Not to smear anyone, but have you guys seen this?

[jbernste]

From Abazias''s SEC filings:

"At December 31, 2003, we had a deficit of $85,865. We had $73,332 of cash available as of April 1, 2004. We also had $10,812 of accounts receivable as of that date. Assuming we collect all receivables, we can continue operations for approximately 5 months. Thereafter, we will need to generate operating revenues or secure other funding on or before September 1st in the amount of $97,650 to remain operational until March 31, 2005. There are no preliminary or definitive agreements or understandings with any party for such financing. We cannot predict when, if ever, that will happen."

 

[valeria101]

Where is this comming from? Certainly not their webpage note (LINK).

This is probably a silly Q from a non-American.

If true, sorry to hear it, of course. And I am not sure I should either ...

 

[fire&ice]

Just off the cuff - isn't this a reason for an IPO? Sound like they are trying to take the company public. ....just a thought. ..could be wrong.

 

[limey]

Looks like typical SEC type filing lingo. You omitted to highlight that like any business they need to generate operating revenues to survive, that is all this document is saying. I am actually quite amazed at their low burn rate to have 5 months of funding in the bank already and only needing to generate $98k of operating revenues to stay in business to the end of their financial year. The alternative to revenue is to secure funding and in these filings full disclosure is the key.

 

[jbernste]

I'm really not trying to be inflammatory with this. I posted it because I was truly kinda shocked to see how precarious this business can be. It's illustrative of how hard it really is to turn a profit in selling diamonds online, I guess.

The language I posted is from their Form 10-KSB, which is the annual report they filed with the SEC. Here's a link to the report on the SEC's site -- scroll down to page 5 and you'll see the quoted language:

link


Abazias already is a public company; that is, they've already done an IPO. Their stock trades on the OTC market.

I read and prepare SEC fiings for a living. I acknowledge that risk factors are just that. I don't know if I'd characterize this as the "typical SEC type filing lingo."

Valeria101 -- not sure if you're calling me a "silly non-american," but c'mon, that's really not fair.

 

[valeria101]

----------------
On 4/28/2004 10:17:42 AM jbernste wrote:



Valeria101 -- not sure if you're calling me a 'silly non-american,' but c'mon, that's really not fair.
----------------

That's ME

(Romanian = non-American, and confused about the meaning of the post = silly).

It took me a sec to find the report you have already linked here - and I was wandering what is this all about.

Sorry, really.

 

[jbernste]

Ahhh, I get it now, Valeria! Sorry for the confusion.

 

[Nicrez]

----------------
On 4/28/2004 10:28:41 AM valeria101 wrote:

----------------
On 4/28/2004 10:17:42 AM jbernste wrote:



Valeria101 -- not sure if you're calling me a 'silly non-american,' but c'mon, that's really not fair.
----------------

That's ME

(Romanian = non-American, and confused about the meaning of the post = silly).

----------------

So Ana, are you saying Romanians are Non-Americans, and that we are all silly...Hmmm...makes me Half Non-American and half silly I suppose!!

 

[Mara]

Ok...back on topic..does anyone have more information on the original post? Is Abazias really that close to going under?

 

[Nicrez]

Back to the Topic Mara:

The info was based on their 10-K prospectus to shareholders. The information was written to the layperson, who wonders why their high-risk, high profit stock is not highly profitable right now. They try to outline in the paragraph below, the inherent risks of a on-line diamond retailer, and although they may not all apply, any number of these issues could very well cause financial trouble for them.

Also, included in there was a statement about how they needed an influx of cash, and may either issue more debt in the form of stocks (penny at the moment, it seems), or may perhaps restructure their debt, or even have a larger company increase their stake in Abazias by infusing them with capital, but under their Deleware authroity, may bar them from a take over. Such provisions could seriously drop their price, as they have no other viable methods of rasing capital.

Our poor financial condition means that you will be unable to determine whether we will become profitable. Our accountants have issued a going concern opinion.
Because our planned growth is in part contingent upon receiving additional funding, you will be unable to evaluate whether our business will be successful.
Our officers and directors can exert control over matters requiring stockholder approval. Oscar Rodriguez is our Chief Executive Officer, Jesus Diaz is our Chief Financial Officer and Aaron Taravella is our Chief Information Officer; if we lose their services, our revenues may be reduced.
As a result of seasonal fluctuations in our net sales, our quarterly results may fluctuate and could be below Expectations.
Our failure to acquire diamonds and fine jewelry at commercially reasonable prices would result in higher costs and lower net sales and damage our competitive position. Purchasers of diamonds and fine jewelry may not choose to shop online, which would prevent us from increasing net sales. We face significant competition and may be unsuccessful in competing against current and future competitors. Our failure to meet customer expectations with respect to price would adversely affect our business and results of operations.
We rely exclusively on the sale of diamonds and fine jewelry for our net sales, and demand for these products could decline.
The success of our business may depend on our ability to successfully expand our product offerings.
If our fulfillment operations are interrupted for any significant period of time, our business and results of operations would be substantially harmed. We may fail to successfully expand our fulfillment capabilities, which would substantially harm our business and results of operations. We rely on our suppliers and third-party carriers as part of our fulfillment process, and these third parties may fail to adequately serve our customers.
If we are unable to accurately manage our inventory of fine jewelry, our reputation and results of operations could suffer. We face the risk of theft of our products from inventory or during shipment.
If the single facility where substantially all of our computer and communications hardware is located fails, our business, results of operations and financial condition would be harmed. Increased product returns and the failure to accurately predict product returns could substantially harm our business and results of operations
If use of the Internet, particularly with respect to online commerce, does not continue to increase as rapidly as we anticipate, our business will be harmed.
Our net sales may be negatively affected if we are required to charge taxes on purchases. Government regulation of the Internet and e-commerce is evolving and unfavorable changes could substantially harm our business and results of operations
Interruptions to our systems that impair customer access to our web site would damage our reputation and brand and substantially harm our business and results of operations
Our failure to address risks associated with credit card fraud could damage our reputation and brand and may cause our business and results of operations to suffer.

All in all they are painting a negative financial outlook, as well as their accountants, that this company will not turn a profit, and if factors go against their business and future business plans, they could be faced with a very serious problem, and little options to get more money to fix them. nothing is etched in stone, just forcasted with "Ifs", "maybes" and "possiblies"...

 

[fire&ice]

very few start up companies are profitable. This really doesn't alarm me.

 

[Iiro]

Look at Tiffanies 10-K

caption:
Products containing one or more diamonds of varying sizes, including diamonds used as accents, side-stones and center-stones, accounted for approximately 38%, 36% and 40% of Tiffany’s net sales in Fiscal 2001, 2002 and 2003, respectively. Products containing one or more diamonds of one carat or larger accounted for less than 10% of net sales in each of those years. Tiffany purchases cut diamonds principally from nine key vendors. Were trade relations between Tiffany and one or more of these vendors to be disrupted, the Company’s sales would be adversely affected in the short term until alternative supply arrangements could be established. Diamonds of one carat or greater of the quality the Company demands are, on a relative basis, more difficult to acquire than smaller diamonds. Established sources for smaller stones would be more easily replaced in the event of a disruption in supply than would established sources for larger-sized stones.


---

source:

Tiffany 10-K
It seems to me www.sec.gov is delivering very interesting info.


What else can be found? Who else is online?

Why are you so openly showing the business plans?

Another caption:
Competition for engagement jewelry sales is particularly fierce and becoming more so. The rise of the Internet and increased use of diamond condition reports issued by independent gemological associations have given rise to the mistaken impression amongst certain consumers that diamonds are commodity items and that significant quality differences do not exist. Tiffany’s price for diamonds reflects the rarity of the stones it offers and the rigid parameters it exercises with respect to the cut, clarity and other quality factors which increase the beauty of Tiffany diamonds, but also increase Tiffany’s cost. Tiffany competes in this market by stressing quality, while some competitors offer inferior diamonds claiming they are comparable, but at lesser prices.


--

 

[Mexi]

Abazias is a very small company with revenues of $1,700,000. Read Note 6 and 8 of the auditors report. There is something else going on with this company that is not fully explained, IE: Hunno Technologies, Inc. Their going concern issue seems to relate to the reverse acquisition agreement with Hunno. That is what caused the large net loss.

Like any small business, cash flow is the biggest concern.

 

[Mara]

I really want to respond quite caustically to that second Tiffany caption about "inferior" stones for lesser prices, but its NOT Friday yet! Must...show...restraint.

 

[jbernste]

I'm hesitant to make judgments about the information in Abazias's filings, but I don't think the info posted from Tiffany's 10-K is nearly as dire as that in Abazias's. One of the things required for these filings is a section called "risk factors." As other posters have explained, the requirement is for companies to explain the material risks to their business. Investors can and should make their own judgments about whether to invest in the company based on the information from the company's SEC filings, including the risks and other information.

The info posted from Tiffany's 10-K _is_ (to quote another poster) "SEC filing type lingo." The info I posted from Abazias's 10-K sounds a lot more dire.

BTW -- re: www.sec.gov. All public companies (and other companies who elect to) must file a wealth of information with the SEC. It's all available on www.sec.gov. This information is out there because of the U.S. securities laws, which principally exist to ensure that people who choose to invest in a company do so with adequate disclosure about the company to make an informed decision.

The most interesting SEC documents are the 10-K's (annual reports), 10-Q's (quarterly reports), and Schedule 14A's (annual proxy statements). The 10-K includes audited year-end financial statements, a narrative of the past year's goings-on at the business, and other interesting info. The 10-Q is mostly unaudited financial statements for the preceding quarter. The proxy has lots of biographical info about the executive officers and directors of the company, including their compensation arrangements, among other info. These documents should also be available on public company websites under a caption like "investor relations."

 

[Mexi]

After reading a little further, Abazias was acquired by Hunno Tech and kept the old name.

They have no long term debt, only operating debt and shareholder loans. Profit margins seem to be very slim.

It would be nice to know what their long-term plans are.

Does Abazias have a presence on this board?

 

[Superidealist]

I ran across this report on Monday and was concerned by the same statement quoted above. I know nothing about finance but it seemed that Pricescope users should be made aware if, in fact, Abazias were about to close its doors. I refrained from posting on this because I thought it might hurt Oscar's business, but did start a thread discussing the topic in general and sent a private message to Leonid voicing my concern. Leonid spoke with Oscar about it and Oscar was preparing to address the issue when this thread was posted earlier this morning. I imagine Oscar will be weighing in soon on this. In the mean time, I'll reserve judgement and give the benefit of the doubt to someone who is by all indications a good guy.

 

[Nicrez]

I don't think we are saying they are closing their doors just yet! It is an internet based company, and in a competitive market, where prices of their goods are almost changed weekly it can be dominated by a strong hold on the diamond market. That said, it's a tough business to run profitably enough to share with investors, so I don't even consider it dire, until their long-term plan for capital is unveiled. i worked for a company that was in business for 25_+ years, went online, then went Chapter 11, and now is growing stronger. It happens a lot more than you think!

If Abazias sees that they indeed have no further resources to tap for their working capital deficit, like assets, or alliances with other financially stable companies, reallocation of assets, or even another increase in stocks or corporate debt, then there MAY be an issue. Only an insider like Oscar can really say. And, if the 10K is published, it's NOT insider trading, so that's null...

Tiffany's can not be compared to Abazias, as they have a strong brand name that even in dire need, will allow for a larger profit margin than an inter-net based seller of diamonds and jewelery. Their diversification and assets leave them much more room to maneuver financial changes with less turmoil. IE: close a branch store, or several and liquidate their items therein.

Mara: Tiffany's again is company that sels luxury. The best way to reaffirm to your stockholders that their products are worth their prices is to make all others inferior. I think they refer to many vendors who claim to have "Ttiffany settings"... Friday...Friday...

 

[Abazias]

A letter from the CEO Oscar Rodriguez,

The following is an explanation of the Ongoing concern Letter, Abazias received in its 10k report recently filed over the past couple weeks. I understand the language is somewhat strong, but what one should be aware of, is that Abazias at almost all times is in a cash position in the low 6 figures. This may cause some confusion to the average reader who does not understand the new stricter format small public companies need to follow to be in compliance with proper disclosure procedures.

Since the vast majority of our transactions occur through our merchant account, which is a conduit for Master Card/ Visa, we need to state how long Abazias could remain solvent in the event that such revenue sources immediately dried up. In Abazias case, this “burn rate” is about 5 months, which is actually quite good. Regardless, accounting regulations would still require this boilerplate “ongoing concern” letter, even though Abazias would obviously not purchase diamonds on behalf of customers without sufficient payment in advance. Regardless, because of the format the FASB guidelines and current SEC disclosure, part of that boiler plate language would need to state that the company would need to raise money after the 5 month period, in the event no further revenues commenced after such period. Such language is present in approximately 75% of all public companies traded on the over the counter market. Please do not feel this out of the ordinary, because it is more common than not on the OTC BB market.

I hope this helps you understand the reason for the “ongoing concern”, language and how in reality it is much more for liability reasons to prevent unreasonable shareholder lawsuits claiming lack of disclosure, than anything else.


Best Regards,

Oscar Rodriguez
CEO

As a side note,

I would also like to point out that being the only public company in this particular market segment is very threatening to our competitors. The posting of only the most negative part of the 10K is suspect at best. Abazias has been around for going on two years, and has posted increased sales since its inception. With the advantages inherent to the public arena, I assure you, we have only just begun.

 

[madmarlin]

Let me preface by saying that I have not read the entire document. However, contrary to the CEO's letter, a going concern opinion is not "boiler plate" language as a result of some new regulations for OTC companies. An auditor will only issue that opinion if, in their best professional judgement, there is a serious concern about the ability of the entity to operate for the upcoming year. If the company can adequately demonstrate that there is no issue, the going concern opinion is not issued. You only see it when there are serious issues about it. Having said that, it does not mean they they will go under any time soon. It does mean, however, that the auditors have doubts about the company's ability to continue as a "going conern" and they needed to state such in their opinion, which is what most shareholders read. The language used is standard, but it is not some "boilerplate" information they just decided to put in there due to new regs. It is there for a reason.

Right now, I don't think any customers should be too concerned. If they are like most online vendors, you don't pay until you are satisifed and have the stone in your possession. The concern is more for their suppliers and stockholders. The only way a customer could get hurt is if they bought a stone from them, and the company had not paid for it, and the actual provider of the stone either laid claim to the stone due to non-payment by the company or sout restitution from the customer who bought it. And that would depend upon the rights of the original owner of the stone and their terms and conditions with the company. Enough to make your head spin.

Wow, a pretty long post when all I intended to do was make sure that people realized that terming the language "boilerplate" was really misleading.

 

[jbernste]

Thanks, Oscar, for the enlightening information. Have you considered including the mitigating circumstances you described in your SEC disclosure?

As the poster of the offending language from your 10-K, I guess I'd just say that I have no axe to grind with Abazias nor do I have a horse in this race. I'm a consumer who found interesting disclosure in your SEC filings. Since this is a forum that discusses not only stones but the industry that sells them, I thought it interesting enough to share here. I'm sorry you found it to be "suspect," but I couldn't very well have posted the entire 10-K (though I did post a link to it).

In truth, I hope you (along with other diamond e-tailers) are tremendously successful because the e-competition in your industry only benefits consumers.

 

[zmre2b]

I haven't looked at the Abazias filings in detail myself, but from what was posted here I'll make the following observations:

1) It is important to keep in mind that if all other diamond sellers had to get audited and make SEC disclosures, probably many of them would have similar cash flow risks and scary financials.

2) As was observed, a "going concern" (not "ongoing concern") opinion is not boilerplate and is often serious but still many many companies come through it just fine. It doesn't mean the auditors believe the company is likely (say, > 50%) to fail. It just means that there is substantial doubt (say, 10%?) that the company can continue to pay its debts as they come due for the next 12 months. It's a definite warning sign, but a not insurmountable one.

3) I think it is very odd for an online diamond merchant to be a public company. The reference to the reverse aquisition suggests that Abazias went public, not through an IPO, but by merging with a shell public company (a public company that has since ceased operations, but still has its attributes as a public co). Going public this way is one of the less respected ways of going public, but it's cheaper and been more common lately.

4) Being public means a lot of expenses for lawyers and accountants and opening your books to your competitors. Most smaller companies don't want to do these things and they only do it when they can raise money from potential public shareholders. I don't know why an online merchant needs a lot of capital to expand -- their costs should be relatively low. But I'm ignorant of the details on this company and who knows what their plan is.

For more info on penny stocks see: http://www.fool.com/news/commentary/2003/commentary030806bm.htm

(and note that Hunno Tech, merger partner of Abazias, is mentioned in that article! small world huh?!)

 

[hoorray]

----------------
On 4/28/2004 6:16:52 PM zmre2b wrote:

3) I think it is very odd for an online diamond merchant to be a public company.

4) Being public means a lot of expenses for lawyers and accountants and opening your books to your competitors. Most smaller companies don't want to do these things and they only do it when they can raise money from potential public shareholders. I don't know why an online merchant needs a lot of capital to expand -- their costs should be relatively low. But I'm ignorant of the details on this company and who knows what their plan is.

----------------

Abazias went public last year. I think it was through standard means, but I am not sure about that. Bluenile has recently filed to go public. I think it is not different than many other internet start-up... Going public can provide an influx of cash to the company as well as liquidity for the private shareholders.

 

[zmre2b]

----------------
On 4/28/2004 6:35:06 PM lop wrote:

----------------

Abazias went public last year. I think it was through standard means, but I am not sure about that. Bluenile has recently filed to go public. I think it is not different than many other internet start-up... Going public can provide an influx of cash to the company as well as liquidity for the private shareholders.

----------------

From the 10-K:
"On October 3, 2003 Abazias entered into a reverse acquisition agreement with Hunno Technologies, Inc.(“Hunno”), whereby Hunno acquired all of the issued and outstanding shares of Abazias’s common stock totaling 1,000,000 shares by issuing to Abazias’s shareholders, pro-rata, 50,000,000 shares of Hunno’s common stock. At that time, Hunno had 11,867,109 shares outstanding."

Abazias did not "go public" in the usual way, i.e., by selling new stock to a large number of public buyers and thereby getting lots of money from those buyers.

Abazias did a reverse merger with a defunct public shell company (Hunno Tech). That is obvious from it's 10-K (which I have now skimmed). The only influx of cash Abazias has had is from Oscar loaning Abazias $46k.

See: http://www.entrepreneur.com/article/0,4621,300886,00.html
for more info on reverse mergers.

 

[madmarlin]

Regarding this....."2) As was observed, a "going concern" (not "ongoing concern") opinion is not boilerplate and is often serious but still many many companies come through it just fine. It doesn't mean the auditors believe the company is likely (say, > 50%) to fail. It just means that there is substantial doubt (say, 10%?) that the company can continue to pay its debts as they come due for the next 12 months. It's a definite warning sign, but a not insurmountable one."

That is not correct. The wording of the opinion is that it raised "substantial doubt" about the company's ability to continue as a going concern. A 10% chance is not "substantial doubt." Auditors use that opinion when there is substantial doubt, not just a chance. The accounting principle of conservatism relies, in part, on the concepts of remote, reasonably possible, and probable. The going concern opinion is based on the auditors belief that the event is probable, unless certain things happen to counteract it. That is why most companies who get that opinion will disclose in the notes their contingy plans to overcome that probability.

Ok, I think that's enough accounting mumbojumbo on this board for at least a good 2 years........

 

[jbernste]

Someone mentioned Blue Nile's plans to go public soon. Here's a link to their latest S-1 filing (registration statement for the stock to be offered in the IPO, which includes tons of disclosure about the company) from the SEC's site.

Blue Nile S-1

 

[zmre2b]

----------------
On 4/28/2004 8:39:49 PM madmarlin wrote:


That is not correct. The wording of the opinion is that it raised 'substantial doubt' about the company's ability to continue as a going concern. A 10% chance is not 'substantial doubt.' Auditors use that opinion when there is substantial doubt, not just a chance. The accounting principle of conservatism relies, in part, on the concepts of remote, reasonably possible, and probable. The going concern opinion is based on the auditors belief that the event is probable, unless certain things happen to counteract it. That is why most companies who get that opinion will disclose in the notes their contingy plans to overcome that probability.

What is the authority for the claim that "substantial doubt" requires "more likely than not"? ie., "probable"? It isn't in SAS 59 which is the relevant accouting standard.

You are implying that Abazias's auditors believe it is probable that his company will fail. I don't think that is right.

I was perhaps wrong to pretend to quantify it as 10% (although I qualified it with a question mark after the 10%), but my point was that a going concern opinion doesn't mean it is "probable", > 50%, that the company will fail. (Just as finding "reasonable doubt" in a criminal case doesn't mean it is "probable" that the person didn't do it -- it only means there is some . . . doubt)

This is the relevant standard (not that it is much help).

paragraph 3 of SAS No. 59:
3. The auditor should evaluate whether there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time in the following manner:

a. The auditor considers whether the results of his procedures performed in planning, gathering evidential matter relative to the various audit objectives, and completing the audit identify conditions and events that, when considered in the aggregate, indicate there could be substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. It may be necessary to obtain additional information about such conditions and events, as well as the appropriate evidential matter to support information that mitigates the auditor's doubt.

b. If the auditor believes there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, he should (1) obtain information about management's plans that are intended to mitigate the effect of such conditions or events, and (2) assess the likelihood that such plans can be effectively implemented.

c. After the auditor has evaluated management's plans, he concludes whether he has substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. If the auditor concludes there is substantial doubt, he should (1) consider the adequacy of disclosure about the entity's possible inability to continue as a going concern for a reasonable period of time, and (2) include an explanatory paragraph (following the opinion paragraph) in his audit report to reflect his conclusion. If the auditor concludes that substantial doubt does not exist, he should consider the need for disclosure.

 

[Abazias]

This is my last comment regarding this issue, I do not intend on debating it any further, as I have a company to run. The going concern letter is common language that you will find in filings on 75% of companies trading on the OTC-BB market. It is not standard language in companies with full NASDAQ listings, or NYSE listings. The regulatory environment has changed significantly, and auditors are more conservative now than ever. They will err on the side of caution to protect themselves from liability, when only a few years ago the same situation would be viewed differently. It does contain strong language, and as an investment it would certainly be in the risky category, as we have limited operating history and limited revenues.

We have never done better as a company, and we are diligently working every day to improve the company and make our mark in the industry. Becoming a public company was just another step that most of our competitors could not take even if they wanted to, because of the onerous nature of the process. Most competitors would never under any circumstances want to share their finances with the public, but we have felt that this can be an advantage, and have chosen to do so.

If one does not think ABZS as a public company is a good investment, which is one issue, to suggest somebody should not buy a diamond from us because of certain language in our filings is potentially slanderous from my perspective. We do not buy a diamond until we have been paid, we provide a money back guarantee, and in the event we did not deliver the diamond, the customer could easily dispute the Charge with MasterCard /Visa with no risk to him/her. There is no risk to the customer under any circumstances, and there are many instances when we shoulder risk sending a diamond to the customer. Our testimonials speak for themselves, and I challenge anyone to find another company with a higher satisfaction level with its customers in this industry. I have devoted my life to this company, and work very hard every day and night to make this the best company possible, and I am extraordinarily proud of what we have achieved in a short period of time.

Best Regards,

Oscar Rodriguez

 

[Nicrez]

Oscar, well said. I wish you and your company the continued success you have all earned.

Running any diamond business is not easy, and especially on that is run from the internet with such customer service as yours has shown. Again, for a two year old company in a HIGHLY risky area, you are doing well, and I hope that customers understand that a diamond seller can be risky if he is on-line or in a brick and mortar store, regardless. Expenses arise everywhere, and business saavy is not the same as diamond saavy. People should buy from the place with the best selection of what they want, a place they trust and a place with good customer service.

Best to you, and I hope you stick around on your free time to impart some of your wisdom, and add a nice insight into the diamond industry for us!

Thanks for posting!

 

[limey]

Very well said oscar. I can't beleve this thread kept going. I have been around enough startups as well as involved in turnaround situations to know that the language of that filing sounded worse than it really is. You simply need to stay in business to stay in business!! I am amazed at your low burn rate. Congratulations!

P.S. I had to change my login name and avatar since I think my wife is "researching" diamonds too.