One of my favorite members, Errol R., sent me an email yesterday asking me about Innovative Health Services, Inc. (IHSN).  He was wondering why this penny stock wasn’t selling for 40 cents a share.

It should, shouldn’t it?  It has a 40 cent per share buyout offer according to a recent PR.  Read it here.  The Board has approved the buyout (they aren’t fools) and everything should be rosy.  Right?

Not at all.  The stock has actually gone down since the announcement and is currently trading south of 2 cents.   It also has a huge short position with about 42 MM shares short.

Shouldn’t it be trading around 40 cents?  Something must be up.  My buddy Errol and I are trying to get to the bottom of it.

Scam, Sham or Shazaam?!

I actually had a conversation with the CEO of the company, Chris Winter, on Friday.  He says that he has been inundated with calls since the news of the buyout was issued. …30 to 35 calls per day.

He claims they are NOT a scam or a sham.  An unsolicited offer came to them and by SEC rules he had to disclose it.  They are going through the offer right now, but was unable to tell me specifics.

I am highly skeptical of the offer.   Why would a buyer buy this stock at 7 cents above the 52-week average.  Makes no sense.

The numbers back me up:  That buyout offer would give the company a value of over $51 MILLION.  (free trading shares of 128 MM times 40 cents).  That doesn’t even include 1.19 BILLION restricted shares.

IHSN’s business (or why would someone buy this company)

This is a company with no revenues and no backlog (that I am aware of).  I have read about their infomercial business and its iconic leader, Tim Harrington.   The guy does have some nice credentials and, according to the company, the phones are ringing off the hook with people that want to work with Mr. Harrington.

Harrington Multi Media Marketing (IHSN’s 1st acquisition called HM3) has only been around since 2010 and Mr. Harrington’s $4 Billion dollar track record as an infomercial demigod didn’t happen at HM3.  Read HM3 website to better understand what I mean.

Something smells!   I’m just not sure what.

I have called all of the numbers for the company and most are disconnected.  The main number only rings to an executive suites receptionist.   However, I did get a call back from Mr. Winter…score one for Mr. Winter.

I enjoyed talking with Mr. Winter, but he didn’t clear many things up.

I also did some further checking and Tim Harrington’s last stop before HM3 was at TVGoods, LLC that is owned and operated by one Kevin Harrington (Tim’s Brother?).   “Mr. Infomercial” Kevin calls himself.  Tim was only Executive VP before heading out on his own.

That doesn’t give me much confidence.  When I Go0gle ‘Tim Harrington’, I don’t get many hits.  When I Google ‘Kevin Harrington’, I get tons of hits about him and infomercials.  It looks like Kevin is the infomercial heavyweight and Tim is the lightweight.

Here is the chart:

I don’t give much credence to the buyout offer and it doesn’t seem like the Street does either.  My impression of Mr. Winter was that he was an earnest (but guarded) man.  There is a lot going on that the average investor is unaware of….typical penny stock!

I will continue to monitor it and report back to you.

Good luck and good trading,

Jeffrey Dean

Editor

P.S.  Your thoughts and feedback would be appreciated.  Here is my email address:  editor@investorsoup.com