Cytocore: Management by Hype and Distortion

It is one thing for a speculative company low on cash to get more money in a PIPE at a discount to the stock’s market price. It is quite another for such a company to give that opportunity to insiders and then to shamelessly announce in a press release that it was good news. Yet this is exactly what Cytocore (OTC BB: CYOE) just did. Daniel Burns (a director) and Robert McCullogh (CFO and CEO) each purchased a large number of shares from the company for $2 per share on January 22. This was an 18% discount to the stock’s close that day. And still the fools who “invest” in the company’s stock rejoiced by pushing the share price up 51% in the three weeks since then.

At the end of the quarter ended September 30, 2007, Cytocore had under $1 million in cash and a negative cashflow from operations of about $1.5 million per quarter. So despite what the press release said, this was not an investment to “assist in the scale up” of the company’s manufacturing, but rather a necessary investment to keep the company up and running.

I have written about Cytocore’s travails before and I have received some kind comments in response to my previous article.

Disclosure: I have no position in CYOE, although I do confess to a visceral hatred of a few of the company’s investors. I have a disclosure policy. An earlier version of this article referred to the cash flow from operations as the cash burn rate. This was incorrect and I regret the error (there was negligible cash burn over the last 9 months due to the sale of stock and the exercise of warrants).

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