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How did you come across that report? I mean, did you get an email, or was it faxed to you or what?
Clev, Mike King did not write either of those press releases.
King was not yet around when Grifco put out that release. That was a Jim Dial release. And Summit's pr firm was Knobias, not Mike King.
-BBB said, "Apparently, the document from which I pulled Leonard Koblenz's information has his name misspelled but has his phone number listed correctly." Which document are you claiming you pulled the information from, BBB? If you're claiming you got it from that document, then why didn't you share the document with everyone? That's not very nice. If it was another document, please provide a link to it so we can all see it.
-BBB also said, "Furthermore, I understand SETG shares were NOT registered, and SETG had but only a handful of shareholders, while LTBI's shares WERE registered, and it had nearly 1,000 or more shareholders." How is it that you "understand" that, BBB? You weren't around at that time, or were you? How did you gain that knowledge so quickly? Provide some proof. If it's public info, please link to it.
The notion that a dirty shell was better than a clean shell is nonsense and empirically disproven -- Summit is the one who became fully reporting and filing (under the name Pitboss) in Q4 of last year, while Grifco is still claiming they have paperwork troubles.
And of course CEOs resigning to one another happens all the time in legitimate companies. So we might as well just overlook that entirely. It's a completely normal event.
And also the fact that Jim Dial claimed to be an Internet provider for what, all of a month? Someone goes to all the expense and hassle of forming a public company, for a business that he gives a try for an entire month? And then trades it to a stranger for a dirty shell? Sure, makes total sense to me. I know I'd definitely do that.
r59, on IB I'm amazed that they would set the account up that fast. Wow. Do they allow you to follow up with all you identification and stuff, or do they just accept that since your coming from another broker that the other broker has gotten all your particulars? That's just amazing they'd set you up in an day.
CEO Swapping
Haven't looked at this board in a couple of months because it seemed like it was nothing but conjecture and ranting. Decided to stop by to see what was new, and thankfully BBB was actually the one who posted something substantive: the name of the alleged CPA, Lynn Copelenz (no street address and a hotmail email address).
Do a search for him and we find that he (she?) was the alleged CPA for another pinkie company, Summit Entertainment Group. And who was the CEO of Summit? None other than Jim Dial. On October 10, 2004, the company claimed, "Summit Entertainment Group.net Services, Inc. (Summit Entertainment Group) is an
Internet Access Provider (IAP) based in Tomball, Texas":
https://www.otcstockinfo.com/repository/656608/656608_FR4.pdf
In this next link, we find that the company was formed in Nevada on October 1, 2004 (meaning Dial almost certainly formed the company, since he was CEO on Oct 10th, 2004). But on November 1, 2004, Dial resigned and turned over the reins to, believe it or not, John Jarvis, who was then CEO of a company call Litfiber, which of course later became Grifco:
https://www.otcstockinfo.com/repository/656608/656608_FR11.pdf
And it was a scant 18 days later that Jarvis resigned from Litfiber, and Jim Dial took over that company:
http://www.marketwire.com/mw/release_html_b1?release_id=76419
I resign to you, you resign to me. A little CEO swappin'. (Now we know why Jim Dial was so vague in his bio.)
A few months later, both companies do registrations with the SEC and both are still using the same address:
6990 GENTLE BREEZE DR
WILLIS TX 77318
http://www.sec.gov/cgi-bin/browse-edgar?company=summit+entertainment&CIK=&filenum=&State...
http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001322894&owner=include
Summit had its own pink sheet symbol SETG.PK, and it was a new company, so it would've been a clean shell.
Also, you can search both databases and Lynn Copelenz is not registered as a CPA in either Texas or Nevada:
http://www.tsbpa.state.tx.us/macros/OD007.ndm/MAIN
http://www.nvaccountancy.com/
The m.o. of Summit seems vaguely familiar. Look at all the press releases announcing deals, acquisitions, etc:
http://investor.news.com/Engine?Account=cnet&PageName=NEWS&Ticker=SETG&Limit=30&Mode...
Even the trusty share buyback with the familiar wording. Here's one of Grifco's buyback announcements followed by one from Summit. They are exactly the same except for a few name changes:
http://biz.yahoo.com/iw/050309/082381.html
http://www.prnewsnow.com/PR%20News%20Releases/Business/Stocks/Summit%20Entertainment%20Approves%20Sh...
And yet after all the great business deals and buyback and acquisitions, etc., Summit finally merged with a company called Karma Media and the resulting company is called Pitboss:
http://biz.yahoo.com/pz/050718/82262.html
And after all of that rigamarole and supposed business, and after screwing around with the share structure, what does Pitboss's latest 10-Q show? That they have absolutely no assets:
http://www.sec.gov/Archives/edgar/data/1171326/000113902005000346/f10qsb93005pitboss.htm
This is about the fifth or six public company Jarvis has been through and all of them have made ridiculous claims in press releases but in reality have done absolutely nothing.
In the document that shows Jarvis taking over Summit, they list Summit's website. In the title in your browser it will show up as (I'm not making this up) Billionaire Boys Club (which of course was a huge scam story many years ago in which the scammers simply pretended to be doing business to con people out of money -- it was a pretty good TV miniseries). One of the site's featured stocks on the left is Grifco (Grift Co.?). The real crack-up is when you scroll down to The BBC Network section which talks about not investing in stocks that are just a bunch of crap from a promoter. In that section they sure seem to know a lot about how scams are run:
http://www.the-bbc.net/
CKEI Numbers Are Horrific
Looks like a total pump and dump. Company's got approx. 115m shares out, but company website conviently hasn't been updated since the time when they had 74m shares out. Hey, what's 55% inflation between friends?
Losses keep going up. Ridiculously low gross margins.
PR makes it sound like they have a relationship with Google, when I bet that means they're buying adwords. Trying to get their press release to appear along with the google releases. Typical ploy. No mentions of profits or margins in the pr, just "business increasing."
Reminds one of those egrocer type stocks that went to the moon on the pump before 2000, but never had a chance of making money.
Index Option Taxes - 1256 Contracts
Many index options are now considered 1256 contracts. I'm pretty sure this changed only in the last few years, because I've traded index options in the past, and I'd swear it was always regular Sched. D reporting. I'm guessing some short term trader got hold of a Congressman and finagled a better tax deal for himself.
Here's how I know about this. I got a bit of a surprise last year when doing taxes. I had received my Ameritrade tax statement, but didn't really look at it closely until a few days before filing date, when I started preparing stuff. Turns out, there was a section marked "1256 contracts." It was a surprise to me too. Prior to receiving that, I would have told you that nothing you can buy through Ameritrade is a 1256 contract. But apparently most "broad-based" index options are now considered 1256 contracts. And the definition of "broad-based" is getting narrower.
If anyone is not familiar with the term, 1256 contracts is the tax terminology for futures, futures options, etc. I'd traded that stuff in the past, so I knew what it was, but was shocked to see it on an Ameritrade statement. But apparently the IRS is now calling many index options "non-equity options" that come under heading of 1256 contracts. (I had to scramble at the last minute last year to get the right paperwork for filing).
1256 contracts can be both good and bad. For tax purposes, 1256 contracts are marked to market at the end of the year and you pay taxes on the gains, whether you've taken them or not. This might lead to a surprise for someone who had big gains on something at the end of the year, is still holding in say, March, but by then the price is down significantly. You could end up having to pay cash taxes while you're still holding the position which may or may not be a winner at that point. (You can recover the difference in future years and so forth, but it still could be a shocker.) Luckily my position was cashed out during the same year, so I didn't get a surprise. But I could've gotten caught, because I had no idea that anything bought through Ameritrade could be a 1256 contract.
That's the bad possibility of the tax issue. The good thing about 1256 contracts is they are divided into 60% long term capital gains, and 40% short term, no matter how long you hold them. Make a ten-day trade, and it's divided 60% long term, 40% short term. That could be pretty nifty for short term stuff.
But not as great for long term. Even if you hold more than a year, it's still divided 60/40.
From what I'd found on the internet, it sounds like index options based on more than 9 or 10 underlying stocks are considered "broad-based" and thus, 1256 contracts. But I wouldn't trust the internet, check with your broker. I think ETF's are still sort of in limbo. Are options on SPY considered "broad-based," or does the IRS consider that one stock? Who knows. I'll be checking with my broker whenever I trade ANY index options from now on, so I can adjust my strategy.
Depending on your individual tax rate, if you plan on holding something more than a year, you probably DO NOT want to be trading a 1256 contract. If you plan on holding something less than a year, 1256 contracts give you a better tax rate, but you have to remember the mark to market aspect at the end of the year.
http://finance.yahoo.com/taxes/tips/invest/article/100282/Index_Options_Over_ETFs
r59, re: XLE, do you know if there is a similar index option that is considered a 1256 contract (better for short-term tax purposes)?
nsomniyak, "Fifth Third Bank should merge with Three Five Systems" I like that.
For further synergy, the combined entity should then merge with 8x8 Inc (EGHT) to eliminate redundant administrative costs.
Powermax - Might just be your machine, bob. I can pull up everything fine. Here's powermax's page on sedar just to be sure we're both trying the same thing:
http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00010484
Powermax -- I've been gone for quite awhile on business and don't really know the context of this discussion, but for what it's worth Powermax was a public company. All their stuff is on SEDAR. Can't remember if I owned it or just thought about owning it, but it was public.
Capturing Dividends - BOGN, EMGP, etc.
Just a quick note for anyone trying to capture a dividend on a stock.
The "record date" is NOT the key date to the investor/speculator. The reason is you have to allow for settlement of the trade (currently, T+3). So you actually have to buy the stock 3 trading days before the record date. You should contact your broker to be sure of the date.
I really wish the rules would require companies to add a paragraph like the above to their dividend announcements. Because year after year I see situations like this and it's perfectly reasonable for the average person to say, "okay, record date is the 14th, so if I buy on or before the 14th I get the dividend." But that is not correct.
It's needlessly confusing to the public.
DRK.V - I know a little about this one. It is SAGD. Followed it pretty closely maybe three years ago or so. This is like the third time around for this project. It hasn't been successful before. Not to say it couldn't be, but I'd probably wait until they start showing a profit on the oil they pull out.
Briefly, here's what I recall. I think it was mid to late 90s that this project first came about. Supposedly 100+ million barrels of oil in the ground. Took forever to get things ready, lots of problems. Started trying to produce. Then Derek took on a partner I believe because of cost overruns. The partner put in a lump sum and was supposed to make ongoing payments. They eventually stopped making payments. Derek foreclosed to get their interest back from the defaulting partners (25%, I think). The foreclosure occurred and Derek claimed they were ready to start producing big time.
Then, the old partner sued, claiming something was wrong with the foreclosure sale. At that point, everything stopped. After several months, there was some sort of settlement. Now (everyone thought), we can finally get going. No more excuses. Derek had 100% of the project, renowned experts in SAGD, and claimed big profits were right around the corner. At that point they were promising cash flow and big numbers and no more dilution.
They had a teeny amount of production for a little while, and then they just stopped issuing any sort of news and the stock virtually stopped trading. They had access to money, so it didn't make sense that everything stopped.
Then, out of the blue like a year later Friedland (Ivanhoe) shows up. Got a huge percentage of the project for not much money. It's a perfect promote for Friedland -- supposedly huge reserves, all the blue sky in the world, but whether or not the project is actually economically feasible is another story. That's the way it is with almost all of Friedland's stuff. He's a big story-teller. Sometimes the stories are true, sometimes not. That's what scares me about his involvement in Derek. I know some of the past history, but he'll simply show up and tout the good. I've heard him crack jokes about his own lying. That doesn't make me real comfortable. Losing my hard-earned money isn't a joke to me.
He does have the ability to raise money because of his story-telling ability. But as I recall, Derek's LAK ranch project was ultimately not a problem of money. They just couldn't make things work.
Who knows, maybe a new team can do it.
But the other possibility is like what happens with a lot of old gold plays. The mining guys who have been around long enough know that many gold projects just get used as a way to take money from the public. They know certain projects are worthless, but every gold cycle the same promoters push them like it's this new, exciting project. A new batch of sheep (not familiar with the property's history) come along and are ripe for shearing.
Not saying that's absolutely the case here, but I'd make sure they can pull oil out of the ground profitably for several months or a year before jumping in.
Now you're just outright lying, bbb. (Are you really Nathan Thurm?)
You're obviously not interested in the truth. You're solely interested in pumping your own position.
It should be obvious to anyone by now.
You're the one who made the claim that as a private company Grifco came through the downturn and survived.
That is not true.
BBB: Know Corporations?
All the old shareholders lost everything. The old company is defunct.
"Doesn't it strike anyone's fancy? Grifco was founded in 1990. As a private company, it actually passed through some of the most difficult times for oil & gas during the late 90's, when the price of oil actually slipped to an inflation-adjusted low of $13.85 (October 2005 dollars), a low such as had not been seen since 1946. It went through this certifiable drought in the business and survived. This gives a whole lot of credence to the company's unrealized worth. If it survived the gloom and doom of the 90's, just imagine (for that's only what most of you here can do) . . . just imagine how spectacularly well it will survive the boom we are in now!"
Actually, Grifco didn't survive the downturn. The company filed bankruptcy in 2001:
http://www.investorshub.com/boards/read_msg.asp?message_id=5684065
So you "know," even though you don't know. All your arguments beg the question . . . just like all the company's claims beg the question.
In order for me to get my lemondade stand traded on the otcbb, I would have to get audited financials. Therefore, I must be in the process of getting them!
Seems like perfect logic to me.
"I am very aware that as part of this turn of events -- namely, the spin-off and reverse merger -- GFCI and CTTI are preparing to begin filing their financials with the SEC -- audited financials, that is."
Okay, then. What is the name, phone number, and website of the auditor?
Everyone Controls Their View Of The Board
Just a reminder for those who may not know, you can simply click on a person's name and then click on "Ignore This Poster."
Therefore, if someone only wants to hear positive things about Grifco, they could simply put Dr. Bill (or anyone else) on ignore. There is no need for Dr. Bill to stop posting. He has as much right to post as anyone.
But pointing out the negatives of a company should not be viewed as a "bad" thing. In nearly all of his posts, Dr. Bill has been asking where are the verifiable facts? Right now, there are almost none. All we have are press releases. Those cost about $150 to put out. Share count, margins, profitability, etc., are all unverifiable. Look at HYRF to see an example of a company that recanted nearly every single fraudulent press release they made.
If the company is truly making all the money they claim, it won't matter what somebody posts on a bulletin board because the company could simply buyback shares with all the cash the business is throwing off. (I personally have written to Jim Dial and Mike King numerous times and asked for the name, website, and phone number of the supposed auditor they are working with. I have never received an answer.)
However, if the company is not what it claims, then negative comments on a bulletin board become much more important, because the bulletin boards and newsletters may be the only thing the company has going for it. That's why scam stocks often have many posters telling anyone making negative comments to "go away."
If Grifco is a scam, we can expect many more positive press releases, and yet always another excuse for why they can't get audited financials to the SEC.
Just One More Thought
Sorry to take up the board again, but researcher that's not at all what i was saying. The example was simply to give an absurd example to show that you could wipe someone out when you can name your own terms on the preferred.
AEY in particular issued these when there was no debt outstanding, no anything if I recall. The example I gave was purely to show that you shouldn't just be allowed to create these out of air for any amount.
Why not just issue all common shares from the outset? Why the rigamarole?
P.S. None of this is has been a comment on what will happen to the share price. I know most people look solely at p/e, so I wouldn't be surprised to see it go up. Just trying to point out how that can be very deceptive.
abh3vtand, Researcher and all,
First, I'll just say that this will be my final post on the accounting issue. Everybody views things differently and I'm sure the accounting stuff bores many people. I definitely want to keep it a stock board ("Tell me if the dang thing's goin' up or down, that's all I care about!") and not turn it into an arcane accounting discussion board.
But here's my response to some of the issues raised (I was gone most of the day today).
Firstly, whether you look at it as more shares or more debt, we can all agree that it's pretty deceptive. I would agree that another way to look at the preferred is as $12m more in debt, and mentioned that possibility in my first post on the subject:
http://www.investorshub.com/boards/read_msg.asp?message_id=8410573
In fact, in most circumstances I would say that is the better way to look at it and the by-the-book way to look at it. But again, what I'm looking for as an investor is economic reality, not GAAP rules. And it seems to me that greater outstanding shares is more realistic. Either way, I think it's more or less making the same argument, as I'll get to below.
The non-expensing of stock options by tech companies, for example, was totally in conformance with GAAP, FASB, everybody. Yet you could use those rules to fleece the public by taking a money-losing company and turn it into one that had great EPS, just by issuing stock options to everybody. The whole point was to boost the eps reported to the public. GAAP and FASB rules provided the perfect cover for everyone -- executives, employees, auditors. They were using the rules with the intent to make the EPS look higher, not to give a fair representation to the public.
With AEY, the biggest thing to me is that these guys already control the common. So to say the preferred stock is non-voting is pointless. They control the vote already. They can do anything they want. These preferreds are them too. They issued the preferreds to themselves. The preferreds don't represent money that was lent to them by an investor, nor were the preferred purchased by an investor. If they were, then I would totally agree that the economic reality is more like $12 in subordinated debt.
But that's not the case here. It's all them. They "owe" it to themselves. How much control do they need, for crying out loud? Why pay dividends when you could be paying interest, which is deductible as someone pointed out? At the snap of a finger they could also issue a pr saying, "in order to align management's interests with shareholders', we've decided to eliminate the preferred shares and convert them to common to put management on an equal footing with common shareholders, not above them." Why couldn't it have been just everybody owning common from the outset? They could have issued themselves any number of common shares they wanted. Why all the rigamarole?
And that "stated value" nonsense, what is that all about? Why issue 300,000 preferred shares at $40, instead of 4,000,000 at $3, or whatever the price was at the time? The stock has never traded near $40. Management set this up and gave these preferreds to themselves, a disinterested third party did not buy them. I would contend that the reason you'd do that is precisely so that you could use the rules to say the preferred is anti-dilutive. A quick glance at the balance sheet also makes it look better (300,000 shares is a lot less than 4m), and those shares can never be counted against earnings, on purpose.
That's the same reason you would make them non-voting (a ridiculous term when you already control the common), and non-convertible. Precisely so they couldn't count in dilution. Again, I'm not arguing GAAP, I'm arguing economic reality. And again, why weren't these all just common shares from the start? I'm always very leery when someone opts for confusing over simple. There's usually a reason.
One more working-backward example to illustrate the point. Forget AEY for now, and again look at the bigger point of economic reality.
Let's start with a company with no preferred, only common. Let's say the company does $100m revenue and net income of $10m. No debt. Legitimate numbers, legitimate business. It has 10m shares outstanding for EPS of $1. Let's say the stock has a p/e of 15, and therefore trades at $15. So the market values this company at $150 million. Let's further say 2 insiders own 70% of the stock (7m shares). Then let's say they generously agree to exchange 1.5 million of their common shares for just 100 preferred shares, each with a stated value of $2 million. For simplicity sake, and to stay away from the argument about the dividend's effect on EPS, let's say the preferreds have no dividend, non-voting, non-convertible.
In economic reality, hasn't management just wiped out the common holders entirely, and yet get to announce an increase in earnings per share? The company was only worth $150m before. Now it's got a $200m liability in addition to the $127.5m market cap (8.5m common shares at $15).
If those number are still too close, let's get even more absurd and say the 100 preferred shares each have a stated value of $2 billion. Now there's no doubt. Yet, the more common shares management exchanges, the better the eps gets!
Yes, the financials still attribute the earnings to the common holders, but that's not reality -- that's by design, because this is a self-dealing transaction, not a third-party investor. The company was only worth $150m to begin with, yet earnings now look better even though the investor is paying for the market cap AND the unbelievably massive liability. To own the business free and clear, the investor would have to pay both. Since p/e only focuses on the market cap of the common, it's a total deception. You're eliminating the common shares on purpose, and transferring them to a different security that doesn't dilute the common, on purpose. All so you can boost the eps reported to the public, on purpose. The investor now owns something not worth owning, but doesn't know it.
To compare it to a $100k rental house, it's either like paying $100k for the rental house and then finding out that there's 20 jillion additional owners who all own the same amount of the house as you do (the dilution method), or it's like you own the $100k house by yourself, but don't realize you owe $20 jillion in debt against it, and are instead encouraging your neighbors to buy one too! (the hidden liability method). Either way, you wouldn't buy the house if you truly knew what was going on.
Whether you view it as more shares or more debt almost becomes immaterial. The point is the p/e vastly, vastly understates what the investor is paying for the company (or the house), and yet the whole point of this paper-pushing is to pump up the EPS.
Back to the example, management of such a company would of course announce the increase in EPS in the headlines and mention their magnanimous exchange to the preferreds down towards the bottom of the press release. But quite a few in the public wouldn't notice or understand what's going on. At quick glance, and to the average investor, it would appear the stock is a much better bargain. Only 8.5m common shares out, instead of 10m. Same earnings, so earnings per share went up! This company's really moving! Buy! Buy! Buy!
And the example doesn't really change much if you set the company up that way from the start, rather than convert to preferred mid-stream. In fact, it's better because you never have to answer questions about why the conversion from common to preferred.
-Bottom line, I just don't see many legitimate reasons to set things up like this. I'm always leery when the company owes money to top management, and is doing incestuous deals, and owes themselves on a preferred, etc.
Think about that preferred structure. Why make things so complicated for yourself? How come so many companies can get by with just common shares, and all shareholders in the same boat? How come so many companies can issue preferred shares at the market price, but these guys somehow have to use a "stated value"?
Welp, that's about all I've got. That's the way I see things. But right now my bladder's getting full and I've got a Monopoly game to play, so everyone have a good night.
AEY's Deceptive Accounting (Example)
Focus On Economic Reality, Not GAAP
Rules-based accounting can often be very deceiving (sometimes on purpose). Enron arguably followed all the rules. . . . with the sole intent to deceive. Recently, HYRF was a complete fraud in which a money-losing company reported .52 per share in audited earnings, arguably in full compliance with GAAP.
But clearly the intent of public auditors should be (and I believe FASB rules even require auditors) to give an accurate representation of the company's financial status. You can be following the "letter of the law" and be totally violating the "spirit of the law" and intending to deceive.
Let's take a hypothetical example and, focusing on economic reality (instead of accounting rules), work backwards to see why AEY's reporting is quite deceptive and earnings are overstated (on purpose).
Let's say you have a company with the following stats:
5 mil preferred shares
5 mil common shares
$10 mil in net income
$20 share price
Clearly the company has 10 million shares outstanding -- 5m preferred and 5m common. That's economic reality. The preferred have AT LEAST the same ownership rights and are AT LEAST as valuable as the common (unless the terms say otherwise), because they have priority, liquidation preference, etc. So the reality is we have 10 mil shares outstanding and the company is earning $10mil, or $1 per share. Stock price is $20, giving it a p/e of 20. Total market cap is $200m
Then let's say management decides to change things from 5mil preferred shares, to 500,000 preferred shares each with a "stated value" of $200 per share (which is also the amount required to pay them off).
Now if you just looked at the balance sheet quickly it looks like the "restructured" company only has 5,500,000 shares outstanding instead of 10 million shares, because of the "stated value" trick on the preferred. The company is still earning $10m, but now it's on 5.5 mil shares, so EPS appears to be around $1.82. This gives the $20 stock price a p/e of around 11, rather than 20 like it was before.
But has anything really changed? No. Before, the value of the preferred was $100m. After, the value of the preferred is still $100m (500,000 shares times $200 per share).
Further, lets just ignore economic reality and say that the company says the preferred cannot be converted into the common and therefore shouldn't be included in earnings. This gives the impression that the preferred shares just sort of disappeared (which they, of course, did not).
So now the very same company is earning $10m on 5m common shares outstanding, or EPS of $2 per share, for a p/e of 10.
This is extremely deceptive, because clearly the preferred accounts for half of the ownership in the company, and yet the company is attributing all the income to the common and none to the preferred. The preferred didn't go away just because management said it isn't convertible into the common. If for some stupid reason we want to keep the common and the preferred separate, then we have to separate the income as well. The economic reality is the preferred owns half the company. (If you had 1 single common share outstanding and 50 million preferred shares, would it be economic reality to attribute all the company's earnings to the 1 common share?)
So just by some accounting chicanery, we've cut our p/e in half. Permanently. If the auditors are willing to go along, we just increased the value of the equity. Permanently.
And we've deceived the public. Because nothing has really changed. The company now has a $100m market cap on the common equity ($20 share price time 5m shares outstanding), and a $100m liability hidden in owner's equity where no one is usually looking. Extremely deceptive. But enterprise value (and the true price you're paying) is still $200m ($100m market cap on the equity, plus $100m liability).
So how did we increase the value of the equity?
Lots of people look solely at the p/e to value things. Let's say the original p/e valuation (before we started playing games) was correct, and that companies in this industry tend to trade for a p/e of 20. At a p/e of 10, our stock appears seriously undervalued. It would likely trade at a p/e of 20 (just like it did when we started) not a p/e of 10. That means the stock would now be trading at a price of $40 (20 times the apparent $2 per share in "earnings").
So now the public is paying an enterprise value of $300m ($200m in equity, plus the $100m liability hidden in owner's equity) for a company that is only worth $200m. We sold the company for 50% more than it was worth. And more importantly, we got the public to pay twice what the equity was really worth ($200m instead of $100m), making our stock price go up 100%.
=========
This is essentially what AEY is doing. They're using a no-name auditor and my guess is that's the only way they're getting away with this.
The preferred stock exists. That's not debatable. The company says it exists. Further, the company states the value of the preferred (300,000 shares with stated value of $40 per share, or $12mil in stock). At the current stock price of $4 per share, the economic reality is the company has 3mil more shares outstanding than it is saying (roughly 30% more shares, and true EPS goes down accordingly).
It's ridiculous not to include the true value of the preferred in the fully diluted share count, because the preferred in this case (and nearly always) has AT LEAST the same features as the common as far as economic reality is concerned. Usually much better; after all, they are the higher-ranking shares. In AEY's case, the preferreds have no voting rights, but that's a mute point because two guys control the entire company (some incestuous deals too).
AEY's income statement records the cost of the dividend on the preferred shares, but ridiculously doesn't record the ownership portion of the shares themselves. Basically, the income statement says the company is paying a dividend on shares that don't exist.
So this is a case where GAAP rules can get an investor into trouble. I don't know for sure, but I'm guessing that there is no GAAP rule against excluding preferred shares from fully diluted shares. Why? Because I'm guessing the folks at GAAP probably never thought anyone would claim such a thing. They probably figured it was a given. I mean, after all, if you've got 5mil preferred outstanding and 5mil common outstanding, everybody knows there's 10m shares outstanding. A share is a share, right? The folks at GAAP probably never thought anyone would just claim the preferred doesn't exist.
That's why it's necessary that auditors focus more on "principles-based" accounting rather than "rules-based" accounting. There can't be a rule for every single thing.
In the board game Monopoly, for example, there is no rule stating that you can't take your hand and smack all the other guys' hotels off the board. Or that you can't urinate on the board and then claim that because you are "the car," the slick surface caused your vehicle to slide three more spaces, drifting right past the streets of Park Place and Boardwalk (and their accompanying high rents), and instead land directly on "GO," entitling you to an immediate $200 in cash, thank you very much!
Can't have a rule for everything. A certain amount of morals is just assumed. Unfortunately for all of us, that's often a poor assumption when it comes to the rascals running and auditing public companies.
P.S. Writing this late at night, so please excuse any typos, or errors in arithmetic or grammar.
Hweb, AEY Preferreds Seem Deceptive
I don't like those goofy preferreds. The Series B is 300,000 shares with a stated value of $40 when the common stock is trading at $4 and has never traded above $7? The series A was similar before they paid that off. Essentially, the company has $12 million more debt than they are showing. Why such a goofy setup? It seems like a way to either understate the debt or the number of common shares outstanding. To get rid of the preferred, they'd have to issue 3 million common shares at current prices, or borrow $12 million.
Cestlavie, you've got me confused.
I was saying that, from what I recall, the SEC charges were not against Mike King. I just again searched this document
http://www.sec.gov/news/testimony/testarchive/1999/tsty0699.txt
with both Google's word search, and Ctrl+F on my machine and find no mention of Mike King.
But I could certainly be wrong. If you've found something, please post the excerpt from Mike King and a link to where it can be found.
Your reference to "page 2" and "the root directory" almost makes it sound like you're referring to Mike King's website. There's no dispute about that being Mike King's website. The question is whether or not Mike King's Princeton Research (a Nevada corp) is the same as, or related to, the Princton Research that the SEC charged, which was Savage out of Florida.
The timeline is such that I suppose King could have been working with Savage's Princeton Research in Florida and then, when it dissolved, King went to start Princeton Research in Nevada. But I see no evidence of that.
Help me out. What specifically are you talking about? Please post a link to the page you're referring to.
I don't think that's the same Princeton Research. I had found that several months ago, but if I recall, when I researched it I found that it was based in Florida and the corp has since dissolved.
This Princeton is Mike King out of Nevada. But he's been involved with plenty of dubious companies himself. Even currently at his own site, look at the financials of some of the other companies he's touting. Most of them are ridiculous.
Seems unlikely that a Wharton grad would be doing such things.
But Steve Crowley is the same way. This guy used to work at ABC news, for crying out loud. Now, he touts stocks that are literally selling for pennies in many cases, and talks about their "strong and growing fundamentals," when they've got absolutely nothing going for them. He only mentions his winners and fails to mention when the stocks go down after the pumping is over. I've heard him outright lie on the air. Makes every company sound like the best buy you've ever seen. Most of them are trash, he's just getting paid to tout them. Stopped listening because the companies were just getting ridiculous.
Why would these guys do this? The only logical conclusion I can come to is there is a lot of money in it. A lot. Just for pumping it, a lot of these newsletter guys will be given a couple hundred thousand shares of a dollar or two dollar stock. Do a few of those a year and that's some serious money.
You just have to sell your soul.
hweb CTON, "Another .04+/share in Q4 earnings and CTON might be trading at an annualized P/E of 1 net cash!"
That doesn't appear to be correct. They don't have any net cash -- there's more debt than cash, not to mention far more payables than receivables.
SPEX -- What do you make of the problems they're having with the manufacturer, Arla? Seems like that's still a ways from resolving itself as far a new plant being built.
My first post wasn't to you.
A poster claimed "today's the day" and people could be lured in to buy on such a claim.
Asking Mr. Dial doesn't prove anything. If he's a scammer, he'll lie.
And again, my question was addressed to the other poster who made the claim. He can answer the questions for himself.
The poster's first post was "Today is the day guys."
How does he know that before everyone else? Quoting an old PR that is not from the company gives no indication that anything will happen today.
The poster made a statement about Dial's "old company" Varco. The only BIO I've ever seen is extremely vague. I'm simply asking the poster to provide some proof that this is Dial's old company so that we can all see it. Otherwise, how does he know Dial worked there? Is it just somebody telling him that?
I could say I was a Vice President at Exxon.
I'd be glad to see more info on his bio.
There is no PR on the wire services at the time you posted that. How is it that you're getting information before everyone else? That's illegal.
Please provide proof that Dial ever worked for National Oilwell Varco.
Bob and Everyone re: posting articles
Not picking on Bob here, just a reminder for everyone, including me, that when we post articles we should always post the link to that article.
Someone may want to follow up and read more articles from that site or author. May want to send the article to a friend, etc. And we always want to be giving proper attribution to both the author and the publication. They're the ones who did the work and put up the money to produce the content.
And even just from a copyright standpoint, attribution is key. It wouldn't be appropriate for us to just take content from everywhere and create our own website. It's for our own benefit that we always post the original link so that the website at least has a chance for readers to go their and see their advertising, etc. They have to stay in business. Or we don't get the content.
Personally, I think the appropriate thing to do is to link to articles. But if you insist on copying and pasting something, at the very least please include the link to the original.
We also put investorhub at risk for getting shut down if we don't abide by copyrights. It happened to a small board I used to participate on.
Bob, could you please post the link to the original article.
BBB: Len's absolutely right.
An example of libel would be when you said that I was undeniably paid to bash the company and doctor a screenshot. That's what you call libel.
So feel free to sue yourself on my behalf and send me my winnings from the court case. Since you're a moral, upstanding citizen who is not wicked, I'm sure I can trust you to deliver my check.
For Any Newcomers
If you want to go back and see the history of the infamous news postings, start here (when someone noticed my posting to Grifco's bulletin board) and read about the next 30 messages:
http://www.investorshub.com/boards/read_msg.asp?message_id=5889981
I only posted the first one asking why Grifco wouldn't answer any questions? (Same question still applies today).
I certainly didn't come up with the best lines. There were some classics.
(And now I'll return this board to the zealots.)
Looks like the zealots are out in full force.
I notice you again did not post any facts about the auditor.
I haven't posted on this board in nearly 8 months. Was patiently waiting for the audited financials the company promised.
If you don't want to hold the company accountable for it's own words, feel free.
The same old song about naked shorting and paid bashers gets old after a while.
(And by the way, no one "hacked" into the site. It was an open bulletin board for anyone who wanted to register. The company set it up that way, not me.)
It's possible but highly unlikely. It does not take much effort to edit a website. You certainly don't have to take down the page. Even at Mike King's site they give the same description of Dial.
You managed to write an awful lot without addressing any of the facts. But you did manage to include plenty of sentences ending in double exclamation points!!
All the questions and discrepencies are legitimate questions. Feel free to post any facts.
In your diatribe, why didn't you mention all the people who have been paid to tout the stock?
Glad to hear you're comfortable with the position that you have no idea what the numbers are, but at the same time know they are truly phenomenal. And that they will get even more phenomenal.
And by the way, the screenshot is not doctored. You obviously weren't around when this board started and when we first found Grifco. For your information, there was a period of time when anyone could post news on Grifco's website. I simply kept a snapshot for posterity because I thought it was hilarious. Several on this board (if they're still around) will recall the interesting news items the company had for a few days. That's actually when the company took the site down and came up with the "new" site, which is just a different template.
-Since I've now been informed that I'm a little man and the earth is apparently going to swallow me whole for asking a few questions about a penny stock on a public bulletin board, perhaps you can give me some survival tips?
A little less religious zealotry and a few more facts would be appreciated. No need to be challenging people to a duel at High Noon (will it be pistols at twenty paces, or sharpened sabres?)
But hey, that's just my suggestion. You post whatever you like.
Legitimate Questions = Evil Shorter?
Seems like it would be a lot easier to just address some of the questions rather than make accusations about another poster.
[And by the way, if you, or anybody reading this, knows of a broker who will let you short pink sheet stocks, please post a name and phone number. For all the yammering on bulletin boards about short selling on pink sheets or BB stocks, I've never found a broker who would allow it. I'm with Ameritrade and TDWaterhouse.]
You claim to have quite a bit of contact with the company and seem to have lots of answers for things.
Why not post the name, phone number, and website of the auditing firm?
The company has a great sounding story. If any of it can be verified then it could be a great buy.
Yes, I Doubt The PRs
"What am I doing reading a pink sheet bb?" It's a free country, I can do what I want. Besides, according to the company, this wasn't supposed to be a pink sheet BB by now, remember?
Since it's a free country, I can also post a link to a screenshot of a blast from the past (you might have to click on the picture to enlarge it):
http://img122.imageshack.us/my.php?image=grifco0029pv.gif
Not a whole lot has changed since then, except the stock has been pimped by paid touts. Website essentially hasn't changed, except they're using a new template. Management info removed. Still using the bulletin board to post their news, but they won't let "members" post anymore (not fair!)
Lots of great sounding PRs and I'm guessing there will be more to come. But still no financials even though the company said they would be ready by the middle of May 2005. On Jan 13, 2005:
"In addition to the new equipment, Grifco International is presently working with its accounting staff to compile and audit financial statements in anticipation of becoming an SEC fully reporting company. Grifco International believes this process will be completed in the next 3-4 months."
http://biz.yahoo.com/iw/050113/079011.html
Plenty of excuses for why they're late.
CEO couldn't remember the name of the auditor in the conference call.
Never have been able to get a name, phone number, or website for the alleged auditor.