I posted about the IPO of Digital Music Group (DMGI) here and the reverse merger public offering of Handheld Entertainment (HNDH.OB) here a few months ago, making the point that the initial market valuations were insane by any rational measurement, and that realistically, neither company should actually even be public. The good news is that the reality of their respective market positions has begun to sink in to the general investor community, driving down their share prices and market valuations, and restoring some of my faith in the free market. The bad news is I wasn't able to short either company, but hopefully others were able to do so.
DMGI went public in February 2006 at $8.50 and quickly spiked above $10. The company had revenue of $721K in Q1, with a loss of $414K, and it's growing quickly, although there is still no reason for it to be public since it's tiny and not even a market leader in its own segment. The stock is now around $5.75 a share, and should realistically settle in about $3-4 a share, with the only reason there is even that floor is due to the amount of cash raised in the IPO. The amusing thing is that the only analyst to cover the stock comes from FTN Midwest, the bank that took DMGI public, and even he has a HOLD recommendation on the stock.
Handheld Entertainment reverse-merged into a public shell in early March 2006. (couldn't they do a deal with DMGI's investment banks?) The stock started trading day 1 at $7 a share even though the private investors had literally just bought stock at $2 right before the offering. The stock has gone as low as $3.10, but is now hovering around $4.25. A quick look at the numbers - Q1 was a $584K revenue quarter, at a negative GROSS margin of 3%, with 97% of revenue coming from Wal-Mart, and that the 10QSB states that "it's reasonably possible we will not be able to obtain sufficient financing to continue operations". I'd say there is no possible floor on this stock since they have only 2 quarters of cash on hand at current burn - going to zero or fire sale.
Legal Disclaimer - I am a terrible personal investor, not a legally qualified analyst and this is a blog, not a research report, so don't blindly follow my advice - do your own research :)