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No. of Recommendations: 6

I think you are prudent to unload your shares of PHM. Tonight I had a look at PHM for the first time in about a year. So, PHM has about 153 million shares outstanding, for a market cap of $165 million. Management has been very generous granting themselves 20 million options outstanding, most of which exercise at under 25 cents and there are 40 million warrants outstanding at about 38 cent average. So total of about 213 million shares diluted with maybe $20 million in cash coming in from exercise of warrants and options if exercised.

Back of the envelope, I went through and they have paid about $17 odd million for acquisitions in the last 2 years. I had their original INR business pegged at $8 million max. Maybe it's grown a little. We'll give it a generous $10 million valuation. That gives a value based on acquisition of $27 million. Has management been able to increase the value of these businesses by a factor of 5X in a year? That is some serious financial engineering. There are still related party transactions going on here. They haven't had a single profitable quarter, and they are releasing adjusted EBITDA numbers that eliminate stock based comp, which is very significant. They are very promotional, as they press release every single letter of intent, never seen that before. I would be surprised if they report an IFRS net profit at all in 2015. Even if you give them the benefit of the doubt, and say they are on pace to generate the $9.4 million in EBITDA from their Jan 29, 2015 press release (which again eliminates stock based compensation), you are still at an EV/EBITDA of 16.5X. I don't think this business is worth anything close to that. Also, cross selling services sounds like a great strategy in theory, but is a medicare patient in Georgia who is monitoring their INR with PHM test strips really going to order their respiratory services like oxygen tanks from South Carolina. I just don't get the cross selling thesis here. That's all in addition to the doubtful accounts receivable that ears pointed out. Anyways, Ben can take on Donville on HCG (with real money) and ears and I will take the other side of the trade with Donville on PHM (with our play money).
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