Your ntification recieved, after laughing myself almost silly I wrote this!!!
You stated at one point , that Camelot had had two profitable quarters in a row. I would like to examine that claim.
First it is completely wrong. They claimed ( we will get to this a bit later) to have had a positive balance sheet in the third quarter last year and the first quarter this year. This does not constitute a row, nor a trend.
Let's talk about the misleading claims of profit in the third quarter of last year. The entire basis for their claims of profit was a couple of one time deals for the distribution right to Digiphone with European companies. THe first deal was for the rights to distribute Digiphone in the scandanavian countries. They listed a $1 million income for this deal. In fact the deal fell through, and they recieved NOTHING(I believe that camelot has filed a lawsuit on this, trying to get blood from a turnip, and squandering corporate resources in the process)...but they still showed income for the deal in the third quarter report).
The second source of income they reported was for selling distribution right for Great Britain to a company called Firecrest PLC. They at one point put out a press release saying that this deal had increased in value by $4 million. Well they recently disposed of the securities they recieved for this deal at around 85% LESS than the original announced value.
Now if the loss of $1 million on the scandanavian deal and about $850K on the Firecrest deal are considered in the third quarter, it is apparent that Camelot really lost significantly from operations during the third quarter of fiscal year 1995. In other words, Camelot announced making money that they never really made, to pad the balance sheet and avoid posting what was a REAL LOSS...magic huh?
If the year end report is looked at these losses are reflected. The company ended up losing around 25% of their worth (assets) in 1995. Of course people not reading closely were influenced by the 3rd quarter report, to buy stock at a price that had nothing to do with value. Another hype release induced spike!!
Does this smack of creative book keeping designed to decieve, in order to keep stockholder interest? (MORE MAGIC) It may be legal, but these tactics are seldom engaged in by corporations that have substance,a record of profitability, and believe in holding ethical operation high on their list of priorities.
In any case the eventual failure of these deals shows one important thing about the management of Camelot. They apparently cannot use good judgement as to who to strike business deals with. Both of the companies that deals for distribution were made with FAILED and caused losses to Camelot. Of course much of the blame for the poor decision making can be attributed to the fact that they were apparently unable to interest any reputable distributors in their parternership. This is likely due to either general lack of confidence in the Digiphone product and/or smart management not being willing to pay the price Danny demanded for rights to a product with a dismal record for sales!
Let's look at the fiscal year 1996 first quarter report. The first item that causes real concern is that the company only showed income of about $500K due to pursuit of it's primary business...selling goods and services. This shows a loss of momentum over the last 4 quarters! Not a good sign!
So where did the rest of the money come from that they claimed as profit? Well it came from another one of Danny's financial shell games.(Financial sleight of hand...MAGIC)
Ok, so at his point we have amelot without a viable European distribution network. His efforts to establish relations with several third or fourth tier companies have ended in disasters. What does he do. He falls back on his previously learned expertise in circumventing laws established to protect stockholders by setting requirements and standards establishong publicly trade companies. He goes and finds a failing or for other reasons CHEAP company that is publicly traded
(this is important...we will discuss it more later) . He buys it real cheap. Of course the fact that he can get it cheap pretty much indicates that it IS NOT an established and sucessful player in the European distribution network.
So now he has a shell, he forms a new company called Digiphone Europe LTD. Now controlling the shell (Meteor)and Digiphone Europe he arranges a merger between the basically worthless companies.
Then the stroke of MAGIC. He negotiates a deal beween the companies he owns and Camelot that he runs and , with his wife, has controlling interest in. Now the deal is valued at several times what he had been able to get...even from other third rate failing companies, and had been completely unable to negotiate with any successful operations. That is great, he can now claim the deal as income, he can save himself from having to declare the large losses on normal operations that would otherwise be the case. He can decieve the casual observer (the folks he preys upon) for one more quarter.
OK what about the $7.5 million he claims as income. Well first, he immediately takes a writedown on the value of the deal of over $2.5 million dollars. So this reduces the amount to be considered to under $5 million. Does he show this in his press release? Well yes but in a non-specific way as an indeterminate writedown ( you have to dig into the 10-Q to find what the writedown was for), but certainly not in the title or by adjusting the gross income ...this would lessen the potential to falsely impress the gullible.
Now if the value of the deal decreased by 33% in the 6 weeks from it's announcement to the releaase of the quartely report, what might it be worth today, perhaps almost nothing like the Firecrest securities, or ABSOLUTELY NOTHING like the reciept he announced from the scandanavian deal. In any case, Danny cannot pay employees with this funny money, he cannot buy buildings, at most he might be able to borrow on it (but at it's real market value it would likely not provide much collateral). It is not really worth anything till it is sold, then the value is based on the market. In every case when trading day has come he has realized a miniscule fraction of the money that he announced that he had made!
This is why the term "fictitious profits", definitely applies.
This brings us back to why it is so important for DW to have publicly traded companies. This enables his magical shell game ( where is the money...now you see it ...now you don't). He can now make transactions without using anything with fixed value. He can now shuffle around paper and claim to have made huge profits. He is now able to use creative book keeping to its maximum effect! He can really now publish numbers with little regard to real world values in order to get people to waste their money by investing in his companies. What a deal!!!
Sme have called DW a financial magician. I agree. A magician makes their money in the art of illusion and deception. They make people believe, at least temporarily, that they have seen something, when in fact it was all smoke and mirrors. When folks look behind the props, they learn that the have been made fools of!
This absolutely defines Danny's method of doing business...
Would you believe that money pulled from hats could pay anyones bills for long? Would you hire the magician for running your business? I thought not. Then why trust the "lizard of Camelot"???
Keep in mind the bottom line. Camelot has existed for over 5 years. It has never turned a profit based upon it's ability to perform in it's chosen market. It has never earned a profit based on sales of any goods or services. The only time that they have posted a profit it has been based upon financial chicanery. In one case, 3rd quarter 1995, proof in the annual report showed that this information was completely inacurate ( they lost monies totaling close to 20% of their assets in fiscal year 1995). The first quarter of 1996 promises to be another case of Danny's "Magic"...all show and NO GO!
Investors BEWARE!!!!!!! |
