (Cash plus Receivables less Payables and Notes Payable: 382 thousand
* Per 10-Q Mar 15 as of Jan 31, 2002
sec.gov
Employees: 8
Employees sharing the last name Sanpietro: 3
OVERVIEW : MANY QUESTIONS, FEW ANSWERS:
Medi-Hut came to our attention a few months ago, when its unfathomable rise from 4 to nearly 14 per share came to an abrupt end as previously undisclosed news came to light that their largest customer, representing 62% of their revenues (Larval), was owned by a company insider (VP of Sales and Marketing, Larry Marasco). This appalling red flag caused a steep selloff down to less than $2 per share, but the stock has rebounded to the 4 to 5 range as the company has stressed exciting-sounding plans for the upcoming year. The company has maintained that with its 8 employees, it plans to grow revenues 600% during the current year, from about $10 million per year to $60 million. If you could believe these projections, you would have a valuable little company and a neat $15 stock on your hands. But given the company's shenanigans, we think 15 cents is the most likely outcome.
WE ARE PLEASED TO ANNOUNCE THAT OUR MANUFACTURERS & SUPPLIERS ARE ALSO OUR CUSTOMERS!
Perhaps it was the intense scrutiny of the company's critics which prompted them to place the following bizarre note in their most recent 10-Q:
NOTE 6 - MAJOR CUSTOMERS AND SUPPLIERS
For the three months ended January 31, 2002, the Company had four (4) major customers, sales to which represented approximately 96% of the Company's revenues. The loss of these customers could have a materially adverse effect on the Company.
The following indicates the revenues from each of the major customers:
Three
Months
Ended
January 31,
2002
------------
Major Customer #1 $ 4,260,401
Major Customer #2 2,993,504
Major Customer #3 1,394,642
Major Customer #4 988,962
------------
Total $ 9,637,509
============
For the three months ended January 31, 2002, the Company had two major suppliers, purchases to which represented approximately 90% of the Company's total purchases. The loss of these suppliers would have a materially adverse effect on the Company.
The following indicates the purchases from each of the major suppliers:
Three
Months
Ended
January 31,
2002
-------------
Major Supplier #1 $ 5,964,102
Major Supplier #2 1,748,746
-------------
Total $ 7,712,848
============
During the three month period ended January 31, 2002, the major suppliers also were major customers of the Company. These situations arose due to advantageous product and pricing opportunities for the suppliers to receive different products (provided by the efforts of the Company). All collections and payments by the Company from its customers and to its suppliers, respectively, are performed on a gross basis as each transaction is evaluated and performed on its own merits.
We were excited to read that Medi-Hut's biggest customers are also it's suppliers and manufacturers.Then we started to think about it and we couldn't understand how this works. Follow along because it gets a bit tricky.
WHAT THE HECK IS THIS ???
Lets assume you sell tennis shoes, the manufacturer that makes you 100,000 pairs of shoes & charges you 4 dollars a pair to make them. You then turn around and sell 25,000 of the same shoes back at 6 dollars, you make 2 bucks profit. And look at how much you saved just in shipping, handling, transportation, distribution and most of all marketing.
You then sell 20,000 pair to the supplier of the shoe laces at 6 bucks, and then you sell 30,000 pair to your good buddy who works in the storage garage behind the landfill, and then you keep 25,000 pair for yourself and you offer them on some obscure website at full retail at 8 bucks a pair.
Problem is, now what? You have 75,000 shoes at a cost of 6 sittin' in the hands of your buddies and suppliers & 25, 000 pair in your hands at a cost of 4. Congratulations you have just turned your best customers into your biggest COMPETITORS !
We are certain that none of the folks at Medi-Hut graduated from the Kelly Business School, and in the real world would fold the operation in a matter of months. Yet because they are publicly traded, the innocent investor is the one that finances these bizarre and simply impossibly ludicrous business models.
Unless you can find a legitimate path along the supply chain by which these products pass from manufacturer to end consumer, with Medi-Hut adding value along the way, their profits can have come only from one-time commodity trading gains (which are non-repeatable) or fraudulent self-dealing (which is infinitely repeatable until busted by the authorities and/or uncovered by a competent audit.)
How does this work? The company's revenues are nearly all derived from its major suppliers? In light of its damaging disclosures about Marasco and Larval, it requires an enormous stretch of the imagination to believe that these represent a legitimate source of ongoing business for the company. Unless you can find a legitimate path along the supply chain by which these products pass from manufacturer to end consumer, with Medi-Hut adding value along the way, the profits can have come only from one-time commodity trading gains (which are non-repeatable) or fraudulent self-dealing (which is infinitely repeatable until busted by the authorities and/or uncovered by a competent audit.)
SO IS IT LARVAL, OR IS IT VIRAL?
Now we know who Medi-Hut said its mystery suppliers were, and our research findings are below. But Larval, the company that was responsible for 62% of Medi-Hut's revenues last year, is quite the mystery. Larval was until recently owned by Larry Marasco, who is VP of Sales and Marketing for Medi-Hut. Marasco also owned Vallar Consulting, which Medi-Hut acquired from him. (Maybe Mr. Marasco is quite a fan of anagrams. Then again, maybe its the same, however you spell it.) Medi-Hut claims it allows Marasco to operate as an independent distributor for products not sold by Medi-Hut. It also claims Marasco has divested his ownership in Larval, but efforts to determine the viability of Larval, or its ownership have been thwarted. We were hoping the company could dispute the rumor that Larval was sold to Mr. Marasco's sister-in-law, but alas, the company's main technique for ducking our questions is to refuse to answer the phone or unlock the front door when it our friendly operative knocks.
Now remember that even if Larval's contribution to MediHut's revenues is down to 25% now, as Medi-Hut claims, that still represents $2.5 million this quarter. Lets see what kind of facility the $2.5 million in goods passes through. Larval's headquarters is the impressive looking garage pictured here, note the attractive signage. We estimate it to be about 1000 sq ft., definitely not in the high-rent district. The blinds were tightly drawn, the unlisted phone number was answered only by an answering machine, despite the fact that our visitor saw someone inside, and we noted there was no car parked in front. Not exactly what you'd call "an aggressive marketing operation." ....
Regardless we believe you are entitled to see a photo of the power structure that houses the incredibly savvy folks at Larval. insidetruth.com After clicking, be sure to back way up to view it in all its glory.
Here is another shot, insidetruth.com , notice the intricate shades drawn down to protect the valuable secrets that are passed back and forth.
We are also impressed by the double door entry, preventing prying eyes from glimpsing the inner workings of the gargantuan facility. The doors were locked yet we could hear people inside and no one would open the door for our dot-faced operative.
JUST THE FACTS
Medi-Hut claimed in its Feb 1, 2000 press release that ANDA, a division of Andrx, a $520m revenue drug company) was one of its 3 "New, Improved, Larger" distributors, responsible in aggregate for 50%-60% of its revenues in the quarter.. biz.yahoo.com
Check for yourself. Go to ANDA's website andanet.com and click on Vendors Guide, where it obligingly lists all its vendors for generic products. Dang, no Medi-Hut there. Must be some mistake.....so we got a copy of Anda's complete drug catalog. No Medi-Hut in there. So we called Anda. Spoke to 4 different people there.....none of them had ever heard of MediHut.
We tried Kinray. Spoke with another helpful person. The only Medi-Hut product they carry is the condoms. The rep offered the comment "They must not be too good.....hardly anyone ever buys them".
Then there's 824 Drug. This "larger, more established company" is run out of the back of a drug store: Northport Pharmacy. When you call 824's number, they answer, "Northport Pharmacy".
AUDITORS, YOU ASK?
The howls of protest when Medi-Hut was forced admit the Larval related-party-problem (which it still insists is not self-dealing and is perfectly customary and legitimate in its industry) caused the question to arise: how had the auditors not flagged this problem? Indeed, Medi-Hut's auditors, the esteemed Rosenberg Rich Baker & Co, a small NJ accounting firm with 2 offices and 40 employees, appears from SEC filing searches to audit only two other publicly traded companies, which are:
Transportation Logistics, an OTCBB stock trading at 9c, and Rascals International, another OTCBB wonder which trades at 7.5c.
So giving the auditors the benefit of the doubt, that Rosenberg et al missed this point out of inexperience rather than collusion, we were relieved to observe Medi-Hut proudly announcing Grant Thornton, a national firm with a broad reputation in auditing public companies, as their new accountant. Without disclosing its reasons, Grant Thornton withdrew as Medi-Hut's accountant about 10 days later. The company promptly found a replacement. That's good! Unfortunately, it was the same old firm, Rosenberg, et al .... That's bad!
biz.yahoo.com ß --- In with the new.
biz.yahoo.com ß --- And in with the old.
WHILE CRITICS OBSESS ON THE PAST, MEDI-HUT BOUNDS INTO A BRIGHTER FUTURE ...
MediHut would have the public overlook the looming red flags about its manufactured revenues in quarters past by touting its promise of large amounts of new business in two new hot-growth areas: its safety syringes, and its hormone replacement therapy.
We were able to determine that Medi-Hut's "Elite Safety Syringes" are indeed offered for sale on the internet. We typed "Elite Safety Syringes" into the Yahoo search box and sure enough (along with the little customs problem last May) found Darby Drug.
darbydrug.com
Safety syringes are all the buzz these days, as the Federal Government has mandated that health care providers shift to syringes which reduce the risk of accidental needle-sticks. This is all fine, but there are syringes of myriad designs appearing from all corners of the medical supply business, and there is no evidence whatsoever that Medi-Hut's are taking any significant market share. In fact, in light of MediHut's disclosure that 96% of revenues for the quarter just ended were for "brand name and generic drugs" there's only $400K left to divvy up among the syringes, the condoms, the cough syrup, and the rest of their product line.
Unfortunately, the nice person we asked at Darby about the syringes replied "Nah, hardly anybody ever orders those..." MediHut has made a lot of noise about a partnership with a Korean firm which is manufacturing these syringes. Some lovely new photos grace the Medi-Hut website. We are wondering where the elevated highway in the first photo went, and our Korean branch is continuing to make polite but persistent inquiries.
In summary, Medi-Hut projects its going to produce and sell $30 million of syringe product this year. That's a 60-fold increase over last year. Allowing for markups, they'll have to sell one for every man, woman and child in the country to do that kind of volume. Why is there absolutely no visible evidence that they're selling any more than a trickle?
And what of the product itself? Well its approval indicates Predicate Device Identification is the Becton Dickinson syringe BD Safe-Lok K920321 and K924072, grandfathered in prior to 1976. So what makes these so special? fda.gov
SYNTHO_AND THE AMAZING ESTROGEN PRODUCT
Meanwhile, the company is full of PR about its new estrogen formulation, which it claims will sell into the rapidly growing hormone replacement therapy (HRT) drug market in the US. There's an exciting video tour of a pill manufacturing facility, which viewers are supposed to infer is Syntho's (MHUT's announced joint venture partner in the estrogen product.) Med-Hut's press release dated Feb 28, 2002 MHUT states:
SYNTEST is being manufactured by Syntho Pharmaceuticals, a generic drug manufacturer located in Farmingdale, NY. Syntho is a privately held company whose principal, Muhammed Malik, has more than 25 years of broad-based experience in the pharmaceutical industry. SYNTEST is an esterified estrogen based compound. SYNTEST is the generic equivalent of ESTRATEST(TM) and ESTRATEST HS(TM). These products had a combined sales volume in excess of $160 million during calendar year 2001.
biz.yahoo.com
160 million maybe , but guess what? We believe all those sales are all illegal, based on court rulings, "How?" you ask...Well, we would like to know as well. We have not been able to find a single document or person who has been able to claim Estratest is an FDA approved drug! Furthermore MHUT has never submitted its "SYNTEST " generic equivalent to the FDA for any sort of approval that we can find.
SYNTEST IS NOT FDA APPROVED !!!! OUCH!!!
You may ask how on earth can this be, well read and learn, but make sure you have some serious bamboo strips bracing your hernial area & lower mandible.
In a civil complaint , Florida Breckinridge, Inc. & Solvay Vs. Napean Enterprises Inc. ( Civil No. 97-8417, S.D. Fla., March 18, 1998, allegations are hurled far and wide. The case ended badly. It was appealed , and what happened in the Appeals Court gets even uglier.
"In the spring of 1997, Breckenridge introduced a drug, Menogen, into the marketplace. This drug contained esterified estrogens and methyltestosterone in the same dosages as Estratest and was marketed as the generic equivalent of Estratest. Breckenridge did not obtain approval of an NDA or ANDA before marketing Menogen, and has not obtained approval to this date. Breckenridge relies on Solvay's contention that Estratest is legally on the market without approval to extend also to Menogen. Shortly after Breckenridge began marketing Menogen, they received notification from Solvay that they believed Menogen infringed on Estratest's trade dress and that the generic equivalency claims constituted false advertising. In response, Breckenridge filed this suit for a declaratory judgment that their marketing of Menogen did not infringe the Estratest trade dress or constitute false advertising under the Lanham Act. Solvay counterclaimed, asserting claims for trade dress infringement and false advertising under the Lanham Act, the Florida Deceptive and Unfair Trade Practices Act and common law unfair competition law.
law.emory.edu
In a letter date October 27, 1999, Ms Annamarie Kempic, counsel for the Center for Drug Evaluation and research for the FDA, summarized the appellate decision regarding Estratest and Menogen , its generic equivalent.
"The Court of Appeals for the eleventh Circuit held that Menogen is an unapproved new drug. The Eleventh Circuit also held that Solvay’s Estratest and Estratest H.S. were unapproved new drugs that had been marketed for over 30 years without any regulatory action. " OUCH!!!
fda.gov
The Court also harshly admonished the FDA. The FDA has since then taken action against Menogen.
Solvay, Estratest's manufacturer quickly attempted to withdraw their appeal to avoid placing themselves at ground zero of a very unpleasant adverse ruling. The Court spoke anyway:
"Once again, we are baffled as to why the FDA decided to go after the generic manufacturer, which had been marketing the drug for approximately one year, while ignoring Solvay's violations, which had been ongoing for thirty-five years. If we understand the government's argument, Breckenridge had violated other provisions of the FDCA, which made the enforcement action more urgent. Nonetheless, this seems insufficient to explain an enforcement differential of thirty-four years." OUCH!!!
"ESTRATEST IS AN ILLEGAL DRUG AND HAS SUFFERED 27 YEARS OF FDA DENIALS"!
"Finally, Jameson argued that the FDA's failure to take action to remove them from the market proves that they are GRASE. Obviously, this is nonsense. Courts have already held that the FDA policy of deferring the removal of ISR drugs from the marketplace is not a defense, even to criminal prosecution for marketing a new drug without an approved NDA. Hiland, 909 F.2d at 1125-27. In order to fall under the GRASE exception, a drug must meet requirements at least as stringent as those for NDA approval. Solvay has continually failed to obtain approval based on the evidence it has provided the FDA. They may not, then, circumvent the approval process merely by marketing their drug in defiance of the FDA for thirty-five years. Solvay has been attempting to get approval of its ANDA/NDA for 27 years, and has gotten a continual stream of not-approvable letters. The very fact that they are seeking approval indicates that they do not honestly believe that they fall under the GRASE exception ["Generally Recognized As Safe Exception"]. Furthermore, the exception cannot be used to succeed where the FDA screening process has specifically denied approval. This would pervert the statute, as the Supreme Court noted. Finally, even if Estratest could be said to now, in 1999, to have gained GRASE status, that status would not retroactively render the past thirty-five years of illegal marketing lawful." OUCH!!!
law.emory.edu
We have scoured far and wide, and guess what ? What we found is that Estratest has been illegally sold in the US for over 30 years and the generic equivalent "Menogen ", manufactured by Napean and Sage, and distributed by Florida Breckinridge, Inc.( Breckinridge ) was also ruled an un-approved drug.
The FDA has taken action against the generic drug "Menogen" and the Appellate Court has ruled that this generic version of Estratest does require FDA approval. It would stand to reason that Syntest is no different due to its claim of being a generic version of something that has been ruled to have faced 27 years of FDA rejections and was illegally sold.
Earlier Today we interviewed Muhammed Malik ,of Syntho,and he told us several items.
1.) Medihut has no deal in place with SYNTHO as of today.
2.) Syntest has not been approved by the FDA
3.) Medihut should have never stated that Syntest is the generic equivalent to Estratest in their Feb 28,press release
4.) He also identified the other guy in the video on the tour as Joe SanPietro
5.) Syntho and Medihut have never done a dollar of business together.
6.) "Medihut should have counsel reviewing their press releases"
7.) Mr Malik also said that he has no stock,options warrants or any kind of investment arrangement with MediHut,this is strange because in the SEC filing sec.gov
We see the following : " In addition, we invested $900,000 to purchase distribution rights under an exclusive relationship with a drug manufacturer, Syntho Pharmaceuticals, Inc."
Who should we believe Sanpietro or Malik?? We choose Malik.
Ironically, on Feb 28,2002 stated the following:
Mr. Sanpietro continued saying, ``Medi-Hut and Syntho estimate SYNTEST will capture approximately 25% of the brand name market. At generic prices, we believe we will earn $20 million in gross revenues on estimated unit sales of 300,000 bottles (100 pills per bottle) per annum. SYNTEST is anticipated to immediately add to revenue and net earnings per share. SYNTEST's distribution begins this fiscal quarter (ending April 30, 2002). SYNTEST will be distributed nationally to major chain drug stores, mass marketers, drug wholesalers and drug distributors. SYNTEST is the first of a group of products that Medi-Hut/Syntho will be jointly marketing over the coming years.''
biz.yahoo.com
We say, No way babay !!
IN SUMMARY SYNTEST WILL NEVER GO TO MARKET errr , MHUT FORGOT TO GET THE FDA APPROVAL. OUCH!!!
MHUTS WEBSITE
MHUT has updated their website several times since we announced that we were going to publish a report this week.
Initially they released a tour of a manufacturing facility and labeled it as their Korean MHUT facility.
MHUT then renamed the tour " Syntho tour ", and showed us a pill manufacturer owned by Muhammed E. Malik.
Then they had a photo of the Korean Facility interior, labeled as SYNTHO,thisphoto was removed yesterday.
Then MHUT takes us on a tour yet at no time do they ever show anything with the name SYNTHO on it, except the door. ( we got a good shot of the door also ) Two people are speaking, one we assume is Mr Malik, who by the way is not a doctor. The other person is never ever identified by name. We find this suspicious. We visited SYNTHO ourselves and the pictures we took show a much different facility .
Hardly any reference to SYNTHO on the web, but sure enough we found the place....230 Sherwood, Farmingdale NY. insidetruth.com . Strangely enough, its vacant. But hey, right next door, at 228 Sherwood, there's a pill manufacturer named Intermax Pharmaceuticals. Maybe they can help. insidetruth.com. What a coincidence, Muhammed Malik owns 'em both.Here is his business card insidetruth.com Intermax also has a lab in there, which we tookphotos of insidetruth.com . We'd love to know if the rest of the equipment shown in Medi-Hut's video tour is back there, but they didn't want to show us.
Why is it so darn difficult to find any part of Medi-Hut's story that just simply and straightforwardly checks out? After all, aren't they a public company?
These are important questions. Lets ask 'em and find out the answers!
"Management has determined that it would be in the best interest of the company to delay our annual shareholders meeting until the summer of 2002. A specific date has not been set at the time of this filing. When management determines the meeting date, we..." (from the latest 10-Q, link above)
Oh. dang...
WE TRIED TO INTERVIEW J SANPIETRO AFTER BEING ASSURED WE WOULD BE ABLE TO,THEN WE WERE TOLD TO FAX QUESTIONS ,PROBLEM IS THEIR FAX NUMBER DOES'NT PICK UPAND IS IN A DIFFERENT AREA CODE. FISHY STUFF IF YOU ASK US.
Folks, if Medi-Hut is a real company, we'd be the first to want to know. But to be real, there have to be real products that wind up in the hands of real customers, who are paying something approximating a real retail price in real dollars. We can't find any of those things, not in their SEC filings, nor at Larval, Anda, 824, Darby Drug, Syntho, or the FDA, for that matter, but heck we're still looking.
Hmmm.lets move on to Korea and COA Industries here we come !!.....
PART II IS COMING !!
Ya got yer truth, and ya got yer InsideTruth
Our work goes on....and on....and on. The company got caught a bit before they had anticipated. Now its getting increasingly difficult to make their story hang together. One more year of cooking up some revenues among a few pals, while spawning the appearance of a growth strategy for the future, and voila, you have a 150 million bucks worth of stock sold to the public, for what? For dreams, dreams and worthless paper.
Pacific Equity Investigations is an equity valuation research center. It may and often does have positions that are consistent with its reports. We are short MHUT shares and have been short from higher levels, we stand to profit when and if MHUT shares implode as we believe they will.
Anthony Elgindy is a professional trader and analyst, and one of the most well-known investment commentators on the internet. His work has been featured in numerous financial news media. He has appeared on TV shows "20/20" and "Justice Files" speaking out to warn the public about the risks of fraud and overvalued equities. He is the #1 most bookmarked person on the #1 financial discussion site, Silicon Investor siliconinvestor.com , and he is known as the " Mad Max of WallStreet " by WIRED MAGAZINE, wired.com |
