SPO Networks Inc (SPOI)

[yomoney]

You do very good DD


A little DD on the failed PR'S

Thanks to the swarmaster

I have located and scanned the first two shareholder letters which were physcially mailed out starting in June 2010. The first letter discussed in this post can be found here: http://www.gradedbutedible.com/HLNT/HLNT_letter_6-10-2010.pdf

I appologize in advance for any spelling oddities, I do not have time to correct all the errors from the scan-to-text conversion but the errors are minor.


First, let me point out that there are no safe harbor statements included with either of these documents, while obviously not an ironclad indictment, it does present a problem for management to say that these were only future looking statements. However, it does also suggest that there is a different weight to be placed on these statements and at the time it was the clearest and most honest communication from the company to date.

Here are some specific quotes from those letters that I have issues with. I believe the company needs to be held responsible for the promises they made and the goals they set, and the fact that many of these items not only failed to materialize, but were also never publicly addressed after they failed, is only the more damning.

"We have consolidated the balance sheets of all subsidiary companies and plan to be a fully reporting company by the end of this year."

>> This obviously did not occur and to my recollection no specific reason was ever given for the failure to become fully reporting not only in 2010, but also 2011. The generic response about the problem with the books are ongoing and there is no information which indicates when the process will ever be completed. This timeline was clearly wrong as it is now approximately 22 months since the statement was made and we are still not even audited.

"Part of the difficulty in combining subsidiary-balabnce sheets has been dealing with previously unknown derivative debt conversions that were draining company resources. We have dealt with these issues individually and have successfully resolved or negotiated more favorable terms that will allow these debt instruments to either be resolved or retired."

>> Key phrse here is this "have successfully resolved or negotiated". This indicates past tense, as in completed. "have resolved" is in the past. Except that many of these items have not been resolved to date.


"We have installed Super Cells on test vehicles for several companies in our area with OTR fleets. We are receiving excellent responses from all the units installed and anticipate receiving purchase orders soon for the balance of their fleets."

>> Oh really? So the company has been working with OTR fleets and anticipate POs soon? In June 2010? Well 22 months later and still no POs. This timeline has been way overshot, how about an update from Chad longer than two sentences which explains this miss and what is being done to correct it?

"David Tasi, Liaison to Dong Feng Motors traveled from China to Arkansas to meet with the R&D team of HHHI. This visit ultimately led to the recent announcement of Phase Two specifications and testing development for Dong Feng Motors. We currently have a company tech in China to demonstrate the latest modifications to the unit requested by Dong Feng Motors."

>> Can anyone even remember the last update on the 2nd LOI with DF to place HHO generators into DF engines? Been an awful long time since they told us anything about this deal. From experience when this company stops talking it is because the deal is dead and we'll find out about a year later when they have been sufficiently harrassed by shareholders to explain themselves. So, Chad, how about an update on this LOI?


"We have completed the acquisition of Bo-Tie Manufacturing. This four year old company specializes in the manufacturing and distribution of light weight aluminum truck beds for both commercial and agricultural applications."

"Bo-Tie is being consistently recognized as the emerging star for aftermarket truck beds for mid duty and heavy duty trucks. Applications for this remarkable. stylish, light weight and long lasting bed vary from the OTR Hot Shot trucker to the farmer. rancher and use on constructions sites. This year will bring additional models specifically for municipalities. use with road crews and rural fire departments."


>> I have consistently raised the disappearance of Bo-Tie as a problem because management has never adequately explained why that business segment suddenly died. Why did it go under? That question needs to be answered, and I specifically recall a PR which stated that Bo-Tie was already profitable and therefore a good acquisition. Until I find that PR, however, my recollection remains heresay, but I will be looking for that PR. Either way, what entities or trade groups were "consistently recogniz[ing]" Bo-Tie beds as an "emerging star", and where were the new models that were stated here? No new models were ever announced or PRed after this that I have found.


"Hoss Motor Sports. Inc. is positioning itself for participation in the fall and winter market with their Sport Utility line of UTVs."

>> Fall and winter of 2010? Looks like that date was hooribly missed, without explanation of course. And still there is no clear path that will have them for sale by fall/winter 2012 at the moment. we are on perpetual hold for EPA certification.

"As in our initial commitment in assuming the management of this company in March of this year; management remains focused on fiscal responsibility and creating shareholder value. We manage the business in this manner in order to build a strong foundation for future growth. create stability in the business and deliver profits on a consistent basis."


>> What else needs to be said here, does anyone feel $770k of generic "professional fees" as a line item is fiscally responsible? It's not audited yet so...
And as for creating shareholder value, well, I'm a shareholder that received this letter and it is clear from my portfolio they have generated negative value since 6-10-2010 and in fact further diluted our shares multiple times since then. And finally the gem "deliver profits on a consistent basis": what profits? QED

"Again we have made the commitment to transparency whenever and wherever possible."

>> I guess transparency in product schedules, business deals, stock issuance, finances, and whole business segment failures was just not "possible" huh? What else is left to be transparent in, if not any of those items?

"We, the current management of HTI would like to make everyone aware that News PRs released prior to March 3rd were not always done with the complete knowledge and approval of the members of the current management team. Therefore. we have taken exception with some of the "Forward-Looking "statements made prior to current management assuming control of the company. The current management team wants to avoid such statements that may or may not come true to avoid speculation and misinterpretation."

>> They want to avoid statements that maty or may not come true going forward from 6-10-2010? Well that was an abject failure, wasn't it? Let's see, the new building space that was announced as done but then magically never went through, the AK police grant that was so touted then supposedly lost due to phone calls? The AK police to my knowledge never issued a statement on the reasoning, I do not trust management's interpretation of the event without proof. Hmm, how about the Hoss schedule? That STILL hasn't come true. So much for avoiding making speculative statements.

"We are excited about the next couple of quarters; I look forward to sharing our progress as it happens. We plan to send you all one of these letters at least once a quarter to keep you better informed and to have a more intimate connection with you; a trait rarely found in many companies out there."

>> This last part is a direct note from Chad. He says they plan to send us a letter every quarter, hey great! Except the next one came in October 2010, and the NO MORE SHAREHOLDER LETTERS until September 2011. That is a total failure of promised transparency. And of course, no reason was ever given for the lapse.

What this demonstrates is the track record of over promise, fail to deliver. It also shows that they have been making the same statements about OTR deals being imminent for almost two years now. So for those of you who think some of us are unreasonable or simply impatient, I would have you look at this entire letter in context and ask yourself if two years sounds reasonable based on the language used here. I have said in the past that as an engineer I understand and EXPECT schedule delays because new product development is hard. However, when those delays are not communicated in a timely and honest manner then there is no reason to believe the next estimated date. And here we are 22 months later and still fleet deals are allegedly right around the corner. Oh really Chad, what makes this time different? What are the actual dates and who are you actually speaking with? Any company that stands to save literally millions of dollars per year in fuel costs - a major OTR expense - would scupper the deal because investors in a flea of a company might call up their switchboard too much? Really? Cost-benefit analysis to me as CFO of that OTR company says hiring a new phone operator to handle the volume is well worth millions in fuel savings annually.

I will continue with the October 2010 letter in the next post.
For this post the scanned shareholder letter can be found here: http://www.gradedbutedible.com/HLNT/HLNT_letter_10-28-2010.pdf

OK, first page of the second, and last, mailed shareholder letter starts right in about transparency, even listing the share stucture.

"We would like to address the issues and accomplishments that we have experienced since the last shareholder letter, as well as solicit suggestions on how we can improve future communications with our shareholders.

Transfer Agent/Capital Structure:
We are committed to being transparent to our shareholders. We have instructed our transfer agent to always comply with any request from a shareholder for current up to date information. Our transfer agent contact information and structure as of the date of tills mailing is as follows:

As of October 22, 2010
Authorized Shares 2,000,000,000
Outstanding Shares 1,823,520,096
Restricted Shares 209,420,658
Float 1,614,099,438
Number of Shareholders 3,176"

>> Let's start with this statement: "We are committed to being transparent to our shareholders." You have not been transparent with your shareholders and the current TA is gagged and has not been changed or ungagged since this was pointed out BY SHAREHOLDERS. That is not a commitment to transparency. Perhaps Chad would like to address this point directly? This company has failed in this commitment.

Next, please notice that there are zero preferred shares listed here. I believe the count as of the most recent Q42011 financials was 100 million preferred shares convertible to common at 10:1. So either this letter from 10-28-2010 left out preferred shares, or since that time they have all been created. A potential for conversion to 1 billion common shares has been generated since then, in addition to an AS raise of 500 million. Let that sink in and think about transparency and the "shareholder value" mentioned in the previous 6-10-2010 letter in that context. Chad, perhaps this would be a good place for you to give more than lip service to how this share structure change in the intervening 18 months has preserved shareholder value? Why would 100 million preferred shares prevent a hostile takeover when common shares don't even have voting rights?

"The joint venture contract with Dong Feng Motors, for production of the Hoss Utility Vehicle has been completed. The first production models will be available for inspection as early as the beginning of December." [...] "Timelines for other production models are scheduled for early March 2011."


>> KEY PHRASE "has been completed". As in done! First production model inspections in December 2010! Shipping in March 2011! Oh wait, we still don't have a production Hoss available. We didn't in Dec 2010, nor March 2011, nor Dec 2011, nor March 2012.... There were also some PRs which were released in spring 2011 that detailed the DF production schedule, in fact the first release had the docs in Chinese. I haven't located those yet but they called out specific dates that indicated production would begin sometime in summer 2011 as I recall..... That clearly did not happen, no explanation was ever given. And now that the production model has been built it is an indefinite waiting period holding for EPA approval. I cannot recall any production schedule statements until the end of 2011 which even mentioned EPA certification as being a requirement of production. And I certainly don't see any such statements in these letters, nor in the shareholder Hoss pre-order flyer. That is not transparency, that is changing the rules as you go. What was that last letter saying about avoiding statements which misinterpret the true value to shareholders? And while we're on the subject, Chad, your company still has not given any public explanation for why your partner Dong Feng suddenly listed the Hoss for sale through multiple subsidiary websites with a feature listing "certification: EPA" and then why some - but not all - of those were taken down? It could be a simple miscommunication with your partner, but given the history of misleading statements and missed deadlines there is no reason for anyone to give the benefit of the doubt here. So a full explanation is due to shareholders about why this happened, and what is being done to prevent such problems in the future. Further, an actual, honest assessment of the Hoss production timeline and the risk items which may impact it is due to us as we have waited a long time with no reasonable explanation for this string of delays, other than a very weak customs SNAFU excuse. I will also point out the customs issue occurred well after the Dec 2010/March 2011 dates stated above so it still does not explain the original schedule miss.


"We continue to establish dealers in the United States and are currently in negotiations with individuals or companies in four countries for limited rights to distribute our products."

>> This obviously fell through, we have never heard another word about international distribution. Chad, transparency means owning up to your failures and learning from them, not sweeping them under the rug and hoping no one keeps track of these things.


"Work continues with Dong Feng Motors on various applications for our Hydrogen Supplemental Fuel System, and on a variety of engines and uses." [...] "Highline Technical lnnovations continues to be included by Dong Feng Motors in various opportunities for future business ventures, and we will continue to evaluate each of them for mutual benefit. We value their reputation recognized by the world market, and the immediate opportunities that they bring to our company. We look forward to sharing more with our shareholders on this topic very shortly."

>> Define 'shortly' because this letter was penned in 2010 and there hasn't been an update on this since. Where are those other opportunities? Where is the LOI JV to put Wildcats on DF engines? There is nearly no public information about that business, how it has progressed, and what is the timeline forward. HLNT pps went all the way to 0.0186 based largely on this business deal which represented the potential to license this product on literally millions of DF engines. Since then the pps has collapsed and management has gone dead silent on this plan. That is not transparency, and frankly it mislead a lot of people.

"The Agriculture arena for the hydrogen booster continues to surprise everyone with the opportunities that are before us. Just as an example, one county in the panhandle of the state of Texas has over 97,000 stationary irrigation engines. This represents an immense opportunity where our product excels. We have also received several inquiries from drilling companies that use stationary generators located at their oil drilling rigs. A majority of these drilling rigs use 5 or more generators per rig with horsepower ranges of up to 700 hp. Our extensive testing concludes that the larger the engine, the better our products perform. We are working extensively to get into these markets."

>> Here we see one of the first business plan shifts by the company. Notice the explicit mention of the stationary pump industry. What happened to that plan? Is it still being pursued, why was it delayed, what are the hurdles which are preventing progress? No more from the company on this item again. That is not transparency.

"We are excited to have signed contracts with SFC and Anything RV, which have brick and mortar locations coast to coast. They have begun to exercise purchases toward a two million dollar purchase order given at signing of the contract for a twelve month period."

>> This was only just recently removed from the books after being booked as profit. What an utter failure of both communication and business dealings. There is no way that HLNT could have legally booked this contract as profit and then not had recourse to pursue damages when the contract was broken. Even if the contract was broken due to the companies going bankrupt there has never been any statement from management which said why damages were not, or could not be, pursued. Furthermore it has remained on the books for many months after it was clear the contract was dead. It should have been removed immediately. I'm not an accountant but I just don't see how there is not fraud on the part of one of these companies for this contract. Perhaps Chad would like to give the explicit legal reasons?

"We have added 6 new dealerships just this past week bringing the total dealer count in the United States to 36 in 17 states."

>> I don't think the dealer website ever listed as many as 36 dealers. Chad, please explain why the current web site is not kept up to date and why it was not populated with the full dealer listing to start. There may be valid reasons but none have ever been given, no transparency. Also, as I am someone who has developed and maintained websites, including one with hundreds of products, please explain why the HLNT website - which has minimal content and very limited products - cannot be properly maintained and kept up to date. It is 2012, there is no reasonable excuse for why such a simple website would be too costly or complicated to keep up to date. An intern should be able to do the updates weekly with no more than a few hours needed at most. And for heaven's sake why don't you use a development page to test deployments before updating and breaking the main site? That's a high school mistake, seriously.

"We are continuing pursuit for REAP approval of our technology. The John Deere certification we mentioned above is a critical part of that process. As soon as we have the written certification, we will arrange to have a REAP representative on hand to observe the testing at the same facility from which we are obtaining the certification."

>> No word on REAP. Never been mentioned since this letter as far as I recall. Can anyone show otherwise? Failure of transparency, more misleading statements.

"Bo-Tie Manufacturing:
Our fall and winter sales are looking good and we feel we will finish the year with better than average sales figures. We have implemented the new Western Skirted bed which carries features that are unique to no other truck bed manufacturing company. Customers will be able to order a truck bed with a skirted appearance, with tool boxes, or with out, and all options will retro fit should the customer have a change of mind. We feel replacement parts will be a large contributor for expanded sales of our truck bed division."

>> So let me get this straight; sales are good, new products being deployed, new business through replacement parts. And then the whole thing silently went belly up with no explanation? Pull the other leg, it jingles. The entire Bo-Tie business was misleading, it was regularly presented as a viable business segment and therefore part of the whole company's potential, then it just disappeared for no known reason.


"Many of you may remember that in our last shareholder communication letter, we expressed our desire to become fully reporting by the end of second quarter. We are still working diligently to attain this goal, but records received from previous management were incomplete and inaccurate. This has resulted in making it difficult for us to complete the process as we initially scheduled. Additionally, our legal counsel is currently contesting the validity of the three remaining convertible debenture notes listed on our balance sheet. However, none of this has deterred us from our goal of becoming fully reporting."

>> Well it must have deterred them from their goal because they are still not fully reporting 18 months later. Total failure of communication and accounting.


So there are just a few items where the company has made specific statements to shareholders and then failed to follow through. Often with little to no explanation, and usually not even acknowledged until public pressure is applied be shareholders. We also see the beginnings of schedules which are announced and then routinely broken with explanation. The fact that OTR fleet contract were anticipated 'soon' in the June 2010 time frame is rather damning given that in April 2012 we are essentially in the EXACT SAME STATE on that item. 22 months and no progress and no explanation of why, nor anything solid other than "soon".

Are some of these false statements? In the legal sense maybe, I am not qualified to say, however no safe-harbor statements might be an issue for them. But as for a non-legal definition I would say that, yes, as a shareholder I feel some of these statements were false or made in bad faith. They painted a picture of the company and its immediate growth prospects hat not only did not materialize, but as we have come to learn, was not viable at the time. All this while making reference to transparency and shareholder value. The timelines and business goals outlined in these letters helped propel the stock to a massive high, and since then the underpinnings have been kicked out one by one with delay after delay and $2 million worth of announced revenue revoked. I can't imagine there is no accountability there.

And for those of you who might say "well this is old news, the company is doing new and better things, any day now!"; I would say two things: first, I and others bought shares of this stock based on statements made in these letters as well as similar PRs during that time period. Second, we can see explicitly that this is NOT 'old news' as many of these items are the expected revenue drivers today. The Hoss production and OTR fleet deals specifically. They were mentioned in these letters as being imminent near-term and still today they are not here. That is as current news as it gets.

So please, present this to Chad and ask him to explain all of these items and provide true transparency. And know that the company has ZERO CLAIM to transparency while the TA remains gagged. And ZERO CLAIM to creating shareholder value while dilution - explicit and implicit via preferred shares - is still part of the business plan. I would also point out that any response which is shorter than the amount of writing I have done here is clearly inadequate. The two sentence vague and flippant responses of the email shareholder letter are not sufficient to encompass the issues brought forth here.

Finally, private communication between select parties is the opposite of transparency. EVERY SHAREHOLDER deserves to hear a response. A private conversation, email, or phone call means nothing. Publicly address those who FUND YOUR COMPANY as without US you would have already been out of business when the first lawyer bill came due and you had to dump shares on us to keep your doors open.