Update: Silver Screen - Move Over Movies
Investigative Reports
October 16 2006
stockpatrol.com
Are public companies beginning to take ads in the "personals?" This one certainly sounds like one: "Silver Screens Studios: Seeks OTCBB Company for Acquisition and Spin-off of 25% of Shares to Shareholders as Confirmed by NOBO Evaluation" – the press release proclaimed. In other words, Silver Screen Studios, Inc. (OTCBB: SSSU) is looking for a date and, ultimately a mate.
Companies occasionally fall from the radar screen, only to reappear months or years later, telling a different story or dressed in new garb. In the case of Silver Screen Studios, the transformation apparently is underway – from failing "faith-based" production company into aspiring conglomerate. And Silver Screen wants to spread its wings, far beyond unfulfilled efforts to carve a niche in the film industry. The Company says it wants to acquire businesses in the entertainment, investment banking and real estate sectors – quite a grand undertaking for an entity with a lengthy record of failed promises.
This is not the first time Silver Screen has announced ambitious plans. StockPatrol.com first published a series of articles about Silver Screen in January 2004, shortly after the Company proclaimed its intention to produce motion pictures, starting with a property called "Murder By Deception," which supposedly was on the front burner and ready to start production. See, Silver Screen Studios, Inc. Part I — Lights, Cameras, But No Action; Part II — The Plots Thicken; and Part III — Hot Or Not. Almost three years later, the Company has produced nothing – except losses.
As recently as March 28, 2006 (in a Form 10-K for the year ended December 31, 2005), Silver Screen was describing itself as a "faith-based and inspirational content multimedia entertainment company with a focus on developing family centered entertainment content." As the Company explained:
We believe that our primary mission and vision is to spread the Word of Jesus Chris as printed in the holy bible through various entertainment related products. Accordingly, the content that we will produce in the future will have as its purpose the glorification of God and his kingdom. The company will be used as a vehicle to spread the message throughout the world in as many distribution channels as financially possible.
Spreading the message proved to be beyond the Company's reach. Instead, the Company has tested the faith of even its most loyal shareholders. Plans for production of films, DVDs and television programs, distribution of films; a music publishing arm; and an artist management division, all have failed to materialize. As of June 30, 2006, the Company had less than $6600.00 in the bank, no revenues, and an accumulated deficit of approximately $39.6 million.
It was not surprising, therefore, to learn that Silver Screen had set aside its celluloid ambitions. On August 22, 2006, Silver Screen announced that "our strategy business unit Global 1 Realty Corporation" would seek to raise $25 million under Regulation S to invest in "distressed and non-distressed" real estate. Suddenly, the Company had entered the real estate business.
Regulation S permits U.S. public companies to sell non-registered stock overseas to non-U.S. investors. Although the Regulation S shares may not be resold in the U.S. for one year, they can immediately be resold and traded overseas. See, Beware The Evil Twins. Silver Screen indicated at the time that it planned to develop additional funds – although it did not say how it planned to market the investments.
Although the Company suggested that Global 1 Realty Corporation was an "internal investment banking unit," it did not provide any details of the operation or indicate how it had been formed or funded. When did Global 1 emerge? How was it to be funded? An August 25th press release stated that the initial fund had been "organized and filed" but did not say where the entity had been formed or when the filing had occurred. A link to the "Global 1 Realty Corporation" website led to a bright red page that included the name of the new entity, but offered no additional information.
An August 31st press release went somewhat further, proposing that Global 1 would seek to trade as a free-standing public company. The Company also said that its "real estate consultant," Barry Thomas, had identified distressed properties for the new fund to acquire. The Company did not identify any of those properties at the time – and, as best we can determine, has not yet named any of its proposed acquisitions.
Although the Company had shifted it focus toward realty, it apparently was not prepared to completely abandon its film making dreams. On September 14th Silver Screen announced that it had formed an entertainment fund, claiming that "[a]n investor in one of our real estate funds will be able to shelter the profits by the deductions against passive income offered by an investment in the film fund." The Company did not indicate whether any accounting firm had offered that opinion or whether such tax treatment would affect all investors.
Silver Screen said that it expected to raise $25 million for the Fund from U.S. and non-U.S. investors and would explore "the distribution of our funds via a broker/dealer network and Registered Investment Advisors." Since the manner of distribution seemed hypothetical, and in the planning stage, it appeared that the Fund had not yet begun to raise capital.
Indeed, the Company offered no facts that would indicate the Funds have been formed, are currently available, or have qualified for offering.
The Company's transformation has continued at a brisk pace – accompanied by numerous sketchy press releases. On September 21, 2006, Silver Screen's "Acting" CEO, Donald Evans stepped aside and was replaced by Barry K. Thomas as the Company's sole officer and director. Prior to that time, Mr. Thomas had acted as a consultant to the Company in connection with potential restructuring. Simultaneous with Mr. Thomas's ascension to control, the Company amended its Certificate of Incorporation to increase the authorized common stock from 300 million shares to 2 billion shares. As we will see, that increase would soon become critical.
Thomas apparently plans to generate capital for acquisitions through private equity venture capital funds, similar to those previously announced by the Company. As he "explained" in a September 25, 2006 press release:
We have formed a group of funds under the Global 1 brand that are the foundation of our business model. The private equity venture capital funds, Reg. E Business Development Companies, will be used to purchase an operating company as well as make investments in companies and ventures we feel are attractive. Our internal investment banking group is currently conducting research on several industries where an acquisition would be feasible. We are currently seeking acquisitions in the real estate, financial services, technology, manufacturing sectors.
The Company says that Thomas "has many years experience in the investment arena including the distressed property market and risk management," but recent press releases do not give details of his background.
The reference to a Business Development Company (BDC) is intriguing but poses its own set of issues. BDCs, which operate under the Investment Company Act of 1940 (the 1940 Act), invest in other companies – both private and public – which are referred to as "portfolio companies." They enjoy a number of advantages, including the ability to issue up to $5 million worth of shares a year under Regulation E without registration. See The Investment Act of 1940 - It Was A Very Good Year. This poses a particular challenge for regulators, many of whom are not familiar with the nuances of the 1940 Act, and for investors, who are likely to have a difficult time ascertaining the true value of the portfolio companies.
A September 29th press release elaborated on the BDC strategy – but did not significantly elucidate matters. The Company's new CEO, Barry Thomas, explained that "Global 1 Investment Corporation, our strategic business unit, has formed several Business Development Companies…and will use Reg. E. to fund each company with $5.0 million." The Company indicated that it would form separate funds – each funded with $5 million under Regulation E – to acquire businesses in the real estate, publishing and entertainment sectors. Silver Screen intends to seek listing for each of these funds on the OTC Bulletin Board.
Do these various BDCs exist? What are their names and where were they formed? Are they controlled by Silver Screen or other interests? How does the Company plan to raise tranches of $5 million in equity capital? As Silver Screen, the unsuccessful film operation, the Company was unable to raise even modest sums. Has the Company effectuated its plan to utilize brokerage firms or Investment Advisors? If so, it has not yet publicly disclosed the identities of any of those parties.
As a first step in this process, Silver Screen seems to be playing the "short" card – saying it wants to distinguish "real" shareholders from those who may have shorted the Company's shares. Silver Screen states that it will distribute dividends to shareholders appearing on a verified NOBO (Non-Objecting Beneficial Owners) list, and that short sellers will be held liable for those dividends. The Company has not explained how it intends to hold short sellers accountable.
The Company also has declared that it will "protect" existing Silver Screen shareholders and weed out the short positions by implementing a share exchange program with one of the newly formed "Funds." According to an October 3, 2006 press release, Silver Screen stock would be valued at $.10 to $.25 a share for purpose of the exchange – well above the current $.02 trading price. Unfortunately, description of the funds, acquisitions and share exchange program has been decidedly vague. Consider this explanation of the exchange:
We have a strategy to increase the book value of (the Company) and enter into a business combination via Form S-4. Once the business combination is completed we expect the combined business to trade at the value of the combined entity. More details will be forthcoming regarding the share exchange program.
From S-4 permits registration of securities issued in connection of certain exchange offers. First, however, a potential transaction must be identified and concluded. If the Company has moved forward along those lines it has yet to release any details.
Short sellers have become a convenient and frequent scapegoat for struggling penny stock companies. In some cases illegal short sales may have had a significant impact on a company, depressing its stock price and inhibiting its ability to grow. So far, however, companies have been hard-pressed to deliver credible evidence of these short selling conspiracies. In any event, most tiny OTC companies have other abiding concerns – like the absence of operations, assets and revenues. Silver Screen has not yet provided any evidence to support the view that it has suffered at the hands of illegal short sellers. The Company's other failures and shortcomings are, on the other hand, well-documented.
Silver Screen elaborated on its acquisition plans in an October 9th press release. The Company said that it had initiated plans to acquire three businesses over the next 180 days and five "distressed real estate assets". Silver Screen did not identify any of the target companies, provide any terms of the proposed acquisitions, or say how it would fund each deal within the contemplated short time frame. The Company did indicate that it would businesses with EBITDA (Earnings Before Interest, Tax, Deductions and Amortization) of "$1.0-$$3.0 million" and spin them off to shareholders as dividends.
The Company still has not revealed the names of any of its potential acquisitions, but on October 12th it issued another press release, this time declaring that it wished to acquire an OTCBB-listed company, and would "spin-out" 25% of the acquisition to existing shareholders.
Silver Screen did not indicate whether it had identified this acquisition. Once again, however – as it had in several earlier press releases – the Company outlined its plan to initiate funds, raise money through Regulation E offerings, arrange for business combinations, and distribute dividends to shareholders.
Details, once again, were sparse.
Meanwhile, there appears to be increased interest in the Company – or at least greater trading volume for its shares. Silver Screen has typically traded several hundred thousand to several million shares a day since the stream of press releases began in August. Consider this: On September 28, 2006, 298,500 shares of Silver Screen common stock were traded. The following day, volume increased to just over 2.9 million shares. Since then, volume has skyrocketed. On October 3, 2006 over 122 million shares were traded. Three days later, on October 3rd, more than 145 million shares changed hands.
During this time period the Company has issued numerous press releases declaring its plan to restructure, acquire new businesses, raise funds and issue dividends to bona fide shareholders. So far, there has been little evidence that any of those efforts have borne meaningful fruit.
How then can anyone explain the increased trading activity? There has been one corporate activity worth mentioning. On September 22, 2006, one day after Silver Screen increased its authorized stock to 2 billion shares, the Company filed a Form S-8 Registration Statement registering 200 million shares of common stock to be issued pursuant to certain "Consulting Agreements" The Company did not identify the consultants who would receive those shares or the services they might provide. On April 12, 2006 the Company had filed a Form S-8 Registration Statement registering 85 million shares – also for unidentified consultants.
Once the Forms S-8 were filed, and the shares were issued, that stock was available for immediate sale. Could that – together with the flurry of press releases – explain the recent spike in trading volume? Are recent announcements a sign that Silver Screen may finally develop a viable business - or is the absence of detail an ominous sign that investors should prepare to relive the disappointment of "Murder By Deception?"
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