Stock Stars Are Convinced About Network CN Inc (OTC:NWCN)’s Success
You will probably all agree that advertising is a big business. You will probably also agree that it’s in our human nature to get excited by big, colorful, high-definition commercials with lots of visual effects and pretty faces. Network CN Inc (OTC:NWCN)’s business is directly connected to these ads and for the last couple of years, they have been building and selling huge colorful, HD, 3D video billboards. In addition to this they are operating in the world’s biggest market – China. If you keep only these things in mind, you would probably think that they are extremely successful and that an investment in their shares would be a wise thing to do. Things are not that simple, however.
For one, there is currently a promotional effort, albeit a small one, carried out by Stock Stars, and we all know that these practices usually end up disastrously for the investors. As soon as we read the email on NWCN we reminded ourselves of another marketing company that operates in China – Great China Mania Holdings Inc (OTC:GMEC). They were also pumped by Stock Stars back in February and now, month and a half later, the results are pretty clear – the ticker has lost around 70% of its value and, despite the pumpers’ promises, there were virtually no opportunities for a profit.
Still, there was a chance that NWCN could be different, which meant that we had to take a more unbiased look at them. We opened their latest financial report covering the third quarter of 2012 and it’s fair to say that we weren’t impressed with what we found. While there is quite a lot of money to be made from the advertising business, it would seem that NWCN are getting none of it. They have generated revenues over the years, but a positive cash flow is still a distant dream. Here are the most important financials as found in the 10-Q:
- cash: $49 thousand
- current assets: $313 thousand
- current liabilities: $2.1 million
- quarterly revenue: $356 thousand
- quarterly net loss: $664 thousand
If we have to point out something positive about the figures, we would say that the net loss for the period covered is a lot less compared to the one for the same quarter of 2011, which would suggest that they are doing something. Things, again, are not that simple, though. The financial statement says that the decrease in losses is due to two factors. The first one is a cost cutting exercise which included a reduction in the work force. The second one is the fact that debt amounting to $1.8 million was extinguished during the period between the two reports. The only problem is, the loan was covered through the issuance of shares… 24 million of them.
The creditor who received these shares is an entity called Keywin Holdings Limited and it’s owned by NWCN‘s CEO, Mr. Earnest Leung. The issuance of this stock means that the shareholders have experienced some heavy dilution, but it also means that Mr. Leung has quite a lot of shares to play with.
As you might know, no research is complete without a background check on the company CEO, and the fact that he owns so many common shares meant that a further research was imperative. While digging around for some more information about Mr. Leung, we stumbled upon this article. In it we read that a person called Earnest Leung, while working at American Express Bank, has been convicted of offering and receiving bribe. At first we weren’t sure that the article is referring to the same person, but according to NWCN‘s profile on Businessweek, it is.
The article was written way before Mr. Leung took the helm of NWCN but we reckon that it’s worth keeping this information in mind when making your investment decision.
