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So can we assume that you've looked at all the evidence?
I mean, come on, it's ridiculous to come to such a conclusion when you've not scrutinized all the depositions, all the testimony, and all the evidence. You have no way of knowing any more than anyone else does. And especially when it appears to be the same Val Holms who has committed fraud before. You also have no way of knowing that there was nothing in writing; there may be lots of emails back and forth as things were being discussed. There may also be plenty of witnesses to the conversations -- you have no way of knowing.
As for oral contracts, that's about all the Winklevoss twins had in their deal with Zuckerberg on Facebook. How'd that one turn out?
Oral contracts can absolutely be binding.
But frankly, the bigger concern is how shady everyone surrounding this company seems to be. Scams, fraud, lawsuits, and bankruptcies seem to be the rule of the day. One has to wonder if Bakken isn't just another one.
The North Dakota Petroleum Council site makes it pretty clear that the 18% interest on late payments does not apply when there's a title dispute. Click on #6 at this link, #9 also gives some good info:
http://www.ndoil.org/oil_can_2/royalty_owner_information_center/
I'd guess the actual statute is many paragraphs long with section (a) and subsection (1), etc., etc., of instances where the late payment does and doesn't apply. And then there's probably loads of court cases that are relied on from the past as to when the late fees will be applied. Legal stuff is almost never black and white, and that's the way lawyers like it cuz they bill by the hour.
#11 in the above link makes it sound like royalty interests are recorded in county records. Does anyone know a place to look that up? I'd like to get independent verification that these royalties actually exist.
Good stuff, Doc. As you were doing that, I decided to look a little more into Allan Holms. He, too, appears to be a rather shady character. Do a google search and you'll find plenty of lawsuits. Appeared to be involved in a bunch of shell companies at about the same time. He's in Spokane where Edington is.
Edington, Val Holms and Allan Holms were the managing members of Roil LLC:
http://nvsos.gov/sosentitysearch/CorpDetails.aspx?lx8nvq=vtSkkTcmFofNgcAQM7VizA%253d%253d
Here's how, similar to Val, Allan pulled a fast one on a company and left them with huge losses, having to file bankruptcy:
http://www.spokesman.com/stories/1995/jul/09/utter-manager-sink-together-bankruptcy-poses/
It doesn't help my confidence level to know that he's a car dealer. Frankly, all 3 of them sound like very shady characters.
Val's fraud even brings into question the validity of the royalties, in my eyes. Do these things really exist? Is this company real, or is this yet another fraud?
Especially worrisome is the fraud that was pulled off by Val in the document posted by Osbourn. He conspired with somebody to set up a fake escrow account that a drilling contractor required. Val and the escrow company confirmed that the money was there. When it came time for the driller to be paid, the escrow company then changed their story and said there was no money there. Val also lied about his wealth and claimed he had oil and gas properties, but in reality he no longer had an interest in those properties. He lied about his position with a company. It was just lies all over the place.
So that begs the question, are these royalties that Bakken claims to have even real, or could it all be a shell game?
Does anyone know if there's a way to verify royalty interests online? Are they recorded anywhere? I know the companies lists the wells they claim to have an interest in on their website, and it looks official, but how do we know it's even true? Especially when it looks like all the people involved have a history of fraud, including phonying up financial accounts?
If royalty agreements go unrecorded, then we're really just relying on the auditors to verify this stuff. In this case, the auditors (per the company proxy) are Malone Bailey LLP. They've been cited for numerous audit deficiencies. They're involved almost exclusively with sketchy little microcap companies. They're also the number one auditor of chinese reverse mergers, almost all of which turn out to be scams. And suddenly I'm not feeling so good about Bakken's royalty claims.
Here's a Forbes article on Malone Bailey:
http://www.forbes.com/sites/walterpavlo/2011/04/15/reverse-mergers-pushers-may-be-the-problem/
And here's the latest PCAOB inspection report of Malone Bailey. Note that some of the deficiencies are incredibly basic, like verifying receivables:
http://pcaobus.org/Inspections/Reports/Documents/2012_MaloneBailey_LLP.pdf
I wonder if Val isn't just pulling off a similar scam to the one before: set up a fake escrow account that is allegedly collecting the royalties, the auditor relies on that and calls it good. Show them some phony royalty agreements and everything looks kosher.
I started out liking the looks of the company, except for the lawsuit. But the more we discover about the people involved, the more queasy I start to feel about things. As an old CPA told me many years ago, "once a fraudster, always a fraudster."
Wow, that's more good stuff, Osbourn. It sure looks like all the same names.
And when you read thru the case, even more important than the negative net worth is the fact that it sounds like Mr. Holms committed fraud. Yikes.
BKKN
FWIW, Doc over on the Bakken board was apparently able to find the case and it does appear that the Washington case is still ongoing:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=94338509
He also posted the message after that which makes it sound like the suspending of royalty payments is the way this is normally handled.
Good stuff, Doc. Thanks for posting those two items.
-On another board, I'd suggested that the 10-Q only said the company had been granted summary judgment on the tortious interference in the Washington case, not on the Breach of Contract and Fraud items and it could be that those two are still ongoing. That does now appear to be the case. So that case has been going on now for what, 19 months? And the North Dakota case just started. Will it go for 2 to 3 years also? It's easy to just assume it's all frivilous, but the judge must have seen enough evidence to not grant a summary judgment.
-Also, good info on the royalties as it sounds like this is the standard procedure in a case like this.
Sadly, family squabbles can be the worst kind with all sorts of egos and siblings getting involved. Common sense solutions often go out the window.
Nobody likes dilution, but frankly, I think the company would be prudent to offer 3-5% of the company right now to settle everything and we move on. If you look at that list of court documents in the case, and all the hearings, etc., consider that every one of those items took the attorney's time and fees, the CEO's time and preparation and resources, umpteen phone calls back and forth, time wasted going back and forth to court, the mental stress, the company's money, etc. Personally, I'd rather have time, money, and resources spent on acquiring new leases and royalties. You'd more than make up for the dilution by being productive instead of unproductive -- there's an opportunity cost to fighting legal battles.
Plus, us investors would then have a large, unknown, unquantifiable risk removed. Sadly, they might squabble for another 3 years, wasting precious resources, and THEN come to a similar settlement.
I'd vote for doing it now.
Monies owed the company would show on a balance sheet (Accounting 101)
The monies held back by the well operators would be entered into the Accounts Receivable section on the balance sheet.
But that's the past. The collections have now stopped from two of the three operators because of the lawsuit.
That's not a small item to be discounted.
I wouldn't be surprised if the third operator decided to do the same thing at some point in the future to protect themselves as well.
It seems possible there will be a massive decline in reported revenue and earnings until the lawsuit is resolved. I don't know how the accounting is handled by the auditors, but my guess is the company won't be able to report revenues that they are no longer receiving.
BKKN
Yeah, Kik, I agree it's tough to tell what's going on.
If the lawsuit weren't there, I like the looks of the company. But it does concern me as to what the next earnings reports will look like until the lawsuit is settled, even assuming the lawsuit is frivilous. If the brother wins, then there's likely major dilution coming. But even if the company eventually wins, I wonder what the earnings reports look like in the meantime.
As you posit, it may be that the earnings are better than they appear because of the date of the filing. But who knows, it may be the other way also. If BKKN received notice of the complaint around 7/18/13, I'd be surprised if the large oil companies became aware of it immediately, or stopped payments immediately. It probably took them a couple of days/weeks to become aware of it if they were not served themselves, then it takes a few days or weeks to get to the right person in the legal dept, then he/she takes a few days or weeks to talk to the right person in accounting, then there's a few meetings with the higher-ups, and then a decision is finally made to stop payments -- because it's not something you would do lightly. So I could also see the possibility that nearly the entire quarter had payments from all three operators. The 10-Q doesn't give dates as to when each operator ceased payments, or which operators, or what percentage of the company's revenue (would have been nice to have that disclosed).
And just trying to be realistic here, not overly negative, I wouldn't be surprised if the third operator followed suit. From the oil companies' point of view, they quite rightly don't want to pay royalties to one person, only to find out they were owed to another person, and now they have to pay again. These aren't unbelievably huge amounts of money, but they're not small amounts either. The oil companies will turn the royalty money over to a court trustee or something, but they don't want to pay it out to the wrong person and then have to fight to get it back.
So I'm actually wondering if it's possible that all 3 oil companies stop paying royalties and the auditors require BKKN to report ZERO revenues until the lawsuit is resolved (or greatly reduced revenues even if one continues to pay). How many quarters or years could that be? The court system moves extremely slowly. If indeed the Breach of Contract and Fraud portions of the Washington case are still ongoing, that means it's already been 19 months without a resolution on that one.
Is it possible the company could have to report ZERO revenues and nothing but losses for the next 2 or 3 years?
I really don't know, but that too is something to ponder.
BKKN: Legal Issues
Kik, saw your post on the VMC Motherboard about BKKN legal issues being dismissed in Washington. But it seems like it could be read a little differently. It sounds like there were three major issues alleged in the suit:
1) Breach of contract
2) Tortious interference
3) Fraud
And it sounds like maybe only the tortious interference claims were dismissed in the Washington case, with the Breach of Contract and Fraud issues still to be decided. Here's the portion copied and pasted from the 10-Q, read it again and tell me what you think:
********
LEGAL PROCEEDINGS
On April 2, 2012, BRI was served with a summons relating to a complaint filed by Allan Holms, both individually and derivatively through Roil Energy, LLC. Allan Holms is the half-brother of BRI’s CEO, Val Holms. The complaint (filed in the Superior Court of the State of Washington located in Spokane County) names, among others, Joseph Edington, Val and Mari Holms, Holms Energy, LLC and BRI as defendants. The Complaint primarily alleges breach of contract, tortious interference with prospective business opportunity and fraud. The complaint focuses on events allegedly occurring around February and March 2010 whereby Allan Holms alleged an oral agreement took place whereby he was to receive up to 40% of the originally issued equity of Roil Energy, LLC. Allan Holms alleges Roil Energy was originally intended to be the predecessor entity to BRI. Both Mr. Val Holms, our CEO, and BRI dispute such allegations in their entirety and intend to vigorously defend such claims.
In March 2013, the Company received notice of a complaint titled Gillis v. Bakken Resources, Inc., Case No. A-13-675280-B, filed in the District Court of the State of Nevada for Clark County. Mr. Gillis, the plaintiff in this matter (the “Gillis Case”), is the trustee of the Bruce and Marilyn Gillis 1987 Trust. Mr. Gillis is the Trustee of such trust. Mr. Gillis is alleging that Client breached certain registration rights obligations pursuant to an equity investment made at or around November 2010. The Company denies the validity of the claims made in the Gillis Case and intends to vigorously defend against such claims. At this time, the range loss is not estimable but is not expected to exceed $50,000.
On June 21, 2013, the court in the Washington case granted BRI and the other defendants in the Washington case summary judgment on the defendants’ request to dismiss all tortious interference claims.
On or around July 18, 2013, BRI received notice of a complaint filed in McKenzie County, ND (Roil Energy v. Toll Reserve Consortium (ND Dist. Ct., Case No. 27-2013-CV-00124)) (the “ND Case”). The plaintiffs in the ND Case are the same as in the Washington case described above. The claims in the ND Case arise from the same facts alleged by the plaintiffs in the Washington case. The plaintiffs in the ND Case seek to, among other things, quiet title in mineral assets the plaintiffs claim were intended to be conveyed to Roil Energy. As with the Washington case, BRI disputes these allegations in their entirety and intends to vigorously defend against such claims.
As a result of the most recent complaint filed in McKenzie County, ND, two of the operators have ceased making monthly royalty payments. The payments are being held in suspense pending the outcome of this litigation. A third operator has not changed its royalty payment schedule to BRI. The company is working to have the suspension lifted and the suspended payments paid.
********
That also sounds like the cessation of royalty payments happened just recently (sometime after July 18th of this year). Unless this is resolved before next quarter, it seems like there could be a huge hit to earnings, no? Do you think the accountants would allow them to report earnings and revenue that haven't been paid to them and are in legal dispute? That's a question, not sarcasm, because I don't know how that would work. I would certainly think they couldn't report an increase in cash on the balance sheet if the company hasn't received that cash. Even if it's a frivilous suit that would be resolved in several months or years, it seems like they might not be able to report good earnings in the meantime. Seems possible that might have been the last quarter of good earnings until the legal stuff is resolved, depending on how the accounting gets handled. And that's assuming they win both cases.
Any thoughts?
SRMC Dividend
Just trying to be helpful here. This is actually a response to a post on the Value Microcaps Motherboard, but I can't post over there so if someone would like to copy and paste this over there, please feel free.
The post said, "SRMC gotta get in by Nov. 1 for the divi."
Actually, the last day to get in for the dividend was today (Tues, Oct. 29), that's because you have to factor in the 3 days it takes for trades to settle in order to be a holder on the record date. For buyers, the stock starts trading WITHOUT the right to the dividend tomorrow (Wed, Oct 30th).
Hdogtx, I was able to find the info that you posted from other boards, just to refresh your memory:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=92869592
Horrible New Format
Add me to the list of people who can't stand the new format. Please go back. There was nothing wrong; it didn't need fixing.
False Information Posted -- A Review
False information on this stock was simply copied and pasted from previous posts; there was absolutely no due diligence done. (As I noted yesterday, Nora Coccaro resigned from the company is 2008 and the company's current status is revoked.)
All the wild speculation and crazy runup was started by a single false post yesterday claiming that Nora Coccaro had taken over the shell:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=92828215
Note the second paragraph ("The Nora lady is pretty big time ...") with all of its abbreviations and misspelling of Uruguay. That is simply copied and pasted from the middle of this post nearly 2 years ago:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=70293430
The other part of yesterday's initial post that gave all the info about previous companies was simply copied and pasted from this post from January 2012:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=70914538
The same info was then posted again in January 2013:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=83505031
Later in the day, another post was made regarding the share structure. Read the first paragraph. Notice the abbreviations and even the misspelling of the word "once" when it was meant to be "one" :
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=92843521
That was simply copied and pasted from this post in Dec 2011. Again, notice the exact abbreviations and misspelling:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=69558609
More than a million shares of this stock were purchased on 9/27/13. My trading software shows 250,000 shares bought @ .001, and 760,000 shares bought at .0011.
Absolutely nothing has happened with this company, other than the false post on Ihub to start the frenzy.
That's nothing new. Dalmata has been CEO since 2008:
http://www.sec.gov/Archives/edgar/data/1080001/000121152408000262/newtech8k.htm
There is no publicly available information that shows ANY cause for excitement.
The company was reinstated with Nevada SOS in 2011 -- so what? It's nearly 2014. The current status is revoked and it needs to be reinstated again to pay for 2012, and 2013:
http://nvsos.gov/sosentitysearch/FeeDetails.aspx?ctok=9wXcd79co5LBZ8w4QbwsXw%253d%253d
Okay, I read it. It's a post from 2011.
The company's status is still revoked and the last SEC filing was in 2009. Why all the sudden optimism today?
Sounds like whoever posted the info on that board had some old info because this company's status is revoked by Nevada SOS and last SEC filing was in 2009:
http://www.sec.gov/cgi-bin/browse-edgar?company=newtech%20res&CIK=&filenum=&State=&SIC=&owner=include&action=getcompany
Nothing on otcmarkets site either
NTHR Sounds like whoever posted the info on that board had some old info because this company's status is revoked by Nevada SOS and last SEC filing was in 2009:
http://www.sec.gov/cgi-bin/browse-edgar?company=newtech%20res&CIK=&filenum=&State=&SIC=&owner=include&action=getcompany
Nothing on otcmarkets site either.
Could you provide a link to show that Nora has taken over?
The last thing I could find is that Nora resigned in 2008:
http://www.sec.gov/Archives/edgar/data/1080001/000121152408000262/newtech8k.htm
And the Nevada SOS lists the company's status as revoked:
http://nvsos.gov/sosentitysearch/CorpDetails.aspx?lx8nvq=9wXcd79co5LBZ8w4QbwsXw%253d%253d&nt7=0
Wrong board, sorry.
Could you provide a link to show that Nora has taken over?
The last thing I could find is that Nora resigned in 2008:
http://www.sec.gov/Archives/edgar/data/1080001/000121152408000262/newtech8k.htm
And the Nevada SOS lists the company's status as revoked:
http://nvsos.gov/sosentitysearch/CorpDetails.aspx?lx8nvq=9wXcd79co5LBZ8w4QbwsXw%253d%253d&nt7=0
RIP Lentinman (Martin Manley)
Was very saddened to hear of Len's passing. I've really missed his participation on the boards for many years now. I always enjoyed his thoughts. Very straightforward guy. Like some others, when he showed up to say hi I initially thought it was just to inform us of a new venture. Sadly, it was something else.
I read thru some of his site last nite. It sounds like he has thought about suicide nearly his entire life. He also suffered from some pretty serious sleep deprivation problems and his mind was always racing. He started to notice some age-related mental problems in the last few years: couldn't remember the names of his best friends, having to dig thru the trash to find an envelope with his address on it becuz he couldn't remember his own address, even though he'd lived there almost a decade.
He seems to have feared that if he waited much longer he wouldn't be able to go out on his own terms.
Back in 2011 KiK asked if anybody knew what happened to Lentinman. Sounds like perhaps Bobwins contacted him privately and Len gave this public response:
"Bob emailed me and demanded that I let people know I'm ok. And, as everyone knows, we all do what Bob tells us to do.
I'm fine - absolutely zero physical problems. If I die, I promise I'll let you know. . . . "
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=62428467
I wonder if the "zero physical problems" was a tacit admission that he could sense some mental problems creeping in. He kept his word on letting us know.
One other reason he mentioned on his site:
"Another reason why age 60 is ideal is that my life insurance expires next year and I would not be able to afford to get new insurance without paying a ton. And, it requires two years of waiting - once you get insurance - before you can commit suicide and still have the beneficiaries receive the death benefit."
He'd definitely thought things thru and it ain't for me to judge right or wrong. Everybody gets to make their own decision, despite what any laws may say. Still sad to see him go.
My fondest memory of Len was on Grifco (GFCI). For those who weren't around when this scam hit, it looked like a value investor's dream stock. Claimed to have cash in the bank, big earnings, no debt, etc. Except for just one thing: no auditor. There was always an excuse for why the audited numbers were late for a week, then a month, etc.
I was intrigued by the stock but skeptical. Len was the same. Then one day while looking at the company's website, I noticed that their news ticker seemed to come from the corresponding message board that they had on their site. You could sign up to become a member of the message board. So I did. Then I posted a message "Is This A Message Board?" and wanted to see if it would show up as a "news item." Sure enuf, it did. I didn't say anything until someone here at Ihub asked about it. I informed them that I just signed up at their message board and typed a message and it became "news". Well, within minutes, loads of people were signed up and typing up "news" stories like "Grifco Buys Exxon" or "Grifco Acquired For $6,000,000,000,000". lol
Len got a HUGE kick out of that whole thing and got some screenshots etc. He documented it pretty well.
Good memories.
Seemed like a very nice person. Sincerest condolences to his family and loved ones.
Only The Company Speaks For Itself
Listening to anyone else completely subverts the due diligence process. One should not rely on "a guy said" rather than rely on the SEC filings. That is absurd on its face.
Since you are concerned about newbies and those who forgot, it needs to be mentioned that you forgot to say that you subtracted a few things from that description. In fact, the most important things.
The link below shows that description was originally given by the company's conference call moderator (who has been compensated by the company but refuses to give an ongoing disclosure of that compensation so that newbies would know.) The description was given when the stock was near its peak of $2.00 and when crazy guidance numbers of $.30-.35 EPS for 2012 were being given, with an additional $.08 EPS to be expected for every $1 million the company borrowed. The guidance number was gonna be easy, we were told. It should be obvious to anyone with just a little math knowledge, we were told. These are the lines you omitted, and a link to the original post is below it:
=========
Let me add and remind here why it is so easy to get an accurate one year out “guidance” number.
As mentioned above, I understand that some 700 cases have now gone through the complete cycle. I have been told that of these 700 cases, only two ended up having to be written off by the Company. I believe the total “out of pocket” loss to SPIN for these two cases totaled under $8000. Again, from what I understand, these two cases were certainly legitimate cases, but what happened is the attorney and or client got greedy and decided to take the case to court and lost before a jury.
So you see any shareholder with minimum math knowledge now has the parameters to figure out approximate earnings for the next year just by looking at the recent reported SEC filing “AR”.
Collections = 52%
Collection time: 10-12 months
Failure rate .03%
Hopefully this will help you all to understand why this is such a great predictable business.
========
Here's the link:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=72706239
Obviously, the company's conference call moderator was incredibly wrong and had zero understanding of the risks that exist in the business. Same goes for Dr. Donovan who was telling people in company presentations that this was a recession proof business.
You said - "go back thru the 10-Qs and 10-Ks and you'll see that the business description has changed nearly every quarter"
The description of the business has not materially changed for the last 7 quarters - despite you saying it changes nearly every quarter.
Good on you for having learned, Rawnoc. That info was discussed way back when, but it's easy to get caught up in the hype from time to time. Happens to everyone. But that's why it's always good to be willing to listen to those with differing opinions, and not just dismiss them.
The first sign of trouble was when Donovan's supposed "best friend" remembered Donovan's supposed "success" in very specific detail . . . . except that it never occurred. You can read the back and forth of replies from message 100 here and watch the stories change before your eyes:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=61873229
Note also that the "explanations" of what happened are hearsay and cannot be verified.
But Dr. Donovan should not be let off the hook in any way. In the last conference call, he outright lied.
Here's a link to the start point of the cc (1:01:40) where he was asked why they changed business models from "purchasing receivables" to "managing centers" or "operating centers" or however they're describing it this quarter (go back thru the 10-Qs and 10-Ks and you'll see that the business description has changed nearly every quarter). Listen to Donovan vehemently deny that they ever were in the business of buying receivables ("Not a factoring company, never have been, never will be") and listen thru to the end of the call where he denies it again (1:16:10):
Wow, now even my posts on this board are being deleted
If he owns 5% of the stock, then he certainly had a way to access some cash to pay his legal fees: he could have sold some of his stock. Then he would have had to be responsible for his own losses, rather than him getting bailed at the expense of all other shareholders.
So the company is loaning money to another person so that person can pay his legal fees? If true, how is that kosher?
He should pay his own legal fees. Doesn't seem like it's the company's business to be lending someone else money for legal fees.
There was huge opportunity cost to all shareholders, as that cash was needed. Wouldn't have had to factor nearly as many receivables if they'd had that cash.
Inappropriate Company Loan?
Also, why is the company lending shareholders' money to rich guys at 6% interest?
From 10-K:
Note Receivable from a Related Party
We entered into a promissory note with a major stockholder (a beneficial owner of over 5% of our common stock) on June 30, 2011. The note matures on June 30, 2013 and accrues interest at the rate of 6% per annum. All principal and accrued but unpaid interest is payable in one payment upon maturity on June 30, 2013. At December 31, 2011, the related party note receivable was $163,703. There was no related party note receivable at December 31, 2010.
In case my original post gets deleted from the SPIN board also, I'm reposting it here:
**********
Management Humility Needed
The best thing mgt can do imo, is to admit that this was a huge blunder on their part, that they learned some valuable lessons, and they are going to change the way they do things. Mgt teams always seem to think they can never admit to making mistakes and have to pretend they are perfect in everything they do or else investors won't trust them. The truth is just the opposite: investors want honesty. We all know from our own lives that mistakes are how you learn. To continue to act like you've never made any mistakes is to tell the world that you have gained no wisdom, and don't plan on acquiring any in the near future.
But to keep from running the company into the ground, mgt needs to admit the mistake to themselves even more so than to investors. If they don't change the way they're doing things, the next time this happens could mean bankruptcy . . . virtually overnite. Borrowing short and lending long is an incredibly risky business and needs to be done very prudently with the bigger part of one's eye kept on risk rather than reward. If you get caught short on cash and have nothing but long-dated assets, you can go bankrupt very quickly. At the very least, you can end up losing a year or two's worth of earnings by having to sell assets at fire sale prices to cover your cash survival needs.
Mgt needs to admit to themselves that they screwed up and have been humbled. They need to admit to themselves that they need to keep more cash on hand and plan for things going wrong. Stop this "full-out, keep the gas pedal floored at all times" style of managing. That has disaster written all over it for a company that borrows short and lends long. Things will go wrong; count on it. They need to plan on that; they need to be prepared for it. They have to leave more margin for error. In one of the previous conference calls I asked if the company was worried they might be growing too quickly and not being conservative enough with keeping cash on hand. John Talamas gave a very smug answer about how they had things totally under control and they knew how to operate the business and manage the growth.
If memory serves, I think that was the same call where John Talamas joked about needing to get the earnings or the share price high enough to buy John a new Mazerati. Not only was that totally inappropriate, but it belies an underlying obsession with focusing on growth and reward, rather than risk. In the business of borrowing short and lending long, the mindset has to be just the opposite, or you risk bankruptcy on a daily basis. As the company grows larger, the chances for adverse things occurring will increase in both frequency and amount. The company should be holding more and more cash on hand as they grow, because things will go wrong.
Paying people solely in stock only contributes to the mindset of focusing so obsessively on reward. You can bet that everyone in the company is calculating their net worth on a weekly -- if not daily -- basis as the stock price goes up. The focus becomes the stock price. Everyone is focused on the stock price. What can we do to increase the stock price? We need to grow faster to increase the stock price more, etc., etc. And operations suffer. . .and risk becomes an afterthought, if a thought at all.
SPIN is basically a glorified factoring company. SPIN buys receivables at a discount and then waits to get paid. To suggest that Donovan and Talamas are the only two people in the world who are qualified to do this business is nonsense. And one of the worst things about this huge mistake that mgt just made is that they had to go to a factoring company and basically introduce them to a type of factoring they probably weren't familiar with. Firstly, a factoring company should never have to go to another factoring company -- that's a sign of mismanagement. But worse than that, SPIN probably had to show the other factoring company exactly what they were doing. The paperwork, the processes, the contracts, etc. I'm sure the light bulb went off in those guys' heads, "hey, we should be doing this too!" The last thing SPIN needs to do is to be creating their own competition. Margins will compress with competition, as they always do -- and all the rosy projections will go out the window.
Stop focusing on the stock price. Focus on the business. And even more importantly, focus on the risk -- the risk of being caught short on cash. Becuz if you don't, the whole thing can crumble overnite like a house of cards.
Drop the nonsense of "earnings guidance." It's bullcrap and destructive. Giving earnings guidance only brings all the future potential earnings forward, and acts like they have already occurred . . . when they have not. It is more of the same mindset: focus on the stock price. Guidance gets the stock way ahead of where it belongs. It also brings in people looking for quick gains, and those same people leave just as quickly when the guidance is not met. It also gives investors and mgt the illusion that business is totally predictable and akin to a savings account, which is absurd, as we've just seen. It starts the thought process in investors' minds of, "It's a no-brainer. It's gonna be easy money. Mgt has already said they're gonna earn this much next year. It's money in the bank. Like taking candy from a baby. Etc. Etc" No, it's bullcrap. Business is risky and especially the business of borrowing short and lending long.
Earnings guidance and rosy projections also go against the non-promotional mindset promised in the very first conference call in which Dr. Donovan said, "we don't go out and promote, saying we're going to open these number of centers, and whatever." The company needs to return to that mindset.
In sum, mgt needs to do three things:
1) Acknowledge they made a huge mistake. It was nobody else's fault but theirs
2) Admit what they've learned from this mistake
3) Outline the changes they have implemented based on the things they've learned from this mistake, so the mistake won't be made again
This will increase, not decrease, investor confidence. People aren't stupid and they don't like their intelligence being insulted. They typical public relations spin that is put out by most companies fools no one but themselves. Publicly admitting the mistake will help to eliminate the biggest mistake of all: self-delusion. It will be the best thing for mgt themselves, becuz a public admission will force them to change their own mindset and they will then have to live up to that mindset or risk public humiliation. This will also be the best thing for their own pocketbook so it's in their own interest to do it.
Be honest. Don't try to downplay this. Do just the opposite.
Acknowledge you had a major screw up. Admit it. Then change.
SPIN board has been taken over by hypesters and they are deleting my posts. My post showing the company's own description that they purchase accounts receivable was removed by Rawnoc becuz it proved him wrong. I would request that anyone interested in an even-handed discussion demand publicly on the Value Microcaps board that my posts be restored and that Rawnoc be disciplined by Ihub or that Ihub take over the SPIN board.
Here was Rawnoc's post which was responding to me:
*******
1) "SPIN buys receivables at a discount and then waits to get paid."
False. SPIN doesn't buy receivables. They finance medical procedures. It appears the "discount" comes from the doctor who gets the business from SPIN and gives SPIN a discount for this business. This is an important discintion. Buying receivables at a discount implies they are distressed debt when they are anything but. SPIN creates new buiness for doctors and finances the procedures for qualifying patients.
*******
My response was that was self-delusional and insulting to one's intelligence. The image below is from the company's own conference call on 8-18-2011:
SPIN board has been taken over by hypesters and they are deleting my posts. My post showing the company's own description that they purchase accounts receivable was removed by Rawnoc becuz it proved him wrong. I would request that anyone interested in an even-handed discussion demand publicly on the Value Microcaps board that my posts be restored and that Rawnoc be disciplined by Ihub or that Ihub take over the SPIN board.
Here was Rawnoc's post which was responding to me:
*******
1) "SPIN buys receivables at a discount and then waits to get paid."
False. SPIN doesn't buy receivables. They finance medical procedures. It appears the "discount" comes from the doctor who gets the business from SPIN and gives SPIN a discount for this business. This is an important discintion. Buying receivables at a discount implies they are distressed debt when they are anything but. SPIN creates new buiness for doctors and finances the procedures for qualifying patients.
*******
My response was that was self-delusional and insulting to one's intelligence. The image below is from the company's own conference call on 8-18-2011:
(1) "SPIN buys receivables at a discount and then waits to get paid."
False. SPIN doesn't buy receivables. They finance medical procedures. It appears the "discount" comes from the doctor who gets the business from SPIN and gives SPIN a discount for this business. This is an important discintion. Buying receivables at a discount implies they are distressed debt when they are anything but. SPIN creates new buiness for doctors and finances the procedures for qualifying patients.
Management Humility Needed
The best thing mgt can do imo, is to admit that this was a huge blunder on their part, that they learned some valuable lessons, and they are going to change the way they do things. Mgt teams always seem to think they can never admit to making mistakes and have to pretend they are perfect in everything they do or else investors won't trust them. The truth is just the opposite: investors want honesty. We all know from our own lives that mistakes are how you learn. To continue to act like you've never made any mistakes is to tell the world that you have gained no wisdom, and don't plan on acquiring any in the near future.
But to keep from running the company into the ground, mgt needs to admit the mistake to themselves even more so than to investors. If they don't change the way they're doing things, the next time this happens could mean bankruptcy . . . virtually overnite. Borrowing short and lending long is an incredibly risky business and needs to be done very prudently with the bigger part of one's eye kept on risk rather than reward. If you get caught short on cash and have nothing but long-dated assets, you can go bankrupt very quickly. At the very least, you can end up losing a year or two's worth of earnings by having to sell assets at fire sale prices to cover your cash survival needs.
Mgt needs to admit to themselves that they screwed up and have been humbled. They need to admit to themselves that they need to keep more cash on hand and plan for things going wrong. Stop this "full-out, keep the gas pedal floored at all times" style of managing. That has disaster written all over it for a company that borrows short and lends long. Things will go wrong; count on it. They need to plan on that; they need to be prepared for it. They have to leave more margin for error. In one of the previous conference calls I asked if the company was worried they might be growing too quickly and not being conservative enough with keeping cash on hand. John Talamas gave a very smug answer about how they had things totally under control and they knew how to operate the business and manage the growth.
If memory serves, I think that was the same call where John Talamas joked about needing to get the earnings or the share price high enough to buy John a new Mazerati. Not only was that totally inappropriate, but it belies an underlying obsession with focusing on growth and reward, rather than risk. In the business of borrowing short and lending long, the mindset has to be just the opposite, or you risk bankruptcy on a daily basis. As the company grows larger, the chances for adverse things occurring will increase in both frequency and amount. The company should be holding more and more cash on hand as they grow, because things will go wrong.
Paying people solely in stock only contributes to the mindset of focusing so obsessively on reward. You can bet that everyone in the company is calculating their net worth on a weekly -- if not daily -- basis as the stock price goes up. The focus becomes the stock price. Everyone is focused on the stock price. What can we do to increase the stock price? We need to grow faster to increase the stock price more, etc., etc. And operations suffer. . .and risk becomes an afterthought, if a thought at all.
SPIN is basically a glorified factoring company. SPIN buys receivables at a discount and then waits to get paid. To suggest that Donovan and Talamas are the only two people in the world who are qualified to do this business is nonsense. And one of the worst things about this huge mistake that mgt just made is that they had to go to a factoring company and basically introduce them to a type of factoring they probably weren't familiar with. Firstly, a factoring company should never have to go to another factoring company -- that's a sign of mismanagement. But worse than that, SPIN probably had to show the other factoring company exactly what they were doing. The paperwork, the processes, the contracts, etc. I'm sure the light bulb went off in those guys' heads, "hey, we should be doing this too!" The last thing SPIN needs to do is to be creating their own competition. Margins will compress with competition, as they always do -- and all the rosy projections will go out the window.
Stop focusing on the stock price. Focus on the business. And even more importantly, focus on the risk -- the risk of being caught short on cash. Becuz if you don't, the whole thing can crumble overnite like a house of cards.
Drop the nonsense of "earnings guidance." It's bullcrap and destructive. Giving earnings guidance only brings all the future potential earnings forward, and acts like they have already occurred . . . when they have not. It is more of the same mindset: focus on the stock price. Guidance gets the stock way ahead of where it belongs. It also brings in people looking for quick gains, and those same people leave just as quickly when the guidance is not met. It also gives investors and mgt the illusion that business is totally predictable and akin to a savings account, which is absurd, as we've just seen. It starts the thought process in investors' minds of, "It's a no-brainer. It's gonna be easy money. Mgt has already said they're gonna earn this much next year. It's money in the bank. Like taking candy from a baby. Etc. Etc" No, it's bullcrap. Business is risky and especially the business of borrowing short and lending long.
Earnings guidance and rosy projections also go against the non-promotional mindset promised in the very first conference call in which Dr. Donovan said, "we don't go out and promote, saying we're going to open these number of centers, and whatever." The company needs to return to that mindset.
In sum, mgt needs to do three things:
1) Acknowledge they made a huge mistake. It was nobody else's fault but theirs
2) Admit what they've learned from this mistake
3) Outline the changes they have implemented based on the things they've learned from this mistake, so the mistake won't be made again
This will increase, not decrease, investor confidence. People aren't stupid and they don't like their intelligence being insulted. They typical public relations spin that is put out by most companies fools no one but themselves. Publicly admitting the mistake will help to eliminate the biggest mistake of all: self-delusion. It will be the best thing for mgt themselves, becuz a public admission will force them to change their own mindset and they will then have to live up to that mindset or risk public humiliation. This will also be the best thing for their own pocketbook so it's in their own interest to do it.
Be honest. Don't try to downplay this. Do just the opposite.
Acknowledge you had a major screw up. Admit it. Then change.
Thanks for your thoughts, Hank.
Two Items of Concern At This Point
1) We don't truly know the number of shares outstanding, becuz we don't know the terms of the preferred. That's not good disclosure. In a decent annual filing they should spell out the terms of the preferred. This needs to change. The terms may be rather benign, such as simply having liquidation preference; Or they may be horrific, such as "each preferred share can be converted into 7 common shares at any time." The company needs to disclose this in a public filing. (I have written and haven't gotten a response.)
2) "Earnings" are quite misleading at this point becuz mgt is taking no salaries. (All the more reason to know the terms of the preferred.) They also don't seem to be including the preferred in the eps count. So are they not convertible? Do they pay interest on the preferred? Etc. No details.
I like the idea of an infrastructure provider in the Bakken, but would like to see these things change.
I think it's a fair way to have done things.
I would also be very happy to see all employees get paid solely in cash from here on out. This eliminates all guesswork about how much the company is truly earning -- no period-shifting is possible on the compensation, no arcane formulas that are total guesswork as to how much compensation was paid, no need to have to go back years later and calculate the cost of buying back the dilution to determine whether or not the company was actually profitable. None of that nonsense.
Plus, by paying everyone in cash, management will be in the same boat with everyone else -- if they want more shares, they will have to bid/compete for them in the open market, with their own after-tax dollars, just like all the rest of us. That is the only way things are truly fair for all.
P.S. You might let mgt know that both 8-K's contain an error, which makes things confusing. Under Item 5.02, both 8-K's say the new employment agreement ends March 31, 2012 when it should say 2014.
There's a very simple system that eliminates all the obfuscation and confusion and lack of transparency of stock options. . . it's called cash. Raise money in cash, pay management in cash, and don't use stock options.
Don't blame the regulators, blame management of companies for using such a convoluted, ridiculous system in the first place.
Every investor should ask himself, why would management use such a ridiculously complicated system when such a simple one like cash is available? The only reason they do it is because it is to their *personal* benefit. As you point out, It certainly doesn't make things more transparent to the investing public.
Management claims they're doing it to help investors. Similarly, the con man running the shell game on the streets of New York City claims he's trying to help me find the pea under the right shell. But of course this isn't true. His shell game is complicated on purpose. If he were really trying to help me, he'd simply turn over all the shells and reveal the pea.
Just like central bankers, managers have the gall to print up more and more currency and insult my intelligence by telling me that they're making my currency more valuable by doing so. Inflation and dilution are one and the same. Dilution benefits only the recipient(s) of the dilution (that's why they do it).
Options also often result in self-delusion, as managers think their own business is doing better than it really is because compensation expenses are underreported or shifted to other reporting periods.
Before 2006 it was an absolute scam. Managers got to lock in todays share price and then not expense options, thus vastly understating compensation and overstating earnings, virtually guaranteeing the share price would go up. Totally misleading, total deception, total scam. Chambers at Cisco has been one of the biggest con artists out there. All the share buybacks Cisco does are merely an attempt to mop up the dilution they gave to themselves. That company exists solely to benefit management.
I sure hope Mr. Talamas keeps his word about not liking stock options as he said in the latest call:
(32:40) "I'm not looking to dilute the shareholder base anymore than it already is. I've seen what just the options have done to our P&L. I barely understand the accounting of options, I don't like it. And, um, naturally we have a PPM in the works, the PPM might have some warrants involved. At least the warrants will be treasury stock and the company will get the money or the benefit from that."
I certainly hope he maintains that attitude. If he barely understands the accounting of options, then stop using them, including for management. It will help management to deal with reality and get a true picture of where things stand. Raise money in cash, pay mgt in cash, and then mgt can buy stock with their hard-earned, after-tax, cash dollars just like all the rest of us have to.
That is a level playing field. That is transparency. That gives everyone, including management, a clearer picture of the company's true profitability.
(As mentioned in a previous post, paying mgt in options doesn't "conserve cash" because the company could have sold those options to investors for cash and brought that cash onto the balance sheet. So that argument doesn't hold water either.)
I never could understand why a company would have to take a charge against earnings on warrants and options that are above the market price and would bring in cash when and if exercised