THE OTHER SHOE
Wow, is this ugly or what? Francois, I question the accuracy of your post about the book value of SEVU. First, please note that the STATED book value of SEVU includes the deferred tax asset, and therefore the deferred tax asset should not be treated as a separate issue from book value. It is included in the calculation of the STATED book value. Second, note that the STATED book value includes the Springs, valued on the books at $889,918, even though the Springs LOST $648,000 last year, and has a NEGATIVE net worth of $121,465. Third, note that the STATED book value also includes $512,757 in notes held from employees (more on this in the next paragraph), as well as $60,793 in a note from an officer. Finally, note the $504,535 carried on the books as property and equipment. This also is highly suspect, in terms of liquidation value, so I will discount that by 70%. In my opinion, the only countable assets are the $41,264 in cash, the accounts receivable at half their stated book value for another $30,000, inventory at half its stated book value (a generous valuation if it does come to a fire sale), the prepaid expenses of $60,000 (even this is subject to interpretation), the plant property and equipment at $151,361 (and even that seems generous), and the future tax benefit of $1,439,322 (even this should be discounted for the time value until its eventual realization, if ever…let’s say 25%). By my calculation, the assets should be valued at $1,361,116. Subtract the stated liabilities of $479,883 and you get a net worth of $881,233. Divide this by the 18,119,909 shares outstanding yields a book value of 4.9 cents per share.
Next, everyone at the open house will remember the question being asked to Rich about the nice new Jaguar sitting in his driveway, and Rich stated it was HIS property, not SEVU’s. Now we find out otherwise.
Also at the open house, Rich stated that his non-interest, half-million dollar loan from the company had been repaid in full. Since the open house occurred the first week of February, and the financials just released are as of the end December, I guess I will have to take Rich at his word. His word has always been good, right?
The nail in the coffin is the declining sales. Q1 was 421K, Q2 was 335K, Q3 was 212K and Q4 was 161K. And this despite spending over TWO MILLION on advertising!!! That is almost double total revenues!
Other problems are: wages and salaries are 73.6% of total revenues, professional fees and “other expenses” EXCEED revenues, the outstanding shares on December 31 was 12,151,616, and as of April 12 the outstanding shares are 18, 119, 909. WHAT???? How did the company go from 12.1M to 18.1M in the past 31/2 months? The only things we know are Rich was granted 1M for his patents, and Rich, George, and crew “said” there would be a private placement for a total of $1.5M. If my math is correct, that means the private placement was for 5M shares, at a total cost of $1.5M, yielding a per share price of THIRTY CENTS!!!
In My opinion, this is a death spiral. Declining sales, escalating dilution, questionable assets.
Tomorrow’s will be UGLY. There will be a lot of pain. I truly emphasize with you longs, the story did sound so believable. And Rich can be very convincing. Better luck next time to all of you.
Bill Branum
AI
