ScripsAmerica Inc. (SCRCQ)

[coolerheadsprevail]

With regards to SCRC's new suit against Ironridge, for purposes of providing a relevant comp to gauge SCRC's suit against, here is a Federal District Court Order that was released publicly today in a very very similar case involving identical allegations against Ironridge by another smallcap penny stock that has a history of dilution:

http://www.scribd.com/doc/229276217/U-S-District-Court-Order-in-Favor-of-Ironridge-Global-IV-Ltd

In summary:

Federal judge William H. Pauley III completely rejected all of the false claims asserted by NewLead Holdings Ltd. Contrary to the frivolous accusations of NewLead, the federal court found that Ironridge has never manipulated NewLead's stock, and that Ironridge has no undisclosed brokerage relationships.

Judge Pauley's findings in favor of Ironridge include the following:

"Ironridge has submitted account statements for all its sales of NewLead shares, which show no short sales and account for all shares it has received." (Order, page 12.)

"Ironridge showed that NewLead miscalculated when it found that Ironridge exceeded the 10% cap on April 16-its only evidence of short selling." (Order, pages 12-13.)

"There is no evidence Ironridge has ever made a short sale of NewLead stock." (Order, page 13.)

"NewLead's share price has declined precipitously over a period of years. Ironridge had nothing to do with any of those declines." (Order, page 14.)

"Ironridge is responsible for only a small portion of NewLead's share dilution. NewLead will continue to hemorrhage common shares and dilute their value regardless of whether Ironridge is enjoined." (Order, page 14.)

"Ironridge agreed to accept cash instead of shares. But NewLead has refused to pay the cash." (Order, page 14.)

Ironridge showed in its Memorandum of Law that "NewLead's allegations that Ironridge breached certain of its contractual obligations and engaged in so-called market manipulation – which are based entirely on rank speculation without a shred of evidence – are all demonstrably false as evidenced by the indisputable trading records Ironridge has attached to the Brendan O'Neil Declaration. These trading records conclusively prove that Ironridge has never engaged in short selling, market manipulation or selling above the agreed volume limits." Ironridge will continue to fully live up to all of its obligations under the agreement.

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Certainly, no two cases are alike. But it is important for SCRC shareholders who may be viewing the recent suit against Ironridge as a potential catalyst or are banking on a victory in determining the O/S count to use in any sp projections/forecasts (i.e. that SCRC will NOT need to issue any more shares to Ironridge) to understand that Ironridge is often accused of the exact same things that both Newlead and SCRC have accused it of, and almost everytime, Ironridge is proven innocent in court.

Could SCRC be one of the first to nail Ironridge? Sure, but as I mentioned in a prior post, based on the information provided in its Complaint, there are a lot of obvious holes that SCRC better shore up if and when this suit reaches a point where it becomes time to present their Case in Chief.

In addition, as I had also mentioned previously, shareholders should be aware of the significance of the fact that SCRC disclosed in its 10Q that it had ALREADY ACCRUED for the cost of the additional shares that Ironridge is requesting.

Why is this significant? Read on...

The Financial Accounting Standards Board (FASB) long ago issued accounting pronouncements re: accounting for contingencies that clearly state that in order to comply with US GAAP, a company is to accrue for known contingencies (with the most common being ongoing or expected litigation) for which the event/amount is BOTH: (1) Probable, and (2) Estimable. Think about this for a minute.

What FASB is saying is that SCRC should only accrue for the lawsuit vs IR “if” it thinks that not only can they reasonably estimate what the amount of potential damages will be, but also if they believe that there a high probability of SCRC losing the suit.

Heck, even if SCRC felt it would lose but could not estimate the cost of a loss, it would NOT need to accrue anything, or if SCRC felt that it knew how much it would need to pay out but felt that the suit was frivolous and that they would win the trial, it would NOT need to accrue anything. In either of these scenarios, SCRC would only need to disclose the existence of the ongoing litigation in the notes to the financial statements. So it says something that SCRC felt it was necessary to actually accrue for this potential expense.

Companies only accrue for contingencies related to ongoing litigation if they believe the probability of prevailing is low AND they know how much they will be on the hook for if they lost.

SCRC accruing for this IR contingency is either an indicator that they do not believe they will prevail… …OR… …SCRC’s CFO has no clue about fundamental US GAAP accounting and unnecessarily accrued for an expense that was not warranted under US GAAP.

By way of background, the reason this FASB was implemented was to prevent situations where companies presented highly volatile financial statements quarter after quarter due to unexpected contingencies (i.e. lawsuits) that were filed continuously, many of which were often without merit and would never truly become costs to the company. For example, think of a large tech company like Google or Apple that is party to literally thousands of lawsuits at any given point in time, with new ones filed almost every other day, with many of these tech lawsuits claiming patent infringement and claiming billions in damages. Now think of how materially this would skew and distort the financial statements if Apple or Google had to accrue for these billions of dollars in claims just because someone accused them of something – even though the claim may be frivolous or the plaintiff may ultimately LOSE in court. This concept applies to small companies like SCRC as well: Think about if someone sues SCRC for something and claims $100M in damages. Regardless of whether the lawsuit had merit and regardless of whether SCRC had a strong chance to win in court, SCRC would be destroyed as a company if it had to record an accrual against earnings for this $100M simply because it was served with notice of a lawsuit against it.

In essence, the premise behind this FASB rule is to ensure that an expense is accrued only if the company can reasonably opine that there is a high likelihood that they will have to pay this money -- and in most lawsuits it is premature to conclude who will prevail until much deeper into the trial. But yet SCRC apparently determined that it knew enough to accrue for it rather immediately.

This is why it is potentially telling that SCRC elected to accrue the potential expense related to paying out IR their additional Adjustment shares so early in the litigation process.

BUT, remember, that all this means is that IF it should become final that SCRC does indeed have to issue the additional Adjustment Shares, that the P&L hit will have already been made so current earnings will not be impacted. WHAT IT DOESN'T MEAN is that shareholders will be protected from dilution. Although the P&L hit will be muted due to the fact that the expense has already been accrued for during Q1'14, the dilutive impact unfortunately cannot be accrued for and will hit if and when Ironridge gets custody and title to these shares.

This is yet another example of the ebbs and flows that are common with penny stocks. Am I telling folks to sell and run for the hills? Of course not. I never have. What I have ALWAYS advised folks and what I am again telling folks now to consider is to gauge the existence and time horizon of other potential catalysts (BOTH positive AND negative) and actively manage your SCRC portfolio so as to not be a sitting duck by adopting a dangerous "buy and hold everything" investment philosophy. Selling with every intention of buying back in is NOT the same thing as selling and walking away. Don't be fooled or egged on by this false association.

In fact, although it may be bad news for those who are hoping to solicit bid support, active trading when known negative catalysts are coming is actually GOOD for the recovery of the sp. Why? Because a negative catalyst will bring down the sp, regardless of whether most shareholders hold or sell.

If they hold, they represent dead money, because they are already fully-invested and can't help anymore. HOWEVER, for those who temporarily sell in order to get out of the way of an oncoming trainwreck, not only do they save their portfolios from unncessary losses, BUT they represent NEW MONEY when they buy back in -- and it is ONLY with the fresh infusion of new money that can bring the buying pressure necesssary to prop the sp back up to the levels that it should be at.

GLTA...