Encounter Development Technologies Inc. (ENTI)

[Tavycal]

ENTI - recent filings - observations EDITS

This stock had a surprising short term run recently. It saw a quick one day spike but quickly settled back down into the triple zeroes closing at $.0009/share today

So I decided to take a quick look at the recent filings and see what is really going on with this company


At the end of 2010 the stock featured the following share structure in their annual report:

http://www.otcmarkets.com/otciq/ajax/showFinancialReportById.pdf?id=46751

Authorized Common Shares - 10,000,000,000
Outstanding Common Shares - 7,671,348,421
Float 5,590,407,554

Authorized Preferred A Shares - 15,000,000
Outstanding Preferred A Shares - 11,135,000

** Each Preferred A share can convert into 175 common shares starting 12 months after their issue date

Authorized Preferred B Shares - 80,000,000
Outstanding Preferred B Shares - 24,757,000

** Each Preferred B share can convert into 4 common shares starting 12 months after their issue date

Authorized Preferred C Shares - 2,000,000
Outstanding Preferred C Shares - 0

** Preferred C shares are not convertible




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At the end of 2010 Anthony Dibiase, the CEO of ENTI, owned the following number of shares:

200,000,000 restricted common shares
0 preferred A shares
10,000,000 preferred B shares

The annual report states the following:

There are no shareholders known to the Company who beneficially own more than five percent (5%) of any class of the Company's Common Stock. There are no shareholders known to the Company who beneficially own more than five percent (5%) of any class of the Company's Preferred Stock, other than Anthony Dibiase, Chief Executive Officer and Chairman of the Board of Directors, and Richard DiBiase former Chief Executive Officer.


In order to own 5% of the outstanding Preferred A shares somebody would just have to own 556,750 shares since 11,135,000 Preferred A shares were outstanding at the time of the annual report. That means since Anthony Dibiase owned none then Richard Dibiase had to own at least 10,578,250 of those outstanding Preferred A shares

In order to own 5% of the outstanding Preferred B shares somebody would just have to own 1,237,850 shares since 24,757,000 Preferred B shares were outstanding at the time of the annual report. We already know that Anthony Dibiase owned 10,000,000 Preferred B shares so Richard Dibiase had to own at least 13,520,000 Preferred B shares.



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A lot has changed since the Annual report for 2010 especially for the CEO of ENTI, Anthony Dibiase.

On April 11, 2011 ENTI raised the Authorized Common share count from 10,000,000,000 to 15,000,000,000

http://www.sos.state.co.us/biz/ViewImage.do?masterFileId=19871676075&fileId=20111217021

On April 18, 2011 ENTI approved a forward split (to go into affect on April 29, 2011) where for every 30 common shares of ENTI stock somebody owned they were given 1 free shares (31:30 forward split)

http://www.sos.state.co.us/biz/ViewImage.do?masterFileId=19871676075&fileId=20111232026

The Authorized share increase was most certainly to make room for the forward split to happen (more on this later)

On April 20, 2011 ENTI raised the Authorized Preferred A share count from 15,000,000 to 75,000,000

http://www.sos.state.co.us/biz/ViewImage.do?masterFileId=19871676075&fileId=20111236520


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The attorney letter with respect to current information filed by ENTI and completed by Christopher Davies on May 2, 2011 combined with the partially updated information available to us via the OTC website gives us the new picture of the ENTI share count

http://www.otcmarkets.com/otciq/ajax/showFinancialReportById.pdf?id=49235

http://www.otcmarkets.com/stock/ENTID/company-info

Combining those two sources we get the following share count as of April 29, 2011:

Authorized Common Shares - 15,000,000,000 (increase of 5,000,000,000 in 2011)
Outstanding Common Shares - 10,770,449,260 (increase of 3,099,100,839 in 2011)

*** note the 7,671,348,421 outstanding shares on December 30, 2011 would have only forward split into 7,927,060,034 shares so the large majority of those shares were newly issued shares by the company not related to the forward split

Float - 8,500,000,000 (estimate)

Authorized Preferred A shares - 75,000,000
Outstanding Preferred A shares - Between 50,000,000 - 61,135,000

Authorized Preferred B shares - 80,000,000
Outstanding Preferred B shares - Between 10,000,000 - 34,757,000

Authorized Preferred C shares - 2,000,000
Outstanding Preferred C shares - 0


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The most notable share increases were the Preferred shares given to the CEO, Anthony Dibiase so far this year.

Anthony Dibiase who didn't own any Preferred A shares on December 31, 2010 now owns 50,000,000 Preferred A shares as of April 29, 2011. This explains the increase done with the Colorado SOS on April 20, 2011.

So let's analyze the situation.

Each of Anthony Dibiase's 50,000,000 Preferred A shares can convert to 175 common shares for a grand total of 8,750,000,000 common shares.

Luckily for ENTI shareholders according to the bi-laws Dibiase will have to hold those shares for 12 months before he can start converting them.

Each of Anthony Dibiase's 10,000,000 Preferred B shares can convert to 4 common shares for a grand total of 40,000,000 common shares. That's not too bad. We don't know when he received those shares and when they become eligible to be converted.

The other thing we don't know is when Richard Dibiase's Preferred shares become eligible for conversion. We know for sure that he owns at least 10,578,250 Preferred A shares convertible into 1,851,200,750 common shares and 13,520,000 Preferred B shares convertible into 54,080,000 common shares. For all we know some of those may have already been converted since the new year.


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The sole officer/director of the company is Anthony Dibiase


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So what kind of business is ENTI in? Their entire operations seems to consist of running a website called musicmatrix.com

The site offers free users the chance to browse other members videos and comment on them. It also offers visitors the option to purchase a membership that will allow them to create and upload videos and enter those videos in contests for prizes.

$9.99/month (gold) will allow a member 5 GB of space for their videos along with mailbox and editing features

$14.99/month (platinum) will allow a member all the same features as a gold membership but with a total of 10 GB of space


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How did business go for ENTI in 2010?

Revenues from operations totaled $25,482 for the year.

That would be the equivalent of 2,548 gold members paying for 1 month of service each or 212 gold members paying for 1 year of service each

Expenses for operations totaled $337,766 for the year.

So ENTI lost $312,284 in 2010 - in other words it was far from a profitable business.


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On top of the failing business ENTI also has 2 very large long term debt Notes

ENTI owes Spire Investment Group, Inc $537,625
ENTI owes Flash Voice and Data Corp $480,000

That's $1,017,625 in debt Notes


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Pegasus Tel, Inc (PTEL)

According to a press release put out by ENTI on April 4, 2011, PTEL is interested in purchasing musicmatrix.com and so Dibiase has agreed to sell the domain to PTEL in exchange for PTEL preferred shares. The deal is supposed to close in the next 45 days following the press release. Dibiase adds that on March 30, 2011 PTEL appointed Anthony Dibiase as the new CEO of PTEL in anticipation of the deal closing.

http://www.marketwire.com/press-release/encounter-technologies-inc-enti-announces-strategic-discussions-with-pegasus-tel-inc-1421750.htm

The 8k from PTEL is available here:

http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=7831709

The 8K actually makes no mention of musicmatrix.com

What it does say is that two major shareholders of PTEL (who together own 79.78% of the company's shares) have agreed to sell those shares to Anthony Dibiase.

In other words Anthony Dibiase is acquiring majority control of PTEL. Simultaneously to the stock purchase agreement Anthony Dibiase was appointed the new CEO of PTEL.


With control of PTEL I suppose Anthony Dibiase can do whatever he wants. If he wants to buy musicmatrix.com from himself (ala Scott Gallagher of xxxx style) and enrich himself in the process he can. If he wants to merge the two companies he can (though this option would be an impossibility without a huge huge increase in the A/S for PTEL or a huge huge R/S done on ENTI). If he wants to use PTEL to give ENTI shareholders a dividend of PTEL stock he can, but again it would require a huge huge increase in the A/S of PTEL or such a ridiculously low dividend that it would barely amount to anything - like 1 share of PTEL stock for every 250+ shares of ENTI stock owned.

According to this press release Anthony Dibiase is pumping a 1 for 1 ENTI/PTEL stock dividend

http://www.marketwire.com/press-release/pegasus-tel-inc-ptel-announces-engagement-of-legal-and-accounting-firms-otcbb-ptel-1509134.htm

On March 30, 2011, DiBiase was named the new CEO for Pegasus Tel, Inc. and as a result, he declared a one-for-one dividend for ENTI Shareholders. On a dividend payable date to be announced this week, all current ENTI shareholders will receive one share of Pegasus for each share they hold in Encounter Technologies.

But obviously that can't happen without PTEL having an authorized share count of 15,000,000,000 to accommodate the dividend. I will be shocked if Anthony Dibiase destroys PTEL's value by doing something like that.

In the end it will probably amount to a very small amount of positive value for ENTI shareholders and a large amount of negative value for existing PTEL shareholders.

ENTI which in my opinion is extremely overvalued at $.0009/share has already benefited a lot from the promotion all the dividend talk created.

PTEL has predictably seen a big drop in its share price since the April 4, 2011 announcement going from $.25/share pre-announcement to a close of $.07/share today and will almost definitely continue to see almost daily losses in share price in anticipation of the huge increase in outstanding shares the dividend will create.

In the end if the purchase agreement closes and all dividends happen as promised by the CEO, ENTI will eventually end up a $.0001/share stock and PTEL will end up below a penny per share (in the triple zeroes if the share count is increased enough to give each ENTI shareholder a 1 for 1 dividend of PTEL stock). There is a limited window to profit on the ENTI side and almost no window for profit on the PTEL side.

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=62718862