Recent reverse-merger, Akoustis Technologies, Inc. (AKTS), we believe is partially controlled by a hard-partying but secretive man once investigated for possible stock manipulation of reverse merged companies. This Canadian resident quietly rides herd over Akoustis from his luxurious apartment in Switzerland, SEC filings indicate.
But the market is unaware of that interest in this company with no meaningful revenue, no commercial product, a single patent and no clear execution route.
Indeed, the over-the-counter stock uplisted to the Nasdaq a few weeks ago and caught fire. The market valuation ripped to around $200 million dollars and the ugly stick of misunderstanding began gently tapping on the market's front door.
The stock is an example of companies that have fallen into a series of special reverse merger deals.
Here’s how these deals typically work:
A. The Shell. A struggling company, sometimes led by a CEO residing overseas, is selected by the deal guy. In Akoustis case, the deal man is living in Switzerland while his former business partner just got out of prison after serving stock fraud charges.
B. Control. The struggling company’s CEO, Russian in this case, and the deal guy control the shell’s stock.
C. Merger, Stock Sales. After several transactions, the struggler reverse-merges with a so-so private company. Typically, a private stock sale gives insiders cheap stock, for Akoustis $1.50 to $1.60 per share.
The former private company in the Akoustis case is a non-product company with one old, moldy invention developed by the CEO and his brother – with the patent application filed nearly two decades ago. The reverse merger allows the moldy patent company to offer stock to the public.
D. Loading Up. The shell leader steps aside. The Russian guy steps down and surrenders his Akoustis stock. Ultimately, new company leaders end up with millions of shares. The new CEO and the deal guy get the lion’s share.
E. The Pump. Bought-and-paid-for hype pushes the stock price. When the stock goes from over-the-counter or OTC to trading on the Nasdaq, even more potential investors are exposed. Their stock portfolios may take on a truckload of risk because they don’t know they’ve read paid-for promotional stuff.
F. More Hype. The company often hypes questionable pending business deals. Indeed, Akoustis promotes a plan to buy and expand a factory in New York, complete with supposed incentives. What Akoustis didn’t mention is that the factory is spoiled goods left in the wake of the biggest corruption scandal to hit New York in recent years.
G. The Dump. The stock heats up. Insiders and early investors with cheap stock often register their shares ahead of time so they can sell when the price is right. Stock hits the market. If a lot of shares hit and/or someone says “Hey, this stock too high!” the price can plummet. Investors panic and, with everyone trying to sell, they may not be able to sell their stock at a half-way decent price. Now, the Akoustis’ deal guy, CEO and others are registered and ready to sell.
The company did not respond to TheStreetSweeper’s numerous requests for comment but investors may find the company website here.
TheStreetSweeper has contacted the Securities and Exchange Commission by phone and email about this company that has multiple discrepancies in SEC filings and a key stockholder tied to a convicted stock fraudster ... a company that apparently can't afford a secretary who'll answer the phone, yet apparently does spend big bucks on promotions which lure unwary investors.
We present 12 top risks associated with this Huntersville, North Carolina radio-frequency filter developer for wireless carriers.
*1. The Merger: From Russia With Love
Akoustis Technologies took the cheap and easy route to the public market in May 2015 by merging into a shell company - a Russian shell dreaming of making mobile games for Apple.
(Source: Akoustis SEC filing)
The shell existed as a one-man band with Ivan Krikun at the lead. He juggled seven corporate positions while the band banged out a melody of zero revenue, big losses and auditors' warnings that "going concern" issues could kill the whole thing. The Apple games didn’t happen.The business plan fell apart.
Behind the scenes, a deal guy may be adding Akoustis to his collection of stock toys...
*2. Mysterious Deal Guy; Offshore Accounts
We believe the man behind the Akoustis curtain, Mark N. Tompkins, has been a moving force behind both the current company and the Russian-owned shell.
His involvement is not just interesting. It's a risk factor. In 2009, federal prosecutors in Manhattan investigated whether Mr. Tompkins and his business partner/lawyer/buddy had manipulated stocks.
(Source: YouTube, Adam Gottbetter)
The lawyer/business partner, Adam Gottbetter (pictured above, a key subject in TheStreetSweeper's report on reverse-merger Ekso Bionics here) pleaded guilty in 2014 to conspiracy to commit stock fraud and received a 1 ½ year sentence.
Mr. Tompkins wasn't charged but the investigation did shine light on Mr. Tompkins and his moneymaking system of promoting stocks.
Divorce proceedings in 2006 and investigators' subpoenas revealed a living-life-to-its-fullest, but cautious man who said he didn't maintain business records and warned associates never to email him. Mr. Tompkins reportedly owned 20 brokerage accounts at the time and nine offshore bank accounts.
His then-wife’s divorce papers contend, according to Barron’s, that Mr. Tompkins had hidden assets, and kept financial accounts and conducted business through "corporate entities in 'nondisclosure' countries like the Cayman Islands and Switzerland."
*3. Stock Toy
Mr. Tompkins now resides in Switzerland in a glitzy district sparkling with luxury hotels that customize everything from guests’ pillows to their toilet paper.
Our chart shows Mr. Tompkins co-owned the shell, Danlax, that Akoustis jumped into:
(Sources: Company SEC filings, TheStreetSweeper)
Our investigation indicates that Mr. Tompkins or an associate may have picked out the struggling Russian shell several years ago.
*4. Company SEC Filings Vs. Actual Records: Major Discrepancies
The Akoustis timeline - which shows major discrepancies between what the company reports in SEC filings versus state records of Akoustis business activities - offers insight into the two companies:
*April 10, 2013: SEC filings state Danlax (the shell) incorporates in Nevada.
*May 15, 2015: The date Danlax actually incorporates is two years later, Nevada records show in an apparent discrepancy. The papers were revoked the same month because Danlax failed to pay fees and submit a list of officers due that May, said a state staffer.
Danlax incorporation documents were filed by a specialist in "same-day" incorporation. Akoustis Technologies convert out documents filed April 10, 2013 were also filed by that same-day specialist:
*May 12, 2014: Akoustis incorporates on this date in Delaware, company SEC filings state.
But here’s another discrepancy …
*December 15, 2016: Delaware records indicate Akoustis filed for incorporation almost two years later than SEC filings state the incorporation occurred. Also, Akoustis certificate is not in good standing, potentially putting loan applications and other transactions in jeopardy.
TheStreetSweeper tried again to reach CEO Jeffrey Shealy to comment on these discrepancies. Again, no response to any of our calls and emails, which began about two weeks ago and continued through May 10.
*May 22, 2015: Reverse Merger: Akoustis merges into Danlax shell and sells about $5 million worth of stock privately at $1.50 per share. Several days earlier in a private deal, the Russian shell-owner/one-man-band also surrenders his stock.
*Unnecessary: Danlax documents were not kept current because the shell had served its purpose as a quick and easy vehicle to an initial public offering. Mr. Tompkins held pre-merger stock and the public could now buy Akoustis stock “OTC” or over-the-counter. At that pre-Nasdaq-listing time in early 2015, shares were pretty much forgotten, wallowing in penny stock land.
*5. Paid Promoter: Costly Hype
Following a promotional campaign paid for by Akoustis or its agent, the stock has continued to climb.
Here is a snapshot from a late February promotion:
On March 24, the same promoter raised the price target in another promotional piece, actually writing that Akoustis bought a MEMS Fab for a song. That’s the snake-bitten factory deal expected to close around June 30.
The promoter - which many smaller investors follow - discloses that hype is not cheap … ~$10,000 to ~$50,000.
“Zacks SCR has received compensation from the issuer directly or from an investor relations consulting firm engaged by the issuer for providing non-investment banking services to this issuer and expects to receive additional compensation for such non-investment banking services provided to this issuer … Fees typically range between ten thousand and fifty thousand dollars per annum. “
*6. New Announcement: Why Investors Shouldn't Bite
The stock is flying now that it has uplisted to the Nasdaq and been promoted in bought-and-paid-for advertisements parading as valid analyst reports. The stock price also benefited from company announcements of a pending filter factory purchase and an associated tax break from a New York government program.
Investors should not get caught up in those announcements. Here’s why:
*Filter Factory: Tainted by Scandal? – The semiconductor factory is what remains of a 15-year technology hub effort by a small college in New York state. The incentives hinge on whether Akoustis buys and successfully converts the factory to eventually produce Akoustis filters.
But the factory is distressed property that once formed SUNY Polytechnic Institute's centerpiece program. To unwary investors, the sellers – Research Foundation for the State University of New York (RF-SUNY) and state-affiliated board Fuller Road Management Corp. - may sound like they’re name-dropping.
Don’t be fooled.
The charismatic SUNY Polytechnic Institute president Alain Kaloyeros, stepped down and recently pleaded not guilty to federal and state bid-rigging charges. He's accused of helping hand-picked companies get cushy state university construction contracts.
The politically connected physicist earlier resigned from the board of the two nonprofits that handle the university’s real estate. Nonprofits Fort Schuyler Management Corp. and Fuller Road Management had drawn investigators’ interest but faced no charges.
Even if one puts the distasteful issues aside, the pending $2.75 million deal for the modest factory is small potatoes compared to other firms' investments. One firm, Skyworks Solutions bulked up its position with a recent $225 million deal, including patents, engineers and a factory.
*Failed Program - State audits of the government incentive program show that Empire State Development has produced a spectacular string of failures, waste, fraud and abuse.
Additionally, Empire State Development has fallen more than $10.7 billion in debt.
There’s another big clincher, too. In order to qualify for the tax break, Akoustis is expected to invest $20 million in the factory and create 200 jobs plus keep the 30 current positions.
TheStreetSweeper delves into this factory deal and incentive program in a later report.
*7. Sole Patent: 17 Years Old
The company has no commercial product and, incredibly, its future hinges on a patent that is nearly two decades old.
CEO Jeffrey Shealy filed for that sole RF filter patent in 2000. The patent was approved three years later.
Aside from that one issued US patent, Akoustis has 11 pending applications, according to SEC filings. A good backyard inventor we know of has double the patents and applications filed by Akoustis.
Unfortunately, current technology long ago left Akoustis' 17-year-old idea in the dust…
*8. The Akoustis Product: Moldy Oldy
Research shows even if Akoustis' RF filter were more up-to-date, the product would arrive late to the party.
Its filters are hoped to help improve battery life and cut down on dropped calls. They would like to make and sell these to carriers. But the filters used by carriers like AT&T, Verizon and Sprint now perform far better than they did when the field first caught Akoustis' eye.
Indeed, a large study by Root Metrics, "Mobile Network Performance in the US" shows that carriers have recently chopped dropped calls to 2% and lower.
Those companies’ current filter sources have already addressed the need.
Akoustis, in our view, is like a flickering, black-and-white TV compared to the competition. You just can't give it away.
Smart insiders recognize the situation and hear the clock tick-tick-ticking. Mr. Tompkins and others are growing more eager. We believe a big stock sale … is … looming.
First, let’s consider Mr. Tompkins’ previous stock deals.
*9. Promoted Stock: Pop-and-Flop
Many other stocks that Mr. Tompkins, Mr. Gottbetter and/or other associates have collaborated on have popped and flopped.
Some point to oil company Gran Tierra Energy (GTE, once $8 per share, now ~ $2.60) as a modest success.
And then there was Alternative Energy Sources (AENSE; AENS).
The ethanol refiner's shares rose to nearly $3 in 2006. People who saw the trading records at the time told Barron's that most trading involved blocks of stock traded back and forth between accounts controlled by Mr. Gottbetter and Mr. Tompkins. Our attempts to reach Mr. Tompkins have been unsuccessful.
After the pop, the stock collapsed.
Operations shut down. The company dissolved. The Securities and Exchange Commission revoked the registration five years ago to "help ensure that the corporate shell is not later put to an illicit use ... (and its stock) manipulated."
(Source: Company SEC filing, TheStreetSweeper)
*10. Mystery Man: Other Interests
Mr. Tompkins has had an interest in numerous hazardous reverse-merged companies. Let’s consider a couple that have recently unraveled.
Principal executive office: 2217 New London Turnpike, South Glastonbury, CT ... Its last location would sandwich it somewhere between Subway and The Hair Company.
Interesting facts: The shell failed to sell baby products, switched to "Raditaz" streaming music effort in 2014. Cur intended to become a "transformative social music streaming service." On Jan. 31, 2014, the company merged into a shell and held the first of three private stock sales.
The stock once fetched $40. It now trades over-the-counter (OTC) for about 40 cents per share.
(Source: Marketwatch, TheStreetSweeper)
Most everybody has left. Even the interim president and CEO beat feet last August. Cur Media seems to be a shell ... again.
*B. Enumeral Biomedical Holdings (ENUM). Mr. Tompkins stake (December 2015): 6.6%
The reverse-merged company began in 2012 as a shell called Cerulean Group, incorporated in Nevada.
Principal executive offices: Based in Cambridge, Massachusetts. Much like the Akoustis shell’s foreign underpinning, Enumeral’s shell was based in Czech Republic.
Interesting facts: The shell was intended as an online trip planner for backpackers, while Enumeral touted a university’s cast-off intellectual property. The shell’s sole officer, Olesya Didenko, was a non-resident of the United States. Auditors issued going concern issues.
Telling disclosure: “To date, the Company’s proof-of-concept corporate collaborations have provided minimal revenue. However, the Company’s business has not generated (nor does the Company anticipate that in the foreseeable future it will generate) the cash necessary to finance its operations.”
Today, Enumeral reports nearly $12 million in accumulated losses.
The company's earnings performance is terrible and growing worse:
The stock performance is spectacularly poor at around 10 cents:
AND … per a March 31, 2017 stock registration form, Mr. Tompkins is trying to dump every share of his Enumeral stock:
Now, let’s return to our similarly situated Akoustis …
*11. The Kicker: Insiders Rush To Sell Akoustis Stock
Here’s the kicker: Records indicate both Mr. Tompkins and the chief executive hope to cut their stake in Akoustis.
Akoustis filed stock registration papers in December that contain their names among 60 plus stockholders lining up to sell. The company won’t get one thin dime out of the stock sales, but early Akoustis shareholders can sell nearly 4.7 million shares of Akoustis stock.
Mr. Tompkins and Akoustis CEO Jeffrey Shealy have both registered to sell Akoustis shares:
(Source: Company SEC filing (click to see entire list of selling stockholders, TheStreetSweeper)
Mr. Tompkins’ apparent intent to sell some $20 million worth of stock insults the average investor. He acquired many of his $1.50 shares through the Danlax shell that he co-owned with the Russian.
*12. Insult To Investors
Particularly insulting is that CEO Shealy smiled and rang the closing bell at the NASDAQ on March 22.
Three months earlier, the chief executive had registered to dump 134,000 shares of his company.
Both Tompkins’ and Shealy’s brothers also registered to unload stock.
The CEO’s brother, James Shealy, registered to sell 90,000 shares. The Shealy brothers co-founded the company (RF Nitro) associated with the 17-year-old patent at the company's very foundation.
Here’s the deal, according to registration records:
*The CEO wants to sell nearly 4% of his stake in the company.
*The CEO’s brother and apparent co-inventor of the company’s base technology wants to sell nearly 19% of his stake.
*Tompkins wants to sell about 86% of his stock.
Many insiders’ shares were purchased for a buck and change apiece. Selling at current levels would give insiders and big shareholders a roughly 500% return on investment.
TheStreetSweeper will continue digging into the characters and practices surrounding Akoustis.
Akoustis may be another stock toy for the deal guy, offering discrepancies in documents and no real business.
Knowing the company’s weaknesses and eyeing the stock price, the pack is galloping to sell their shares. The company itself warns more stock sales are likely as it burns through millions each quarter.
The stock, we believe, is hugely overpriced while the company’s technology, plan and promise are uncertain.
One thing is certain. If Mr. Tompkins sells his 2 million registered shares, he’ll get to continue to live in luxury in Switzerland or anyplace else … forever.
In our view, Akoustis stock is doomed to plunge about 40% near-term and ultimately turn Akoustis into a penny stock ... Once again.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in AKTS and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected]