Citron Research Updates Emcore (NASDAQ:EMKR)


“Business … that’s easily defined: It’s other people’s money” – Part II
– Peter Drucker

With its management and its analysts’ actions displaying an increasing disconnect from reality, Emcore (NASDAQ:EMKR) is becoming reminiscent of Home Solutions of America (  Emcore has cornered itself in a situation that can only be solved by profitability.  So instead of churning out yet another Press Release to respond to a report or holding a conference call, we suggest Emcore try a novel approach to answer its skeptics:  turn a profit!

Green and Gold Energy

GGE is by far Emcore’s largest single customer for its solar power division, accounting for over $78 million of its alleged $86 million backlog in its terrestrial solar technologies.  What makes Green and Gold so important is that if it were a real customer, it would provide persuasive validation of the value of Emcore’s technology and its business model.  Yet, if Green and Gold is revealed to be an empty shell, Emcore will badly miss its earnings targets.  But worse, their recent $100 million PIPE will have been transacted on a premise that misled investors.

Let us explore how credible Green and Gold really is.  In our first report, we gave readers numerous links that do everything from call GGE CEO Greg Watson a con-man to others that document his history of failed dreams.  For this report, Watson fortunately posted on the Yahoo message boards himself, which can help us out quite a bit.  Yes, it is unusual for a customer to post on their vendor’s financial message boards….but hey, this is Emcore….

Watson tells readers : 

While the robotic line is being built GGE will, in parallel, build 200,000 SunCube for our Australian distributor Zolar Distributors using more traditional construction methods. GGE has started producing these SunCubes”

OK, so we are supposed to believe that GGE has signed an agreement with a big name third party distributor who can afford to buy 200,000 SunCubes to start.  This naturally led us to look at the Zolar website to learn more about this distributor:

We examined a website that looked like nothing more than a promotional site for GGE, rather than an authentic distributor of solar equipment.  Checking the domain registry, guess what we found!  Not only was the site established barely two months ago, specifically on Jan 22, 2008, but it is registered to none other than George Zoumis, head of business development for Green and Gold.

Domain Name………..
Creation Date……….. 2008-01-22
Registration Date…… 2008-01-22
Expiry Date………….. 2013-01-22
Organisation Address. 21 Bickford St
Organisation Address.
Organisation Address. Richmond
Organisation Address. 5033
Organisation Address. SA
Organisation Address. AUSTRALIA
Admin Name………….. George Zoumis
Admin Address………. 21 Bickford St

(Note the name on bottom of this release:

Citron then searched the internet for information on any of the GGE “customers”.  These include: AC Gava of Spain, Eco-Office Ltd of Malta, Square Engineering Pvt LTD of India, and ES Systems of Korea.  All of these alleged customers have one thing in common.  None of the companies have any definitive presence on the web except for their “deals” with GGE.  This certainly justifies our increased skepticism.

Emcore has had many opportunities to come clean about this.  All Emcore management needs to do is answer one simple question.  “Does GGE have $78 million ?”  This is a yes or no question that does not require any elaborate explanation.

EMKR Response to Citron Report.

Press Release

Last week Emcore put out a press release attempting to discredit the Citron story;

One line of their statement stands out in bold relief:

“We are well positioned in our core markets to continue substantial revenue growth and to improve profitability and we stand by our products, our customers and our markets.”

Improve profitability ?  What profitability are you referring to?  Earth to Emcore:  You are NOT PROFITABLE … NOT EVEN CLOSE.  Moreover, Emcore seems farther away from profitability now than they ever have in its rich history of losing investors’ money.  If Emcore stands by their customers, then answer the one question; “Does Green and Gold have $78 million?”

Crying for Regulatory Investigation

Our favorite part of the release is when Emcore states that it is going to ask regulators “to investigate whether improper relationships exist between this blog and recent short selling of our stock.”  This is an eerily similar posture to that taken by Home Solutions of America just nine months ago when their stock was $6.50.

Should we mention that Home Solutions of America officers also made a big show of filing publicly on open market purchases of stock when its price first began to react to public awareness of its fraudulent Press Releases?

They wanted regulators to investigate Citron and alleged securities manipulation.  Nine months later their stock is .30 cents, and delisted, exiled to the Pink Sheets.

Yes, the principal of Citron is short Emcore’s stock.  This report makes it abundantly clear why.  By the way, every share of Citron’s position is transacted with an affirmative borrow at U.S. brokerage firms, and/or through publicly traded options, both of which are investment positions available to any investor.

What Emcore should be afraid of is the SEC looking into the accuracy of their public announcements and financial guidance.  Emcore just raised $100 million based upon the notion that they had a $78 million order from some kooky inventor in Australia whose product had its best day sitting in a dog bowl.


Someone has a lot of answering to do….and it is not Citron.
Conference Call with Scientists

In a further attempt to defend the stock, Canaccord Capital hosted an astonishing conference call with two noted solar technology scientists from Sandia National Laboratories.  (You can hear the replay for yourself, through March 26 only, at 800 642 1687, code 39994940.)

We learned some interesting things from these excellent and objective public servants, none of which were encouraging for Emcore investors hoping they’d found the next First Solar (a market leader in thin-film polysilicon panel manufacturing) .  Among them:

a)  There are three major technologies being researched at the lab:  1) thin film photovoltaic, 2) concentrating photovoltaic (CPV) which is Emcore’s niche), and 3) concentrating solar power (CSP).  Within each group, there is a tremendous variety of physical collector designs (for CPV, trough/channel, dish or lens), any of which would require specific extensive testing prior to large-scale deployment.

b)  For CPV solar cell technology, there are 10 or more competitors to Spectralab and Emcore that have demonstrated 30% to 35% efficient mixed material cells, and a substantial number more that are in R&D.

c)  Regardless of the PV chip itself, exhaustive engineering and multiple year failure-testing of the assemblages are required to integrate the chip into a cost effective and reliable solar unit.  Then the assembly process has to be automated to drive down production costs, and the results have to be retested before there is a viable product that implementers will invest in large-scale deployment.

d)  The overriding financial question is who takes on the investment risk.  The utilities clearly don’t want the risk — they want the implementers to take it.  The earlier large scale production, the less testing, and therefore, the more risk.  That’s why implementers require strong capitalization or government subsidy.

e)  It might well take 10 to 20 years to work out all the bugs in large scale deployment.  “Hopefully, they won’t be serious problems. “

Without getting sidetracked into the debate about different technology approaches and which one will ultimately prosper, the experts made it clear that we are many years away from the key decision points regarding large-scale CPV deployment, which must be completed before large-scale capital commitments are made to CPV.

In fact during question and answers, the following exchange summed it all up:

Question: So is it reasonable to expect hundreds of megawatts to be installed this year if we’re not at one megawatt yet?

Dr. Sarah Kurtz:  No.

What is wrong with Wall Street

One of the stock’s most vocal cheerleaders has been the analyst at Jefferies & Co.  When Citron released its first report on Emcore, Jefferies was quick to call out a “buying opportunity” and stated that the GGE contracts are “very real”.  Hold on — this is from the same analyst who predicted Emcore would lose $5.6 million in the December quarter — when they actually lost $14.41 million. This same Jefferies analyst has been reassuring the public that profitability is right around the corner for over a year now … during which time Emcore has lost a staggering $58.7 million.

Is it to anyone’s surprise that the lead underwriter of Emcore’s recent $100 million PIPE was Jefferies and Co?

Citron also has an opinion about what is “very real”:  Emcore’s cash operating losses.  Citron advises investors to be concerned about Emcore’s “very real” cash burn rate.  Unless the company demonstrates a sudden and miraculous increase in revenue and net income, it will soon be coming back to Wall Street with bowl in hand for yet more OPM.  Last month’s PIPE plus debt conversion diluted the stock from 52.3 to 73.5 million shares – over 40%.  Next time, the impacts on investors will be even more crushingly dilutive.

For extra credit, calculate how many quarters Emcore’s cash will last based on its current burn rate.

Hint:  You might first want to subtract the cash Emcore just disclosed is now unavailable due to being stuck in long-term notes, a mishap of the failure of the auction rate securities market.

But we’re sure this looming problem will just look like another opportunity to Jefferies & Co.  After all, it’s just OPM.

Meanwhile, where is client_#9 when you need him?