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Tale of a Dumpster Dive

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July 19, 2007 – Comments (1)

This morning’s e-mail had an important investment opportunity from streetinsider.com. An analyst who is on the way to ‘becoming the greatest oil & gas stock-picker of all time’ was letting me in on Sun Cal Energy (SCEY), trading under $4.25 on its way to $55! What a deal!

It's a one-star stock with 14 outperforms and 12 underperforms. All the underperforms and two of the outperforms come from CAPS all-stars.

A quick look at Yahoo! Finance revealed that SCEY was now trading as SCEY.OB and had no revenues. And it was ratable in CAPS! Played a hunch and red thumbed it without doing any research and headed off to work. 

A little more digging this evening revealed that Sun Cal has $895,000 in net assets, a little over 78 million shares outstanding (although they may well have sold more since the 10QSB was issued) and a market cap of $265 million so it’s only trading at 296 times book value. At least it has positive book value.

No data available on Yahoo, so opened up the quarterly report to learn a little more. This company used to be known as Host Ventures, Inc. before merging with a wholly owned subsidiary.

As Host, they ‘have been in the business of mineral exploration’ and ‘currently rely upon the sale of our securities to fund operations.’

Then, ‘… we completed a merger with our subsidiary, Sun Cal Energy, Inc. As a result, we changed our name from "Host Ventures Inc." to "Sun Cal Energy, Inc." We changed the name of our company to better reflect the possible new direction and business of our company.’ The possible new direction and business of our company – you can’t make this stuff up.

So, they’ve morphed into an oil and gas exploration company.

The company also expects to ‘incur significant losses into the foreseeable future’ and that ‘we will be required to obtain additional financing in order to continue our plan of operations. We believe that debt financing will not be an alternative for funding additional phases of exploration as we do not have tangible assets to secure any debt financing. We anticipate that additional funding will be in the form of equity financing from the sale of our common stock or through shareholder or related party loans.

I have limited experience reading these things, but it’s the first time I’ve laughed at an SEC filing. Speaking of the SEC, hopefully they're looking into nonsense like this.

After one day, the pick is going against me - but I have faith that a business model that relies on share dilution, no revenues and no tangible assets will ultimately come through and pull the share price down.

Fool On! 

1 Comments – Post Your Own

#1) On July 19, 2007 at 2:17 AM, MakeItSeven (31.65) wrote:

That's a good one.  I'll add my first dumpster diving pick tomorrow :).  BTW, a biography of a certain unspeakable president described his oil exploration career as "He dug more holes in the tax code than in the ground".  For this company, it might be changed to "They find more ground in investors' pockets than in land they could dig."

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