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Jim Nelson has been aggressively marketing this stock to anybody who will listen since 2011, remember he does have a background in marketing. And yet here we are. The CEO of the company should be focused on building the company, instead he just tries to sell the stock. What you just described as a positive is actually one of my concerns: that the company is more worried about selling shares of their stock than anything else because they rely too much on dilution for everything from legitimate growth to lavish bonuses to absurdly toxic financing deals.
You are correct, I have no evidence of anything like this going on from SUNworks (the subsidiary not the newly renamed parent company) or any reason to believe so. SUNworks is actually, by itself, a pretty good company. This is something I have been saying for a long time.
What's going on in Santa Barbara is what concerns me, not what goes in Sacramento. In fact the excellent performance of SUNworks in general is what makes it easier to the problems with the leadership in Santa Barbara which exerts very little direct oversight over SUNworks (Jim is not even located near the actual operations of the company and has no office).
If you recall SUNworks was quite profitable when acquired (despite lower revenues), and it has taken years for the extra overhead added on by JN to be overcome through growth and for them to once again show a profit. On the other hand, MD Energy has been somewhat of a disappointment, especially after the Fresno debacle.
Abe, Emil, and Mike deserve a lot of credit for what they have been able to accomplish building their company. Nobody else, in my opinion, deserves any credit for the success of SUNworks. The way the compensation rewards are set up, Jim Nelson will receive a huge reward essentially just for using shareholder money to buy them. He can't provide effective active management from his nice house in Santa Barbara, 400 miles away from any actual company operations. He is literally a stay at home CEO, which is pretty much unheard of for any serious leader.
Based on this, in my opinion the most shareholder friendly move would be for the board to push JN out and replace him with Abe Emard, who has proven to be an effective leader. Unfortunately the board is stacked with business associates and family members of JN, so this will likely never happen.
P.S. It might be an accident, but it is certainly fitting, that Abe is listed above JN on the company website.
Speaking of crooks...
Here is an indictment I pulled off PACER a while ago against Jonathan Lei (Elaine Lei the name on the LLC of Pearl Innovations, a founding shareholder of SLTD, is almost certainly his wife or sister). Those would one of the Machinetalker guys I think you were referring to (the ones who put the original seed money to change the name MachineTalker to Solar3D.
The indictment:
https://www.scribd.com/doc/307470376/Indictment
Here are filings showing the connections of Elaine Lei:
Roaming Messenger was in the business of developing a 'revolutionary' wireless messaging product (a very similar product to what MachineTalker was developing at the time). That product never went anywhere. Sound familiar?
Roaming Messenger, the company listed in the indictment that resulted from the FBI sting against Mr. Lei, later became Warp9 of which Greg Boden (of Bountiful Capital) is CFO. Bountiful Capital (Then called Wings Fund) is another one of the founding shareholders of SLTD.
Here are filings showing these connections:
Warp9 recently changed their name again to CloudCommerce and is now pursuing a growth by acquisitions strategy to consolidate the fragmented Cloud Computing industry. Sound familiar?
Here's where things get even stranger.
I posted yesterday about how I found it strange that Nelson only talks about the few years he spent at Bain, but I have never heard him speak of the bulk of his career spent at Millennial (AKA Invest West LLC). Now what could the place he worked for 20 years, and CloudCommerce have in common?
They both have the same address.
Here is the LLC file for Jim Nelson's former place of employment I purchased from the WA State Sec. of State office: https://www.scribd.com/doc/267064466/Last-Filed-Report-5
Listed Address:
1933 Cliff Drive #1
Santa Barbara, California 93109
United States
Here is the address for CloudCommerce: http://cloudcommerce.com/contact/
And here is an image of that building in Santa Barbara:
This could explain why Jim Nelson never talks much about his time there, even though he spent a full 20 years of his career there (technically he is still there according to the LLC document).
It is these original investors that are profiting massively from the dilution, and given that Jim Nelson worked side by side with them for years I find it hard to believe that the massive profits they are raking in from their tiny investments at the expense of shareholders here is purely coincidental.
Album of the filings for the big three initial shareholders of SLTD showing how they are involved with other tech companies that have been horrible for shareholders: http://imgur.com/a/F9WpW/all
A growing company can be a bad investment. To show how this can be true take a look at this image I put together a while back:
While the company size as measured by market capitalization grew rapidly in the course of a year, because of dilution ordinary shareholders like you actually lost money.
To bring us up to speed since July...
Market cap is now 52M and share price is 2.63, both lower, but let's measure the differences in percentage change to see the pernicious effects of dilution in action.
Market cap went from 60M in July to 52M today.
% change = ((x2 - x1) / x1) * 100
Where X1 = the base value (60M) and X2 = the current value (52M)
-> ((60M - 52M) / 60M)) * 100 -> (8M / 60M) * 100-> .13333 * 100 -> 13%
So there was a 13% decrease in market cap.
Doing the same thing share price where x1 = 3.37 and x2 = 2.63 gets a decrease of 22%.
So market cap has gone down 13% while the share price has decreased 22%.
That is how a growing company can lose shareholders money when dilutionary events are commonplace.
This is a very important part of my thoughts on the dilution, it's not just the significant percentage of new shares being added to the float, but more importantly the lack of liquidity to absorb them. There is so little liquidity / interest that these new shares have to be unloaded over a period of years to avoid cratering the stock completely. Which sets up shareholders for a long series of disappointments as otherwise positive catalysts are actually negative as any event that generates liquidity generates selling pressure regardless of whether it was good or bad.
In terms of new selling pressure, one thing to look out for soon is new insider sales. Last year there were quite a few insider sales in June that took the price down substantially. The company explained that the cause of these sales was that their executives are "underpaid" and that selling shares is part of their ordinary income and they can be expected to sell shares periodically.
Here is where they sold their shares last time:
And the historical prices and volume levels during that time period:
One more random thing... they actually calculated the number of shares incorrectly during this time by making a basic clerical error and typing in the wrong number to subtract the sold shares from resulting in incorrect information being filed. I let them know about it and they never fixed it.
Of course I can't say for sure whether there will actually be sales or not, but in order to assuage concerns from insider sales previously Jim Nelson essentially said you can expect insider sales from time to time. This guy is an absolute marketing master when it comes to convincing shareholders that bad things are actually good things, I will give him credit for that.
Here he is in his own words:
Let's talk about false statements. Not only have I made every effort to be thorough and accurate, but my track record regarding my predictions has been solid. I will recap my concerns with the company and back up the statement regarding my track record with the rest of this post.
First let's look at the very first thing I ever commented on publicly regarding the company.
My first comment was to warn people to be wary as I noticed the company was being very heavily promoted, and the price never closed above that level since then and has fallen nearly 50% in the meantime. But I will admit that the precise timing was mostly luck, the general instinct was apt though.
Now I will bring up what I wrote about regarding this company almost exactly a year ago when I highlighted my concerns regarding:
1. The negative effects of paid promotion.
2. The fact that the company spent next to nothing on research and development for their "revolutionary" solar cell which made it very likely they were never going to show progress upon it.
3. Dilution.
4. That all of these things would lead to a reduced share price.
I took a lot of heat for that article both here and other places. Most of the people who gave me heat aren't around anymore, but some of them left me some nice messages on their way out. This one came from a bonafide member of clan Neeson, profile picture and all:
Furthermore, despite just about everybody giving me tons of flack and saying all manner of awful things about me, including a strange but entertaining in which the author attempted to psychoanalyze me as the focus of the retort, the company apparently agrees with my concerns now.
Here is what IR told the author of the recent bullish article on Seeking Alpha. This is the closest we have to their own explanation for the decline in share price after the most recent earnings report:
They essentially hit points 1, 2 and 4 from my initial concerns above in an attempt to downplay the effects of point #3. If I was so wrong about those things at the time, why is even management agreeing with me now? I give them credit for finally coming clean but not much as they aren't the ones suffering the negative impacts of it.
As far as the specific false statements you referenced let's have a look at managements response to my article:
So basically a fair assessment of their argument boils down to this:
1. The insiders had been converting and wanted to complete converting their notes before 3/31/15.
2. The MD Energy acquisition prevented them from doing this.
3. They deserved to have a chance to convert at full value.
What that doesn't explain, and was the main point of my article, was why they allowed the notes to appear to be less dilutionary than they ended up being. In fact, this explanation from the company shows that since 3/31/15 they had always intended to allow the notes to be converted at that price, and yet the filings showed a different price for nearly a year.
Why didn't they just extend the provision right away and allow the insiders to convert their shares as intended as soon as the legal team gave the OK? Like many things with this company, it makes less sense the more closely and critically you examine it.
What we know is that large volume selling occurred after a good earnings report to the extent that the stock has fallen significantly since then. This company barely has 100 registered holders, and most people who post here or elsewhere claimed to be buying. A large number of shares came from somewhere and pushed the price down, and if you keep track of the share count, large numbers of shares get pushed out by this company in various forms all the time. In fact, if somehow I was wrong about the precise source of the shares as buckylaw06 said, that is actually even worse for bulls as it means those shares still have the potential to inflict more damage on the share price. Whereas if my guess as to the source (note I also said that simply the revelation of dilution could have been behind it as well) was correct, then the damage was already done and the bullish case becomes slightly less bleak.
Regarding Nelsons biography you posted:
Here is the version you posted:
CEO ownership as a bullish signal is a lot less meaningful when it's the result of granting yourself shares after dumping every last share you own as Jim Nelson did. You need to look at the form 4's I posted in my other post to see that.
Not only has there been a lack of buying, but at one point shortly after the purchase of SUNworks Nelson systematically sold every share he owned. The following numbers are prior to the 26-1 reverse split.
Here are most of the sales (from EDGAR):
Here is the final sale:
Shortly after he received another share bonus to replenish his supply.
He did buy a whopping 6000 shares though at $4.15 at the start of 2015, so there's that.
To the extent that insiders do own shares, it's essentially an accounting gimmick to book expenses in an earlier period. Nelson says all the time that the execs are "underpaid" and therefore sell shares from time to time as part of their compensation. But they are selling these shares from a big pile that was expensed years ago, leading to a massive accumulated deficit. This allows them to appear more profitable than they would be if they actually expensed executive compensation normally.
You are missing the point of what I said, he didn't convince them of anything, if anything they convinced him. The entire thing appears to be set up from the start strictly to benefit them. The money didn't come from them, it came from ordinary shareholders. Feel free to interpret the 2013 10-K subsequent events section as you wish but this is what I see happening:
1. Several notes that originally totaled ~100K are converted into shares at a price of .338 post split.
2. These shares are sold on the market for a little over $850,000.
3. That proves that the market was capable of providing that amount of money without pulverizing the share price.
4. The funds from the sale of those shares were rolled over into new notes totaling $850K (100K + 750K)
5. Days later Sunworks is purchased with these funds being used as the cash portion of the deal which also included another toxic note.
6. The toxic conversion price allows these notes to be converted at $.338 a share, netting a healthy 8000% (depending on share price) return on the original ~100K invested.
Again, this is my best interpretation of the events surrounding the purchase of SUNworks I could come up with by synthesizing historical data, press releases, filings, and discussion.
Conclusion: Ordinary shareholders effectively contributed the funds by buying shares sold just days prior to the purchase of SUNworks. These funds were then immediately used to create a new toxic note to fund the purchase as I have described in my articles.
There wasn't any real risk for them because they were betting with the houses money, your money. They only put up ~$100,000 of their own money as far as I can tell, the rest has been from reinvesting YOUR money by rolling over the toxic notes. I bet several people here have invested more than $100,000.
Are those of you who have happy with the performance the stock compared with what you would have gotten if you had the same sweetheart deal they had?
Why should they be rewarded for the risk but not ordinary holders who may have invested more?
Nelson has always been a poor steward of your money at best, and the implicit trust he is given by his shareholders allows him to do this.
There is value in this company but shareholders will have to seize it for themselves, it will not be handed to you as a result of patience or blind loyalty. Failure to do so will result in the same kind of perpetual disappointment many of you have felt years now. The dependence of the company on a small core of retail investors gives you power. Will you use it?
The company could have just sold normal shares to raise the $850,000 needed to buy Sunworks in Jan 14. Instead we are in a situation where people who initially put up about $100,000 converted and sold those notes (which were themselves toxic) and took the proceeds from that to fund the $850,000 to buy SUNworks. Those new notes are worth to those initial investors, depending on the share price, around $7,000,000. Had the company just issued new shares and sold them you would have saved a ton of money. Instead insiders are reaping roughly 8000% (give or take 1000% depending on share price) gains from their 'investments', while ordinary shareholders are either confused or blame a part time blogger.
To see more check out the 2013 10-K that is what it appears to show, in the subsequent events section.
By the way you shouldn't trust Jim Nelson, his career wasn't on Wall Street anyways, it was mostly at a two man operation (Invest West LCC / Millennial Capital) in Santa Barbara co-located with some the same people behind shareholder value wiping companies such CABN, HYSR, WNYN (now CLWD) and BSRC. They are moving all of the companies from the technology fairy tale business to the growth by toxic debt business. Common thread behind them is that ordinary investors get hosed and insiders get extremely rich. If you like this you will love them.
Jim Nelson is staying in Santa Barbara though which is 400 miles away from the actual company. So he is both idiomatically and literally phoning it in. They should just make Abe the CEO and let Jim retire on the beach if they really want to save money. Jim Nelson is useless baggage at this point now that they don't need him around to lie about the solar cell.
Note was split four ways, not three. One of people on the note is Richard Emhard, probably Abe's father (Richard is Abe's middle name). So it's possible some shares were sold on market without the filings you mentioned. Not to mention I also said that simply the greater than expected dilution as a result of this could have also caused people to sell regardless of any actual dumping.
You can at least acknowledge their SEC filings related to these notes contained errors right as late as 2Q15? They said explicitly that the provision had expired, Jim Nelson explicitly said those notes accurately reflected all potential dilution, and then the dilution turned out to be an extra 942K shares on top of that.
They have been paid in the past for Solar3D, and the paying party for the other companies from IRTH is the same paying party that has paid for Solar3D promotions as recently as a few months ago. This paying party is linked closely with promoting clients of IRTH Communciations, the IR Firm SLTD hired several years ago, but as of a few weeks ago switched to Hayden IR as their public facing IR firm.
Some examples of payments at the same promoter promoting SUNW right now:
30K for ATNM - http://smallcapstreet.com/?s=atnm
Payment for XXII - http://smallcapstreet.com/?s=xxii
Here are other payments Star Media has promoted showing the close ties between that payer and clients of IRTH Communications:
What we have is a penny stock promoter who is being paid for every other company that the same IR Firm promotes except for Sunworks (though as recently as November Sunworks has paid for promotion).
The company themselves said the penny stock promoters were a problem yesterday, though they said they were a positive thing on the 2Q15 conference call. I guess they can't make up their minds.
First I will say that the core business is doing much better after this year, almost entirely due to the performance of their core unit Sunworks which has done an excellent job expanding their business.
However, there is a pattern of dilution and shareholder unfriendly decisions that are eating away at the gains that long term investors here surely have earned after all this time and patience.
Dilution can be useful in certain circumstances, such as acquiring a new company, whether it is ultimately beneficial to shareholders of course depends on the terms of the dilution.
The problem that I brought up with my article was that the company changed a previous contract provision, one of the notes used to buy SUNworks, and made it so the owner could convert the note into 1.4M shares instead of 500K shares. They didn't obtain any assets from this or create any shareholder value, as you can see from the performance since the earnings report it did the opposite.
This is especially bad considering the promises and commitments Jim Nelson himself made in regards to dilution on a previous conference call: ""We don't seek these types of notes anymore obviously. The fact is that any dilution that comes from these notes has been disclosed in ever ahead a lot of different Q's and K's (quarterly and annual filings) all those Q's and K's that we've submitted over a long time have been disclosed and exposed the dilution that might come and the effect has certainly or almost certainly been taking into account by the market."
He said very plainly and very clearly that they had disclosed all future dilution as of the second quarter. The provision had not been extended at that point.
This was just posted by Jeremy on Seeking Alpha:
"OK SCOTT I TALKED TO MANAGEMENT. They gave me a great explanation. What happened was the notes were, like I said, to the sellers of Sunworks United who are now officers and employees off he company. In the fall of 2014, the company announced the acquisition of MD Energey, another solar installer. When that happened, the Sunworks United guys were insiders, AND THEY COULD NOT EXERCISE THEIR OPTIONS. The sale did not close until March,2015. There is also a two week blackout at the end of a quarter. Because they could not exercise the options before the 3/31/15 deadline, the company extended their period of exercising at $0.52. No new shares were created, it was the same amount of shares, they were just given a longer period to acquire those shares at the $0.52 price.
Sorry for the bold, but this is an important comment and I wanted it to stick out with all they there moments."
If Jeremy is not lying about his discussions with management, it means they were planning on changing that provision back all along despite disclosing a much lower amount of dilution all the way up until they actually diluted the shareholders.
Saying that all potential dilution had been revealed in the filings when you intended to change a contract to increase dilution is an outright lie, and a lie that is costing shareholders dearly over the last few days.
Holding management accountable for the performance of the stock is a critical role for shareholders. Usually that role is performed through the board of directors, but given the makeup of the board of directors are mostly personal friends and family members of Jim Nelson, it's hard to envision that happening.
There are a lot of things going on well for this company on the installation side, but if they keep doing things like changing past contracts to be worse for shareholders how will shareholders ever realize any benefits from that?
The lack of a solid institutional base in this makes the share price especially vulnerable to weakness from events like the one in my article.
If you put pressure, and it doesn't have to be public pressure, on the company around these actions perhaps they would be less likely to take them in the future. Unconditional loyalty to the company and CEO has so far not been a winning strategy.
Excusing bad behavior simply encourages more of it, and I don't think shareholders can afford much more of it. There is a chance to salvage this company from a business perspective, but if the leadership continues to make decisions without respect to shareholder interests the chance is much lower.
My calculations on dilution were correct.
My math checks out.
Conversion price was $0.52.
$750,000 / .52 = 1,442,307 shares.
This is the number of shares that actually converted a few weeks ago.
As you all know the old float was 17.7M shares.
1,442,307 (new shares) / 17,700,000 = .081 which converted to a percentage is 8.1%. The reason someone thought it was less than 1% was probably because they made an error in converting a decimal to a percentage.
If they had not changed the provision the conversion price would have been roughly $1.50.
$750,000 / 1.5 = 500,000
The difference in the number of shares is the dilutive impact of this change or 942,307 addition shares as a result of the change.
1,442,307 - 500,000 = 942,307
Now we just need to multiply the additional shares created by the current share price, I will use $3.00 here since that is what it was when they are converted.
942,307 * 3 = $2,826,921 which is the incremental amount of dilution.
In my article I said: "Based on the price of the stock today, the 1,442,308 new shares caused about $4.3 million worth of dilution on a stock that has struggled to keep up any volume. Conversely, if they had not changed this provision, and retained the more favorable terms already in the contract, there would have only been $1.5 million worth of dilution."
The $4.3M was calculated by multiplying the total shares converted with the share price and rounding down by $26,911.
1,442,307 * 3 = $4,326,911
The $1.5M from the article is based on multiplying the 500,000 shares under a conversion at $1.50 a share by the share price.
500,000 * 3 = $1,500,000
If you still have issues with my math could you please point of the specific area you see that I made a mistake?
Pearl Innovations sold their shares of SLTD in a private transaction. But who are Pearl Innovations?
Pearl Innovations is run by an Elaine Lei, who is almost certainly a close relative of Jonathan Lei, someone who has extensive ties to the other Santa Barbara startups.
Jonathan Lei was caught up in an FBI sting for stock manipulation while he was with Roaming Messenger, which then was renamed to Warp9, and has finally been renamed to Cloudcommerce (CLWD). Court documents I obtained via PACER are provided here:
Indictment
Jim Nelson is connected to this company because his place of employment before he joined Solar3D, Invest West LLC (AKA Millenial Capital), has the same address as Roaming Messenger (now Cloud Commerce).
This is a record of Jim Nelsons company Invest West, which I ordered from the WA State Sec. of State:
Corp. Registration
Which matches the address of Cloudcommerce.
Notably Jim Nelson is still involved in this LLC after becoming CEO of Solar3D, according to the documents.
At a minimum we can know that Jim Nelson has a working relationship with the Lei family, as they shared a business address for many years and he would therefore certainly be able to answer any questions related to why they sold should someone ask them on the conference call.
My own theory why is speculative (the reasons are in my opinion unrelated to the current stock price or performance of the business) so I won't publish it until it is confirmed, which should be by the end of June.
The flowchart has this relationship explained at the lower right:
I am not trying to get people to sell anymore, but anybody who did sell because of me saved a lot of money (the earlier they listened the better, my first sell recommendation was at $5). The company is beyond a joke at this point and anyone who can't see that on their own isn't going to be convinced by anything I say.
As far as ulterior motives, I actually have a small long position which I will dump going into earnings after the inevitable delusional hype that presents itself before every earnings.
So please, if you think I just say these things with ulterior motives and am a dishonest person, buy more. The more you buy the more money I will make. But I cannot make a honest recommendation to buy this stock for anything other than a speculative greater fool trade.
Jim is stay at home CEO, he doesn't have an office anymore.
For example, say you needed to mail Jim a letter, where would you send it? His private address in Santa Barbara is not listed and all of the company offices there moved to Roseville (which means they closed since Nelson was the only one who worked there and he didn't move). Extremely unusual but nothing that is going to concern investors here.
Jim Nelson is now a stay at home CEO who gets a very nice salary (mostly from diluting shareholders). I am glad some of you had the wisdom to vote down that ridiculous comp plan though, but they will find a way to extract what they want or destroy the company in the process.
I tried to warn you all about the p-notes which are expiring soon. I tried to warn you about the shady deals that went through which have the effect of enriching Jim Nelson and his friends in Santa Barbara to the tune of millions of dollars while ordinary shareholders get fleeced.
For instance: The purchase of SUNworks could have been financed by a normal equity raise instead of the p-notes, this is demonstrably true because you can look into the filings at the start of 2014 and see that holders of the p-notes dumped enough shares to buy the company on the market. They did this just days before the company purchased SUNworks. Had the company itself sold the shares directly to shareholders shareholders could have got the company at a massive discount to what you are on the hook for with those notes. The only difference is that Jim Nelsons friends in Santa Barbara couldn't have made as much money from it.
Imagine the effect of over one million new shares being dumped on this company when the share price and volume level are already so weak.
Companies with CEOs who don't even have anywhere to work don't usually do so well. If the day comes that the house of cards comes tumbling down, I would be more than happy to assist anyone who feels like taking legal action (I have no standing myself). I know where the money is.
By the way I really am sorry that this company has deceived you and ripped you off like this, it's certainly not a fun situation to be in. This happened to me in the past, which lead me to be much more vigilant in investigating and detecting potentially fraudulent or unethical behavior. I don't want to get in big fights and stuff like I did in the past but feel free to email me if you have any questions or want to say mean things like in the good old days. (gmail: scottsandridge)