Warning: Top 5 Hyped Penny Stocks with Red Flags

The allure of penny stocks lies in their potential to deliver massive gains in a short period of time.

But in exchange for that opportunity, penny stocks carry TREMENDOUS risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.

How is this possible? For starters, the majority of penny stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In short, OTC-traded penny stocks don’t meet the rigorous standards required to trade on major exchanges like the NYSE, NASDAQ, and AMEX.

As a result, they can go largely “unchecked” and their financial condition can be extremely difficult to analyze. In the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment.

With this in mind, and to give you an idea of the kind of red flags to look for when you’re considering a penny stock, we’re taking a closer look at five of today’s most hyped penny stocks. These stocks are being touted by YouTube “influencers” with far-reaching audiences, carrying the risk of a “pump and dump”.

Sl #	Name	Ticker	Last Close
1	electroCore, Inc.	NASDAQ: ECOR	$1.63
2	Remark Holdings Inc.	NASDAQ: MARK	$1.60
3	Marrone Bio Innovations Inc.	NASDAQ: MBII	$1.41
4	Byrna Technologies Inc.	NASDAQ: BYRN	$26.41
5	Healthlynked Corp	OTCMKTS: HLYK	$0.67

 

#1 electroCore, Inc. (NASDAQ: ECOR)

Company Info: electroCore Inc is a commercial-stage bioelectronic medicine company with a platform for non-invasive vagus nerve stimulation therapy initially focused on neurology and rheumatology. The company’s product gammaCore is FDA-cleared for adjunctive use for the preventive treatment of cluster headache and the acute treatment of pain associated with episodic cluster headache and migraine headache in adult patients.

Website: www.electrocore.com

Last Close: $1.63

Reason for the hype: The approval of ElectroCore’s gammaCore Sapphire family of products, including a non-invasive vagus nerve stimulator (nVNS) for primary headache disorders by Australian Therapeutic Goods Administration; News of Johns Hopkins University School of Medicine starting an investigator-initiated trial of non-invasive vagus nerve stimulation (nVNS) using the Company’s proprietary gammaCore device to treat symptomatic exacerbation of nausea in patients with gastroparesis and related disorders; the news of the U.S. Department of Veterans Affairs starting an investigator-initiated study of the use of gammaCore SapphireTM non-invasive vagus nerve stimulation (nVNS) for the treatment of post-traumatic headache (PTH); and announcement of First Quarter 2021 Financial and Operational Results results wherein regulatory, distribution, and clinical milestones were achieved.

Latest 10-k report: https://sec.report/Document/0001213900-21-014871/

Red Flags:

1. The company had incurred net losses of $23.5 million and $45.1 million for the years ended December 31, 2020, and 2019, respectively. As of December 31, 2020, the company’s accumulated deficit was $107.0 million.
2. ECOR had noted in its annual report that it may continue to incur substantial net losses and negative cash flows from operations for at least the next several years. This doesn’t bode well for the future prospects of the company, which had surprisingly IPO’d at around $20.
3. The company’s ElectroCores gammaCore device has many rival products like Cefaly, which has been out in the market for the past five years. There are also several neuromodulation devices that have been marketed for the acute treatment and/or prevention of migraine, including the Nerivio, and the sTMS mini devices. Such intense competition could limit the company’s business.
4. The company currently holds 165 patents and patent applications, including more than 100 issued U.S. patents, more than 25 U.S. patent applications, and more than 40 international patents and applications. However, all of their current issued patents are projected to expire between 2026 and 2033.
5. ECOR has ongoing litigations like the Kuehl and Stone class-action lawsuit, and putative class action lawsuit Allyn Turnofsky vs. electroCore, Inc., et al. These lawsuits could result in adverse outcomes and impact the company’s financial position, results of operations, and cash flows.
6. The company had to settle a dispute with one of its former advisors, Madison Global Partners, who had filed a complaint against us in the Supreme Court of the State of New York, County of New York, by paying $325,000 and issuing to Madison Global and its representatives warrants to purchase in the aggregate 62,181 shares of Company common stock at prices ranging from $5.68 per share to $12.60 per share.
7. Third-party payers have been resistant to cover gammaCore through pharmacy benefit plans. This hindered the company’s commercialization strategy and required changes to its existing business. This could delay and negatively impact the company’s ability to generate revenue.
8. The company may need to raise capital again soon to fund operating expenses and capital expenditure requirements. Shareholders could be diluted in case the company issues additional stock, conversion by holders of optionable securities, or secondary offerings.
9. The charts indicate that the stock has been on a downtrend.

#2 Remark Holdings Inc. (NASDAQ: MARK)

Company Info: Remark Holdings Inc delivers an integrated suite of AI solutions that enable businesses and organizations to solve problems, reduce risk and deliver positive outcomes. The company’s easy-to-install AI products are being rolled out in a range of applications within the retail, financial, public safety, and workplace arenas. The company also owns and operates digital media properties that deliver relevant content and e-commerce solutions. The group operates in one segment namely Technology & Data Intelligence segment which provides products and services to customers based upon the data collected and processed by its proprietary data intelligence software.

Website: www.remarkholdings.com

Last Close: $1.60

Reason for the hype: The company was chosen as the exclusive marketing partner for SuperDraft, a daily fantasy sports (DFS) platform; and a potential upcoming IPO by privately held Sharecare, of which Remarks holds a 4.5% interest.

Latest 10-k report:  https://sec.report/Document/0001368365-21-000017/

Red Flags:

1. The company has a history of operating losses and may not generate sufficient revenue to support its operations. During the year ended December 31, 2020, and in each fiscal year since inception, the company incurred net losses and generated negative cash flow from operations, resulting in an accumulated deficit of $360.5 million.
2. The company has significant operations in China and is directly affected by any country-wide slowdown in business, trade wars, and extended project testing and customizations on MARK’s larger projects.
3. The company gets its majority of revenue from its AI business, which is a highly competitive field. SenseTime, Face++, Google, GoGoVan, WeLab, and others are some of the company’s competitors with arguably superior products. The company’s business in the AI solutions market space also has competitors like PricewaterhouseCoopers, Hewlett Packard, Baidu, and others.
4. The company had lost the Greenspun Litigation and the Nevada court had entered a judgment against the company in the total amount of $1,050,000.
5. MARK had to repay in full all outstanding obligations for the notice served by MGG Investment Group (MGG Litigation) alleging a claim for breach of contract under the Financing Agreement.
6. The company has a high cash burn and its operations have historically used more cash than they have provided. As of December 31, 2020, the company’s cash and cash equivalents balance was $0.9 million and had a negative working capital balance of $8.3 million. This is despite the company signing an effective equity line of credit for up to $30 million with a Wall Street firm called Aspire Capital.
7. According to the Q1 report, MARK’s net loss totaled $5.5 million, or $.05 per diluted share, compared to a net loss of $2.4 million in the quarter ending March 31, 2020.
8. The bottom line is that the recurring operating losses, working capital deficiencies, and negative cash flows from operating activities give rise to substantial doubt regarding the company’s ability to continue as a going concern.
9. In a report by J Capital, several allegations were made surrounding MARK’s network as well as their contracts, claiming that many of these contracts didn’t exist. The report also noted that significant options were awarded to CEO Kai-Shing Tao and CFO Doug Os­row. In 2015 and 2016, these two were awarded option packages of about 3.05 mil­lion shares–most of which vested immediately–at prices in the USD 4-4.50 range; translating to net gains close to USD 23 mln. Osrow has regularly cashed in, making about USD 500,000 in January of 2018 alone.
10. J Capital further noted that Remark Holdings has a history of repeatedly releasing press releases boasting of major future developments without ever delivering tangible results. J Capital also said that Remark management has a long track record of making unverifiable claims about patent applications, the popularity of its platforms, and its business relationships with other companies.
11. The chart shows that the stock would be bullish only above a resistance area.

#3 Marrone Bio Innovations Inc. (NASDAQ: MBII)

Company Info: Marrone Bio Innovations Inc. is a US-based firm engaged in producing bio-based pest management and plant health products. The company’s products include Fungicides, Insecticides, Sanitizers, Seed and Soil Treatment, Nematicides, and others. The firm generates its revenue from sales of Marrone products, mainly Regalia, Grandevo, and Venerate.

Website: www.marronebioinnovations.com

Last Close: $1.41

Reason for the hype: The company reporting encouraging financial results for the first quarter ended March 31, 2021; 4-5 products in the pipeline that is waiting for strategic partnerships for national launch; and expansion of the Michigan plant.

Latest 10-k report: https://sec.report/Document/0001493152-21-006648/

Red Flags:

1. MBII has been a loss-making company since its inception in June 2006. As of December 31, 2020, the company had an accumulated deficit of $340.8 million, and for the years ended December 31, 2020, and 2019, the company had a net loss attributable to common stockholders of $20.2 million and $37.2 million, respectively.
2. The company had to make a settlement payment of $12 million to settle the private securities class action litigation Special Situations Fund III QP, L.P. et al v. Marrone Bio Innovations, Inc. et al.
3. MBII had to settle the lawsuit by investors over alleged financial misrepresentations by the company, for a $775,000 deal with Marrone auditor Ernst & Young LLP.
4. The company was served a letter from the Listing Qualifications Department of The Nasdaq Stock Market notifying of its non-compliance with Nasdaq Listing Rule 5550(a)(2) as a result of the company’s closing bid price being below $1.00 per share for 30 consecutive days.
5. MBII has a history of accounting scandals wherein inaccurate results were reported to investors. The company’s former chief operating officer of Marrone Bio Innovations Davis was charged with securities fraud, falsifying corporate records, and other crimes, for which he plead guilty.
6. Consequently, the company had to pay $1.7 million in civil penalties to settle SEC allegations of securities fraud, failed internal controls, and books and records violations. That had set off a cascade of problems costing Marrone Bio $60 million in shareholder value.
7. The pest management market is very competitive and is dominated by multinational chemical and life sciences companies such as BASF, Bayer, Dow Chemical, DuPont, Monsanto, Sumitomo Chemical, and Syngenta. Other companies, including bio-specialized biopesticide businesses such as Arysta, AgraQuest, Certis USA, and Valent Biosciences may prove to be significant competitors in bio-based pest management and plant health market.
8. As per the form 8-K, for a year, the company’s CEO is paid $385,000; discretionary bonus plan of up to 45% of his annual base salary; and an option to purchase 2,450,000 shares of the Company’s common stock. This is steep pay for a loss-making company.
9. The company requires additional financing in the future to maintain and expand its business, and to service its debt. Such capital raising may be costly, difficult, or not possible to obtain and, if obtained, could significantly dilute current stockholders’ equity interests.
10. The chart shows that the stock would have a bullish bias only above the gap resistance area.

#4 Byrna Technologies Inc. (NASDAQ: BYRN)

Company Info: Byrna Technologies Inc. is a non-lethal technology company, specializing in the development and manufacture of less-lethal equipment and munitions. Its product Byrna HD is a well-made, ergonomically designed, handheld personal security device. The firm’s products are used by homeowners, renters, campers, truckers, real estate agents, and others which helps the individual to reduce risk and ensure safety. It markets products to the consumer, private security, law enforcement, and military end markets in the United States, Canada, and South Africa.

Website: www.byrna.com

Last Close: $26.41

Reason for the hype: The company’s common shares were approved for listing on the Nasdaq Capital Market; reverse stock split; and unconfirmed rumors that the Police Department is going to carry the Burna instead of Tasers.

Latest 10-k report: https://sec.report/Document/0001387131-21-002902/

Red Flags:

1. The company had recorded a net loss in all reporting periods since inception. The company had reported a net loss for the years ended November 30, 2020, and 2019 of $12.6 million and $4.4 million, respectively, and the company’s accumulated deficit at November 30, 2020, was $50.2 million. The company also gives no assurance of success in reducing the net loss or becoming profitable.
2. Despite being a loss-making company, the Chief Executive Officer (CEO) was paid $4,055,029, while the company’s Chief Legal Officer (CLO) was paid $1,271,027 for 2020.
3. The company has a limited operating history. Although the corporate entity has existed since 2005, the company had started manufacturing and selling the Byrna® HD only since April 2019.
4. Many members of the management team are relatively new to the Company. Key senior management personnel, including the Chief Financial Officer (CFO) and Chief People Officer (CPO) began their current roles late in the third quarter in 2020 and the Chief Marketing Officer (CMO) in the first quarter of 2021. As a result, the company’s business may be subject to many of the problems, expenses, delays, and risks inherent in the rapid growth of a relatively new business and the integration of key personnel and infrastructure.
5. The company had changed its name from Security Devices International, Inc. (CSE: SDZ) (OTCMKTS: SDEV) to Byrna Technologies Inc. on March 4, 2020.
6. Less than 5% of Byrna Technologies is held by institutional investors. The general public, including retail investors, owns 59% of Byrna Technologies.
7. The chart indicates that the stock would be bullish only above the supply area.

#5 Healthlynked Corp (OTCMKTS: HLYK)

Company Info: HealthLynked Corp is a development stage company. It operates a cloud-based online personal medical information and record archiving system for patients and doctors to keep track of medical information via the Internet in a cloud-based system. The company has two segments that are Health Services and Digital Healthcare. The health services segment is a multi-specialty medical group including Obstetrics and Gynecology, and General Practice. The Digital Healthcare segment plans to operate an online personal medical information and record archive system, the HealthLynked Network, which enables patients and doctors to keep track of medical information via the Internet in a cloud-based system. The majority of the revenue is generated from the health services segment.

Website: www.healthlynked.com

Last Close: $0.67

Reason for the hype: The company reported a good quarterly report, with 33% revenue growth over the same quarter last year; launch of DocLynk, the company’s Telemedicine service; and the company’s planned uplisting to NASDAQ during 2021.

Latest 10-k report: https://sec.report/Document/0001213900-21-019166/ s

Red Flags:

1. The company is not listed in major exchanges, signifying that it does not meet the rigorous standards required for listing.
2. The telehealth field Healthlynked is presently attempting to succeed in is already overcrowded with major competitors.
3. The company has a significant cash burn and has been a loss-making company. For the year ended December 31, 2020, HLYK had a net loss of $5,755,256 and net cash used by operating activities of $2,117,297.
4. Despite being a loss-making company, the salary drawn by CEO is $70,000, plus 500,000 time-based options, as well as 500,000 performance-based options. The salary was also hiked from the previous year.
5. Although the company’s latest earnings report shows a 33% growth, the fact is that there was a significant net loss for the quarter. The loss was increased by $5.5 Million of extinguishment of debt and operational loss increased by $1 Million.
6. The company had to do a litigation settlement of $265,714 and an additional amount of $441,148 with Empery Asset Master Ltd., Empery Tax Efficient, LP, and Empery Tax Efficient II, LP.
7. HLYK had to enter into a settlement agreement in response to a complaint filed by Delaney Equity Group LLC and had to make cash payments totaling $75,000 over a six-month period.
8. The bottom line is that the company has little organic revenue and mounting expenses. The company’s cash increase to date had come at the expense of share dilution. Unless there is a significant uptick in revenue within the next few quarters, there would be further dilution just to keep the company going.
9. The chart shows that the stock would be bullish only above the breakout level of the flag pattern.

As you can see, there are quite a few red flags in these hyped penny stocks. We would advise investor caution before entering into such high-risk ventures. Remember to think before you trade!

Happy Trading!

— Trades of the Day Research Team

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