Mega Matrix Corp: a mega pump and dump

It’s safe to say that markets have been a bit frothy recently. My short book of small cap shitcos has seen short squeezes here, there and everywhere. But with silly markets comes opportunity,and I wanted to highlight a company that I haven’t seen much commentary about which looks like a fraudulent pump and dump. The company is Mega Matrix Corp ($MPU), an airline lessor turned Blockchain company that is up 500% since November. There seem to be many red flags around the company and I would go as far as to say their recent acquisition of a company which runs an app ahead of Hulu in the App Store entertainment charts is likely a complete fraud.

Mega Matrix Corp operated as Aerocentury from its founding in 1997, leasing aircraft and aircraft parts to airlines. However, following the Covid pandemic, the company crumbled under a pile of debt and declared bankruptcy in March 2021. In September of 2021 the company re-emerged from bankruptcy, wiped free of debt and injected with $11m of new capital by a mysterious group of individuals led by current CEO Yucheng Hu. Post bankruptcy they scrapped the aircraft business and instead got involved with various crypto projects including a play to earn NFT game that was discontinued 6 months later, and until recently considered Ethereum staking as its core business. On the 8th of January Mega Matrix announced the closing of a Merger with a Singaporean media company called Yuder pty ltd that owns a popular streaming app called Flex TV. More onto that later.

Let's start by looking at the pre-merger financials, as we don’t know anything about what the Yuder financials look like. At a current market cap of $129m the company had a whopping $4,000 of revenue last quarter. Not million, thousand. This doesn’t even cover the cost of revenue, let alone the $4m of annual cash expenses. Now the company does have $5m of digital assets (mainly Ethereum) on their balance sheet that is likely worth closer to $8m now, however none of this comes close to the $129m of market cap.

So let’s have a look at the merger and Flex TV. In a recent press release, MPU praises Flex TV’s rise into the top 10 entertainment apps on the Apple App Store, exciting stuff. When I looked at it FlexTV was a still impressive 11th, ahead of very popular Apps like Youtube TV, Xbox, Steam and many many others. At an acquisition price of 1.5m shares at $1.7 at the date of closing that comes to an absolute steal of $2.5m for 60% of a company that runs an app more popular than Ticketmaster!

Obviously there’s reason to doubt that the popularity of FlexTV is legitimate other than the nonsensical acquisition price. The app has barely over 300 ratings on the app store, while apps at similar rankings are in the tens and hundreds of thousands. The few written reviews it has are overwhelmingly negative. Their Facebook page, Instagram and Youtube get very little engagement. The content itself has laughably bad acting and writing that is reminiscent of ‘The Room’. I can’t find a single reference to even their most popular shows anywhere other than their social media. With all that in mind, their position on the app store is absolutely bizarre. I have to assume that they are using some form of bots or something similar to get there. Whatever the case is I am excited to see MPU’s first quarterly with some details about the acquisition. Finally, I could not find any information about who owns the company begging the question as to whether this is a related party transaction with the purpose of bringing a fraudulent company onto the NYSE without the scrutiny that would surround an IPO, it wouldn’t be the first time. In August 2022 they purchased Saving Digital Pte, Ltd for $10k from their Chairman Yucheng. Saving digital had no operations and only $3.8k in cash… Yucheng used his company to buy $3.8k of cash from himself for $10k.

On the management, it was very difficult to find any information on them or the companies they have worked for. The CFO Qin Wang’s previous role was as a financial controller and advisor for TD holdings, now called Baiyu holdings ($BYU). BYU is a Chinese commodity trading penny stock that fell 80% while she was there from 2018 to 2020 and is now down 99% from then. Interestingly, another director Siyuan Zhu was an independent director and Baiyu between 2019 and 2021, also overseeing that decline. The newly appointed Chief Operating Officer Xiangchen Gao was the senior investment manager at Baofeng Group, a Shanghai listed pump and dump that declined 95% while Gao was there between 2016 and 2019. Finally, Chairman Yucheng’s bio asserts that he is a successful entrepreneur with 15 years experience in the gaming industry. I could not find information on any of the companies listed in his experience on Google. One of these companies is Xiyou a “popular online gaming platform in China”, however the website address in the bio (www.x52xiyou.com) is a dead link.

So to summarise we have a shady NYSE listed crypto company with dodgy management involved in a merger with a company that runs a likely fraudulent app with no revenue trading at a valuation many, many multiples above book value. But why now? Mega Matrix stock is up 500% in just over 2 months and at a $120m market cap is still small enough to do serious damage. It seemed to, at least at first, be somewhat spurned out by the recent excitement around crypto, riding the factor wave. However, I suspect that bad actors whether they be management associated or independent took advantage of the move and low liquidity (it was a $20m company at the time) to squeeze it to the moon. However, on the 19th of January the company announced a share sale with unknown investors to purchase 2.5m shares at $1.50 each plus a warrant for the same price. The price at the time was $3.26 representing an over 50% discount. At a share price of $3.9 at time of writing that discount is even larger and I’m sure the investors are looking forward to cashing in. Just yesterday the shares available to short jumped from 25000 to 1 million as seemingly increased liquidity has come into the stock with the offering.

Obviously there are significant risks here. At a market cap of $120m there is still plenty of room for it to squeeze. However I do believe that the pump is likely on its last legs, and with the offering we may soon see weakness. While I have been short the entire 500% run up, it was a .05% position as a basket of tiny shitcos. After taking the run up I’ve doubled my position at around $4, though it still represents a small position for me.