quote.bloomberg.com Amends its Amendments to the SEC: Christopher Byron
By Christopher Byron
Weston, Connecticut, June 20 (Bloomberg) -- Oh, come on guys, can't you do simple arithmetic? Or read plain English? Or check your numbers against what you've already reported to your own shareholders and the SEC?
That's about the kindest observation one can make regarding the continuing river of incomplete and inaccurate financial information that has been pouring forth from Marlboro, Mass. based Envision Development Corp. since we first began reporting last month on the financial antics of the man who controls the company -- a convicted bank swindler named Andrew Evans.
This week, we take a look at Envision's latest 10Q -- filed only last Tuesday, and destined to survive for a mere 24 hours as the company's official statement of its financial condition. But before getting into the particulars, first a brief update on who Andrew Evans is and why he's in the news.
Through a company named Zero.Net, Inc., Evans holds a controlling stake in one of the oddest high-fliers of this last winter, Envision Development Corp. With no revenues and no meaningful assets beyond the dwindling proceeds of a September 1999 IPO, Envision Development nonetheless soared this last winter and spring from $7 to more than $70 per share.
But since publication of our first story on June 8th, in which we questioned whether a free and open market for Envision's American Stock Exchange-listed shares really exists, the company's stock has slumped from $50 to barely $21.
Our story also questioned the accuracy and completeness of certain press releases and SEC filings prepared by Evans-linked entities in connection with his acquisition of a controlling stake in Envision Development. And almost immediately thereafter, amended filings arrived on the doorstep of the Securities and Exchange Commission. But the amendments have raised yet more questions about exactly how Evans acquired his shares in Envision.
Bill Gates Connection
Additionally, we drew attention to the fact that Evans, who served time in prison for bank fraud in the 1980s, had an uncanny knack for ingratiating himself with the rich and well-connected, and for a time was able to shop himself around Wall Street as a confidante and financial adviser to Microsoft Corp. co-founder William Gates III.
When Gates reportedly cut him off following a 1993 story in the Wall Street Journal that linked the two men, Evans turned to the penny stock market and began assembling a network of cheapo stocks under a holding company named Dominion Income Management.
Last spring, Evans moved these assets -- including his controlling block in Envision Development Corp. -- into Zero.Net, and enticed the president and CEO of one of the world's leading advertising firms, John Wren of Omnicom Group, Inc., to join Zero.Net's board. When Evans was thereafter dragged into the spotlight of unwanted publicity, Wren abruptly resigned from the Zero.Net board. Now Envision Development has filed its second 10Q since going public last September. And this document too looks to be brimming with errors and omissions. One of which has already led to an amended filing within 24 hours of the submission of the first document last Tuesday.
Amendments
But, like ripples in a pond, that amendment now looks likely to spread out and require one or more amendments to yet another previously filed Envision document: the company's 10K annual financial statement to the SEC for the period ended Jan. 29, 2000 -- a financial report that has been amended once already for yet other reasons.
Revisions of this magnitude -- in some cases for major internal inconsistencies and other cases for matters as seemingly trivial as incorrect arithmetic -- raise obvious questions as to whether Envision's financial statements can be trusted by investors at all.
According to the Bloomberg database, in the 12 months since Envision filed to go public in an IPO (the shares were originally offered under the name Perfumania.com, Inc.), either Envision or affiliated entities have filed 60 documents with the SEC, and fully 18 of them have been amendments, corrections or elaborations of one sort or another. Almost every major financial document filed by the company has been amended at least once. Several share- ownership statements have been amended multiple times.
Financial Reports
It does not overstate the case to say that the company seems to view its financial reports as little more than annoying distractions, filling them with errors and omissions ranging from the trivial to the highly important. No financial report yet filed by the company, or anyone else, identifies Evans -- a convicted bank swindler with a record of securities law abuses with the SEC -- as the company's largest shareholder. Nor has any report by the company yet disclosed the nature and depth of Evans' day-to-day involvement in the company's affairs. The latest 10Q filings disclose for example, that an unnamed ``significant stockholder'' in Envision has agreed to underwrite its operating losses for the next year, but the document does not disclose who the investor is, though that man is undoubtedly Evans himself.
Nor does the 10Q set forth what the nature of the agreement is, what the company has agreed to do for him in return, and -- perhaps most importantly of all -- whether he has the financial resources to make good on his apparent promise. At the company's current cash-burn-rate, Envision may already be out of money entirely, meaning that investors in its shares are holding stock in a company whose day-to-day operations are being funded by an utterly unknown source of capital.
Envision's latest round of financial statement amendments have arisen as a result of some blatantly inaccurate math in the 10Q's cash flow statement, filed last Tuesday, June 13th. The company tallied up a column of numbers in the report's Statement of Cash Flows and got the total wrong by roughly $84,000. This caused the Cash Flow Statement to show more cash on hand at the end of the reporting period (April 30th) than actually existed.
To correct the problem, Envision filed an amended 10Q the next day (last Wednesday). Unfortunately, in attempting to make its cash flow numbers in the 10Q tie out, the company changed its unaudited cash position in the 10Q in a way that now calls into question the accuracy of the company's audited 10K, filed in late April to cover the company's most recent fiscal year, which ended Jan. 29th.
That full-year document -- audited by the accounting firm of PricewaterhouseCoopers LLP, and which itself has been amended once already -- gave the company's cash and cash equivalents position as of Jan. 29, 2000 as $9,208,501.
Cash Position
The company properly picked up this number as its starting position for cash and cash equivalents in the June 13th 10Q, which covers the three-month period that began where the 10K ended -- that is, Jan. 29th. But the faulty arithmetic that followed caused the company to report ending the quarter on April 30th with $3,614,308 of cash and cash equivalents on hand when it actually had only $3,529,645.
To ``fix'' this, the company filed an amended 10Q the next day. But instead of simply correcting the math and being done with it, the company chose to increase, by $80,676.00, the amount of cash with which it claimed to have begun the quarter -- thereby assuring that its end-of-quarter cash position would stay north of $3.6 million.
Yet in so doing, the company has now doomed itself to amend its previously amended 10K a second time. That is because the amount of cash the company is now claiming to have begun the quarter with on Jan. 29th is more than $80,000 greater than the amount given on the audited 10K as being what was on hand when the previous period ended, on Jan. 29th. Both numbers cannot be right.
Amending the Amendments
This would be funny, except that it isn't. Accurate financial statements are the foundation upon which the public capital markets are built. Yet here is a company, controlled by an ex-con with a history of run-ins with the SEC, that seems to be making a joke of the whole process.
The seeming casualness and disdain for the investing public in all this is utterly astonishing. In the original 10Q, the company's working capital is given as $8,885,601 as of Jan 29, 2000. But this too now looks to be wrong -- only the error wasn't caught and corrected.
The error derives from the fact that working capital is calculated by subtracting current liabilities from current assets, which in turn include balance sheet cash and cash equivalents as a component. As a result, any increase in balance sheet cash in the 10K as of January 29, 2000 would automatically cause working capital in the following 10Q to rise by an equivalent amount. But in the amended 10Q, working capital is once again given as $8,885,601 as of Jan. 29, 2000. In short, if the altered Cash Flow Statement in the amended 10Q is correct, then the amended 10Q's Liquidity And Capital Resources section is now wrong.
Full Disclosure
And as for ``full disclosure,'' well, here's an interesting statement, which appears twice in both the original and amended 10Qs: The company ``has a history of significant operating losses'' and ``is unable to predict when it may become profitable, if at all. As a result of the foregoing, a significant stockholder of the company has committed to fund the company's operations and cash requirements through June 30, 2001.''
Would you like to know who that ``significant stockholder is'' -- this fellow of such Vesuvian generosity that he has apparently ``committed'' to underwrite the continuing operating losses of the company through June 30, 2001? I certainly would. I, for one, would also like to know if he's got the folding stuff to stand behind his pledge (if there really is a pledge to be stood behind), since, without this commitment one might logically expect the company to be keeling over any minute. After all, in the last three months Envision has been burning through cash (if you can trust the 10Qs) at a rate approaching $2 million per month. So, as we used to say in law school: Query, does our mystery Mister Big really have $24 million, give or take, to pound down the Envision Development rat hole in the year ahead? Has he proffered an audited financial statement to that effect? Do the numbers in it, uh, add up?
Daddy Warbucks
And while we're on the subject, for just exactly how long is this stock-hyping promise expected to stay in force? One part of the 10Q says it runs until June 30, 2001. Another part of the 10Q says it ends on May 30, 2001 instead. The errors are carried over into the amended 10Q without correction. Which is it, fellas? At Envision's current burn rate, that one-month mistake could cost your Daddy Warbucks $2 million. Didn't anybody proofread your filing before you sent it in?
So okay, let's cut to the chase: Just who precisely is your Daddy Warbucks anyway? Could he be, oh, let us say -- just for the sake of discussion -- a convicted bank swindler and mastermind behind a penny stock ring? Could his name be, per chance, oh let us say, Mr. Andrew Evans, or one of his affiliated entities like, say, Zero.Net?
Phone calls to Envision Development brought the acknowledgment that the company's Daddy Warbucks is in fact Zero.Net. As for why the 10Q's numbers seem to be such a mess, the company would say only that its CFO was traveling and unavailable. ``Give us a detailed list and he'll review them when he returns,'' said a spokesman. To which, we say, Review this! |
