Quest Management Inc. (OTC:QSMG), the wholesale distributor of fitness equipment, has been quite active this week after the company signed a letter of intent to buy Immunotherapy Biotech Company Stemvax, Inc. In this article, we will give you some insight to better understand what’s going on with QSMG. Some traders have made a lot of money here, whereas some others lost quite a bit very recently.
Have a look at the recent volatility that this news created and note the volume increase around the announcement of the news on April 11, 2017:
Previous business, business acquired and market reaction
According to its last 10-k, Quest Management distributes the following products: fitness equipment, sports equipment, gym equipment, exercise equipment, and bodybuilding equipment. The company has an independent sales force that is in charge of selling the equipment in the United States. Additionally, the products are obtained from China, where the company has signed numerous agreements with producers. The key to the business is that the Quest Management does not keep any inventory, thus it does not have warehousing costs. In addition, the consumers are the in charge of paying the shipping costs from China.
According to the annual report of the company, the Gym and Exercise Equipment Manufacturing industry seems to be quite important in North America. The total market revenue is said to be $2 billion. The market has close to 6,000 employees and a total of 228 businesses are operating in the sector in the country. The most well known competitors in the United States are Cybex International, ICON Health & Fitness, Life Fitness, Nautilus, and Precor.
In addition to operating in this industry, the company is looking to build its brand in other sectors. Have a look at the new business acquired. The company is said to acquire immunotherapy Biotech company Stemvax, Inc. This business entity will be bought from Dr. Dwain Morris-Irvin PhD., and he will also become the new CEO of the new division that will be created inside Quest. Stemvax, Inc was founded in 2014. It is a translational biotechnology company, developing novel therapies for brain tumor patients. More specifically, the company focuses on the development of products for the treatment of Glioblastoma Multiforme (GBM); a devastating brain cancer.
The most important asset of the newly acquired company seems to be CEO, Dr. Morris-Irvin. The following information was released about this doctor:
“Dr. Morris-Irvin received his PhD from UCLA School of Medicine, MPH, from UCLA School of Public Health, and trained at The Wallenberg Neuroscience Center at Lund University in Lund, Sweden. He was also a Professor, Faculty member at Cedars-Sinai Medical Center, Department of Neurosurgery.” Source
Quest disclosed that the new acquisition was very relevant for the company. We also believe that it is a great step, and the market celebrated it. The share price jumped on this news from $1.75 to almost $2.75 in just a few days.
Another very relevant information was released on April 13, 2017. L. Michael Yukich will become the new CFO. This business executive has worked for big corporations operating in different sectors. Thus we believe that his profile is very interesting now that the company has two different divisions:
“Mr. Yukich has over thirty years of financial management experience in privately held companies, private companies which he has assisted in taking public, a public division that has gone private, and public companies including serving as the CFO of an international $1.5 billion division of a Fortune 500 company. Mr. Yukich has had financial accountability for international operations in Europe, South America and the Asia Pacific Rim, in addition to domestically located organizations ranging in size from $25 million to $1.5 billion in revenues. He has been CFO for companies in both highly specialized areas, as well as a diversified holding company with over $150 million in revenue. Mr. Yukich holds a BA degree in business administration from the University of Mount Union and an MBA from Central Michigan University. “ Source
The recent collapse – Why did people lose money?
If we noted in the beginning that some people lost a lot of money, why did we note that the operating performance of the company and the last decisions were good? Because this is the way the company looked like. However, some new information was put out very recently and the company’s share price collapsed from $2.75 to $0.63 in a very short period of time.
Why? Because the OTC Markets Exchange that regulates the OTC transactions marked the company as “Caveat Emptor”:
To cut a long story short, the exchange got to know that the company was engaged in any of the following activities or one of the following events took place:
- Promotion/Spam without Adequate Current Information
- Investigation of Fraud or Other Criminal Activities
- Unsolicited Quotes
- Other Public Interest Concern
You can obtain more information about it here. Quest Management did not communicate anything regarding an investigation of fraud or other criminal activities and the company was not halted recently. Thus, the most logical option is that the company is engaged in promotion activities and the promoters failed to disclose correctly that they were being paid. In any case, longs holding shares need to be aware of such information before making any investment in this company.
We expect the company to release a communication to explain what happened. The “Caveat Emptor” can be removed, but only if the company is very clear about the issue. We recommend you to subscribe to our services or check the company’s website constantly in order to check if it releases new information about it. We expect that if the exchange removes this bad mark on the company, many short sellers will liquidate their positions and the share price may go up violently. Thus, investors may have an opportunity if they are well informed.
Quest Management is a company engaged in very different sectors and growing at an ambitious pace. The company released some very good news about its developments that included acquisition of new divisions and change of the CFO. The market seemed to like this news very much; however, like we have seen in other occasions very violent moves up are followed by violent moves down. The “Caveat Emptor” mark was recently disclosed on this company by the OTC Markets exchange and this was a catalyst that short sellers used to make the share price collapse. The company needs to communicate about the problem and talk to the exchange in order to solve it. If this “Caveat Emptor” mark is removed, be aware that the share price may rise dramatically again. So, try to keep yourself informed.
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Disclosure: We have no position in QSMG and have not been compensated for this article.