David, this is a repost, you must have missed it. To those that have read it...apologies given!
You stated at one point , that Camelot has 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 scandinavian 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 scandinavian 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 release 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 scandinavian 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!!!
Some 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 25% 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! |
