Araldica Woes Mount With New Lawsuit
And Potential Massive Dilution of Shares
Plaintiff In California Lawsuit Claims Priority
On Funds Including those Earmarked for Danielle Settlement
Copyright 1998, Wine Investment News.
All rights reserved.Reproduction in any form is strictly prohibited
without prior written consent of Wine Investment News.
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Troubles continue to mount for Araldica Wineries Ltd. (AWLT) with
the Sept. 10 filing of a lawsuit in California to collect a $185,212
judgment along with new information about the company's pre-paid
television time deal which could result in a massive dilution
of existing stockholder equity.
The potential shareholder dilution arises from a August 7, 1997
deal which, according to an Araldica news release said that the
company had traded two million shares of stock to Access America
[of Havertown, Penn.], for a "$5 million block of network
broadcast time." While Araldica subsequently listed the pre-paid
time as a $5 million asset on its March 12, 1998 balance sheet,
an interview with Access America's owner indicates a different
structure for the deal.
As first reported by Josh Margolin of the New Rochelle (N.Y.)
Standard-Star, C. Elvin Feltner of New York, who owns Access
America, confirmed with WIN that he "will get $5 million
in Araldica stock" regardless of the stock price. "They'll
have to issue make-good shares," he said if the stock price
does not trade at the $2.50 valuation placed on the shares in
the original agreement. Feltner said that it would probably be
some time, probably a year or more, before he exercised his option
on the stock because, "I have no desire to own a winery."
If he were to close on the television time deal at Araldica's
closing price of $0.06 on September 23, Feltner would be owed
83.3 million shares. According to Interwest Stock Transfer, there
were 25,685,072 shares issued as of Sept. 23. The company has
authorized a total of 50 million shares to be issued.
The validity of the $5 million carried on the Araldica balance
sheet cannot be determined without an independent audit according
to Liz Fender, spokeswoman for the American Institute of CPAs
in New York. While prepaid expenses can be legitimate assets,
Fender said that the standards for valuing a non-monetary transaction,
such as Araldica's stock-for-time deal, are "generally the
fair market value of what you got or what you gave for the asset
whichever is the most easily determined."
Access America vice president Dick Wharton said that it would
be impossible to obtain the precise monetary value of Araldica's
television time, <A HREF="http://www.wineinvestmentnews.com/members/awlt/news/awlt.news.980720.html">(Previously reported by WIN on July 20, 1998)</A>.
While not commenting on the Araldica case specifically, Fender said that in a case like this "the most obvious value would
be the market value of the stock." Using these standards,
the proper balance sheet value of the pre-paid television time
asset would be a small fraction of that claimed by Araldica or
about $120,000 at its Sept. 23 closing price.
Araldica stock traded for 40 cents on August 7, 1997, when the
agreement was announced and for 20.5 cents on March 12, 1998,
when the balance sheet was released, this would value the asset
at between $800,000 and $410,000, far below the estimated $5 million
value which Araldica claims on its balance sheet.
Araldica President Frank J. Landi did not return multiple fax
and telephone requests for information about this or the new pending
litigation in California.
The San Diego Superior Court has set a hearing date of Oct. 6
to determine if Araldica must pay a default judgment of $185,212
entered by the same court on December 4, 1995. According to documents
filed with the court, the judgment consists of old trade debts
incurred by Araldica under its former name, HPI Recycling of San
Diego. Before having its name changed to Araldica in 1996, the
corporation was also known as San Diego Wood Recycling and H.P.
Industries.
According to the National Association of Securities Dealers (NASD)
HPI Recycling, began trading as HPID on the OTC Bulletin Board
on July 7, 1994, made a symbol change to HPII and a name change
to Araldica Wineries Limited on July 14, 1994. Araldica traded
under HPII until October 14, 1996 when it changed its symbol to
its current AWLT.
According to court papers, HPI Recycling ran into financial problems
and was subsequently sold as a "public shell" to the
current investors. In 1996, Larry G. O'Harra, the plaintiff who
had obtained the original judgment against the company, assigned
his rights to San Diego businessman Bill Papenhausen and his company,
Asset Locators and Collections Services.
According to Papenhausen's statement filed with the court, during
negotiations to settle the judgment, he "discovered that
HPI Recycling, Inc. was transferring its stock to other owners
who subsequently changed the name of the Corporation to Araldica
Wineries, Inc. Part of the reason for agreeing to settle in the
way I did was because I was looking at a mostly defunct corporation
[HPI] being transferred to what was essentially a start-up business."
Papenhausen agreed to settle the case for $15,000 and 20,000 shares
of HPI stock which, according to the settlement agreement, was
later to be converted to Araldica stock. The down payment was
made, but according to the court papers, Papenhausen's attorney
was forced to threaten legal action in order to get the next three
payments due March-May of 1997. Papenhausen said that when Frank
Landi was contacted, "He disavowed any knowledge of this
settlement and asked me to send him a statement." Papenhausen
said a statement was sent and "that was the last I heard
from Mr. Landi."
Papenhausen said he finally got his stock, but it was in the name
of HPI Recycling and this will require him to pay to have it converted.
A copy of the settlement agreement obtained by WIN clearly
shows Araldica as a party to the deal.
The court papers filed by Papenhausen say that because payments
have not been made, the original settlement should be discarded
and the original $185,000 judgment be re-instated. His attorney
indicated that because Papenhausen had already obtained the judgment,
he believes they have a first claim on any funds raised by Araldica
including those intended for acquisitions including the Danielle
Cheese settlement.
CLARIFICATION:
According to C. Elvin Feltner, owner of Krypton International and Access America the television station bankruptcies referred to in <A HREF="http://www.wineinvestmentnews.com/members/awlt/news/awlt.news.980720.html">WIN's July 20, 1998 article</A> came about not because the stations were insolvent but because they were forced into Chapter 11 by legal action taken by television syndicators seeking to recover fees.
Feltner said he has "since sold the stations and paid off all the debts 100 cents on the dollar and still had money left over."
In addition, Feltner said he owns two-thirds of Network Teleport in New Orleans, the former address of Access America, which was also covered in that article. He said that a mix-up in communication resulted in this information not being available to WIN when the article was being prepared. These miscommunications created the false impression that Krypton or Access America might be connected with an insolvent company which he said was not the case.
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