Friday, December 19, 2014

Open Short OBCI

So a few months ago during the height of the Ebola stock rally, OBCI comes out and announces that they have an "Ebola killing disinfectant"  The stock rallies. I short it because anyone that knows anything that scores of products would kill ebola or other viruses. I make a bunch of money.  The stock falls back into anominty.

The company now hires CEOLIVE to interview it and the stock goes nuts.

Among the highlights:
  •   The CEO, Peter Dornau  calls performacide a "Miracle Solution" that kills every germ known to man. (At 13:20)
  • "2015 is shaping up to be too good to be true"  
  •  5 puppies died in a vet clinic the week before our product was used, "we sprayed down the facility no dogs died whatsoever" (At 11 min) All these areas where the germs are unbelievable -- sales potential is unbelievable.  We could go after horse care, cattle care farm care) (12 mins)
    • We are going to attack those markets but there are so many we can't really do it at once.  Sure Peter.  
    • "It's almost mind boggling where it could be used."
  • My personal favorite,  they are going after police departments  "because everytime they knock someone over the head, god only knows what type of disease he has (8:30)
  • "If you look at our balance sheet it is not a true balance sheet" Peter reasons because their equipment can't be replicated for less than 20 Million they are worth really worth 20 Million more.  (17 mins)  
    • Do they even know what a balance sheet is? 
  • "oh my god, there is so much potential here" 
  • We're exploring the market where women can spray our product on strawberries and they'll stay good for weeks. 
In short, the company expects that performacide is going to be in an "ass of a lot of places" 

I can't make this crap up. This guy should be on an Infomercial.

I am skeptical of any company that needs to pay for promotion.  I've never seen a company not sell off.  About CEOLIVE
CEOLIVE.TV offers digital investor relations and public relations services to paying clients and some of those clients host IR-Channels and forums on CEOLIVE.TV. In the purview ofSection 17(b) of the Securities Act of 1933 and in accordance with FTC 16 CFR Part 255, we call the reader's attention to the fact that the CEOLIVE.TV is an entity engaged in the business of public relations and investor relations and has been hired by certain Companies to increase investor awareness to the investor and consumer community. Full financial disclosures for all public company clients featured on CEOLIVE.TV are available on this website through the following link: Disclosures.
Which provides:
"OCEAN BIO-CHEM (NASDAQ: OBCI) is a client of CEOLIVE.TV. OBCI paid CEOLIVE.TV for video content services, which includes the preparation of CEO interviews. The CEO interviews are prepared for informational purposes only and are paid for by the company portrayed in the interview."   
Sounds objective. So about this miracle product, which  OBCI bought  for just 150K a few months ago. They claim that this is the game changing, "miracle" product?   The active ingredient has been around for over 50 years.  The so-called miracle is that OBCI has a packaging pouch that anyone can used.

Nope, not going to happen. According to the CDC:
"Ebola is killed with hospital-grade disinfectants (such as household bleach)"
Heck, just in my basement, I already own at least 3 cleaners which I've owned for years that could kill Ebola: 

  • OdoBan® is an EPA registered disinfectant. The EPA Registration No. is 66243-2.
  • OdoBan® meets AOAC efficacy standards for hospital disinfectants.
  • OdoBan® meets AOAC efficacy standards for non-food contact surface sanitizers on hard non-porous surfaces.
  • OdoBan® is a Hospital Disinfectant Cleaner that is effective against a wide variety of Gram positive and Gram negative bacteria. It is also an excellent deodorant and leaves a clean fresh odor. Respiratory illnesses attributable to Pandemic 2009 H1N1 are caused by influenza A virus. OdoBan® is a broad-spectrum hard surface disinfectant that has been shown to be effective against Influenza A/Hong Kong and is expected to inactivate all influenza A viruses including Pandemic 2009 H1N1 (formerly called swine flu). OdoBan® has demonstrated effectiveness against Influenza A/Hong Kong and is expected to inactivate all influenza A viruses including Pandemic 2009 H1N1 (formerly called swine flu)
Simple Green D (my wife likes organic shit) but again it would serve the same purpose
  • Hospital–grade disinfectant
  • One–step cleaner and deodorizer
  • Fresh herbal–pine scent
  • High dilution ratios for great economy
Ideal for airplanes, airports, athletic facilities, cafeterias, clinics, day care centers, emergency vehicles, exercise facilities, food service facilities, hospitals, hotels and motels, kitchens, locker rooms, nursing homes, prisons and correctional facilities, public restrooms, schools and colleges, anywhere cleanliness and disinfection are necessary.
Clorox Bleach.  Perhaps  most significant regular, ordinary bleach will kill ebola.  No body needs to turn to some cleaner they've never heard off out of fear, They can go to the products they already buy such as Clorox Bleach, which is more than capable of killing ebola.  

"This week our company took a first step, donating 12,000 64-ounce bottles of Clorox® bleach destined for West Africa. " 
Incidentally, Clorox's initial donation has a market value of nearly the entirety of OBCI's purchase of performacide. 

Consequently, I would question whether there will be any uptick in profits at all.  Any revenue OBCI receives would be mere fraction of the purchase price it paid for Performacide.  Obviously, if performacide were generating 150K in profits a year, it would have sold for a multiple of its earnings (P/e ratio).
  • But isn't Performacide the best, Ebola killer out there?
Anyone that makes such a claim has obviously not read the specs for Performacide.  
"Solution will be usable in 60 minutes (1 hour).
NOTE: Allow ONE (1) HOUR BEFORE USE TO ENSURE SOLUTION REACHES FULL STRENGTH. Be sure to agitate upon addition of the pouch to the water and before initial use. Temperature must be kept between 20-25oC. "
So we have an Ebola outbreak and I have to choose how to clean it up.  Do I go with the product such as bleach that can be used immediately or do I pick Performacide which I have to wait an hour to use?

  • Soft goods, such as linens, clothes, etc..? nope:  Performacide is a "DISINFECTANT OR VIRUCIDE*FOR HARD, NON-POROUS SURFACES? 
  • Revnue trend?

Another reason I do not see a buyout is that the company insiders rely heavily inn the company for income.  In addition to their salaries there are a number of "Related Party Transactions" that   app are to make more for the insiders than their OBCI day jobs: 

  • During the three and six months ended June 30, 2014 and 2013, the Company sold products to companies affiliated with its Chairman, President and Chief Executive OfficerThe affiliated companies distribute the products outside of the United States and Canada. 
    • Sales to the affiliated companies aggregated approximately $295,000 and $469,000 during the three months ended June 30, 2014 and 2013, respectively, and approximately $1,008,000 and $940,000 for the six months ended June 30, 2014 and 2013, respectively. 
    • This begs the question why is the CEO's personal companies distributing OBCI's products instead of OBCI?   
  • "the terms of sale to the affiliated companies differed from the terms applicable to other customers ..."  OBCI then goes on to attempt to justify the sweet heart deal the CEO's affiliate company is getting  "the affiliated companies bear their own warehousing, distribution, advertising, selling and marketing costs, as well as their own freight charges" 
And there's more:
  • "A subsidiary of the Company currently uses the services of an entity that is owned by its Chairman, President and Chief Executive Officer to conduct product research and development, marketing and advertising. .. the Company paid the entity approximately $10,500 for each of the three month periods ended June 30, 2014 and 2013, and $21,000 for each of the six month periods ended June 30, 2014 and 2013."
  • The Company leases office and warehouse facilities in Fort Lauderdale, Florida from an entity controlled by its Chairman, President and Chief Executive Officer.  
In the CEO LIVE interview, the company says it is expanding its warehouse space.  Perhaps the CEO needs some more rent money.
  •  A director of the Company is Regional Executive Vice President of an entity from which the Company sources most of its insurance needs at an arm’s length competitive basis.  During the three months ended June 30, 2014 and 2013, the Company paid an aggregate of approximately $98,000 and $150,000, respectively, and during the six months ended June 30, 2014 and 2013, the Company paid an aggregate of approximately $315,000 and $333,000, respectively, in insurance premiums on policies obtained through the entity. 
These types of transaction should always raise red flags. Frankly, If I were a shareholder I would question the property of such transactions. If these deals are worth doing, why isn't management doing them for the company instead of for themselves.  Got fiduciary duty? Well at least we know  that management would be insured against such a claim from the policies they purchased from their director's company. 

I've worked with numerous private equity groups.  There is no way that investors are going to buyout a company that has all these additional contracts to benefit management's own companies.  I would also suspect that management has no interest in selling given the deals their own companies are making off the backs of the OBCI shareholders. 

Q2 results that saw EPS growth of 137% doesn't that demonstrate huge growth?    not so much turns out.  ---  Consider Q1 Revs.  Down pretty big.  

So what happened?  Well it turns out that Q1 was pretty cold in most parts of the country and customers delayed their purchases that they would have made in Q1 to Q2-- so Q1 looked horrible and Q2 looked amazing.  Combine q1 and q2  them Q13 had 14.49 mill versus 14.72 mill in revs for Q1.  Not exactly setting the world on fire with that type of growth.  

In q3, how did this ground company perform?:  Revenues were down YOY.

  • Company is pumping itself  -- "2015 looks too good to be true"  trying to capitalize itself on Ebola hype.
  • OBCI is unlikely to ever realize any revenues due to that hype.  
  • Current earnings and rev growth do not support the stock price pop
  • Price target-- Back to business as usual. $2.95-3.25

Trade the fade.

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