ScripsAmerica Inc. (SCRCQ)

[coolerheadsprevail]

I know that I had previously stated that new auditors need time to essentially start from scratch all over again; however, given the time that has now elapsed, I will acknowledge that it is quite odd that they are still not done as of now. As someone who has been on both sides of a financial audit of a public company, I can confidently say that there has now been adequate time to have done the entire audit all over again.

As I have been saying, a new auditor always means starting over from scratch, which means it will take a long time. It ended up taking a couple weeks longer than what I felt was necessary, but in the bigger picture of time, not unreasonable.

I haven't read thru the filing in detail, but quickly glanced thru the sections that were of interest to me. Here are notable takeaways:

From January 1, 2015 to date of this filing, we issued 2,501,303 shares of our common stock for the following transactions:

• 1,390,303 common stock shares to consultants under a consulting and service agreement which were valued at $251,855

LOL, looks like regardless of who is CEO, SCRC just can't shake the penny pumper addiction. Does anyone really believe tht it was simply a cosmic coincidence that SCRC's officially sanctioned homophobic criminal JOSEPH ZAMPETTI re-surfaced and began cranking out public pumps 24/7 again the day before the 10K was filed? I did miss him, though, as his JV squad was rather boring.


Change of Auditor
It appears that this was simply a cost-cutting exercise as SCRC paid Friedman $154k last year but only paid KMJ $82.5k. BUT... ...it also appears that we got a watered-down "diet audit". Here is the language from Friedman's most recent audit opinion:

An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used...

And here is the language from KMJ:

An audit also includes assessing the accounting principles used...

Looks like we got what we paid for, with minimal audit procedures to actually attest to the numbers. BUT... ...that's OK because as far as the public markets are concerned, an audit opinion is an audit opinion and most penny players are too stupid to know the difference, so use this knowledge and recognition of the increased risk to your advantage.


Where are revenues coming from???
Most sober and literate retail shareholders have known for quite some time that JOEY Z, SEAN FITZGIBBONS, and all the other criminal CORE members were pumping every PR'd business venture as a rock-solid goldmine of riches -- when in reality, they were nothing more than a start-up throwing stands of spaghetti at a wall and trying to see what sticks (nothing wrong with that, but it speaks more to the criminal pumpers than to SCRC itself -- although Mgmt's judgment and intentions are called into question when they continue to engage known criminals to pump their stick instead of simply executing their business model and letting their fundamental performance dictate the sp).

But the 10K officially tells the story:

- RapiMed is dead
- WholesaleRx is dead
- The alleged "partnership" with Jungle Jim's and United Apothecary are dead
- DispenseDoc is generating nothing
- Pharmacy Administration, Inc is generating nothing
- PIMD continues to be a money-loser w/net losses for both 2013 and 2014

The only segment generating revenues is Main Ave, and we all know that they, along with the entire sector, got their legs cut out from under them with the changes in regs. And cetainly, losing CVS/Caremark in early-2015 cost them 45% of whatever meager revenues they had left.


Selling Expenses
Commissions continue to spiral out of control. What is most worrisome is not simply that commissions are still up to 65%, but that Selling Expenses in total now consume 90%. If you look at he income statement, after deducting COGS, the gross profit that remains is almost entirely consumed by Selling Expenses!!! This leaves virtually NOTHING to pay for staff salaries (both Corp staff and Main Ave staff), rent, insurance, and all the other costs of day-to-day business operations.

The margins on compounding are so rich that it is virtually impossible not to make money in this industry -- but yet, SCRC has found a way. It is very clear that Mgmt has structured a way to siphon off bigger and bigger slices of the pie so that nothing is left for shareholders in the form of earnings.


Liquidity
I see that KMJ prostituted itself into withholding its "going concern" statement, even though SCRC's financial condition is worse than it was a year ago.

I also see that SCRC's Mgmt has stated that it believes that with a meager $450k in cash, that it anticipates having no problems meeting its working capital requirements. I see. May I direct your attention to the balance sheet. Take a look at the debt load; it has not shrunk much. Take a look at trade A/P; $5M owed to vendors. Take a look at the Share-Based Compensation portion of the SG&A expenses. There is your answer. SCRC will likely continue paying for portions of its operating costs by issuing shares of stock in lieu of cash payment.


Line of Credit w/Triumph
Did anyone see the disclosure that SCRC was out of compliance with the terms of the covenants? Apparently, SCRC failed to maintain either the required Current Ratio or maintain a net worth of $2.5M. So, Triumph was apparently scared enough of the risk of outright default that they agreed to a waiver that lowers both the Current Ratio requirement as well as the Net Worth requirement to only $100k. $100k. Think about that. If SCRC liquidates, how much per share do we get out of that? Pretty sombering.

Restatements ???
So 2014 revenues are $30M. Funny, if you add up all the numbers that were PR'd for 2014 from the FEB launch thru DEC, we get $37M worth of "approved orders" that were touted as revenues (remember, SCRC had previously disclosed that it recognized revenue upon payment approval from the insurance company -- it now states that it recognizes revenue upon customer receipt of the delivery, which is completely different and should require a restatement if there indeed was a change).

There are only two possible explanations:

(1)
Prior 2014 10Q's are mis-stated.

(2)
Revenue is actually NOT recognized upon approval but upon receipt by the customer, in which case this means that Main Ave had approx $7M worth of backlog, which represented approx 1.5 months worth of orders based on the $5M/mo rate that was being experienced during Q4'14. This is not good as compounded Rx products do not take more than 1-2 days to produce in a properly staffed pharmacy. Orders backlogged this long will usually result in customer cancellations and nastygrams from insurance companies who have oftentimes proceeded to pay Main Ave for these orders upon approval. I had opined last year that this was the likely cause of why CVS/CareMark terminated its agreement with Main Ave.


Share Structure
This is actually the one positive from the filing. In many ways, aside from not knowing what SCRC has done fom a revenue and earnings perspective for 2015, the share structure is the most important data point that shareholders need to know and understand.

The last official number we saw was 136.6M O/S as of 11/15/14, the date of the Q3'14 10Q filing, which included a Subsequent Events disclosure stating this.

Per this 10K, the O/S count as of the 1/29/16 filing date this past Friday was 139.4M. So less than 3M regular shares of common stock issued during the 14-month period since the last filing.

Now, consider that SCRC is stating that 2015 should be profitable. If so, then you need to use the fully-diluted share count. Not the basic count. Not the filuted count. The fully-diluted count. So tack on an add'l 27M shares to the O/S count and you will get approx 166M shares.

As we should all know by now, revenues don't mean squat. It's all about earnings. We need to see what SCRC means when it says it is "profitable".

If SCRC can generate $18M in revenues (approx $1.5M/mo which was the most recent avg number PR'd many months ago), and somehow eek out $1M in profit, this translates to .006/share EPS. At a generous 10x multiple, this comes out to .06/share. $500k in profit equates to .003 EPS, and only .03 with a 10x multiplier, so it seems the speculators are already unwittingly pricing this in already...

.06/share is nothing to the poor souls that were lured into buying and holding by JOEY Z and the rest of the criminal CORE who are still massively underwater well into the double-digits... ...but .06/share is manna from heaven to JOEY Z and his CORE con artists who flipped while advising others to hold and are now back for another bite at the apple...

Just remember the CORE's mantra and you will be fine:

Bad news is good news
No news is good news
Neutral news is good news
Good news is the best news ever


Continued GLTA while we wait for more non-stale pieces of the SCRC puzzle...