Physicians Adult Daycare, Inc. - Is This One All Hat ?

Physicians Adult Daycare, Inc. (Pink Sheets: PHYA) gets our nod as the most heavily hyped penny stock of the New Year.  Granted, the year is only 11 days old, but we already have received dozens of emails pumping up the prospects of Physicians Adult Daycare. 

 

Actually, we first noticed the spam messages in mid-December.  So, evidently did Pink Sheets, which has been refusing to provide quotes for the Company's stock.  Pink Sheets has adopted a sensible policy, taking the lead on this issue:

 

Pink Sheets believes adequate current information must be publicly available during any period that the issuer or affiliates of the issuer are directly or indirectly engaged in promotional activities having the effect of encouraging trading of the issuer's securities in the OTC market. Pink Sheets has observed that such promotional activities are occurring for this security, but that adequate current information may not be available. Consequently, Pink Sheets has removed the quotes from this website until such information is made available by the issuer to the investing community.

 

Trading information for Physicians Adult Daycare is, however, available elsewhere; activity has been brisk since the promotion began.

 

We, too, were curious.  Is there something, beyond the hype, to justify increased interest in the Company? 

 

 

All Hat or Old Hat?

 

Physicians Adult Daycare describes itself as a "leader in the adult daycare industry," although the Company would appear to be rather small and the scope of its services is, at present, quite limited. 

 

Indeed, like many other penny stock companies profiled by StockPatrol.com, the entity now known as Physicians Adult Daycare, has gone through several significant transformations.  Originally formed in Nevada as Unique Fashions, Inc., the Company became Rhino Enterprises, Inc. in April 1999.  Remarkably, our Google search revealed no information about Rhino Industries among the millions of pages embedded in the Internet.  In July 2006, Rhino morphed into Physicians Adult Daycare.

 

Information about the Company is sparse.  Physicians Adult Daycare does not file public reports or audited financial statements with the SEC's Edgar system.  Nor does it file financial reports with Pink Sheets.  Consequently, investors who are seeking independent, verifiable details of the Company's operations and financial condition must instead rely upon the Company's press releases and website – or on those spam emails.  Such sources often limit the likelihood of a balanced profile.

 

Penny stock companies with limited operations and resources frequently cite industry statistics to validate the potential of their business plan.  In this case, the Company's website notes the growing number of elderly Americans and the potential need for increased care services for that population.  According to Physicians Adult Daycare, adult daycare centers provide health and nursing services, serve meals, and foster social interaction.  Elderly persons may require assistance inside and outside of their homes – and companies that provide those services will be able to take advantage of that growing niche market. 

 

A Company press release also cited a study by Wake Forest University, which states that the average adult daycare facility in the U.S. has annual revenues of $365,000 in 2002 - $1.234 billion in total for 3,407 centers.  Extrapolating from that number, the Company projected a $6.2 billion market for these services in the U.S. by 2020, and a global market that would generate potential revenues of $45 billion.

 

The case for elder care sounds compelling – but is Physicians Adult Daycare a viable player?  The Company appears to be a relatively recent entrant to the industry.  On December 6, 2006, shortly before the onslaught of spam, the Company announced that it was "on schedule" with "plans for expansion into the lucrative adult daycare industry."  The press release went on to say that "since the company's reorganization in June" it had acquired its first two adult daycare centers, both located in Texas. 

 

Indeed, the Company's website identifies its two – and only – locations in Laredo, Texas – presumably the recent acquisitions referenced in the December 6^th press release.  The Company claims that the two centers generated gross revenues "in excess of $900,000 in 2005," but neither the website nor the press release indicates the costs incurred by those facilities, or their bottom line profits or losses.  Did the facilities have clients or staff?  Does the Company even have insurance to cover potential medical costs and liabilities?  Since the Company does not file audited financial reports, public investors have no means to verify these claims.

 

Despite the Company's apparent humble state, it was not long before the spammers began calling Physicians Adult Daycare ""the hottest pick this year!"  A December 10^th spam email projected a "short-term" price of $4.25 and a "long-term" price of $10.20 for the Company's shares.  At the time, Physicians Adult Daycare stock was trading at approximately $1.50 a share.

 

The December 10^th spam provided no details about the Company's operations but cited the potential "$65 billion" market for adult daycare, the "booming sector," impending news, and an impending public relations campaign.

 

Texans have an expression that might be apt here - "all hat, no cattle."  The Company has outlined big plans, but so far there is no evidence it is performing on any meaningful scale.

 

On December 11, 2006, the Company attempted to distance itself from the promoters.  Physicians Adult Daycare said it was "seeking the individuals" who were responsible for the email barrage and would seek appropriate damages.  The Company insisted that it had no involvement with the email campaign and had not "hired anyone" to distribute the messages. 

 

Although the Company had only recently hired InvestSource, Inc. for $3,000 to provide media and investor relations assistance, InvestSource insists that it does not participate in spam campaigns.  But while it may not countenance spam, InvestSource is the "contact" on a series of press release issued by the Company that are long on hype and short on facts.

 

And while the spam has continued, the Company has offered no further disclaimers and there is no sign that the offending individuals have been identified or held accountable.

 

That leaves a gnawing question.  Who was behind the email – then and now?

 

 

Spamming Along 

 

Soon, there was more fuel for the promoters.  On December 12, 2006, the Company announced plans for notable expansion – saying it had begun "negotiations" for the acquisition of 36 additional adult daycare facilities in Texas and expected to acquire at least 22 of these facilities, with projected gross revenues of $12 million, within a year.  The Company also insisted that, during the next 24 months, it would develop 14 new centers to provide health and medical services.  These centers, according to the December 12^th press release, would be owned by limited partnerships that included physicians as limited partners and Physicians Adult Daycare as general partner.

 

The description of the potential acquisitions was vague.  Negotiations often falter and, in the case of tiny companies, frequently fail to yield results.  The press release did not reveal the state of the negotiations or provide any contemplated dates for definitive agreements.  The Company did not identify the seller or sellers, or say how much it would be pay for each center.  Since the Company has not disclosed its financial condition, it is not clear whether it has any funds for acquisitions or operations.

 

In other words, the press release contained virtually no meaningful facts.

 

That, of course, did not deter the promoters.  Nor, apparently, did the Company's indignation and threat to seek damages against reckless spammers.  A new wave of spam began to circulate, again calling Physician Adult Daycare the "hottest pick this year!"  This time the email, which we first received on Tuesday, December 12^th, reminded readers of the earlier prediction:

 

We called it over the weekend and Monday showed that there is something big going on at this company.  Strong volume is always the precursor to strong gains, and Monday is looking like a GREAT setup for a smashing Tuesday!

 

Do no hesitate on this one.  It's as hot as they come!

 

 

Indeed, Monday, December 11^th had been a landmark day for the Company's shares.  Consider this.  On November 30^th, 450 shares of Physicians Adult Daycare were traded and the stock closed at $0.75 a share.  On December 8, 2006, 500 shares of Physicians Adult Daycare were traded – but the stock price popped to $1.52.  Then, on December 11^th, the next trading day – after the spam and Company disclaimer brought attention to the stock - more than 450,000 shares changed hands – although the share price only inched up as high as $1.54.

 

December 13^th brought more spam and more trading.  This time the promoter cited the "negotiated" acquisitions and a "PR blitz" as 372,000 shares were traded.

 

As meaningless spam continued to make the rounds, the Company continued to issue press releases.  The first, issued on December 14, 2006, had one thing in common with the spam; it said virtually nothing.  This press release, headlined "Physicians Adult Daycare, Inc. Announces Good News For 'Baby Boomers,'" seemed to initiate a lobbying effort designed to bolster revenues for adult daycare providers.  The press release contained no valuable information about the Company's activities.  Instead it urged "baby boomers" to work toward take steps toward having adult daycare programs covered by Medicare.  The Company did not explain how they would accomplish that goal.

 

Spam emails arrived that same day, predicting "news of major proportions," and urging investors to "get in early and ride it to the top!"  Not surprisingly, trading volume remained high – 223,000 shares.

 

Puffy public relations and endless spam messages continued to fuel interest in the Company in the following days.  On December 19, 2006, Physicians Adult Daycare issued a press release announcing plans to start an adult healthcare and daycare facility in the Las Vegas, Nevada area to meet the needs of hotel employees.  But while the headline claimed that the Company had begun "negotiations" with Las Vegas hotels, the text of the release offered no sense that such negotiations were either underway or nearing fruition.

 

Once again the Company cited statistics rather than its own performance – this time noting the growing senior population in Las Vegas and work time lost by children who care for elderly parents.  As before, the concept resonated – but it still did not indicate the Company's ability to perform.

 

In any event, on December 19^th, the date of the "Las Vegas" release, Physicians Adult Daycare stock hit $2.40 before settling to close at $2.23.

 

 

What Balance Sheet?

 

On January 3, 2007, Physicians Adult Daycare declared that a "second acquisition," somewhere near Houston, Texas, had "bolstered its balance sheet" and "revenue by 83%."  Observers will have to take the Company at its word on these matters since the Company has not yet provided its "balance sheet" for public or regulatory scrutiny.  Until audited financial statements are made public, the reference to increased revenues has no meaningful context.

 

The Company claimed that its latest acquisition would generate additional gross revenues of $700,000, "with low to no maintenance."  According to the press release, the newly acquired property would be "converting to the expanding Star Plus HMO program in Texas, allowing for increased reimbursements and increased healthcare related services."

 

The Company provided no details of the transaction, other than the vague reference to the Houston locale, the fact that the facility had operated for 15 years, and a representation that the owner is experienced and would continue to work at the property.  Physicians Adult Daycare did not indicate the terms of the acquisition, the cost of operating the center, or any useful facts that would allow observers to assess the value and viability of the venture.

 

But, of course, the absence of those details were of no concern to the spammers, who continued to flog the stock with emails like this, which we received on January 3^rd:

 

Get in right after the New Year.  Those in the know have begun picking up shares before the big announcement.  This is your chance to get in while there's still time!

 

Physicians Adult Daycare Inc. (PHYA) is at $1.65 right now on solid volume.  Once the news is out we will see this one going to $4.00 in the short-term with much higher gains in the long-term.

 

Do not delay.  Read the recent news and you will see that PHYA is in a booming sector with huge negotiations on the table…

 

PHYA [is]where you want to be!

 

 

A second spam email went further, referring to the latest vague acquisition and imploring investors to:

 

Go to your favorite financial news source to read the details.  While there also read about the big negotiations going on with major Asian investors.  Further acquisitions are in the works and we are expecting a huge revelation to come out of the company any day.

 

We took that advice, visited our favorite financial sources, and found no indication that Physicians Adult Daycare has disclosed any "big" (or small) negotiations with "major Asian investors."

 

As days went buy, the spam continued to arrive, inflating the Company's prospects, promising major news and urging immediate investment.  But, hey, when you are in the spam and scam business, why bother with facts.

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