Mike - thanks for sharing your thoughts. You've brought up a number of important issues for us to ponder.
Here's a condensed recap of the lengthy 10-K, for those who don't have the time to read all 250+ pages:
sec.yahoo.com
I am looking forward to the pending "Shareholder Update" from INCE, which is supposed to come out in the near future. Perhaps this open letter to INCE shareholders will help make sense of the recent, and pending, corporate restructuring maneuvers that on the surface do not look favorable to INCE's common shareholders. The recent S-1 brought a number of concerning issues to light for the first time, and the 1997 10-K did not lesson my concern over specific issues.
Unless I'm mistaken, according to the 10-K Paul and Allen Smith are indeed drawing their $200,000K+/year salaries (there doesn't appear to be any footnotes indicating their salaries are accruing as an unpaid liability). The 10-K statesvPaul rec'd $70,000 during the latter part of the fiscal year; "Paul Metzinger was elected President and Chief Executive Officer on May 28, 1997. He is compensated pursuant to a written Employment Agreement, dated June 1, 1997 at an annual salary of $210,000.00. For the period June 1, 1997 to September 30, 1997, Mr. Metzinger was paid $70,000". This is in direct conflict with what the company has told several investors who have called to inquire about this issue. Whether accrued or not I remain uncomfortable with management taking such a huge paycheck home when the company is bleeding to death:
INCE had less than $110,000 in cash on hand at the end of the 1997 fiscal year -- "As of September 30, 1997, the Company had cash and cash equivalents on hand of $107,000 as compared to $4,224,000 at September 30, 1996."; "a Net loss applicable to common Stockholders of $18,013,000"; and SG&A expenses are out of control-- "Selling, general and administrative ("SGA") expenses increased 60% to $9,077,000 in 1997 compared to $5,683,000 in 1996."
Granted Paul took over after some very bad financing decisions were made by prior management, but I personally don't see current capitalization strategies benefiting existing, long term, shareholders. I'm rather shocked that a value has not been assigned to the "gift" of 27.5% of Microlink to Morley and Neuhaus. And I doubt there are many shareholders who are buying the story that giving them such a significant part of the company was necessary to foster their loyalty, and their participation in raising future funding for the Microlink project. That's absurd.
Rumor has it that INCE is considering spinning off Microlink at some point in the future. Paul knows that the vast majority of shareholders are very concerned about further shareholder dilution, so the latest thinking is current shareholders will be given an opportunity to buy into the spin-off first, if it ever occurs. What a slap in the face that would be. What...now we have to pay for the same asset twice. He might as well just do a reverse split while he's at it and just drive that final stake into the heart of his loyal investor base.
I clearly understand that the former management team put INCE in a horrible situation, and with extremely weak financials it is not easy to raise cash, without giving away the store. But, so far INCE investors are no better off today then when Paul took over the helm. And I dare say, we're worse off if share price is the measuring stick.
I'll also say that I am uncomfortable with how management will not answer the toughest of questions. Several investors have written letters to Paul posing specific questions. I have read each of his responses and was disappointed to find Paul chose not to answer most of the questions posed. Perception often become reality and my perception is that INCE's management team, headed by Paul, does not feel they need to respond to the concerns of their commons shareholders, and increasing shareholder value at every turn is not their primary goal.
In the past I was one of Paul's strongest supporters. But that Began to change when I read the last S-1 filing, where several new issues were brought to light. I faxed Paul a copy of my post Message 2724126 before the ink barely had a chance to dry. I didn't want him to be blind sided by my remarks, which weren't intended to be critical, but none the less pointed to specific issues that were a concern to me as an investor. Paul chose not to respond (a large red flag for me), and I have not spoken with him since.
A large shareholder in Jackson, MS called Paul shortly thereafter and asked about the repricing of Paul and Allen Smith's stock options. According to this shareholder Paul chose not respond to the question ( red flag number two ).
A significant shareholder in the Southwest has suggested I'm beating a dead horse by bringing the issue of repriced stock options up, but I suggest that the repricing of these options points to the true character of the current management team. They are going to make sure that they get theirs even if the common shareholder flounders. At the very least it would appear that management doesn't have much faith in their ability to get the company turned around, or that the share price might get back to previous highs (where their former stock options would again have value).
With over 2 millions option shares each (Paul and Allen Smith, repriced at either $0.375 or $0.50/share), senior management will "be in the money" well before just about every common shareholder holding INCE stock today. Wouldn't it be nice if we could snap our fingers and reprice the cost basis on the shares we each bought?
Yes, I'm disappointed. Yes, I'm concerned about where this management team is going to lead the company. But after almost every single deadline or pronouncement of pending news has been missed, it's beginning to look and sound like the new management team is not so different from the old management team (at least as far as meeting deadlines).
Perhaps Paul really is a caring man, as I once thought he might be. Perhaps the odds are just stacked so heavily against INCE that we should be thankful just to have the business still operating. I guess only time will tell what comes of this situation. But, as far as I'm concerned management has lost most of the credibility they gained in the early going, and I need to see something positive happen (much more than just signing an alliance agreement with a major interconnect manufacturer) before I'm "comin home" again.
I'm sorry to say this, but unless something changes I'm simply looking to recoup my paper losses, and move on to safer harbor. And if INCE prospers after I sell, I will applaud their success, and be glad for those who stayed on the train longer than me. |
