Seven Arts Entertainment Inc (OTCMKTS:SAPX) Rises and Falls
Seven Arts Entertainment Inc (OTCMKTS:SAPX) was once a NASDAQ stock. Unfortunately, that was a rather long time ago.
Currently, it’s listed on the OTC Markets, it’s traded deep in the triple-zero range, and the company is having some serious problems keeping up with its reporting obligations. The most recent set of figures covers the first quarter of last year and, in case you’re wondering, they look like this:
- cash: $2 thousand
- current assets: $404 thousand
- current liabilities: $23.8 million
- quarterly revenues: $111 thousand
- quarterly net loss: $7.1 million
Some of you might see this as a bit irrelevant at the moment, but if you want to get an idea of just how poor SAPX‘s situation was a little over a year ago, you should consider that the revenues for Q1 of 2014 were a massive 70% down from the results logged during the same period of 2013. Recently, the company’s reputation took another hit when Rick Hoffman, SAPX‘s founder, was found guilty of defrauding the State of Louisiana out of more than $1 million.
Nevertheless, it must be said that while Mr. Hoffman will always be associated with SAPX, his legal problems shouldn’t really be affecting the company’s current state of affairs. He left SAPX more than a year ago and his successor has implemented more than a few changes.
SAPX is now headed by Richard Bjorklund and as soon as he took the reins, he set off to completely overhaul the business plan. First, he signed a deal to acquire a couple of businesses previously owned by Sanwire Corp (OTCMKTS:SNWR) (where he acted as a Chairman of the Board at one point) and more recently, he sold SAPX‘s interest in Seven Arts Filmed Entertainment Louisiana LLC to another OTC company called The Movie Studio Inc (OTCMKTS:MVES).
The sale of the Louisiana movie business caused some reaction among investors. According to the deal, SAPX will receive preferred stock from MVES (which, by the way, is also having some serious trouble keeping up with its reporting schedule) and Mr. Bjorklund said that some of that stock will be given to SAPX‘s shareholders. As a result, the ticker logged a couple of green sessions and managed to run from $0.0003 all the way to $0.0009 per share. Unfortunately, the climb proved to be extremely short lived. Yesterday, in a matter of just six and a half hours, SAPX crumbled to the ground and lost a massive 66% which means that it’s currently back where it started – at $0.0003 per share.
That is a rather catastrophic drop which means that we have to look into some of the potential reasons for it.
Certainly, once you take a closer look at the press releases, you’ll notice that trusting SAPX with your money might not be that easy. Take the shareholder update from the end of February, for example. In it, Mr. Bjorklund said that SAPX‘s management team are looking for an auditing firm to help them sort out the delinquency problem. He said that while they complete the process, they will use OTC’s News and Disclosure service for their reports. Two months later, they don’t seem to be doing that.
In September 2014, Mr. Bjorklund issued another update and said that the company name is about to be changed to WirelessConnect Inc, but this clearly hasn’t happened, either.
The lack of current reports and the fact that SAPX‘s promises don’t always translate into reality could certainly deter some investors away. That said, they are not enough to warrant a drop as huge as the one witnessed yesterday. Dilution, however, is.
The company has something of a history of issuing huge amounts of stock. Between January 2009 and February 2014 SAPX executed a whopping six reverse splits. The O/S count immediately after the last one stood at just 3.7 million, but over the next seven months, it grew to nearly 163 million. It’s safe to assume that right now it’s much bigger than that because during yesterday’s session alone, investors managed to trade more than 390 million shares.
Due to the lack of current reports, we can only guess where the newly printed stock came from and who holds it. We do know for sure, however, that at the end of the first quarter of last year, SAPX was buried under tonnes of toxic debt which was convertible at serious discounts. We reckon that you should be aware of this as well.
