Infinium Labs - Fact or Fiction?

After a 6-month hiatus (and 95% stock decline), Infinium Labs (IFLB:OTC) is back in the news. According to sources close to the company, a final round of funding is being closed before finally launching the Phantom console in early 2006. Most observers remain skeptical.










The Idea

The exciting questions investors grappled with last year sounded something like, "Will the Phantom ever catch on? How many games will be available? And what kind of hardware will be employed?" After delaying the launch of the Phantom console late last year, this excitement has turned to paranoia. Followers now question whether Infinium will ever gain the necessary capitol to launch the Phantom service. Conspiracy Theorists will tell you that the Phantom console was never meant to launch in the first place.

For those new to the company, Infinium Labs basically employs the NetFlix model for PC gaming. Their Phantom Gaming Service aims to be the industry's first end-to-end, on-demand game distribution service accessible through their broadband receiver. Infinium Labs will offer subscribers a vast library of titles, from the top new games to old standards. This service will be available with purchase of the Phantom console and a recurring monthly fee.

The idea is beautiful: Gamers will no longer have to put up the hefty $50 purchase price for the latest titles, but rather rent these games for as long as they please. More importantly, the Phantom will be compatible with all platforms meaning users will not be confined to a certain set of titles designed for one specific console such as the case with XBOX, Game Cube or PlayStation.


The Hurdles

It remains to be seen, though, whether Infinium has the means to bring this great idea to market in a profitable manner. The Phantom was originally slated to go live on November 18, 2004. But in addition to the delay, a number of other events have crushed the stock to mere pennies.

-After creating quite a buzz at the 2004 E3 conference, Infinium Labs was nowhere to be found this year. Critics found it extremely puzzling for an upcoming product to skip the industry's most important conference considering it is the perfect venue to gain potential users & investors. President Kevin Bachus indicated that a booth was too expensive.

-The following press release regarding the employment status of President Kevin Bachus on April 18, 2005 baffled analysts:
"Contrary to published reports, I have not left Infinium Labs. I have not accepted another job. I am still in the same role, working with the same great team and still 100 percent committed to our mission to launch the Phantom Game Service later this year."
Instead of reassuring investors, the news instead furthered their paranoia as most followers had no idea this was even an issue. The stock continued its descent as a launch seemed even more unlikely with the apparent executive instability.

-In an April 20th filing with the SEC, President Kevin Bachus stated, “there’s a high likelihood that sufficient capital will not be available for the launch of the Phantom.” When questioned later, Bachus indicated that this sort of situation is typical for "pre-revenue public companies" and that he remained confident that they would find the necessary funding for launch.

-On July 19th, Michael Pickens and another man were arrested and charged with securities fraud for allegedly manipulating thinly traded stocks through a "pump and dump" scheme orchestrated via blast faxes. Infinium Labs does have a monetary link to Mr. Pickens and CEO Timothy Roberts executed a curious insider sale in the mid-$1s days after this took place. Infinium Labs has not been charged with any wrongdoing.

-As of today (July 26th), the balance sheet shows only $4,000 in cash (not a typo) and still no word of funding. In addition, insiders continue to sell.


But the main reason for the 95% decline? CEO Timothy Roberts & the shady reputation he has created for Infinium Labs. Never has such a more promising company been destroyed so suddenly be executive mismanagement. It appears that until Infinium Labs rids itself of Mr. Roberts, shareholders will have to sit patiently while Roberts and the chosen few enjoy the good life at $250,000 per year plus amazing benefits at a near-bankrupt company. Below are the details of Mr. Roberts’ equity package that he has created for himself:

On December 13, 2004 (stock price $0.25) Roberts committed to a convertible security at a 25% discount with a maximum price of $.10. If the stock traded below $.10, he would then get it at 75% of the current price to assure him a minimum profit on the deal of 33%. The $0.10 maximum represents a discount of 60%.

On December 23, 2004 (stock price $0.80) Roberts went back to the well and cut a deal for another million in cash with a similar 25% discount and a maximum price of $.10. But this time around IFLB was trading around $.80 on its way to $1.60! In layman's terms, Mr. Roberts bought shares for $.10 when the market was at $.80 and climbing. With this kind of shareholder dilution, anyone can see why IFLB stands at $0.08 today.


The Million-Dollar Question

Can Infinium Labs survive all these hurdles, receive capitol, and launch a profitable Phantom console? Infinium Labs has eaten through hundreds of millions of dollars & diluted millions of shares with nothing to show for. The good news for current and potential shareholders is that IFLB is priced to fail. In other words, every piece of bad news is already priced into the stock with the market valuing the company at only $13 million! If you have some extra money lying around, this appears to be a good entry point as the risk/reward is very favorable. Any news of funding and/or launch should push it past $0.30. But with all the shareholder dilution during the last year, it will be tough to see anything north of $0.50 until the console hits the shelves. Once it does, all signs indicate that it will receive plenty of looks from potential consumers. Just last month the Phantom was ranked in "Top Gear: The Top 25 of 2005" in Maxim magazine. Plus all the conspiracy theories will be proven wrong.

But time is of the essence. President Kevin Bachus frequently refers to Sirius as a similar "pre-revenue" business model that has succeeded by building a customer base over time. But Sirius never had problems finding capitol. And in an industry with competitors like Nintendo, Sony, and Microsoft, the window of opportunity is closing.