FF: Re:<< One nagging question. How did the IRS allow Firamada to make this acquisition given their financial condition?>>
This is a real easy one. I surmise, based on a scan of the PRs, they issued approximately 35 million shares during the period Jan.1 to May, 1998. This was the period of the failed attempt to acquire Atrix, the bogus earnings, and the bogus "pro forma" (i.e. the max hype period).
It was noteworthy the stock doubled from approx. 0.30 to 0.60 around the first part of March, when the bogus numbers were released. So, FAMH could have raked in between $10.5 and $20 million. Take your pick on an average, ...I'll assume the lower end figure for arguments since at the first of the year they needed cash badly.
The reason the Atrix deal fell through was never exactly clear, but the PRs hinted something wasn't above board. Myriad deal probably was under discussion immediately after Atrix.
I expect(as stated before) FAMH used the stock proceeds to extinguish the unpaid withholding liabilities and become current. They would have still had a chunk of cash in the bank.They held out a pre-Myriad "pro forma" which was light years from the truth. Finally, the IRS, in spite of their reputation, is not in the business of holding properties. The IRS thinks only of cash.
So, what could have been waived in front of the IRS during negotiations? 1)"Hey, we had our problems before, but look, we're current on our obligations"; 2)"Hey look, we have cash in the bank"; 3)"Hey look, at these dynamic 1997 results (profitable at 0.1085), and the great pro forma expectations, without Myriad".; 4) Hey look, we're offering you(IRS) cash for this looser(Myriad)".
So, what would you as an inexperienced IRS manager do, given the "facts" before you? Check a bank account? Check the current status of taxes paid? It would be very unlikely they would delve in and audit. So the deal was made. The only "way-to-go" I could muster for FAMH is how they managed to negotiate the payment for Myriad over several years. That certainly conserved cash, and bought time.
In conclusion, all these comments are hypothetical speculation, however, given multiple years of bogus annual results that people relied upon, and the sequence of events, they may be plausible.
Hind sight is easier than looking forward, but keep in mind, Myriad either wasn't making enough to pay taxes, or the owners elected not to pay them. The owners lost their business and opportunity(if there was one)to live well. Do you kill the golden goose? Which scenario is the simplest explanation? |
