Is Graphene 3D Labs a $40 Million Company?
In a recent article, we talked about Lomiko Metals (CVE:LMR), a junior graphite miner that intends to supply graphite for “graphene 3D printing” to Graphene 3D Lab, a company of which they recently acquired a 15% interest in for $50,000. With both graphene and 3D printing both being hot topics among investors at the present, speculations were made as to the viability of this venture to produce “3D Printed Graphene Nanocomposites”.
It now appears that Lomiko made the right decision. Over the last week, Lomiko’s equity ownership in Graphene 3D reaped exponential rewards having reached a paper value of $6 million when Graphene 3D Lab (CVE:GGG) began trading this week on the TSX Venture Exchange. This represents a +24,000% return on investment for Lomiko. Was this much value really created in just 9 months?
Founded in 2009 as a spinout of Graphene Laboratories, Graphene 3D Lab conducted a reverse merger to begin trading on the TSX and at the same time completed a private placement of 6,000,000 common shares at .25 cents per share. As of today’s writing, Graphene 3D Labs is trading at $1.07 per share with a market cap of over $40 million. Just what are investors buying when they purchase shares in this $40 million company? In looking at Graphene 3D Lab’s financial filing statement dated July 29th, 2014, we see that the Company has assets of $1.3 million (likely the cash from the private placement), almost no liabilities, a deficit of $1.6 million, and no revenues. Graphene 3D Lab’s intellectual property is composed of two patent applications (61840464 and 61928573), neither of which appear yet in the USPTO database.
Since having 2 patent applications and $1.3 million in assets does not seem to merit a $40 million valuation, investors in Graphene 3D will be betting heavily on the Company’s management team to create value. In looking at the Company’s management we see that husband and wife team, Daniel Stolyarov and Elena Polyakova, have been appointed CEO and COO respectively. Both these individuals founded Graphene 3D Labs along with Michael Gouzman, a 3D printing expert who was granted 20% of the Company’s shares and who now works as a part-time external consultant. With relationships among employees being discouraged at most companies, a marital relationship between two of the most senior executives of a company could constitute a conflict of interest. The Company’s CFO, Robert Randall, performs services to Graphene 3D through his company Randall Consulting, Inc, an arrangement which seems to also present a conflict of interest.
Even some of the company’s expenditures show conflicts of interest. Between Sept 2013 and May 2014, Graphene 3D Labs made the below purchases from a third-party company controlled by common officers and directors of Graphene 3D:
- Reimbursed research costs: $35,930
- Laboratory equipment: $26,110
- Rent, accounting, R&D, etc.: $26,580
- Expenses and equipment rental: $18,936
- Professional fees: $7,500
The third-party company referred to above is most likely Graphene Laboratories, Inc., a company controlled by the CEO and COO of Graphene 3D Labs. These transactions seem like the company directors are borrowing from Peter to pay Paul, and it’s difficult not to see another conflict of interest here.
Regardless of whether or not there are conflicts of interest to be concerned about, the fact is that investors in Graphene 3D Lab own shares in a company that has two patent applications and $1.3 million is cash yet commands a market cap of $40 million as of today’s trading. The Company’s financial statements do show a great deal of due diligence, and the below table provides a timeline of milestones the Company is looking to meet:
While investors will be watching to see if Graphene 3D Lab (CVE:GGG) is able to produce a prototype printer in 1 year’s time, they should pay closer attention to the progress being made in the Company being granted patents that will protect their technology. In the meantime, the question still remains. Does Graphene 3D Lab really merit a $40 million valuation?
Note: All of the above numbers are in Canadian dollars. 1$ Canadian is currently equivalent to $.92 in US dollars.