-NCAP had little revenue and enormous expenses during the first quarter.
-The company has recorded $20 million in losses and has $199 in the bank.
-The latest investor and Northsight are suing each other.
Recently, the name Northsight Capital (OTCPK:NCAP) crossed my desk. While I normally won’t commit time to review such a small company, this one caused me to pause. Mostly because of the spiderweb of this company’s filings, and a good reminder for investors to stop and read these filings before ever committing any money — even if the shares are priced at less than 10 cents.
First, a brief description of Northsight Capital. It’s a media company that owns 7,500 domain names centered on the cannabis industry. The main platform is called The Marijuana Marketing Network and its biggest concept is WeedDepot.com. Other names include 420Careers and RateMyStrain for a total of nine launched websites. In summary, the company has lost $20 million to date and is in a legal battle with its former investor, all while paying itself thousands of dollars. There’s only $199 in cash in the bank, and there is only an interim CEO.
In an all-stock transaction in May, the company acquired Crush Mobile Apps, whose CEO Sonya Kreizman was listed as taking over as the interim CEO. However, on the OTC Markets website, John Hollister is listed as the interim CEO. The company didn’t respond to a request to clarify who is the acting ,CEO among other questions. The Crush deal, though, is contingent on them raising $500,000 prior to the closing, and that looks unlikely.
The original company, Kuboo — also known as Safe Communications, also known as Suggestion Box, Inc. (OTCPK:SGTB) — bought the domain names from Kae Yong Park, wife of Kuboo’s founder Howard Baer, with a promissory note of $500,000. She is a majority shareholder. Kuboo owns 80% of NCAP. John Venners is the president and CEO of Kuboo. As of March, Park’s husband Howard Baer has received $315,500 in consulting fees, plus accrued interest of $70,461 from Northsight. Venners has received $233,466 in consulting fees and salaries. Yet, the company only recorded revenue last quarter of $3,165 and a net loss of $201,756.
According to the company’s latest 10-Q, filed in March, “The Company had a net loss of $201,756 for the three months ended March 31, 2017, has accumulated losses of $20,885,166 and has had consistent negative cash flows from operating activities since inception (May 2008).”
Part of the issue is the exorbitant expenses for this public company. Kuboo collects $11,000 a month in rent for a 6,000-square-foot space in an industrial park in Scottsdale, Ariz., yet the company only has three employees. Considering this is an internet company, this is a ridiculously high rent for a huge space. So far, Kuboo has collected $160,976 for rent from Northsight.
The rest of the quarterly expenses went to professional fees, consulting expenses, and administrative costs. The company only spent $2,218 for website development costs during the last quarter, but says they will need at least $100,000 per month for operating and website development costs. It isn’t clear who is being paid for website development.
In 2016, they formed a joint venture with Tumbleweed Holdings to develop a web portal. Tumbleweed contributed $85,000, but never followed through with the remaining $15,000 it had committed. NCAP is suing Tumbleweed for not coming through with the $15,000, and also for failing to fund the last $50,000 convertible note due in April 2016 and failing to fund 40% of development expense in excess of the initial $100,000. They are seeking damages of $128,000.
Tumbleweed countersued, saying NCAP didn’t provide budgeting and accounting records, enticed them to contribute significant money, and then didn’t perform as agreed and converted
Tumbleweed’s money into its own assets. Tumbleweed did not respond to a request for comment. The company settled a previous suit with Lee Ori by paying him in stock worth $62,000.
There is a lot of money flowing back and forth between Park, Baer and the company. Both parties have advanced money to the company and then received money back. These loans and promissory notes are secured by the websites. There are too many transactions to note here, but they are listed in the filing paperwork.
In April, they raised $25,000 by selling another million shares for 2.5 cents, making it feel like the company’s shares are just an ATM machine. In May, a large shareholder from Dallas, Texas, John Lemak, advanced the company $50,000 to fund business operations. He is owed his money on Aug. 15, 2017.
Most of this company’s valuation is based on the estimated value of the domain names. However, I plugged “WeedDeport.com” into domain name appraiser site Estibot and only got a valuation of $490 for the name. 420 Careers got a zero valuation. There is little revenue coming in and it seems lots of money going out and a ton of debt. I would avoid this company if I were an investor. It’s companies like these that give cannabis stocks a bad reputation.