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nope but when I got in before it was not at .0001
Again we will see.
LRS actually doesn't get to expense the purchase of ECOS. Under the tax law, you can only expense the basis if depreciable property (excluding land, real property and goodwill). You can't expense the purchase of shares (absent a 338 election) Since ECOS has no fixed assets there is no expensing of a buyout (even with a 338 election).
If you mean LRS can write-off the machines as they buy them, yes they can.
But the write-ff of machines for LRS doesn't create additional value for ECOS.
BTW they won't be announcing any new machines until machine number one passes acceptance testing.
Reg FD only applies to insiders. The person who I had lunch with is not a ECOS employee or shareholder. He is not subject Reg FD. He is just a nice person who raises debt and equity financing for businesses. He can actually relate under Reg FD what he has been told. So again beleive what you must. Time will tell us who is right here. BTW since I have been in ECOS for years I would wish for a transaction, but I can't see it coming to fuition.
Yes they have the right to acquire warrant at higher than the market. That doesn't lead to a conclusion of a buyout or a merger. You don't exercise warrants until the market price exceeds the strike price. Doesn't hurt at all.
Call Kwak and ask him if they are out looking for debt financing. I would actually ask Jeung Kwak since he is the person with the purse strings. He can't tell you anything because of Reg FD.
The same applies to all the banter about a merger or a McDonalds deal. There is nothing every stated by ECOS or LRS that says either company is considering any form of buyout or merger, but it is repeated again and again on this Board.
I only related what I was told about financing.
Believe what you may. The guy who related to me this request was a person who raises debt and equity funding for small and mid size companies. He introduced me to ECOS and MS back in 2010 when they were raising capital for their lithium battery and diesel emulsion projects. That is what got me into ECOS.
I can only tell you what I was asked. We will just wait and see. I was told they are out of cash (which was easy to see from the last Q). They need funding to finish the LRS project.
Not the Q it was related to me at lunch last Friday from someone who had been approached by ECOS. Wanted to know whether I would participate. If securitized debt I would consider participating.
ECOS was looking at debt to refinance HanscomK loan, the Tonaquint convertible and for other operating needs.
The question though is what would LRS shareholders pay for ECOS.
What ECOS buys/brings them is the ability to avoid tipping fees. If you capitalize the LRS costs avoided it is not a number that gets you anywhere near $10m for ECOS.
If I were Handley I would offer at most $5m for ECOS including the debt. That leaves around $4m for the equity or $.0003 per share. IMO that would be a generous valuation.
I don't think a merger is in the offing since ECOS is out looking for debt financing right now. If I were Handley the safer play is to offer them a loan securitized by the digester rights. You control what you want (the digester) without having to take on the ECOS public shell.
DS the market will normally value a combined LRS/ECOS (after a merger) at a multiple of the combined firms EBITDA or revenue (assuming the two businesses are deserving of the same multiple). In LRS business segment (waste) it is safe to assume 11x multiple of EBITDA. In technology (assuming ECOS) is really a tech firm, 11x EBITDA is not normal
From the valuation you would subtract net debt of the combined firm to derive equity value of the combined firm.
Since ECOS has no EBITDA the market (and LRS) is not going to ascribe LRS valuation and multiple to ECOS. They are likely to value ECOS using a cost avoidance approach (how much landfill cost) can I avoid using ECOS) and some opportunity value for the value of the systems I can sell to other companies. That is not going to be $1.7bn, more likely a less than $5m enterprise value. JMO
DS
I know we have had this exchange before. but there is no way LRS is going to give ECOS shareholders 50% of ECOS in a merger or do a merger of equals.
Your valuation approach ignores a couple of important aspects which are incorporated in M&A valuations
(i) the debt of both companies. ECOS has a lot more debt (compared to their total valuation than LRS). This has the effect of suppressing the equity value of ECOS; and
(ii) LRS would nomrally value ECOS at a multiple of ECOS revenue or EBITDA (which is zero), not attribute its multiple .
If they do a deal today they are more likely to value ECOS at closer to its current valuation than .1154 per share.
We are all entitled to our opinion, but I think we are years away from .1154. I would personally be happy with .0003.
All entitled to our opinions
they have gone a long period before without issuing financials. My guess is they need funding to get the LRS deal done and the financials audited.
I heard at lunch last Friday that they were out looking for new financing sources. The problem is that they need to get their financials up to date to issue more shares in the market or borrow money from a new lender.
you will get an NT 10-Q tomorrow
I am not twisting anything.
The contract clearly states what the system must do to meet the requirements for a successful install. My point is simple
(i) if the system meets those requirements then LRS should accept the system and pay for the system.
(ii) if the system doesn't meet the minimum requirements then the system doesn't meet the requirements and LRS doesn't have to pay.
Either the system meets the contractual requirements or not.
Saying your are changing the boundaries of what the system can do is not a reason for LRS not to pay and accept the system. IMO there is a part of this story that Kwak is not telling the shareholders.
DS when you go back and read the LRS agreements the agreements had very specific requirements (types of inputs and minimum processing amounts) to be considered acceptable. Its in the Exhibits to the agreement. The system either met those standards or not. LRS can't legally impose new or changed standards on ECOS unless ECOS lets them.
This additional input requirement leads one to think (IMO) that the system as installed didn't meet the requirements in the Exhibits and Kwak's explanation is a nuanced way of saying what was installed didn't meet the contractual minimum requirements.
Nope just nothing much to talk about here since the LRS deal still in acceptance phase, no 10-K yet and limited access to capital markets under new rules.
Have been thinking of taking another trip down to California facility to see what might be going on down there. It seems if Kwak doesn't want to tell us need to get info from another angle.
I am here. I have been on the Annual Shareholder Meeting circuit. Last meeting today.
Haven't found the need to post since nothing is happening here.
They went back to Paritz & Co which is a CPOA firm based out of Northern New Jersey which specializes in audits of small listed companies. They were their auditors for most of the period from 2005 through early 2017.
CMI
I would echo the need to have someone run this who is more accountable to the shareholders and DS would be fine.
The only issue is that with the preferred stock structure of ECOS the shareholders cannot actually vote to cause anything to happen. The two Kwaks and MS have enough votes to control any shareholder vote. Not atypical structure in pennyland.
A small nuance. The 5% test is guideline and the SEC has taken the view that certain things and events can be material even if they do not change income or assets by more than 5%. The 5% threshold is really a convention developed by the accounting profession that the SEC has over time used as their own evaluation tool. However, if you read the SEC rules they intentionally avoid putting forth a definitive definition of materiality.
Materiality is a company by company case by case test. If a company reports items which are less than 5% of income and assets, the SEC will often require them to file all items that fall in this category.
In addition, an agreement to issue unregistered securities, the entry into an employment agreement with an officer or a change in executive officers are all items where the threshold is not applied and 8-K is required as they are deemed material to investors no matter what the financial statement implications.
I have seen plenty of cases where financial statement errors which do not change income or assets by more than 5% end up being 8-K events, since the external accountants may require the 8-K as an alternative to pulling their audit opinion.
It depends on her pics and her net worth. If both good she is given leeway. If not time to move on.
Not to get us off topic, but I continue to be troubled by the wording of the ECOS Press Release and the additional testing period. I went back to the Supply Agreement with LRS to see again how the deal was supposed to work.
Here are some simple questions ECOS should be able to answer for their investors. The questions would answer whether the issue is simple tweaks or whether there are issues with the system itself that need to be remediated. In addition, it would help define whether the costs of remediation are for the account of ECOS or LRS. Since they put our the PR they can answer these questions.
Question 1- Did the system provided to LRS ever achieve fully operational status as defined in the Supply Agreement? If yes, then LRS should have paid for the system and ECOS should have sales revenue. If no, then the Press Release is technically misleading.
Section 2.1(b) ECOS was to deliver a system within 90 days of December 23, 2016. LRS had 110 days after date the system becomes fully operational to reject the product or it was deemed accepted.
Fully Operational" means (i) the Product will remediate fifteen (15) tons of organic municipal solid waste segregated from non-organics, (ii) the Product's output is an organic fertilizer that has resale value, (iii) the Product operates mechanically in accordance with the Specifications, and as described in the operation manual, a copy of which has been provided to Buyer (the "Operation Manual") and, (iv) the Technology functions in accordance with the specifications therefor and as described in the Operation Manual.
Question 2- Are the additional costs being incurred being passed on to LRS or are they part of the $687k purchase price and for the account of ECOS?
Section 2.2 provides that the purchase price for each of the first 8 units is Six Hundred Eighty Seven Thousand Three Hundred Seventy-Five and 00/100 Dollars (US $687,375.00) (the "Purchase Price"). The purchase price includes equipment and installation.
Section 2.4 Any Product delivered to and/or installed at the location designated by Buyer which fails to conform to the requirements of this Agreement and the Specifications, or which a Governmental Authority declares to be unfit or otherwise unsafe for its intended use or in violation of any Laws, will be considered non-conforming ("Non-Conforming Products"). Products are considered Non-Conforming Products if damage renders them unsuitable for their intended purpose, unless the damage is a result of a Customer's failure to use the System in accordance with the Operation Manual.
Question 3- Did the system provided to lRS meet the quality standards as articulated under Section 3.1 and the System Specifications as provided in Schedule 1?
Section 3.2 Quality.
(a) Ecos warrants that all Products, for a period of two years immediately following installation (the "Warranty Period"), will: (i) be of good quality and workmanship and free from defects, latent or patent, in design, material or workmanship, (ii) conform in all respects to the Specifications, (iii) be fit for their intended use, (iv) be free of any claim of any third party; (v) be manufactured in accordance with generally accepted good manufacturing and quality practices and (vi) be Fully Operational for no less than 95% of the time during which they are being operated at any location in accordance with the Operation Manual. These warranties shall not be deemed waived either by reason of Buyer's acceptance of Products or by payment for them and shall survive Buyer's resale or lease of the Products.
Schedule 1- System Specifications
Kevin
Remember none of the 400 units in Korea were built or installed by ECOS.
Not all of the 400 units in Korea were manufactured or installed by their Korean licensor/manufacturer.
This is ECOS first install ever so having kinks and start up issues doesn't surprise me at all.
What is surprising to me is that they had to have known this for months and they didn't actually tell the public markets this information. It is material information.
This may strange since some think I am a basher, but I think we all need to take a breath here.
LRS looks like they got an extension of the acceptance period for machine 1 until the end of the 2018 recycling season. A clever outcome for them since they can use the existing machine for free in 2018.
The extension tells you LRS is still committed to trying to make this recycling of organics program work (as it is key to their business model). Otherwise they could have cut the project loose.
It likely means that the additional machines or the farm of machines is now likely closer to a 2019 event. LRS likely not to deploy more machines until this one works to their satisfaction.
It likely means that we should expect some more stock issuances from ECOS to fund expenses over the coming months (i) they have to pay the expenses for continued testing at LRS; (ii) they need to operate their business; and (iii) they need to fund the Choice North Farms project. Not ready to put a fork in it and call it done yet.
Finally, for RM fans it likely means no RM in the first half or first three quarters of 2018. LRS would not merge with ECOS unless and until this machine operates as they want it to.
JMO
but what this tells you is when they release the 2017 financials there will be no sales revenue from the sale of BioArt machines (since the install period is now extended to q3 2018). There has been no acceptance by LRS that might have been something they might have wanted to tell investors sooner.
that is fine we can all have opinions
Actually Tonaquint would need to promptly file an updated 13G for the acquisition of the shares (since that would kick them over the reporting threshold) and another for their disposal. Since they have not filed an updated 13G I think a better guess is that they are still below 5% ownership and that a fair amount of debt is yet to be converted. Wish it were otherwise.
No I don't see the benefit to LRS of a merger with ECOS.
LRS benefit of the digester is driven by the ability reduce landfill costs (since those are revenue streams that go to WM) and the ability to attract additional communities to their recycling program through organics recycling.
You can get both of those benefits by buying the 8 machines that was talked about at the grand opening cweremony (and sharing in the margin on the machine sales and the sale of byproducts).
I think LRS better play is to continue to buy up small waste companies to expand their footprint, consolidate the operations (reducing S,G&A and overhead costs) and reduce landfill costs of the target.
If they were going to go public I think there are better options than acquiring the LRS shell. Today if they acquire ECOS they would be paying $1.5m (at today's stock price) plus the assumed debt (which includes the Kwak debt, the converts and the accrued and unpaid salaries). At$.0005 the price is north of $7.5m plus assumed debt. I think they can go cleanly public for a lot less than $7.5m and still get the benefits of their JV with ECOS.
JMO
DS not quite. I think they have about 5.5-6bn shares left to go. We know they have been issuing shares to pay expenses which were not reflected in the prior information.
We also have no idea how many shares have been issued to convert debt since they haven;t issued their 10K.
Remember they issued a few billion shares to pay for expenses over the past months. That needs to add to the total.
The convert shares of 9.6bn actually go up by the amount of accrued and unpaid interest on the loans. The longer the loans are not converted the higher the share number is.
Then if you read the LRS agreement carefully they get 5 1/3 of the then outstanding so the math is like this
Previously Outstanding 6.9bn
Share for Expenses 2.0bn (this number may actually be
higher)
Revised Total 8.9bn
Shares For Conversion 9.6bn
Total After Conversion 18.4bn
LRS First Warrant 1.0bn
Revised Total 19.4bn
LRS Second warrant 1.0bn
Revised Total 20.4bn
LRS Third Warrant 1.0bn
Final Total 21.4bn
Additional shares related to accrued but unpaid interest not included. Notes are accruing default interest not stated interest since 2014/ 2015.
Ordering more machines wouldn't have gotten LRS anything under the new Tax Bill. They would have needed to place the machines in service (being used in the business) to qualify for 100% asset expensing in q4 2017. My guess is they would wait to 2018 as the 100% asset expensing rules have a 5 year life. Put out the cash closer to when you actually need the asset in your business.
The $8m drop relates to accounting for the embedded equity derivative on the convertible debt. The amount of cash debt was unchanged.
The derivative accounting ($8m) reflects the dilution that would roll into equity if all of the equity are converted into shares. The change reported related to how ECOS accounted for that derivative, not the value of the debt. It is all GAAP accounting driven, not economic.
Now we are in a place of agreement there are no facts supporting the existence of any merger or disproving that a merger is being considered. It is merely an unsupported thought and rumor. I am fine with ending it there.
Neither company has ever stated there is a merger or that a merger is being considered. The people on this Board have surmised that such an outcome is possible.
As such (relying on your need for facts to support statements) there are no facts or statements made by ECOS or LRS that support that the parties have ever discussed a merger or have even contemplated a merger. Therefore, it is merely a thought and conjecture.
so is all of the discussion of the imaginary merger. But WTF
DS you believe whatever you want to believe. I don't really care if you attack my credibility since I know I am right on this and attacking the credibility of those we disagree with is a lot about what is wrong about discorse in this country). I provided you the SEC rules in my post which are quite clear on the requirement of audited financials for registrants. So your statement that I provided no facts is bull.
By the way I am not KP. I got into this investment after meeting with MS back about 8 years ago. That was when ECOS was doing lithium battery technology and diesel fuel emulsion.
Frankly I don't care what you do or don't believe. You and I have always disagreed on the concept that there will ever be a merger here. We should leave it at that. Time will tell whether that is ever a reality.
Their 10-K's are all supposed to be supported by (and include) audited financials whether a merger happens or not. The 10-K rule is a general registrant rule and applies to all annual filings.
While you can technically be delisted for not having audited financials in your 10-K the Staff will request them of a filer (via a letter) before taking any regulatory action. Since pennyland is fraught with disclosure and filing issues I don't see the Staff wasting their time on ECOS.
There is no way that they are in a disclosure position to move forward with a merger. They would need to fix some disclosure issues (in the ECOS filings) and include ECOS and LRS audited financials in any merger filing.
I don't need to talk to the SEC Staff as this is an area of law I spend the most time on and which I teach every other year. I am extremely comfortable with what I have posted here.
read the sec rule I posted it clearly requires an auditors opinion on the financials and going concern. Here are the specific SEC rules. The rules are pretty plain and clear on the requirement of audited statements for annual periods.
In order to do a merger they will need actual (historic) and proforma (with transaction adjustments) audited financials of both ECOS and LRS.
General Instructions as to Financial Statements (Rules 3-01 to 3-20)[2]
Although referred to as "General Instructions" they are usually quite specific.
All financial statements shall be audited unless otherwise indicated.
Rules 3-01 to 3-20 specify the balance sheets and statements of income and cash flows to be included in disclosure documents when prepared in accordance with Regulation S-X.
Other portions of Regulation S-X govern the examination, form and content of such financial statements, including the basis of consolidation and the schedules to be filed.
Rule 3-01—Consolidated Balance Sheets [3]
Registrants must file audited balance sheets as of the end of each of the two most recent fiscal years for the registrant and its consolidated subsidiaries. Any interim balance sheet provided in accordance with the requirements of this section may be unaudited but shall be at least as current as the most recent balance sheet filed with the Commission on Form 10-Q. Where filings must be made yet year-end balance sheets are not yet available, provision is made for use of interim balance sheets, including time limits on large and accelerated filers.
Rule 3-02—Consolidated Statements of Income and Changes in Financial Position [4]
Registrants must file audited statements of income and cash flows for each of the three fiscal years preceding the date of the most recent audited balance sheet for the registrant and its consolidated subsidiaries and predecessors. In addition, for any interim period between the latest audited balance sheet and the date of the most recent interim balance sheet being filed, interim statements of income and cash flows shall be provided. Such interim financial statements may be unaudited.
Rule 3-03—Instructions to Income Statement Requirements [5]
The instructions note that any unaudited interim financial statements furnished shall reflect all adjustments which are necessary to a fair statement of the results; and a statement to that effect shall be included. Such adjustments shall include, for example, appropriate estimated provisions for bonus and profit sharing arrangements normally determined or settled at year-end. If all such adjustments are of a normal recurring nature, a statement to that effect shall be made. Otherwise, there shall be furnished information describing in appropriate detail the nature and amount of any adjustments other than normal recurring adjustments.
Also, disclosures regarding segments required by generally accepted accounting principles shall be provided for each year for which an audited statement of income is provided.
I will help you all. There is a general requirement that all Form 10-K's of all registrants contain audited financials. The requirements covers two audit aspects (i) the financial statements opinion and (ii) a going concern opinion. Has been part of the SEC rules forever.
The requirement is no specific to non-compliant companies, it applies to all registrants. The link to the 10-K rules are below.
https://www.sec.gov/fast-answers/answers-form10khtm.html
Actually permits in Cook County (and the collar counties) are controlled by the municipality that the site is located in. So the California site (that they built the digester at) is covered by City of Chicago permits.
The other thing to be aware of is that the permit can be in the name of the contractor or the site owner. If it is a turnkey install (which these are) the permits could be in the name of ECOS or their third party contractor.
The easiest way to find out if permits are pulled is took up the address of the LRS sites and contact the City they are located in and ask where they have pulled a building or electrical permit.