ALL - Well, you asked for it! So, here goes another installment of what's wrong (and right) and interesting in the 10KSB and 10Q (both hopefully soon to be replaced - thank you very much, Ken Walther!).
OK, so we'll pick up where we left of, at the bottom of pg7 (of 28pgs). Here's a quote of the last sentence. "The company was able to minimize the cash needs for operating expenses by utilizing the services of several individuals and firms which were compensated by issuing Company common stock for their services rendered." You know, this is actually a great idea, in concept. Folks that would be willing to do work now, and wait for their payday to come sometime down the road when the company was up and going better. Even a built in bonus as the stock price goes up. Well, the concept crashes and burns if it abused by issuing stock at a severely discounted value (as we will see later), and even worse if more shares are issued than value received!
Personally, I'd want to thank any employee or legitimate contractor or consultant that accepted shares (especially if restricted) instead of cash at a reasonable value for work or services actually performed - thanks for helping us out! On the other hand, I'd want to rescind any shares given out without value received, and make sure that the SEC was well advised. A little bit of Cooked Goose would sound pretty good about now!
All right, I'll try to keep it to just the facts! Sorry about going on so much on that one point, but I really feel that the abuse of that one "reasonable concept" was at the core of the problems now trying to be unraveled!
At the top of pg9, under the heading, "Officers and Directors of the Company" we find only Charles and Maria, and we're left to assume that they are the sole Directors, BECAUSE, after their names, in the column titled "Offices Held" the title "Director" does not appear. Very sloppy, at best! Of greater interest is the somewhat standard appearing paragraph about Directors and Officers holding their office until their respective successors have been duly elected and qualified. Its a little vague and somewhat inconsistent in its language, and really leads me to want to know just what the provisions of the Articles of Incorporation and By-Laws say about vacancies and replacements and voting requirements that might apply. It COULD be that an INTERIM Board might be able to do little more than to call for a SPECIAL SHAREHOLDERS' MEETING to formally elect a new Board of Directors. My what a wonderful opportunity that would be, to GET ALL QUESTIONS ANSWERED and perhaps even get some small-shareholders' REPRESENTATION ON THE BOARD!!!
(What a concept!!!)
One of the more blatant examples of a broken sentence and garbled expressions is found on pg9. "Based solely on its review of copies of such forms received by it and written representations from certain reporting persons that no Forms 5 were required for those persons." What??? We didn't even get a complete thought there - and this is an important subject - about required SEC filings by owners of "10% or more of a registered class of the Company's equity securities". Almost as if someone did some selective "editing" out of a complete statement (pure, wild speculation on my part).
At the top of pg10 we once again find Charles and Maria and their 1995 (presumably for the fiscal year from Mar 94 to Feb 95) salaries of $120,000 and $27,000 respectively, which sounds reasonable enough! But unfortunately, under the column heading "Name and Principal Position", only names appear. We are not informed what position this compensation is in payment for - Director, Officer, employment salary, some combination, or WHAT??? And at the top of this section, the phrase, "as mutually agreed upon:" WHAT MORE WAS "AGREED UPON" THAT WAS NOT DISCLOSED HERE? Very sloppy work, at least!
In the next section, Item 11, we are told of the "beneficial owners of five percent or more of the outstanding shares". Even though this is a report for the fiscal year ended Feb. 28, 1996, the information shown is as of Aug. 31, 1996 (much more valuable to us, if accurate!). It lists the names of only four people:
Charles Huttoe - 3,400,000 shares
Maria Iacovelli - 1,000,000 shares
James Tully - 2,251,588 shares
James Christensen - 2,288,000 shares
What's especially interesting here is that this totals up to only 8,939,588 shares. That leaves 55,033,840 shares of the 63,973,428 outstanding (as disclosed on pg1) to be spread among all other Shareholders none of which could hold more than 3,198,671 shares or be in violation of inadequate disclosure. Hmmm!?! There are at least four S-8s that we have been told about that exceed that amount. Leads one to wonder when they were issued and if any smaller ones went to the same people (or someone related or in any way controlled). Just a question! The operative word in this section is "beneficial" owner. Seems like there might be some other owners of more than 5% of the shares outstanding who were not disclosed. Who?
In a somewhat tortured sentence (I should talk!), Item 12 at the bottom of pg10 refers to there being some information omitted from the 8-K dated March 7, 1996 (ANOTHER DOCUMENT I'D LIKE TO HAVE A COPY OF - ANYBODY GOT IT, ALREADY), I'll presume it to be the notification of the ICMX merger. Well, this reference says that the omitted information is now contained in the "Consolidated Financials herein". Yep, that would be nice to know! To bad the reference was too vague to even guess at what it might be.
Well, that gets us through the introductory material and we are almost ready to start on the Statements themselves - just the Accountant's Report, first. Pretty standard fare. Any CPA signing such a statement is really putting himself (or herself) on the line that they have THOROUGHLY AUDITED the material and found it to be complete and correct. What I found most interesting was the firms address - Pennsylvania. One would have to presume that there just weren't any auditors available in the neighborhood - like in D.C., or VA, or MD, or NY. Nah! Must have been some very good reason! What?
HOW ARE YOU ALL DOING OUT THERE? IF THIS STUFF GETS TO HEAVY OR CONVOLUTED, JUST CUT TO THE PUNCH LINE AT THE BOTTOM.
The Consolidated Balance Sheets start on pg16. Its interesting to note (pun intended) that although there are "nine" lengthy "Notes" to the financial statements, only a couple of them are actually "'noted" on the statements themselves (sloppy, at least, and VERY difficult to follow).
OK, under Current Assets, Notes Receivable there is a listing of $50,000. From whom? For what? Doesn't say!
"Costs over net assets acquired (Note 7)", (Gee here's actually a "Note", too bad Note 7 has nothing to do with this subject, and there doesn't appear to be any other Note to cover it, at all - Oops!). So, we are not told what this $1,074,313 "Asset" is (even though it is almost a third of the TOTAL assets), and I certainly don't know what it is! WHAT IS THIS "ASSET" THAT IS A "COST"???
It is nice to see the asset of the remaining interest in the old Dental Software business listed under "Investment in LLC (Note 6)". (And this Note is actually the correct one!) Too bad the dollar amount recited here, $213,150 is not quite the 40% of $548,354 ($219,330) that it is described to be. Its just a small difference - what's $6,180 among friends! In all fairness, it may be that there is some appropriate adjustment to be made - too bad we weren't told about it though - THAT IS WHAT THE AUDITORS NOTES ARE SUPPOSEDLY FOR!
PG17, Current Liabilities - Accounts payable $455,772 and Accrued expenses $330,144 - no breakdowns, but then there seldom are unless the amounts are uncommonly large - it would be nice, but...
Then comes the $1,702,200 "Loan payable-officer" due to "the CEO" (Charles) for consulting services, as disclosed in the "second" Note 6 (yep, there are two Note "6"s, even though no Note number is used here on pg 17 where the entry is listed). And these "consulting services" were "provided throughout the fiscal year...ended Feb 28, 1995" (which by the way is about $4,663 per day for 7 days a week, or $583 per hour for an 8 hour day if work was actually done 365 days of the year! And note the time period for all of this, Mar 94 thru Feb 95! All of this is in addition to whatever salaries were actually paid. GOOD WORK, IF YOU CAN FIND IT! Let's see here... This means that the company (we, the Shareholders, out of our future, hoped-for earnings) owe Charles $1.7M for his "consulting" in 1994??? NOT!!!
We've already talked about the Authorized and Issued shares as shown under "Stockholders' Equity", but let's now look at the values of those shares. On Feb. 28, 1995 paid in equity for 11,876,420 shares was $2,697,221 (about $.22/share). On Feb. 28, 1996 paid in equity for 40,444,761 shares was $9,471,425 (about $.23/share). Actually, this seems like a fair reflection of the stock's value in the marketplace at that time, IF THE COMPANY HAD RECEIVED FAIR VALUE OF $6.8M INCREASE FOR THE 28.6M SHARES ISSUED!
Next, "Stock Options granted", states 3.2M shares while Note 7 shows 5.2M - BIG OOPS! Worse, 3.2M of the Options were granted with an exercise price of $.10 per share - one half of the VALUE of the options, as disclosed in the extremely convoluted 2nd paragraph of that Note on p26. WHY??? And yet, the next 2M in options stated in the following paragraphs, AND GRANTED ON THE SAME DAY AS 3M OF THE ABOVE $.10 OPTIONS, shows an exercise price of $.30 (50% above the value of the options at that date - YEAH! A PREMIUM!) But the worst part of all of this is that while the total amount of Options outstanding equals about 13% of the total Shares outstanding, THERE IS NO MENTION OF WHO THESE OPTIONS WENT TO, OR WHAT FOR, NOR IS THE TERM "RESTRICTED" USED ANYWHERE!
HAVE ANY OF THESE OPTIONS BEEN EXERCISED? (Beyond the 100,000 shares shown in the 1st Qtr 10Q?)
At least the Warrants outstanding, described in the last paragraph of Note 7, (carried over from ICMX) are only for 370,000 additional RESTRICTED shares and appear to reflect an exercise price of $.50 per share.
Two last comments for this posting. The "Total Stockholders' Equity" of $1,052,851 shown on the Consolidate Balance Sheets at the bottom of pg17 is listed in error from the "Consolidated Statement of Stockholder's Equity". It is only $6,000, but, Gee, wouldn't you think that a number could be carried from one Statement to another without a copying error. I WOULD EXPECT IT!
LAST ONE! I PROMISED! Please note that as of Feb. 28 1996, SEI had a Book Value (total Stockholders' Equity of $1,056,851 divided by total outstanding shares of 40,444,761) of $.026 (that's 2.6 cents per share). We want to remember this figure for important future calculations.
Well, was it as good for you as it was for me? Just remember that all of the preceding statements are just my opinion, and are probably subject to just as much error as anyone else's. I was not paid for doing this review, and you can rely on it to be worth every cent you paid. <g> If anyone is glutton enough to want yet another installment of "John and the financials", just let me know, there is still a good chunk left!!
SEDONA John (Bleary eyed & ready for bed in Paradise!) |
