In our first article on HIV-VAC, we looked at some of the Company’s plans to test its HIV/AIDS vaccine. As we noted at the time, HIV-VAC recently issued a press release declaring it was in the final stages of completing a $5 million funding package for its research "based on a convertible preferred stock series with a strike price of $5."
Now the Company says that announcement was incorrect – the "strike price" is "to be determined." So exactly what would these new investors receive for their $5 million? Investors are left to wonder.
The absence of cash in the bank, committed funding or an established research and development partner has not stopped HIV-VAC from spreading around the globe. The Nevada corporation maintains its main office in Ontario, Canada, conducts research in Birmingham, England, hopes for funding from Australia and plans trials for its AIDS vaccine in Russia and Africa.
How does HIV-VAC support these international operations? Perhaps more important – who is running the Company? HIV-VAC says that its research will be conducted by Dr. Skinner and three of his associates in England. Dr. Skinner, the Company’s President, is headquartered in Birmingham England. An individual named Kevin Murray, who is listed as the Company’s Vice-President, Secretary and Treasurer, is located in Ontario, Canada. The Company’s public filings list no address for its other vice-president, one John Palenthorpe. What roles do Messrs. Murray and Palenthorpe play at this Company? Do they have a background in medicine, research, marketing or corporate management? Do they have experience raising funds or running public companies? While the Company notes Dr. Skinner’s background, it offers no biographical information for these other corporate officers.
Dr. Skinner and Mr. Murray are also directors of the Company. So is a woman named Azie Taylor Morton of Austin, Texas. Ms. Taylor has an impressive resume. She served as Treasurer of the United States from 1977 to 1981 – the first African-American to hold that post. On December 19, 1999, HIV-VAC issued a press release announcing that she had joined the Company’s Board of Directors. According to that press release she also serves on a number of Public Interest Boards, and has been a director of Wendy’s Old Fashioned Hamburgers, Cookie Bouquet Franchise Corporation and Schlotsky’s Deli. It does not appear, however, that Ms. Morton has been associated with any medical research or pharmaceutical companies in the course of her career. Investors may ask, therefore, what contribution she is expected to make to HIV-VAC.
With all of these international connections, is there one place that HIV-VAC can call home? How about the OTC Bulletin Board. In recent months, the Company has made a dedicated effort to maintain that listing. Just how, you may ask? Some creative merging – as we discuss below.
First, however, a little background. Until March 1999, the Company was a Nevada corporation known as Persona Records, Inc. According to HIV-VAC’s recent public filings, Persona was involved in the marketing and development of music recordings. Then, in March 1999, it appears HIV-VAC merged with Persona in what is commonly called a "reverse-merger." In a "reverse merger" the company being acquired (in this case HIV-VAC) winds up in control of the corporation that acquired it (in this case the former Persona). HIV-VAC assumed control of the surviving corporation in 1999 and all of the previously existing assets and liabilities of that corporation were returned to the former shareholders of Persona. (For more information on reverse-mergers see our article in BUYER BE WARY – THE SHELL GAME).
What do investors know about Persona or the terms of the merger? Our search of the SEC’s Edgar archives found no filings for Persona Records. We do know, based upon HIV-VAC’s Form 10-Q for the quarter ended March 31, 2000, that Persona had merged with a company called Nouveaux Corporation in November 1998. Persona was the surviving company in that transaction – apparently a reverse-merger with Nouveaux, which had been inactive since at least 1991. A search of the SEC Edgar archives also revealed no reports filed by Nouveaux.
Nor did HIV-VAC begin to file reports with the SEC at any time soon after the merger with Persona. As a result, financial information on the Company remained unavailable to the public. In the absence of publicly filed documents and financial statements, investors could gather information on the Company only from its press releases, web site, investor relations advisors and a handful of online newsletters that have issued reports on HIV-VAC.
Recent changes to the OTC Bulletin Board listing requirements were designed to make it easier for investors to obtain information on Bulletin Board companies. Now, in order to maintain an OTC Bulletin Board listing, a company must file regular reports with the SEC, including financial statements.
How did HIV-VAC address these new requirements? Creatively.
In early 2000, HIV-VAC faced delisting from the OTC Bulletin Board unless it fulfilled the new filing requirements and became an SEC reporting company. So the Company complied – in an interesting fashion. On March 8th, HIV-VAC merged with a Nevada corporation called SCIENTIFICLIFEPLAN, (sometimes referred to simply as LIFEPLAN), another OTC Bulletin Board company which had already filed with the SEC as required by the new rules.
HIV-VAC’s timing was good. LIFEPLAN, as it turned out, was a "shell" corporation looking to acquire a business through a "reverse merger." Less than two weeks before the merger with HIV-VAC, an individual named Anthony DeMint had acquired all of the shares of LIFEPLAN for $50,000. Then along came HIV-VAC, a reverse-merger veteran. Mr. DeMint sold all of the LIFEPLAN shares to HIV-VAC in exchange for 100,000 shares of HIV-VAC stock.
The Company promised to file financial statements within 60 days. HIV-VAC had avoided expulsion from the OTC Bulletin Board.
Who is Mr. DeMint and how did the Company make this fortuitous connection? The public filings offer no hint of these details.
On May 11, 2000, HIV-VAC filed a Form 8-K that included financial statements showing "current assets" of about $11,000 on September 30, 1999 and $119,000 (on an unaudited basis) as of March 31, 2000. The report also showed the Company had no revenues, and experienced losses of $270,000 for the six months ended March 31, 2000.
HIV-VAC had preserved its place on the OTC Bulletin Board.
LET THE TRADING BEGIN
According to the Form 8-K, the Company had just over 35 million common shares outstanding at the end of March.Those shares have been changing hands at a rapid pace. Between June 9th and June 20th, for example, over 18 million shares were traded, with over 5.3 million shares changing hands on June 12th alone. On that day, HIV-VAC shares, which had closed at 34 cents on June 8th, reached highs of 93 cents – an increase of almost 200%.
Interest in the Company’s stock would appear to have been fueled by a series of press releases, reports by several online newsletters, and rumors circulated on Internet Message Boards.
First, the press releases, some of which contain little "news" about the Company or the state of its business. On March 28th, for example, the Company declared its support for the National AIDS Vaccine Advocacy Project. That day volume for HIV-VAC shares more than doubled. Several days later, on April 7th, HIV-VAC announced its support for an AIDS prevention bill introduced before the United States Senate. Shares of HIV-VAC, which closed at 70 cents on April 6th, increased to $1 the next day – and volume moved from 14,800 shares to more than 137,000 shares.
Another press release on May 2nd contained no new information about developments at the Company, but began like this: "HIV-VAC Inc. stated today that the Company’s AIDS vaccine could become a powerful tool to help combat the global AIDS crisis. Sandy Thurman, who heads up President Clinton’s Office of National AIDS Policy, said that ‘we are just at the beginning of a pandemic, the likes of which we have not seen in this century, and in the end, will probably never have seen in history.’"
The press release went on to note U.S. efforts to combat AIDS, before again summarizing Dr. Skinner’s research. Was Mr. Thurman endorsing the HIV-VAC vaccine? Apparently not, but the casual reader could easily make the mistake of concluding that his remarks were related to the Company’s work.
Other press releases from the Company also seem to have captured investors’ attention. When the Company announced on June 1st that it had received funding (from an unnamed source) for its Russian trials, share prices moved from 18 cents to a high of 40 cents, on volume of 2.7 million shares.
The next day, when HIV-VAC said it would explore human trials in Africa (in an unnamed country, at an unspecified site) with a major American University (also unidentified), another 2 million shares traded, some at highs of 43 cents.
And then there are the newsletters. On June 9th (remember that’s a day of major trading volume and price increase for HIV-VAC shares) an online service called analystgroup.com distributed a report on HIV-VAC, calling the stock a "strong buy" for speculative investors and characterizing the Skinner vaccine as "something that could be proven to be a major medical breakthrough in history."
The basis for analystgroup’s analysis? According to the report, the technology had "already been proven in clinical trials with herpes genitalis" and the "HIV vaccine has been satisfactorily tested on animals." Where were those animals tested and when can investors expect to see those results? Analystgroup.com does not address such concerns.
Instead (after reviewing the dire nature of the AIDS epidemic and the potential marketplace for an HIV/AIDS vaccine) it offers its theory for valuing HIV-VAC shares. "As far as we know," analystgroup.com explains, "only one public company is doing something pretty like what [HIV-VAC] does. It’s VAXGEN, INC…Last year [Vaxgen] has [sic] no sales with a loss over $24 million, but its stock commands a market cap at $252 million."
How does this bear upon the value of HIV-VAC shares? Analystgroup.com explains: OTC Bulletin Board "stocks are often valued at half of its [sic] peers on the NASDAQ. Thus, this alone could give [HIV-VAC] a fair market valuation at $4 per share, not to mention [HIV-VAC’s] vaccines which might be proven to be more effective than [Vaxgen’s]." (We added the underlining – just so you get the point).
Analystgroup.com says the Company is "projecting impressive growth rates for the next two years" - citing projected revenues of $4.375 million for 2001 and $142 million for 2003.
What is the basis for analystgroup’s valuation, or those revenue projections? How does the Company plan to generate any revenues in 2001 and 2002? Are these estimates based upon sales of a vaccine that must first initiate, undergo and complete human trials – and then gain necessary regulatory approvals and find development and marketing partners?
Despite these lofty projections, analystgroup says it will limit its target price for HIV-VAC shares to $4 to $5 because "we are conservative."
Well, maybe not that conservative since analystgroup.com does not hesitate to state "[w]e believe the vaccines have a great chance to be proven effective against HIV/AIDS."
Based upon what, we wonder. Could they be relying upon the laboratory tests in Russia that are not even projected to proceed to human trials for about a year? Or does analystgroup.com employ its own medical experts to test and assess new medications?
As for the comparison with Vaxgen, investors may wish to note a few minor distinctions. Vaxgen holds the rights to several patents for HIV/AIDS vaccines (one of which is already involved in Phase III clinical trials); recently reported assets of $70 million; and is working in collaboration with the Centers for Disease Control and Prevention and the National Institute of Allergy and Infectious Diseases. Vaxgen’s officers and directors have extensive experience in public health and biotechnology. Vaxgen’s shares currently trade at about $18.5.
Analystgroup.com says it does not accept any compensation from the companies it recommends. However, it acknowledges that associates of analystgroup.com may, from time to time buy shares in those companies – and may sell them "even after we have made positive comments regarding the Company."
Did analystgroup.com own shares of HIV-VAC when it issued its "Strong Buy" rating? Did it sell any of those shares when stock prices increased immediately after the report was released? The analystgroup.com report doesn’t say.
One Internet newsletter concedes it did receive compensation for publishing a report on HIV-VAC. Stockhouse.com published something called "Platinum Snapshots," featuring HIV-VAC That report reiterated information available on the HIV-VAC web site and echoed the Company’s sentiment that "HIV-VAC is developing one of the most significant medical discoveries in the 20th century."
Investors who read the small print at the end of the "Platinum Snapshots" will find that this "report" is actually an advertisement, and that Stockhouse.com received compensation from HIV-VAC, "including fifty thousand shares of free trading stock." Was any other compensation included? The disclaimer provides no further information.
Recently, Internet Message Boards, including Raging Bull, Yahoo! Finance and something called BOBz.com have been a source for wild rumors about HIV-VAC. Those postings have increased in the past few weeks as the Company has issued its spate of press releases.
What kind of rumors are being spread online? In recent days message posters have urged investors to buy shares, claiming that Canadian approval for the HIV vaccine may be imminent. Buyers may, however, wish to proceed with caution. After all, according to the Company, human trials are still months away.
Other posters have asked whether a merger between HIV-VAC and a major pharmaceutical company could be imminent. So far, however, we have not been able to find that any of the Company’s public disclosures have suggested even a working relationship with such a company.
Neither of these rumors have been substantiated. That hasn’t stopped the HIV-VAC chat from preceding at a breathtaking pace.
Where does HIV-VAC go from here? Will tests prove successful? Will funding materialize? Investors may wish to note the fate of some other recent HIV/AIDS research. In one instance, at least, Dr. Skinner has. On June 9, 1999, the Company issued a press release reflecting Dr. Skinner’s interest in tests of an HIV vaccine by Immune Response Corporation that ended "due to their minimal effect when added to conventional anti-HIV ‘cocktail’ therapies." Dr. Skinner said the Company would be requesting information on those trials "to further our development of our HIV-VAC vaccine." Did the Company ever receive that information, and if it did, does it have any bearing on the prospects for HIV-VAC’s vaccine?
Recent events may also prove instructive. Columbia Laboratories, Inc. had been working to develop a vaginal cream that would protect women against contracting HIV. On June 16th, that Company reported that the device had failed to show any benefit after five years of tests on prostitutes in Africa and Thailand. Investors were particularly disappointed because, in March, Columbia Laboratories had expressed optimism that the product would prove effective. Now, at least five class action suits have been filed by shareholders of Columbia Laboratories, including allegations that the company knew, or should have known, that there was no basis for such optimism.
Which only reinforces the notion that investors should be cautious – and wary. Hopefully, the future will bring a vaccine against, and cure for HIV and AIDS. Perhaps it will even come from HIV-VAC. In the meantime, however, there is no cure for greed.
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