Friday, August 26, 2005 7:51:05 AM
SBI Brightline, funny business, not sure I understand it. OTC is all smoke and mirrors maybe Amex will understand it
))
Infinium Labs, Inc. - Waiting For A Phantom
Investigative Reports
February 19 2005
When a promoter calls an investment "the most incredible opportunity of 2005," we are inclined to be skeptical and usually with good reason. We have heard that song many times before. Promoters are paid to like their products and a recent fax sheet touting a company called Infinium Labs, Inc. (OTCBB: IFLB) was no exception. "Momentum Trades," the promoter out pounding the pavement for Infinium, predicted that the Company's shares would trade at $6 by March (presumably 2005) – a jump of more than 2000% from the current 29 cent market price.
As is often the case, it appears that Momentum Trades had been paid $4000 to issue its rosy report on Infinium. A disclaimer at the end of the report acknowledges that Momentum received $4000 from a "non-affiliated third party" for publishing and circulating the profile. Those wishing to challenge Momentum Trade's credibility will be hard put to find the people behind the promotion, or the identity of that non-affiliated third party. The report does not name any individuals connected to Momentum Trades or provide an address or telephone number for the tout. The report does contain a telephone number for those who wish to be removed from the Momentum Trades fax list. In the past, we have tried that route, only to find that we soon received even more unsolicited promotional faxes from other non-descript unidentifiable stock pickers.
The report does include one hint about the prior activities of Momentum Trades. The disclaimer at the end of the report notes that "an investment in DTEV is considered to be highly speculative and should not be considered unless a person can afford a complete loss of investment" – evidently a remnant of a prior tout sheet. DTEV is the symbol for Data Evolution Holdings, Inc. whose shares trade on the Pink Sheets.
For its part, Data Evolution has taken measures to distance itself from such promotional campaigns. On February 1, 2005, Data Evolution, which develops computer software and hardware for mobile computer applications, issued a press release insisting that it had not authorized and did not support promoters using "bulk facsimile transmissions and/or emails." In fact, Data Evolution asked potential investors "to consider all such information as inaccurate and unauthorized since the faxes contained "many instances of exaggeration, puffery, and blatant lies…that are designed to mislead unwary investors."
So far, however, Infinium Labs has not issued a similar disclaimer. Is it possible that Infinium shares Momentum Trades' enthusiasm, and endorses its price prediction? Is Infinium Labs truly "The Most Incredible Opportunity of 2005?"
We decided to take a look.
To Infinium and Beyond
Infinium became public on January 5, 2004 by virtue of a reverse-merger with Global Business Resources, Inc. At the time, Infinium had $42 in cash, no revenues, and a developing plan to become part of the burgeoning video game market. Infinium was betting on a Phantom. The Company hoped to enter the "'pervasive gaming/interactive entertainment' market by introducing, marketing and selling the first combination gaming console and broadband gaming network" - named, respectively, the "Phantom Gaming System" and PhantomNet VPGN. According to Infinium, once the products were introduced, they would allow users to purchase an extensive selection of interactive entertainment – video games – online.
First, however, the products would have to become operational, available and affordable – a process that could prove time consuming and costly. The Company's Form 10-K for the year ended December 31, 2003 (filed on March 30, 2004) offered a sobering view on those obstacles. Infinium claimed that its goal was "to commence selling our system and service in the fourth quarter of 2004 and to ramp up each successive month" in order to "launch our system and service in time for the 2004 holiday season."
The Company did not meet that target, instead deferring introduction of the product until 2005 because its "retail and marketing partners…want more time to plan merchandising activities for the new games-on-demand service. Infinium now says that it plans to launch the Phantom Game service in the second quarter of 2005.
If production development posed a formidable task, funding presented an even more daunting hurdle. Prior to the reverse-merger, Infinium had incurred almost $2.3 million in operating expenses – and that represented only a fraction of the anticipated costs. Infinium's December 31, 2003 Form 10-K projected that the Company would need approximately $35.5 million over the next twelve months, including approximately $13.3 million targeted for marketing and another $6.5 million earmarked for research and development. The largest portion of those funds – over $15.5 million – would be used to pay salaries, rent, and other operating expenses (including investor relations, attorneys and accountants).
How would Infinium raise the funds? Almost immediately after the reverse-merger was completed, the Company signaled that funds were on the way. On January 22, 2004, the Company entered into a pair of Stock Purchase Agreements with two California limited liability companies, SBI Brightline VI, LLC and Infinium Investment Partners, LLC. Each of those entities agreed to purchase 1,000,000 shares of Infinium common stock at a purchase price of $7.5 million – an aggregate of $15 million in all. Under the agreements, the Company could elect to sell the shares to the two purchasers at any time, provided that the shares already had been registered under the Securities Act of 1933, as amended.
It appeared that SBI Brightline and Infinium Investment Partners would be paying a reasonable price for their stock - $7 to $8 a share – that reflected the current stock price. On January 21, 2004, shortly after the reverse-merger, Infinium completed a 5 for 1 forward stock split and the Company's shares began to trade within an $8 to $9 range. On January 30, 2004, Infinium common stock closed at approximately $8.50 a share. By mid-February, however, the price of Infinium shares began to slide, falling below $6 a share by early May. Then, on May 11, 2004, the Company implemented a second forward stock split – this time at a 4 for 1 ratio – and closed at $1.56 a share. Since then, the Company's shares have continued to plummet, closing at 34 cents on February 11, 2004.
Did the declining stock price adversely affect the agreements with SBI Brightline and Infinium Investment Partners? Something seemed to alter the relationship. There is no indication that the funds were delivered to Infinium or that the shares to be issued to the two investors were registered. Absent registration, the two investors were not obligated to buy the stock.
There are other signs that the Infinium – SBI Brightline relationship has not flourished. On November 24, 2004, SBI-USA LLC, an affiliate of SBI Brightline, filed a lawsuit in California federal court against Infinium and its Chief Executive Officer, Timothy M. Roberts. The complaint, which charges fraud and breach of contact, apparently arises out of a March 2004 investment banking agreement between the two companies. SBI-USA claims that it was entitled to be paid a percentage of all financing received by Infinium over a twelve month period. So far, however, SBI-USA says it has not received any payment – although it claims that Infinium has raised $30 million in financing since last March.
On November 30, 2004, Infinium refuted the SBI-USA claims, responding to an SBI-USA press release even though it had not yet been served with the complaint. Infinium insisted that SBI-USA was only entitled to receive payment if investments in Infinium were made by parties with whom SBI-USA had a pre-existing relationship – and that SBI-USA had failed to raise any funding for the Company during the term of the agreement.
Infinium also noted that SBI-USA was misstating the amount actually raised by Infinium. In fact, the Company's financial reports indicate that no more than $10 million was raised from investors during the period in question. None of those funds appear to have come from SBI Brightline or Infinium Investment Partners
Promissories, Promissories
Still, Infinium managed to raise funds in the months following the reverse-merger, principally by issuing promissory notes. In February 2004, the Company authorized a private debt offering consisting of 12% and 15% promissory notes. According to the Company's Form 10-Q for the period ended March 31, 2004, the notes would became due either one year from the date of issuance, within sixty days after a Form SB-2 Registration Statement filed by the Company became effective, or upon the Company receiving an equity investment of at least $15,000,000. As an extra reward for their investments, the individuals or entities who extended loans also would receive shares of Infinium common stock.
How much did the Company actually raise by virtue of those promissory notes? The disclosure in Infinium's Form 10-Q for the quarter ended September 30, 2004 (taken together with information contained in its Forms 10-Q for the first and second quarters of the year), while somewhat cumbersome, appears to confirm that the Company issued promissory notes totaling approximately $8 million in the first nine months of 2004 – including about $7.2 million in promissory notes issued as part of the private debt offering authorized in February 2004. Approximately 2.5 million shares of Infinium common stock was distributed to holders of the notes.
As of September 30, 2004, Infinium's liabilities included promissory notes totaling $5,687,997.
It seems the Company received other financing in the first nine months of 2004 as well. According to the September 2004 Form 10-Q, Infinium received over $4.1 million from the sale of common shares between January and September 2004 – although only a portion of that amount (approximately $2.4 million) was identified as cash.
The money received by Infinium from its fund raising efforts apparently was used almost as quickly as it arrived. At the end of September 2004, Infinium had less than $21,000 in cash, having spent over $20 million during the first nine months pf the year on operating expenses – including more than $8 million for consultants, over $4.1 million in salaries, and $2 million in professional fees.
And still, the Company's product remained a Phantom.
The Company's modest cash position as of September 30, 2004 seems even more striking in light of the funding that had been anticipated – starting with the $15 million that was slated to come from SBI Brightline and Infinium Investment Partners. By the end of March 2004, the projected infusion of cash had more than tripled, with Infinium claiming that four entities - SBI-Brightline, Infinium Investment Partners, Hadavor Hanachan, LLC and Reich Capital – had agreed to provide $46 million of funding in exchange for 33.5 million shares of Infinium common stock (post 5 for 1 split).
As with the earlier commitment from SBI Brightline and Infinium Investment Partners, this financing was expressly contingent upon prior registration of the underlying shares. Again, however, we were not able to find any indication in the SEC's Edgar files that Infinium ever filed a Registration Statement for those shares – or that any of the money was delivered to the Company.
In any event, Infinium was pursuing other sources of cash. According to its Form 10-Q for the quarter ended June 30, 2004, the Company had retained SG Capital to raise $20,000,000 in equity financing and was negotiating to raise $3,000,000 from Cornell Capital Partners LP through Private Investment in Public Entity (PIPE) financing. In this case, the Company said that the first tranche of the PIPE funding – an unspecified amount – would be delivered at closing, while the second installment would be delivered only after the Company filed a Registration Statement for the shares to be issued to Cornell Capital. In addition, the Company said it was negotiating to obtain a $25 million Standby Equity Distribution Agreement from Cornell Capital – with shares to be issued and cash to become available upon effectiveness of a Registration Statement
There is no sign that the Company ever filed a Registration Statement relating to shares issued to Cornell Capital or SG Capital – or that those contemplated financing transactions have come to pass.
Go West Hastings, Young Man
Which is not to suggest that Infinium was finished trolling for dollars – or that the Company did not file any Registration Statements. Between August 6, 2004 and December 12, 2004, Infinium filed seven separate Form S-8 Registration Statements, registering 6 million shares to be issued to non-employee consultants, professionals and service providers under a "2004 Stock Incentive Plan;" 6 million shares to be issued to employees under a "2004 Employee Stock Incentive Plan;" and 1,140,000 shares to be issued to officers and directors under a 2004 "Executive Stock Compensation Plan,"
The Form S-8 filings did not identify the consultants and employees who would be receiving shares under the "2004 Stock Incentive Plan" and the "2004 Employee Stock Incentive Plan." They did indicate, however, that Timothy Roberts, the Company's Chairman and CEO; Kevin Bachus, its President and Chief Operating Officer; and Richard Angelotti, an Infinium director, each had been issued shares under the "2004 Executive Stock Compensation Plan."
As it turned out, the 13.14 million shares included on those Form S-8 Registration Statements would soon be dwarfed by another registration. On January 5, 2005, the Company filed a Form SB-2 to register 77,266,567 shares of common stock on behalf of a group of selling stockholders who had recently extended financing to the Company – although on a much smaller scale than had been contemplated. This new group loaned a total of $2,740,000 to Infinium – not the $46 million or $25 million previously anticipated - and, in return, received a generous helping of Infinium shares.
The first of these financings occurred on October 22, 2004, when Infinium borrowed $300,000 from Hazinu Ltd., a corporation located in Victoria, Australia. In consideration for this loan, Hazinu received a 10% promissory note, 500,000 shares of Infinium common stock, and warrants to purchase another 500,000 shares of common stock at 50 cents a share. Hazinu had the right to insist that the shares (including the shares underlying the warrants) be included on the Company's next Registration Statement.
In any event, Infinium would only have use of those funds for a short time. The promissory note was payable upon the earlier of (i) December 31, 2004; (ii) two trading days after the Company filed a Registration Statement; or (iii) upon the Company obtaining additional financing of at least $200,000. Payment of the promissory note was guaranteed by the pledge of three million shares of Infinium common stock owned by the Company's CEO Timothy Roberts.
This certainly looked to be a good deal for Hazinu. The lender would be repaid within two months, with 10% interest, and still be holding a stock kicker. At the time of the loan, Infinium common stock was trading at approximately 30 cents a share – giving the 500,000 shares a face value of $150,000, half the value of the loan. By January 6, 2005, the day the Form SB-2 Registration Statement was filed, Infinium stock was trading at $1.60 a share. Since then, the shares have declined considerably, dropping back to 28 cents on February 18, 2005.
A second short-term loan embodied virtually the same terms. On October 27, 2004, Infinium borrowed another $300,000, this time from four lenders - JM Investors LLC (located in Lakewood, NJ), Fenmore Holdings, LLC (located in New York City), Viscount Investments Ltd. (located in London, England), and Congregation Mishkan Sholom (located in Panorama City, CA) – in exchange for a 10% promissory note, 500,000 shares of common stock, and warrants to purchase another 500,000 shares of common stock. This loan was subject to the same payment terms, guarantee and registration rights as the loan from Hazinu.
What did these "bridge lenders" have in common? Each of the loans was procured by an entity identified as West Hastings Limited, which received $60,000 and warrants to purchase 120,000 Infinium common shares at 50 cents a share. And each of the lenders was represented by the New York law firm, Krieger & Prager LLP.
What is West Hastings Ltd? Could the entity have taken its name from West Hastings Street in Vancouver, Canada, a city that has been a haven for struggling over-the-counter companies and those involved with them? The documents we reviewed did not say where West Hastings is located or detail the nature of its business, although the Form SB-2 filed on January 5th –and amended February 14th - (which registered shares for West Hastings as well as the myriad investors) indicates that the company is managed by an individual named Bernard Korolnick.
How did the Company plan to repay those short term "bridge loans?" On December 16, 2004, Infinium borrowed a total of $1,160,000 from a group of investors (including Hazinu, JM Investors, Fenmore, Viscount and Congregation Mishkan Sholom) in exchange for (i) 8% convertible debentures totaling $1,160,000; and (ii) warrants to purchase 16,312,461 shares of Infinium common stock.
This time the investors had an opportunity to accumulate substantial positions in registered Infinium stock. The debentures were convertible into shares of common stock in accordance with a convoluted formula which, in essence, provided that they would have a maximum price of 10 cents. That price could drop further if the trading price for Infinium stock fell below 10 cents. The warrants could be exercised at prices ranging from 10 cents to $1.00.
It appeared that the investors seemed poised to profit quickly. On December 16, 2004, the day of the loan, Infinium shares closed at 24 cents – more than twice the likely conversion price. A day later, Infinium stock nearly doubled, closing at 47 cents. Assuming the debentures had been converted at that time, at 10 cents a share, the investors would have held 11,600,000 shares, which (based on the market price) would have been worth $5,452,000. If those debentures had instead been converted on January 5, 2005, when the stock price hit $1.60, the shares would have had a value of more than $18.5 million. Even after Infinium share prices dropped to 30 cents a share in mid-February, the stock would have been worth $3,480,000 – based upon the market price. That certainly would represent a generous return on a short-term investment.
And there was more. On December 28, 2005, these agreements were amended to award the investors an additional 500,000 shares.
A second set of debentures contained virtually the same terms. On December 28, 2004, Infinium borrowed $1,000,000 from another group of investors, in exchange for (i) 8% convertible debentures totaling $1,000,000 and (ii) warrants to purchase 4,687,485 shares of Infinium common stock. The debentures were convertible in accordance with similar terms to the December 16th debentures. Once again, the Company amended these agreements, awarding an additional 500,000 shares to the investors.
The documents filed by Infinium at the time of the loan, and the SB-2 Registration Statement filed on January 5, 2005 (and amended on February 14th) indicate that at least eighteen different entities and individuals were issued debentures, including Zenny Trading Limited; Zevi Wolmark; Jacob Friedman; JM Investors, LLC; David Zajac; Viscount Investments, Ltd.; More Intl Investments, Inc.; Yeshiva Gedolah Of Seagate; Liberty Supplies Corp.; Shalom Torah Centers; Solomon Lesin; Shimon Haber; Heza Holdings Inc.; Longview Special Finance, Inc.; Hazinu, Ltd.; BL Cubed LLC; Congregation Mishkan Sholom; and Fenmore Holdings LLC.
What did these investors have in common, if anything? Once again, West Hastings Ltd. is identified as the "finder" - and received $172,800 in cash and warrants to purchase 432,000 shares of Infinium stock at 50 cents a share. And, as was the case with the bridge lenders, each of the debenture holders apparently was represented by the law firm of Krieger & Prager. The shares allocated to West Hastings have been included in the Form SB-2 Registration Statement, as have 50,000 shares registered for Samuel Krieger and 500,000 shares issued to Darrin M. Ocasio, an attorney at Infinium's law firm, Sichenzia, Ross, Friedman, Ference LLP.
The Registration Statement also included 1.5 million shares owned by Infinium's President, Timothy M. Roberts. A series of Form 4 reports recently filed with the SEC indicate that Roberts sold 822,000 shares of Infinium common stock between January 24th and February 17th, for a total of approximately $330,000.
The Cost of Phantasia
Timothy Roberts wears a number of significant hats as Infinium's founder, Chairman, CEO and principal stockholder. Considering the obstacles faced by the Company, including financial pressures and marketing delays, he and his management team are faced with an imposing task. Investors may not be encouraged by the results at some of his prior businesses. In the year 2000, he reportedly founded a St. Louis-based company called Broadband Infrastructure Group, known as BIG. BIG planned to nurture tech companies and develop a range of telecommunications businesses. By early 2001, BIG was in big trouble, landing in bankruptcy after purportedly burning through $15 million of investors' money.
Prior to his tenure at BIG, Roberts served as Chairman and CEO of Intira Corporation from 1997 through 1999. Intira, which provided network-based computing and communications services on an outsourced basis, demonstrated a remarkable ability to raise funds (including approximately $140 million in 2000, the year after Roberts departed). Unfortunately, the Company also knew how to spend money liberally, losing $62.5 million in 1999 on revenues of $4 million – and ultimately winding up in bankruptcy.
Mr. Roberts' biography also notes that he was a co-founder of broadband communications provider, Savvis Communications (NASDAQ: SVVS), although it does not say when he departed from that Company. He was not listed as an officer, director, or principal shareholder at the time Savvis filed its initial Registration Statement with the SEC in November 1999.
Can Infinium clear its initial financial hurdles – and if it does, can it generate sufficient revenues to become profitable? The deluge of financing that Infinium anticipated has yet to appear, replaced by a costly drizzle. Recent debenture financings, which brought $2,160,000 into the Company ($600,000 of which may have been used to repay the bridge lenders) hardly satisfied the Company's needs for the long or short term.
Perhaps more importantly, that money came at a heavy price – significant dilution to existing shareholders. As of September 30, 2004, approximately 105 million shares of Infinium common stock had been issued. Over 73 million more shares may now be issued in connection with the convertible debentures and warrants held by Infinium's most recent bevy of investors. And the Company warns that more substantial dilution is likely to result from future financings – assuming Infinium can find the necessary investors.
Financing, however, is just one challenge that faces the Company. The fate of the Company appears to be tied to the success of a single product, its Phantom, whose marketability has yet to be tested. While Infinium insists that it has completed development and testing of its Phantom, and has entered into agreements with a number of service providers and marketing firms, Phantom is not yet available for sale and the Company lacks sufficient funds to bring the product to market.
Lack of money has been an ongoing problem for Infinium, and caused the Company's auditors to express substantial doubts about the Company's ability to continue as a going concern when they issued their report for the year ended December 31, 2003. Now the Company claims that it will need another $11,500,000 to launch the Phantom, and a total of $22,200,000 over the next twelve months. Over the next sixteen months Infinium expects to pay salaries and benefits of $7,600,000. These are heady numbers for a business which had less than $21,000 in the bank when it filed its last financial report – and which has been spending money at a rate of more than $2 million a month.
At that rate the proceeds from the December 2004 debenture sales would have lasted the Company about one month – or until sometime in January 2005.
In other words, the money raised by Infinium has been disappearing almost as quickly as it arrives. Sort of like a phantom.
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)) Infinium Labs, Inc. - Waiting For A Phantom
Investigative Reports
February 19 2005
When a promoter calls an investment "the most incredible opportunity of 2005," we are inclined to be skeptical and usually with good reason. We have heard that song many times before. Promoters are paid to like their products and a recent fax sheet touting a company called Infinium Labs, Inc. (OTCBB: IFLB) was no exception. "Momentum Trades," the promoter out pounding the pavement for Infinium, predicted that the Company's shares would trade at $6 by March (presumably 2005) – a jump of more than 2000% from the current 29 cent market price.
As is often the case, it appears that Momentum Trades had been paid $4000 to issue its rosy report on Infinium. A disclaimer at the end of the report acknowledges that Momentum received $4000 from a "non-affiliated third party" for publishing and circulating the profile. Those wishing to challenge Momentum Trade's credibility will be hard put to find the people behind the promotion, or the identity of that non-affiliated third party. The report does not name any individuals connected to Momentum Trades or provide an address or telephone number for the tout. The report does contain a telephone number for those who wish to be removed from the Momentum Trades fax list. In the past, we have tried that route, only to find that we soon received even more unsolicited promotional faxes from other non-descript unidentifiable stock pickers.
The report does include one hint about the prior activities of Momentum Trades. The disclaimer at the end of the report notes that "an investment in DTEV is considered to be highly speculative and should not be considered unless a person can afford a complete loss of investment" – evidently a remnant of a prior tout sheet. DTEV is the symbol for Data Evolution Holdings, Inc. whose shares trade on the Pink Sheets.
For its part, Data Evolution has taken measures to distance itself from such promotional campaigns. On February 1, 2005, Data Evolution, which develops computer software and hardware for mobile computer applications, issued a press release insisting that it had not authorized and did not support promoters using "bulk facsimile transmissions and/or emails." In fact, Data Evolution asked potential investors "to consider all such information as inaccurate and unauthorized since the faxes contained "many instances of exaggeration, puffery, and blatant lies…that are designed to mislead unwary investors."
So far, however, Infinium Labs has not issued a similar disclaimer. Is it possible that Infinium shares Momentum Trades' enthusiasm, and endorses its price prediction? Is Infinium Labs truly "The Most Incredible Opportunity of 2005?"
We decided to take a look.
To Infinium and Beyond
Infinium became public on January 5, 2004 by virtue of a reverse-merger with Global Business Resources, Inc. At the time, Infinium had $42 in cash, no revenues, and a developing plan to become part of the burgeoning video game market. Infinium was betting on a Phantom. The Company hoped to enter the "'pervasive gaming/interactive entertainment' market by introducing, marketing and selling the first combination gaming console and broadband gaming network" - named, respectively, the "Phantom Gaming System" and PhantomNet VPGN. According to Infinium, once the products were introduced, they would allow users to purchase an extensive selection of interactive entertainment – video games – online.
First, however, the products would have to become operational, available and affordable – a process that could prove time consuming and costly. The Company's Form 10-K for the year ended December 31, 2003 (filed on March 30, 2004) offered a sobering view on those obstacles. Infinium claimed that its goal was "to commence selling our system and service in the fourth quarter of 2004 and to ramp up each successive month" in order to "launch our system and service in time for the 2004 holiday season."
The Company did not meet that target, instead deferring introduction of the product until 2005 because its "retail and marketing partners…want more time to plan merchandising activities for the new games-on-demand service. Infinium now says that it plans to launch the Phantom Game service in the second quarter of 2005.
If production development posed a formidable task, funding presented an even more daunting hurdle. Prior to the reverse-merger, Infinium had incurred almost $2.3 million in operating expenses – and that represented only a fraction of the anticipated costs. Infinium's December 31, 2003 Form 10-K projected that the Company would need approximately $35.5 million over the next twelve months, including approximately $13.3 million targeted for marketing and another $6.5 million earmarked for research and development. The largest portion of those funds – over $15.5 million – would be used to pay salaries, rent, and other operating expenses (including investor relations, attorneys and accountants).
How would Infinium raise the funds? Almost immediately after the reverse-merger was completed, the Company signaled that funds were on the way. On January 22, 2004, the Company entered into a pair of Stock Purchase Agreements with two California limited liability companies, SBI Brightline VI, LLC and Infinium Investment Partners, LLC. Each of those entities agreed to purchase 1,000,000 shares of Infinium common stock at a purchase price of $7.5 million – an aggregate of $15 million in all. Under the agreements, the Company could elect to sell the shares to the two purchasers at any time, provided that the shares already had been registered under the Securities Act of 1933, as amended.
It appeared that SBI Brightline and Infinium Investment Partners would be paying a reasonable price for their stock - $7 to $8 a share – that reflected the current stock price. On January 21, 2004, shortly after the reverse-merger, Infinium completed a 5 for 1 forward stock split and the Company's shares began to trade within an $8 to $9 range. On January 30, 2004, Infinium common stock closed at approximately $8.50 a share. By mid-February, however, the price of Infinium shares began to slide, falling below $6 a share by early May. Then, on May 11, 2004, the Company implemented a second forward stock split – this time at a 4 for 1 ratio – and closed at $1.56 a share. Since then, the Company's shares have continued to plummet, closing at 34 cents on February 11, 2004.
Did the declining stock price adversely affect the agreements with SBI Brightline and Infinium Investment Partners? Something seemed to alter the relationship. There is no indication that the funds were delivered to Infinium or that the shares to be issued to the two investors were registered. Absent registration, the two investors were not obligated to buy the stock.
There are other signs that the Infinium – SBI Brightline relationship has not flourished. On November 24, 2004, SBI-USA LLC, an affiliate of SBI Brightline, filed a lawsuit in California federal court against Infinium and its Chief Executive Officer, Timothy M. Roberts. The complaint, which charges fraud and breach of contact, apparently arises out of a March 2004 investment banking agreement between the two companies. SBI-USA claims that it was entitled to be paid a percentage of all financing received by Infinium over a twelve month period. So far, however, SBI-USA says it has not received any payment – although it claims that Infinium has raised $30 million in financing since last March.
On November 30, 2004, Infinium refuted the SBI-USA claims, responding to an SBI-USA press release even though it had not yet been served with the complaint. Infinium insisted that SBI-USA was only entitled to receive payment if investments in Infinium were made by parties with whom SBI-USA had a pre-existing relationship – and that SBI-USA had failed to raise any funding for the Company during the term of the agreement.
Infinium also noted that SBI-USA was misstating the amount actually raised by Infinium. In fact, the Company's financial reports indicate that no more than $10 million was raised from investors during the period in question. None of those funds appear to have come from SBI Brightline or Infinium Investment Partners
Promissories, Promissories
Still, Infinium managed to raise funds in the months following the reverse-merger, principally by issuing promissory notes. In February 2004, the Company authorized a private debt offering consisting of 12% and 15% promissory notes. According to the Company's Form 10-Q for the period ended March 31, 2004, the notes would became due either one year from the date of issuance, within sixty days after a Form SB-2 Registration Statement filed by the Company became effective, or upon the Company receiving an equity investment of at least $15,000,000. As an extra reward for their investments, the individuals or entities who extended loans also would receive shares of Infinium common stock.
How much did the Company actually raise by virtue of those promissory notes? The disclosure in Infinium's Form 10-Q for the quarter ended September 30, 2004 (taken together with information contained in its Forms 10-Q for the first and second quarters of the year), while somewhat cumbersome, appears to confirm that the Company issued promissory notes totaling approximately $8 million in the first nine months of 2004 – including about $7.2 million in promissory notes issued as part of the private debt offering authorized in February 2004. Approximately 2.5 million shares of Infinium common stock was distributed to holders of the notes.
As of September 30, 2004, Infinium's liabilities included promissory notes totaling $5,687,997.
It seems the Company received other financing in the first nine months of 2004 as well. According to the September 2004 Form 10-Q, Infinium received over $4.1 million from the sale of common shares between January and September 2004 – although only a portion of that amount (approximately $2.4 million) was identified as cash.
The money received by Infinium from its fund raising efforts apparently was used almost as quickly as it arrived. At the end of September 2004, Infinium had less than $21,000 in cash, having spent over $20 million during the first nine months pf the year on operating expenses – including more than $8 million for consultants, over $4.1 million in salaries, and $2 million in professional fees.
And still, the Company's product remained a Phantom.
The Company's modest cash position as of September 30, 2004 seems even more striking in light of the funding that had been anticipated – starting with the $15 million that was slated to come from SBI Brightline and Infinium Investment Partners. By the end of March 2004, the projected infusion of cash had more than tripled, with Infinium claiming that four entities - SBI-Brightline, Infinium Investment Partners, Hadavor Hanachan, LLC and Reich Capital – had agreed to provide $46 million of funding in exchange for 33.5 million shares of Infinium common stock (post 5 for 1 split).
As with the earlier commitment from SBI Brightline and Infinium Investment Partners, this financing was expressly contingent upon prior registration of the underlying shares. Again, however, we were not able to find any indication in the SEC's Edgar files that Infinium ever filed a Registration Statement for those shares – or that any of the money was delivered to the Company.
In any event, Infinium was pursuing other sources of cash. According to its Form 10-Q for the quarter ended June 30, 2004, the Company had retained SG Capital to raise $20,000,000 in equity financing and was negotiating to raise $3,000,000 from Cornell Capital Partners LP through Private Investment in Public Entity (PIPE) financing. In this case, the Company said that the first tranche of the PIPE funding – an unspecified amount – would be delivered at closing, while the second installment would be delivered only after the Company filed a Registration Statement for the shares to be issued to Cornell Capital. In addition, the Company said it was negotiating to obtain a $25 million Standby Equity Distribution Agreement from Cornell Capital – with shares to be issued and cash to become available upon effectiveness of a Registration Statement
There is no sign that the Company ever filed a Registration Statement relating to shares issued to Cornell Capital or SG Capital – or that those contemplated financing transactions have come to pass.
Go West Hastings, Young Man
Which is not to suggest that Infinium was finished trolling for dollars – or that the Company did not file any Registration Statements. Between August 6, 2004 and December 12, 2004, Infinium filed seven separate Form S-8 Registration Statements, registering 6 million shares to be issued to non-employee consultants, professionals and service providers under a "2004 Stock Incentive Plan;" 6 million shares to be issued to employees under a "2004 Employee Stock Incentive Plan;" and 1,140,000 shares to be issued to officers and directors under a 2004 "Executive Stock Compensation Plan,"
The Form S-8 filings did not identify the consultants and employees who would be receiving shares under the "2004 Stock Incentive Plan" and the "2004 Employee Stock Incentive Plan." They did indicate, however, that Timothy Roberts, the Company's Chairman and CEO; Kevin Bachus, its President and Chief Operating Officer; and Richard Angelotti, an Infinium director, each had been issued shares under the "2004 Executive Stock Compensation Plan."
As it turned out, the 13.14 million shares included on those Form S-8 Registration Statements would soon be dwarfed by another registration. On January 5, 2005, the Company filed a Form SB-2 to register 77,266,567 shares of common stock on behalf of a group of selling stockholders who had recently extended financing to the Company – although on a much smaller scale than had been contemplated. This new group loaned a total of $2,740,000 to Infinium – not the $46 million or $25 million previously anticipated - and, in return, received a generous helping of Infinium shares.
The first of these financings occurred on October 22, 2004, when Infinium borrowed $300,000 from Hazinu Ltd., a corporation located in Victoria, Australia. In consideration for this loan, Hazinu received a 10% promissory note, 500,000 shares of Infinium common stock, and warrants to purchase another 500,000 shares of common stock at 50 cents a share. Hazinu had the right to insist that the shares (including the shares underlying the warrants) be included on the Company's next Registration Statement.
In any event, Infinium would only have use of those funds for a short time. The promissory note was payable upon the earlier of (i) December 31, 2004; (ii) two trading days after the Company filed a Registration Statement; or (iii) upon the Company obtaining additional financing of at least $200,000. Payment of the promissory note was guaranteed by the pledge of three million shares of Infinium common stock owned by the Company's CEO Timothy Roberts.
This certainly looked to be a good deal for Hazinu. The lender would be repaid within two months, with 10% interest, and still be holding a stock kicker. At the time of the loan, Infinium common stock was trading at approximately 30 cents a share – giving the 500,000 shares a face value of $150,000, half the value of the loan. By January 6, 2005, the day the Form SB-2 Registration Statement was filed, Infinium stock was trading at $1.60 a share. Since then, the shares have declined considerably, dropping back to 28 cents on February 18, 2005.
A second short-term loan embodied virtually the same terms. On October 27, 2004, Infinium borrowed another $300,000, this time from four lenders - JM Investors LLC (located in Lakewood, NJ), Fenmore Holdings, LLC (located in New York City), Viscount Investments Ltd. (located in London, England), and Congregation Mishkan Sholom (located in Panorama City, CA) – in exchange for a 10% promissory note, 500,000 shares of common stock, and warrants to purchase another 500,000 shares of common stock. This loan was subject to the same payment terms, guarantee and registration rights as the loan from Hazinu.
What did these "bridge lenders" have in common? Each of the loans was procured by an entity identified as West Hastings Limited, which received $60,000 and warrants to purchase 120,000 Infinium common shares at 50 cents a share. And each of the lenders was represented by the New York law firm, Krieger & Prager LLP.
What is West Hastings Ltd? Could the entity have taken its name from West Hastings Street in Vancouver, Canada, a city that has been a haven for struggling over-the-counter companies and those involved with them? The documents we reviewed did not say where West Hastings is located or detail the nature of its business, although the Form SB-2 filed on January 5th –and amended February 14th - (which registered shares for West Hastings as well as the myriad investors) indicates that the company is managed by an individual named Bernard Korolnick.
How did the Company plan to repay those short term "bridge loans?" On December 16, 2004, Infinium borrowed a total of $1,160,000 from a group of investors (including Hazinu, JM Investors, Fenmore, Viscount and Congregation Mishkan Sholom) in exchange for (i) 8% convertible debentures totaling $1,160,000; and (ii) warrants to purchase 16,312,461 shares of Infinium common stock.
This time the investors had an opportunity to accumulate substantial positions in registered Infinium stock. The debentures were convertible into shares of common stock in accordance with a convoluted formula which, in essence, provided that they would have a maximum price of 10 cents. That price could drop further if the trading price for Infinium stock fell below 10 cents. The warrants could be exercised at prices ranging from 10 cents to $1.00.
It appeared that the investors seemed poised to profit quickly. On December 16, 2004, the day of the loan, Infinium shares closed at 24 cents – more than twice the likely conversion price. A day later, Infinium stock nearly doubled, closing at 47 cents. Assuming the debentures had been converted at that time, at 10 cents a share, the investors would have held 11,600,000 shares, which (based on the market price) would have been worth $5,452,000. If those debentures had instead been converted on January 5, 2005, when the stock price hit $1.60, the shares would have had a value of more than $18.5 million. Even after Infinium share prices dropped to 30 cents a share in mid-February, the stock would have been worth $3,480,000 – based upon the market price. That certainly would represent a generous return on a short-term investment.
And there was more. On December 28, 2005, these agreements were amended to award the investors an additional 500,000 shares.
A second set of debentures contained virtually the same terms. On December 28, 2004, Infinium borrowed $1,000,000 from another group of investors, in exchange for (i) 8% convertible debentures totaling $1,000,000 and (ii) warrants to purchase 4,687,485 shares of Infinium common stock. The debentures were convertible in accordance with similar terms to the December 16th debentures. Once again, the Company amended these agreements, awarding an additional 500,000 shares to the investors.
The documents filed by Infinium at the time of the loan, and the SB-2 Registration Statement filed on January 5, 2005 (and amended on February 14th) indicate that at least eighteen different entities and individuals were issued debentures, including Zenny Trading Limited; Zevi Wolmark; Jacob Friedman; JM Investors, LLC; David Zajac; Viscount Investments, Ltd.; More Intl Investments, Inc.; Yeshiva Gedolah Of Seagate; Liberty Supplies Corp.; Shalom Torah Centers; Solomon Lesin; Shimon Haber; Heza Holdings Inc.; Longview Special Finance, Inc.; Hazinu, Ltd.; BL Cubed LLC; Congregation Mishkan Sholom; and Fenmore Holdings LLC.
What did these investors have in common, if anything? Once again, West Hastings Ltd. is identified as the "finder" - and received $172,800 in cash and warrants to purchase 432,000 shares of Infinium stock at 50 cents a share. And, as was the case with the bridge lenders, each of the debenture holders apparently was represented by the law firm of Krieger & Prager. The shares allocated to West Hastings have been included in the Form SB-2 Registration Statement, as have 50,000 shares registered for Samuel Krieger and 500,000 shares issued to Darrin M. Ocasio, an attorney at Infinium's law firm, Sichenzia, Ross, Friedman, Ference LLP.
The Registration Statement also included 1.5 million shares owned by Infinium's President, Timothy M. Roberts. A series of Form 4 reports recently filed with the SEC indicate that Roberts sold 822,000 shares of Infinium common stock between January 24th and February 17th, for a total of approximately $330,000.
The Cost of Phantasia
Timothy Roberts wears a number of significant hats as Infinium's founder, Chairman, CEO and principal stockholder. Considering the obstacles faced by the Company, including financial pressures and marketing delays, he and his management team are faced with an imposing task. Investors may not be encouraged by the results at some of his prior businesses. In the year 2000, he reportedly founded a St. Louis-based company called Broadband Infrastructure Group, known as BIG. BIG planned to nurture tech companies and develop a range of telecommunications businesses. By early 2001, BIG was in big trouble, landing in bankruptcy after purportedly burning through $15 million of investors' money.
Prior to his tenure at BIG, Roberts served as Chairman and CEO of Intira Corporation from 1997 through 1999. Intira, which provided network-based computing and communications services on an outsourced basis, demonstrated a remarkable ability to raise funds (including approximately $140 million in 2000, the year after Roberts departed). Unfortunately, the Company also knew how to spend money liberally, losing $62.5 million in 1999 on revenues of $4 million – and ultimately winding up in bankruptcy.
Mr. Roberts' biography also notes that he was a co-founder of broadband communications provider, Savvis Communications (NASDAQ: SVVS), although it does not say when he departed from that Company. He was not listed as an officer, director, or principal shareholder at the time Savvis filed its initial Registration Statement with the SEC in November 1999.
Can Infinium clear its initial financial hurdles – and if it does, can it generate sufficient revenues to become profitable? The deluge of financing that Infinium anticipated has yet to appear, replaced by a costly drizzle. Recent debenture financings, which brought $2,160,000 into the Company ($600,000 of which may have been used to repay the bridge lenders) hardly satisfied the Company's needs for the long or short term.
Perhaps more importantly, that money came at a heavy price – significant dilution to existing shareholders. As of September 30, 2004, approximately 105 million shares of Infinium common stock had been issued. Over 73 million more shares may now be issued in connection with the convertible debentures and warrants held by Infinium's most recent bevy of investors. And the Company warns that more substantial dilution is likely to result from future financings – assuming Infinium can find the necessary investors.
Financing, however, is just one challenge that faces the Company. The fate of the Company appears to be tied to the success of a single product, its Phantom, whose marketability has yet to be tested. While Infinium insists that it has completed development and testing of its Phantom, and has entered into agreements with a number of service providers and marketing firms, Phantom is not yet available for sale and the Company lacks sufficient funds to bring the product to market.
Lack of money has been an ongoing problem for Infinium, and caused the Company's auditors to express substantial doubts about the Company's ability to continue as a going concern when they issued their report for the year ended December 31, 2003. Now the Company claims that it will need another $11,500,000 to launch the Phantom, and a total of $22,200,000 over the next twelve months. Over the next sixteen months Infinium expects to pay salaries and benefits of $7,600,000. These are heady numbers for a business which had less than $21,000 in the bank when it filed its last financial report – and which has been spending money at a rate of more than $2 million a month.
At that rate the proceeds from the December 2004 debenture sales would have lasted the Company about one month – or until sometime in January 2005.
In other words, the money raised by Infinium has been disappearing almost as quickly as it arrives. Sort of like a phantom.
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Cash is King until further notice!!!
My comments on companies are usually my opinion of long term success (years). The PPS may go up or down greatly in the meantime depending on the number of greedy suckers with money.
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