Quick question, if anybody knows this: do the Stocklemon.com archives include any calls they screwed up on from the getgo?
In regards to BRLC, here's the six part rebuttal of a well informed poster to the Stocklemon nonsense:
For those that have only been following this stock recently, I have been a regular poster on this board for nearly 1 1/2 years. During that time I have spent many (too many actually) hours responding to bashers that have attacked BRLC. My posts are easily found (and for many, probably informative.) Anyway, after reading the Stocklemon "analysis," I have taken the time to respond to as much as I could.
<<<On November 2, 2006, Syntax Brillian (NASDAQ:BRLC) put out what appeared to be record revenue for the previous quarter. Yet, Stockelmon believes that BRLC did not have the quarter that investors were hoping for, but rather had a press release that allows them to carry on accounting shenanigans.>>>
The opening salvo. They essentially accuse Syntax-Brillian (BRLC) of committing serious SEC violations. Let's see where there "proof" takes us ….
BTW: They misspelled their own name ("Stockelmon," instead of Stocklemon … a good sign that they pay attention to the details).
<<<The main problem with Syntax-Brillan is its relationship with its primary vendor, creditor, and shareholder all rolled into one (kind of reminds us of ESCL minus the stamps). Kolin is one of the largest shareholders of BRLC, holding 6.1 million shares.>>>
Assuming that what was stated in the last CC was correct (however, based upon what Stocklemon suggests, BRLC is full of a bunch of liars), BRLC has about 50.8 million shares outstanding and the fully diluted share count is about 60-61 shares. On a fully-diluted basis, Kolin's ownership of BRLC is about 10%.
The use of the phrase "primary vendor, creditor," although accurate, is redundant. BRLC's long term debt is minimal. As such, the entity from which BRLC purchases the majority of its components (i.e., vendor) will also be its main creditor (i.e., the person its owes money to). This all comes into play in the next statement:
Stocklemon rebuttal - Part 2 (12 Ratings) 7-Nov-06 05:44 pm
<<<This has created a form of daisy chain relationship that is not forthright to investors.
investopedia.com.
Follow that link and this is what you find:
"A group of unscrupulous investors who, practicing a kind of fictitious trading or wash selling, artificially inflate the price of a security so that they sell it at a profit."
How this definition of "daisy chain" relates to BRLC's "relationship with its primary vendor, creditor, and shareholder all rolled into one" is stretched at best.
Regardless of this attempt to compare apples with oranges, a look of the actual facts is revealing. As subsequently noted by Stocklemon, "insiders" have sold $7M in stock since May of 2006. Immediately after the reverse merger (Nov. 30, 2005) between Brillian and Syntax (Syntax had the preexisting relationship with Kolin), the share price of BRLC fluctuated between the mid-$4 to mid-$5 range for 3 months.
So, how did these "unscrupulous investors" work to "artificially inflate the price" of BRLC so they could make out like bandits? Well, Ho "Tony" Tzu Ping (a former Syntax director who lost his position as a result of the reverse merger) and 10% beneficial holder of stock, sold on 4 occasions. His selling prices were about $2.50/share; $2.38/share; $2.56/share; and at $2.20/share. The last sale being for 1.6M shares, which represents about $3.5M of the $7.5M shares of stock sold.
How many people here think that Mr. Ping got himself a really good deal? However, don't shed any tears for Mr. Ping, he still has 3.9M shares.
Except for Mr. Ping, all the other shares were under 10b5-1 plans, which will described in greater detail below. However, for the new investor, just a little description: these types of plans are employed by insiders who want to be able to legally trade their shares. During certain quiet periods, the insiders can establish a buying/selling plan, but once established, it is on automatic pilot. This way the insider cannot trade on inside knowledge.
These 10b5-1 trades notwithstanding, they were all done at $5 or less.
What Stocklemon conspicuously omits, however, is the mention that Kolin purchased 3M shares at $5/share back in late March for a total of $15M … which is considerable more than the $7M in "insider sales" that Stocklemon is banging the pots and pans about. What is even more remarkable is that when Kolin made this stock purchase, the stock price was in the low $4s.
Anyway, if Kolin or any of these other insiders were trying to sell at artificially high prices (or to buy at artificially low prices), they have been doing a pretty poor job.
<<<Syntax has had a nice move over the past week due to what appeared to be a successful quarter.>>>
Heck, if you rely on numbers in press releases, but us here at Stocklemon think press releases are for sissies, we would rather make up our own numbers.
<<<Here are some highlights of the previous quarter as noted by Stocklemon.
bigcharts.marketwatch.com.{AC040C8F-D0D2-459B-BE30-F7FBA697A3DF}&newsid=884020157 &symb=BRLC&sid=2170626 >>>
Stocklemon cites to press release.
<<<For those who are return readers to Stocklemon, you know that we are sticklers for cash. Don’t tell us how great your quarter was unless you have the cash to back it up.
Ending cash was just $8.3 mil in cash up -- up just $900 K from prior quarter >>>
Interesting concept. However, anybody who works in business and knows a little something about financing knows that cash in the bank, although nice, isn't as valuable as cash plowed back into the business. Businesses grow based upon cash that gets invested into the business. You don't invest, you don't grow. Simple concept, but appears to escape Stocklemon.
Cash may be important when you have a mature business with low growth rates. In this situation, cash matters. However, BRLC is far from a mature business with low growth rates.
<<<Inventories up to $40 mil from $13.15 mil
Accounts Receivable up to $76 mil from $50 mil
... and this is our favorite
Accounts Payable ballooned to 60.137 mil from 3.9 million
What’s up with this?>>>
OK, let look at these three numbers in combination.
Inv + AR is now $116M (was $63M), which represents an increase of $53M.
AP is now $60M (was $4M), which represent an increase of $56M.
These numbers seem pretty consistent with me. Two things to remember:
First, over the summer (i.e., the last reported quarter), BRLC introduced entirely new lines of LCD TVs. As a result, at the end of June '06 quarter, BRLC was pretty much in the process of cleaning out all old stock, which results in very low accounts payable numbers. In comparison, at the end of March '06 quarter, BRLC had accounts payable of $10.5M and at the end of the December '05 quarter, BRLC had accounts payable of $22M. The fact that Stocklemon didn't recognize this in their analysis is interesting.
Second, to support the projected revenues of $160-$170M, BRLC needs to start paying for components (i.e., accounts payable) to support this volume of sales (which is considerably more than the last quarter revenue number of $87M).
Anyway, after all the hand wringing by Stocklemon, some pretty easy answers can be found to their question "What's up with this?" Unfortunately, Stocklemon didn't make the modicum of effort to discover this.
<<<Improved overall gross margins to 18.13%. Stocklemon found this to be of particular interest. At a time when margins on LCD products are in rapid decline, they were able to improve them to over 18%. Compare this to Sharp, a leading maker of LCD’s whose margins are at 5.5% according to a recent Morgan Stanley report. How are the margins so high?>>>
This statement borders upon gross ignorance. Unlike BRLC, which is a manufacturing of LCD TVs, Sharp is a manufacturer of both LCD TVs and LCD panels. So what? one might ask … the difference is that LCD panel manufacturers are getting killed. A LCD panel fab costs 100s of millions if not at least a billion US dollars to build. This is a huge drain on margins, and since new LCD fabs are continuing to crank out more and more LCD panels, the prices of LCD panels are dropping. See displaysearch.com.
Although it is bad to be a LCD panel manufacturer it is good to be a LCD TV manufacturer because LCD panels are largest cost component in manufacturing a LCD TV. As such, BRLC is benefiting (from lower production costs). In contrast, Sharp margins are hampered by their also being a LCD panel manufacturer. This issue alone deserves a couple of pages, but to have Stocklemon dismiss BRLC's margins without understanding BRLC's business (vis-à-vis Sharp's business) smacks of gross and willful ignorance.
One last point, Stocklemon loves to give links but no link to the Morgan Stanley report? It is a critical part of their analysis yet they provide no support. What gives?
<<<Maybe because they are guaranteed by their largest shareholder. (Kolin, a Korean company)>>>
The line quoted above was in red, bold letters and in the biggest font in the entire web page. Apparently, they thought that this point was really important. Despite the importance they put on this one phrase, I nearly fell off my chair in laughter when I read that they called Kolin a Korean company. Kolin is a Taiwan company!!!!!!! In fact, if you follow their link below ( finance.yahoo.com ), you'll see the name "Taiwan Kolin Co LTD" listed.
If this was some Joe Blow on a message board writing this, I would ignore it as just another uneducated basher. However, for someone (i.e., Stocklemon) to act like they know what they are talking about, and to get this point wrong while blasting it in big, red, bold letters on their website, for me, that is evidence that these guys are severely deficient in both their fact-findings skills and their editing skills. Very, very embarrassing for them.
OK, now for their support:
<<<http://www.sec.gov/Archives/edgar/data/1...
“For the years ended June 30, 2006 and 2005, Kolin agreed to grant us rebates for price protection of $61.0 million and $27.9 million, representing 27.2% and 25.4% of actual purchases from Kolin, respectively, which were credited to cost of sales in the period received as these price protection grants related to inventory purchased from Kolin that had been sold to our customers during the respective periods.”
>>>
As also noted in BRLC's filings
We receive two types of vendor allowances: volume rebates, which are earned as a result of attaining certain purchase levels, and price protection, which is earned based upon the impact of market prices on a monthly basis. We also obtain incentives for technical assistance and market development that are earned as a result of monthly purchase levels. All vendor allowances are accrued as earned, and those allowances received as a result of attaining certain purchase levels are accrued over the incentive period based on estimates of purchases. We record the cash consideration received from a vendor in accordance with EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor," which states that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendor's products or services and is recorded as a reduction of the cost of sales when recognized in our Statement of Operations
Essentially, the "price protection" BRLC receives is to compensate BRLC for the drop of price from the LCD TVs from when the LCD TVs were originally purchased from Kolin.
See also:
In April 2005, we entered into an agreement whereby Kolin agreed that in no event shall the amount of the price protection to be issued by Kolin to us for any calendar month be less than 18% of the amount invoiced by us to our customers for such calendar month. Accordingly, we record an 18% reduction in the value of inventory purchased from Kolin and a corresponding reduction in the accounts payable balance due to Kolin to reflect the impact of this guaranteed price protection on our balance sheet. As of December 31, 2005, the amount of the reduction in the value of inventory purchased from Kolin and the corresponding reduction in the accounts payable balance due to Kolin was $4.9 million.
Essentially, BRLC gets a price rebate.
<<<BRLC auditor is an outfit called Grobstein, Horwath & Company. They recently replaced Epstein Weber (who has been the topic of previous Stocklemon reports). Both auditing firms primary clients are small pink sheet and otc companies. It is the opinion of Stocklemon that neither one has exercised any professional skepticism when looking at these numbers and therefore is not fulfilling SAS 99 requirements as stated by the American Institute of Certified Public Accountants.>>>
Another factually unsupported assertion that Grostein, Horwath & Company is engaging in illegal activities. These guys, however, are smart enough to add the phrase "t is the opinion of Stocklemon …" Otherwise, they could be subject to a libel suit.
Grobstein Horwath & Company is a subsidiary of Howatch (www.horwath.com). As you can tell from the website, this isn't a fly-by-night organization. Unless Stocklemon can come up with something more sinister than a small company (up until recently a company, i.e., BRLC, that wasn't big enough to make it into the Russell 2000) using a small accounting firm to do its auditing, then based upon what else they have written, I'm not terribly worried. I don't think the lessons of the Arthur Anderson accounting scandal will be lost any accountant (or accounting firm) for the next decade or so.
<<<Insider Transactions
While the investing public is supposed to get excited about the previous quarter, insiders have not been bashful about unloading stock. According to Stocklemon’s computation, insiders have sold close to $7 million in stock all during the previous quarter, when business was supposed to be “booming”
finance.yahoo.com >>>
I've addressed this already, but I'll recap. Of the $7M in insider trading, the majority of its was done by a ***former*** Syntax director, who was essentially robbed of his shares when he sold them in the $2s. All the other shares, besides ("Mr. Ping") were sold under 10b5-1 plans, which negate the importance of any sales and/or buys based upon the plan. Oh, and let's not forget that an insider paid $15M for 3M worth of stock … apparently, Stocklemon didn't think this was important to mention.
I'll produce a separate post on 10b5-1 plans
<<<Conclusion
It is the opinion of Stocklemon that Syntax-Brillian is nothing more than an abuse of the public marketplace. They appear to have been indulging in wash transactions with their largest shareholder. These related party transactions give the company an appearance of financial strength that is nothing more than smoke and mirrors. For now, we wait for the 10-Q, hoping that we can get some answers to some of the disturbing accounting questions.
Cautious Investing To All.>>>
It is the conclusion of myself, that Stocklemon is nothing more than a bunch of shysters that want to drop the stock price since they already have a short or they want to buy at a lower price. Their accusations are based on nothing more than speculation, poor analogies, and massively incomplete knowledge of BRLC and the industry in which BRLC operates.
As for getting some answer to their questions, they don't need to wait for the 10-Q, all they need to do is some danm research.
I did a little poking around their website. No names, no address, no phone numbers … nothing is associated with that website. All you get is one e-mail address. If this doesn't raise a big red flag, I don't know what does. Anybody who follows their advice (on any stock) gets what they deserve.
I apologize for any grammatical or spelling errors ... too much written to do a fine tooth review. |
