Ruiz potentially suing the NCAA….

[TheOriginalCane]

depends on how the school itself does it. example: political science is a BA at UF and UM but a BA and BS at FSU lol. there isnt anything scientific about Pol Sci. the only thing I could think of w UF J school is that its part of the J school and not LAS? I know UM comm grad degrees are both MA and MS depending on the track.

Actually, it depends on the College or School, not just the major.

For instance, you can earn a UM degree in Politics via the College of Arts & Sciences, the Business School, or the School of Communications (which requires a second non-Comm major). Back in the day (80s/90s) when you would look at degree listings in the computer system at UM, it would say PPAA (Politics & Public Administration - Arts & Sciences), PPAB (Business School) or PPAC (Communications).

By the way, the "Public Administration" part is because UM's Politics Department also offers an MPA degree (Masters in Public Administration), which is similar in structure to an MBA degree. Not sure if the offices have moved, but when I was in school, the Politics Department was in the Business School.

So if you are in the College of Arts & Sciences, you can definitely get a BA in Politics. But since I was a Business major, I have a BBA in Politics (and Finance...and Management).

 

[hotshot]

Hope our athletes getting NIL $$ from LW connection got as much of their money up front as possible.

 

[Empirical Cane]

Very common in companies that go public and are filing for the first time or even the first few times. I consult on SOX and ICFR implementation. Accounting estimates and GAAP compliance aren't easy transitions and often requires external help or restructuring and bringing in staff that are familiar and have extensive experience in SEC reporting. External auditors are also now looking at their footnotes and disclosures and language used.

Oftentimes, GAAP isn't reality and not what you use to make your own internal assessment and managerial decisions. It's just for consistency across the industry for investor comparison.

Not saying he doesn't have some trouble on the horizon but litigation takes time - very common in recovery entities to push out repayment terms and negotiate - but the ICFR and footnote things happen to every newly public company out there - mostly just isn't in the spotlight.

Anything you've read trouble you at this ppint?

 

[TheOriginalCane]

I have no inside info and hindsight is 20/20, but SPACS in general are sleazy, I dont touch them. In this case, most investors pulled out the cash before the transaction consummated. It appears that it should have never proceeded.

Having said that, the recovery business is tough and brutal, BUT it can be very profitable, so I wouldnt count Ruiz out yet, and my guess is he finds someone to take it private again.

It depends on the SPAC. I would break them into two categories.

The type that you saw with LifeWallet is completely captive, there really isn't anyone or party that is "independent" in the process.

On a more upbeat note, the SPAC that I've been involved with was initiated by a large private equity company, and it has been much closer to a traditional IPO process in terms of the quality of the controls and activity. Definitely not as "captive" as the LifeWallet SPAC.

A couple of things I have noted...first, a problem that you can run into with a SPAC is that the concentration of ownership after going public tends to be denser than with most IPOs that I've seen. As a result, you have a Catch-22 when some of your largest shareholders try to monetize their stock holdings. For instance, a few weeks ago when we released our first full-year earnings report, it was fantastic. We are making a lot of money. But our stock price did NOT go up as it woulda/shoulda, because there is just not enough volume to trade. YET. So we had some internal discussions, and our former PE owner is just going to have to bite the bullet at some point and start selling some of the stock. Yes, they may not get what the stock is TRULY worth, but until there is more volume available to trade on the market, then the stock price will not reflect what motivated buyers and sellers will establish through trading.

The other thing I discussed with my CFO and CAO is that the SPAC proceeds really go to the prior owner(s) more than the company itself. In an IPO, if it is a desirable stock, you can bring a lot of money into the company itself once you go public. But in our SPAC, we really didn't get to enjoy that, though we obviously had some capital and debt infusions of cash prior to the SPAC. Still...I would like to know how many SPACs are able to grow and get to the point where perhaps they could do a more traditional secondary offering of stock. We have to figure out something to build our volume trading. I just got my first tranche of stock comp, but I'm not rushing to cash out either.

Oh well, first world problems, I guess.

 

[Empirical Cane]

IF it ever gets reported LIFW misses/delays NIL payments to athletes...

Porsters can call 1-800-CIS-CARE.

Grief counselors will be standing by to help you process your range of emotions.

Just know our community is here to uplift you in a time of great need.

 

[TheOriginalCane]

Very common in companies that go public and are filing for the first time or even the first few times. I consult on SOX and ICFR implementation. Accounting estimates and GAAP compliance aren't easy transitions and often requires external help or restructuring and bringing in staff that are familiar and have extensive experience in SEC reporting. External auditors are also now looking at their footnotes and disclosures and language used.

Oftentimes, GAAP isn't reality and not what you use to make your own internal assessment and managerial decisions. It's just for consistency across the industry for investor comparison.

Not saying he doesn't have some trouble on the horizon but litigation takes time - very common in recovery entities to push out repayment terms and negotiate - but the ICFR and footnote things happen to every newly public company out there - mostly just isn't in the spotlight.

Jay, I might need to chat with you offline...I didn't realize you did SOX/IC work...

I will tell you this, based on my past experiences (both 20 years ago in my first publc-company job and today in my most-recent), I saw that the GAAP side's worst struggle is likely with revenue recognition (and the audtibility of revenue). To me, that is the A-number-1 worst problem you can have on SOX/IC. Well, that and "fraud" generally.

Twenty years ago, in the early days of SOX, it wrecked the company I worked for. They survived for a few years (and I moved to another company), but that first company is now out of business.

We just got a MW on revenue recognition that we believe will be remediated this year. Tough, but fixable.

If anything is going to sink LifeWallet and Mr. Ruiz...I would be willing to guess that it's revenue...

 

[Empirical Cane]

Jay, I might need to chat with you offline...I didn't realize you did SOX/IC work...

I will tell you this, based on my past experiences (both 20 years ago in my first publc-company job and today in my most-recent), I saw that the GAAP side's worst struggle is likely with revenue recognition (and the audtibility of revenue). To me, that is the A-number-1 worst problem you can have on SOX/IC. Well, that and "fraud" generally.

Twenty years ago, in the early days of SOX, it wrecked the company I worked for. They survived for a few years (and I moved to another company), but that first company is now out of business.

We just got a MW on revenue recognition that we believe will be remediated this year. Tough, but fixable.

If anything is going to sink LifeWallet and Mr. Ruiz...I would be willing to guess that it's revenue...

Are you saying there is a risk of misreporting (unintentional/intentional) that could/will cause issues for LIFW (or SPACs) in general?

 

[TheOriginalCane]

Understood, but when you have, what was it??? $9 Billion valuation and you go public, the stock tanks immediately and then it’s reported that the profits where closer to what, was it $21 million in that Miami NewTimes article?

Does it matter if the books are off with such a large deficit or it’s a common occurrence if the discrepancy in the numbers is so far off?

I am trying to learn here so as I don’t know how this works but just using common sense. Let’s say, as an example, I reported having $50.35 in my pocket but instead I had $46.50. Then I would be like, ok, that might fall in the +/- $5 error scale.

What seems to be happening here though is that $50.35 was reported and what’s actually in the pockets is $5.35.

I am not a finance guy. @SpikeUM - what says you, lol??

Historically, you had a huge discrepancy between "revenue" and "valuation" for Tech companies, particularly in the 1990s. And as we know, most of those Tech companies tanked...but a FEW...like Amazon and Google...now run the world...

True story, I worked for Arthur Andersen back in the 1990s. While I was there, they gave everyone in the firm this softcover book that was written by a couple of AA partners, and it was some self-important explanation of the "new" tech-stock economy. It tried to explain why the MASSIVE valuation of tech companies with very little revenue history was "valid" and "correct" and a reflection of something we had never seen before...

And then between the tech-stock collapse and the Arthur Andersen problems at Enron and Worldcom and a few others, everyone just tossed that book in the trash.

But...it still happens...just look at Theranos and others...some (seeming) genius will tell you how the company is going to revolutionize the world, long before any revenue has been recognized...and there MIGHT be some valid valuation in that...but it's a crapshoot.

What surprises me about LifeWallet is that there was prior generation of revenue (via Mr. Ruiz's law firm), so while the "LifeWallet" app product may be new, I am still surprised by how little revenue has been generated inside of the publicly-traded company.

It still may be worth something...we shall see...

 

[SpikeUM]

It depends on the SPAC. I would break them into two categories.

The type that you saw with LifeWallet is completely captive, there really isn't anyone or party that is "independent" in the process.

On a more upbeat note, the SPAC that I've been involved with was initiated by a large private equity company, and it has been much closer to a traditional IPO process in terms of the quality of the controls and activity. Definitely not as "captive" as the LifeWallet SPAC.

A couple of things I have noted...first, a problem that you can run into with a SPAC is that the concentration of ownership after going public tends to be denser than with most IPOs that I've seen. As a result, you have a Catch-22 when some of your largest shareholders try to monetize their stock holdings. For instance, a few weeks ago when we released our first full-year earnings report, it was fantastic. We are making a lot of money. But our stock price did NOT go up as it woulda/shoulda, because there is just not enough volume to trade. YET. So we had some internal discussions, and our former PE owner is just going to have to bite the bullet at some point and start selling some of the stock. Yes, they may not get what the stock is TRULY worth, but until there is more volume available to trade on the market, then the stock price will not reflect what motivated buyers and sellers will establish through trading.

The other thing I discussed with my CFO and CAO is that the SPAC proceeds really go to the prior owner(s) more than the company itself. In an IPO, if it is a desirable stock, you can bring a lot of money into the company itself once you go public. But in our SPAC, we really didn't get to enjoy that, though we obviously had some capital and debt infusions of cash prior to the SPAC. Still...I would like to know how many SPACs are able to grow and get to the point where perhaps they could do a more traditional secondary offering of stock. We have to figure out something to build our volume trading. I just got my first tranche of stock comp, but I'm not rushing to cash out either.

Oh well, first world problems, I guess.

Good differentiation, but most SPAC's are not PE sponsored. As a general rule, unless you are a very seasoned investor who does their research, you should stay away from Spacs

 

[TheOriginalCane]

Are you saying there is a risk of misreporting (unintentional/intentional) that could/will cause issues for LIFW (or SPACs) in general?

Honestly, it is hard to say. For LifeWallet, it is very possible that they run into misreporting problems. I just responded to @PIPO and gave some of the more notorious examples (Theranos) where it is hard to identify what the product is, how much revenue it will generate, and WHEN it will generate revenue. Then you layer in GAAP and SOX issues? That's a whitewater rafting trip I don't want to take.

For my particular situation, my company is "old school". What we do is not as ground-breaking as what LifeWallet was promising, and we had years worth of revenue prior to our SPAC. If you want honest truth, we probably coulda/woulda/shoulda done a traditional IPO, but "SPACs were hot" a few years ago, and I think we huffed some paint fumes in that regard.

And for the record, we are having to do a LOT of stuff now (particularly with our IT and ERP infrastructure) that probably should have taken place before we went public. But...as you know...SPACs are sold to people as "easy-peazy"...but you still have to put in the work, whether you do it before you go public or after.

I truly admire and respect Mr. Ruiz, and I told him as much at the Final Four. But I think he under-guesstimated what "being a CEO/CFO" is all about, and I think his optimism and good intentions are going to bite him. I think he should have hired someone else to steer the SPAC.

 

[TheOriginalCane]

Good differentiation, but most SPAC's are not PE sponsored. As a general rule, unless you are a very seasoned investor who does their research, you should stay away from Spacs

Very fair, sir. Very fair. I hadn't thought about that in terms of percentages. You know my job, you know what I do, so I'm much more likely to be in the "PE-sponsored SPAC world".

But thinking about what you said...yeah, you're **** right. If a big PE isn't involved...

 

[PIPO]

Historically, you had a huge discrepancy between "revenue" and "valuation" for Tech companies, particularly in the 1990s. And as we know, most of those Tech companies tanked...but a FEW...like Amazon and Google...now run the world...

True story, I worked for Arthur Andersen back in the 1990s. While I was there, they gave everyone in the firm this softcover book that was written by a couple of AA partners, and it was some self-important explanation of the "new" tech-stock economy. It tried to explain why the MASSIVE valuation of tech companies with very little revenue history was "valid" and "correct" and a reflection of something we had never seen before...

And then between the tech-stock collapse and the Arthur Andersen problems at Enron and Worldcom and a few others, everyone just tossed that book in the trash.

But...it still happens...just look at Theranos and others...some (seeming) genius will tell you how the company is going to revolutionize the world, long before any revenue has been recognized...and there MIGHT be some valid valuation in that...but it's a crapshoot.

What surprises me about LifeWallet is that there was prior generation of revenue (via Mr. Ruiz's law firm), so while the "LifeWallet" app product may be new, I am still surprised by how little revenue has been generated inside of the publicly-traded company.

It still may be worth something...we shall see...

Thanks and I also saw your response to Spike. Good info and perspective.

I understand that the business Ruiz is in can take time in litigation, etc.

Maybe $21 million plus is an actually a good return and the valuation was just way off.

Trying to put it into context in my sales world, it’s like someone saying business X purchases $2 million of competitor widgets and thus the potential for me to convert to my widget is likely $1.5 million with growth potential of $3 million and in reality, the conversion potential is closer to $100k for various reason and thus they overvalued the business conversion opportunity.

 

[JayCane20]

Understood, but when you have, what was it??? $9 Billion valuation and you go public, the stock tanks immediately and then it’s reported that the profits where closer to what, was it $21 million in that Miami NewTimes article?

Does it matter if the books are off with such a large deficit or it’s a common occurrence if the discrepancy in the numbers is so far off?

I am trying to learn here so as I don’t know how this works but just using common sense. Let’s say, as an example, I reported having $50.35 in my pocket but instead I had $46.50. Then I would be like, ok, that might fall in the +/- $5 error scale.

What seems to be happening here though is that $50.35 was reported and what’s actually in the pockets is $5.35.

I am not a finance guy. @SpikeUM - what says you, lol??

In what is being referenced in these articles - totally ignore their projections and shortcomings in meeting those. That's managerial stuff that has nothing to do with public reporting. The material weakness or significant deficiency in internal controls just says that their internal controls over financial reporting aren't sufficient. Very common in newly public companies. This means that SOX controls (reviews, reconciliations, approval requirements, access controls, IT security, segregation of duties, etc.) aren't effective to feel comfortable saying errors were prevented or detected and corrected. Auditors can't look at 100% of all transactions so they have to rely on daily controls. Doesn't mean there IS a misstatement because of that but that they can't comfortably say there's not.

As far as it being a common occurrence and numbers being far off - yes it's common but usually can be ironed out by the right personnel with experience in public accounting or SEC reporting. The restatement could be that previous estimates were made and then they determined they didn't do it correctly in their initial statements that were made using GAAP. Lots of significant estimates exist in recovery firms.

The errors and misstatements aren't in cash - an easily verifiable amount - they also came out and said it was related to non-cash items that don't impact their strategy or daily operations - could be a lot of things. Probably used the wrong methodology or assumption estimating the fair value of one of their assets - my best guess is likely impairment related to the future cash flow of their software being less than the assets on their books and they would have to quantify that and write it down. Another possibility is estimates related to their rights to claims in litigation could have been wrong or has been changed significantly since their 10-Q. Revenue recognition is also a significant SOX concern area easily mistaken.

 

[PIPO]

In what is being referenced in these articles - totally ignore their projections and shortcomings in meeting those. That's managerial stuff that has nothing to do with public reporting. The material weakness or significant deficiency in internal controls just says that their internal controls over financial reporting aren't sufficient. Very common in newly public companies. This means that SOX controls (reviews, reconciliations, approval requirements, access controls, IT security, segregation of duties, etc.) aren't effective to feel comfortable saying errors were prevented or detected and corrected. Auditors can't look at 100% of all transactions so they have to rely on daily controls. Doesn't mean there IS a misstatement because of that but that they can't comfortably say there's not.

As far as it being a common occurrence and numbers being far off - yes it's common but usually can be ironed out by the right personnel with experience in public accounting or SEC reporting. The restatement could be that previous estimates were made and then they determined they didn't do it correctly in their initial statements that were made using GAAP. Lots of significant estimates exist in recovery firms.

The errors and misstatements aren't in cash - an easily verifiable amount - they also came out and said it was related to non-cash items that don't impact their strategy or daily operations - could be a lot of things. Probably used the wrong methodology or assumption estimating the fair value of one of their assets - my best guess is likely impairment related to the future cash flow of their software being less than the assets on their books and they would have to quantify that and write it down. Another possibility is estimates related to their rights to claims in litigation could have been wrong or has been changed significantly since their 10-Q. Revenue recognition is also a significant SOX concern area easily mistaken.

 

[TheOriginalCane]

Thanks and I also saw your response to Spike. Good info and perspective.

I understand that the business Ruiz is in can take time in litigation, etc.

Maybe $21 million plus is an actually a good return and the valuation was just way off.

Trying to put it into context in my sales world, it’s like someone saying business X purchases $2 million of competitor widgets and thus the potential for me to conver to my widget is likely $1.5 million with growth potential of $3 million and in reality, the conversion potential is closer to $100k for various reason and thus they overvalued the business conversion opportunity.

Yes, I think that's fairly accurate.

I will give three categories as an example.

First category - Theranos was a "brand-new, never-before-seen" widget. Nobody understood how it worked or when it would turn into sustainable revenue. This is a scenario that is completely different from yours, because of its newness and uniqueness.

Second cateory - LifeWallet/MSRP was supposed to be a bit of a hybrid. On the recovery side, you had this algorithm that supposedly ALREADY had value, it had ALREADY produced a lot of cases on which Mr. Ruiz was able to collect a lot of money. So there SHOULD BE some immediate value in the company that can yield sustainable revenue, though I guess there could be a hiccup if the "already existing" legal cases would not generate any revenue for the new company, and that newco would only get revenue on cases that had not yet been filed at the time of the SPAC. If the latter is true, someone should have thunk this one out in advance. And then on the LifeWallet side, yes, the app is a new thing, the app is a new product, but in the CURRENT WORLD, an app such as LifeWallet (consolidating medical info/records) shouldn't take THAT LONG to roll out. Certainly not as long as Theranos, which never actually produced a working product.

Finally, in the third category, you have your example (and my current company), for which "going public" is something that relates to how our company is owned, and does not fundamentally change the business WE ARE ALREADY DOING. Our examples are the ones that are the EASIEST to value, and have the least amount of speculative nature to them. You still cite a valid example of when "valuation" and "actual revenue" can diverge, but YOUR EXAMPLE is the least-risky of all, and the most verifiable. Yes, there are market fluctuations, but YOUR example doesn't run the risk of being completely worthless, as Theranos was.

 

[JayCane20]

Anything you've read trouble you at this ppint?

Never a good thing to see such a big miss in your projections. Litigation and recovery are subject to slow downs and you're on the judicial systems time. I'm not as familiar with their business model but I know they do a lot with medicare and insurance companies - even slower. Could ultimately be very profitable and be fine but it's taking longer than they expected.

I know his NIL effort has taken a big slow-down. Not missing payments or anything but not as aggressive as it was. He's the majority owner by a huge margin so he can do whatever he wants but struggling to meet expectations and forking out $10M a year in NIL isn't a great look to other inventors when the ROI isn't easily quantifiable.

 

[TheOriginalCane]

In what is being referenced in these articles - totally ignore their projections and shortcomings in meeting those. That's managerial stuff that has nothing to do with public reporting. The material weakness or significant deficiency in internal controls just says that their internal controls over financial reporting aren't sufficient. Very common in newly public companies. This means that SOX controls (reviews, reconciliations, approval requirements, access controls, IT security, segregation of duties, etc.) aren't effective to feel comfortable saying errors were prevented or detected and corrected. Auditors can't look at 100% of all transactions so they have to rely on daily controls. Doesn't mean there IS a misstatement because of that but that they can't comfortably say there's not.

As far as it being a common occurrence and numbers being far off - yes it's common but usually can be ironed out by the right personnel with experience in public accounting or SEC reporting. The restatement could be that previous estimates were made and then they determined they didn't do it correctly in their initial statements that were made using GAAP. Lots of significant estimates exist in recovery firms.

The errors and misstatements aren't in cash - an easily verifiable amount - they also came out and said it was related to non-cash items that don't impact their strategy or daily operations - could be a lot of things. Probably used the wrong methodology or assumption estimating the fair value of one of their assets - my best guess is likely impairment related to the future cash flow of their software being less than the assets on their books and they would have to quantify that and write it down. Another possibility is estimates related to their rights to claims in litigation could have been wrong or has been changed significantly since their 10-Q. Revenue recognition is also a significant SOX concern area easily mistaken.

Jay, you are speaking my language!

Yep, yep, yep, yep, yep.

Prepare for laughter...our OLD CFO (stupidly) committed us to being 100% SOX/IC-ready...A MOTHER****ING YEAR EARLY. Hence, we got 2 MWs, which should both be remediated within this year.

But good lord, our NEW CFO continues to question why the old CFO ****ed this up.

I will also humbly point out that we had ZERO-POINT-ZERO MWs or SDs in Tax (we were CLOSE on the Sales Tax side of things, but I'm more of an Income Tax guy). But I did have to scramble to shore some things up on Sales Tax controls.

You are completely correct though...NOT uncommon...DOES NOT have to be fatal...and you need the RIGHT PEOPLE to steer the ship to smooth water...

 

[Empirical Cane]

In what is being referenced in these articles - totally ignore their projections and shortcomings in meeting those. That's managerial stuff that has nothing to do with public reporting. The material weakness or significant deficiency in internal controls just says that their internal controls over financial reporting aren't sufficient. Very common in newly public companies. This means that SOX controls (reviews, reconciliations, approval requirements, access controls, IT security, segregation of duties, etc.) aren't effective to feel comfortable saying errors were prevented or detected and corrected. Auditors can't look at 100% of all transactions so they have to rely on daily controls. Doesn't mean there IS a misstatement because of that but that they can't comfortably say there's not.

As far as it being a common occurrence and numbers being far off - yes it's common but usually can be ironed out by the right personnel with experience in public accounting or SEC reporting. The restatement could be that previous estimates were made and then they determined they didn't do it correctly in their initial statements that were made using GAAP. Lots of significant estimates exist in recovery firms.

The errors and misstatements aren't in cash - an easily verifiable amount - they also came out and said it was related to non-cash items that don't impact their strategy or daily operations - could be a lot of things. Probably used the wrong methodology or assumption estimating the fair value of one of their assets - my best guess is likely impairment related to the future cash flow of their software being less than the assets on their books and they would have to quantify that and write it down. Another possibility is estimates related to their rights to claims in litigation could have been wrong or has been changed significantly since their 10-Q. Revenue recognition is also a significant SOX concern area easily mistaken.

SOX = Sarbanes-Oxley requirements correct?

 

[JayCane20]

SOX = Sarbanes-Oxley requirements correct?

Correct. Established the need for internal controls over financial reporting

 

[TheOriginalCane]

SOX = Sarbanes-Oxley requirements correct?

Yessir. And ICFR relates to Internal Controls of Financial Reporting.

I wish we had called Jay 2 years ago...