Naturalnano Inc (PINK:NNAN) Ride the Promotional Roller Coaster

What do the aerospace and cosmetics industries have in common? “Nothing”, you’d probably say, but Naturalnano Inc (PINK:NNAN) will tell you that both astronauts and the women around the world could potentially benefit from their highly advanced technology. We decided to check if that’s true.

So what is it, this marvel of industrial progress? Well, it sounds so complicated that probably even NNAN‘s boss can’t explain it, but here’s what we managed to understand after reading the description at least a dozen times. Their main business involves something called Halloysite Nanotubes. These things are abundant all over the world, NNAN say, but it’s extremely difficult to separate them. After years of head-scratching and pencil-biting, NNAN claim that their experts have finally cracked it.

Having that in mind, you would probably expect that, as we speak, everyone from NASA to leading cosmeceutical companies are queuing up at NNAN‘s front door begging them for their patent-bending technology. That’s not quite the case. It seems that either NNAN‘s separated nanotubes are not as revolutionary as they say, or people are just not interested in them. How do we know? We checked their financial report and we saw the dismal revenues. The rest of the report is just as depressing:

• cash: $0
• current revenues: $45 thousand
• current liabilities: $5.8 million
• revenue: $16 thousand
• net loss: $352 thousand

What’s even more frightening is the fact that every single quarterly statement looks far worse than the one before it. We see a constant shrinking of revenue and net losses mounting, and the debt… “excruciating” might be a good word to describe it. The lack of substantial revenue means that they have already defaulted on some notes, but the debtors were noble enough to waive the associated penalty fees and also agreed to convert a lot of the notes into shares of common stock. How considerate.

Since we mentioned share issuance, we should also note that NNAN‘s printing press has been working overtime for years, churning out shares by the millions. Here’s an interesting fact that will give you an idea of how devastating the dilution can be: after NNAN exercised their latest stock split in June 2012, they had a total of 43 million shares. By November 19, the day they published their latest 10-Q, they had 69 million with many more warrants and options exercisable at huge discounts.

The issuance won’t stop any time soon partly because they have so much debt that there is no physical way of paying it off and partly because, they won’t be making any considerable revenue any time soon. Why would we say that? For one, as of September 2012, they had only one employee. That’s a lot of nanotubes splitting for a single person. In addition to that their corporate office is located in a suburban residential home. Hardly the ingredients for a successful company, we’d say.

That doesn’t stop pumpers Damn Good Penny Picks (DGPP) from sending their emails touting NNAN and saying how massive the potential profit will be. With their help NNAN saw an impressive 72% gain during Friday’s trading session and recorded a volume about a hundred times the average. We fear, however, that very soon NNAN will fall back down to where they belong. Which, coincidentally, is exactly what happened to another one of DGPP’s “winners”. We’re referring to Family Room Entertainment (PINK:FMYR) who received the pumping treatment at the end of January. The outcome? Now, a couple of weeks later, FMYR‘s shares have become all but worthless and are now traded at $0.0116 – 93% lower than the pre-pump price.