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RVLT - Selling Retail Investors A Field Of Dreams

|Includes: Revolution Lighting Technologies, Inc. (RVLT)

RVLT - Selling Retail Investors a Field of Dreams

In this article I will try to unravel one of the biggest market manipulation schemes since two of my favorite shorts: VLNC and AIXD (now CIDM).

This story starts about 9 months ago, when the LaPenta clan at Aston Capital saw a chance to orchestrate a stock market scheme, netting them several hundred million dollars in just months. Yes hundreds of millions of dollars in the pockets of the LaPenta's on nothing more than misleading press releases targeting retail investors.

Mr. LaPenta above having fun with your money.

The Big Day for LaPenta

On September 12, 2012 Mr. LaPenta crafted an interesting deal. For $6,000,000 Mr. LaPenta's Aston Capital acquired 600,000 Series B Preferred stock. This stock was convertible into common at a measly $0.13. This money was desperately needed by the company to pay off some debt that was about to put it out of business and to pay Phillips for a lawsuit they lost (this will come into play later). For Mr. LaPenta's generous love, he would be left with 46.2 million shares of stock, or 73% of the company. Now, what's interesting is Mr. Lapenta was able to steal the company out from under shareholders without their approval:

The rules of The NASDAQ Stock Market ("NASDAQ") would have normally required that Revolution's stockholders approve the Investment prior to closing the transactions contemplated by the Investment Agreement. However, NASDAQ granted Revolution an exception from this stockholder voting requirement under Listing Rule 5635(f), which provides that an exception may be granted when (i) the delay in securing stockholder approval would seriously jeopardize the financial viability of the enterprise and (ii) reliance on such exception has been expressly approved by the audit committee of the board of directors comprised solely of independent, disinterested directors. NASDAQ also has granted Revolution an exception from the voting rights requirements of Listing Rule 5640 and IM-5640 with respect to the transactions contemplated by the Investment Agreement.

As soon as the acquisition closed Mr. LaPenta had to get to work on his promote. Without any change in fundamentals the stock moved up to $0.59 within two weeks, netting the boys at Aston a cool $21,000,000.

Now Boys and Girls, Let the Real Games Begin

Since LaPenta and his buddies at Aston realized there was no real business here, they were going to have to acquire some sort business that appeared viable. This is where the Seesmart acquisition comes into play. For $20mm, RVLT agreed to acquire Seesmart in a cash and stock acquisition. This price would be reduced in just a few months given how bad the business really was. Well how would a company with really no revenue, no cash, no assets buy Seesmart. Easy, the boys at Aston were ready to help. RVLT sold $10mm in convertible Preferred stock to Aston, which would be convertible into 14.5mm shares at $0.6889. Now when you are running a stock promote and trying to fool people the best path is to keep things really complicated. Instead of issuing plain stock to Seesmart they issued Series D Preferred stock at $0.6959.

Ok, everybody catch their breath because we are not even close to done.

There is one thing I find just truly amazing about the Seesmart acquisition. Here is a quote from the promote release from Aston regarding the acquisition:

"Seesmart's pipeline of potential projects currently exceed $1 billion "

So right now you are thinking Oh My God, the LaPenta boys bought a company with a $1 billion dollar backlog for just $20mm? Weird, or could it be a lie? Well I don't think the man in the above picture would lie, but maybe he is dreaming? Or maybe trying to sell a dream? Remember it is not illegal to sell dreams, I have checked the SEC website.

So far it looks like Seesmart hasn't turned out so well, RVLT lowered its consideration for the company due to underperformance (but, but what about the $1 billion backlog), and I found this little tidbit buried deep in the company's last 10Q:

On December 20, 2012, the Company completed the acquisition of Seesmart Technologies, Inc., a company not required to file reports with the Securities and Exchange Commission. At the date of the acquisition, Seesmart had not prepared audited financial statements for 2010 and 2011 or interim financial statements for the nine months ended September 30, 2012. Company management recognized that the internal controls over financial reporting as they related to separate financial statements of Seesmart were inadequate. Accordingly, subsequent to the acquisition, management immediately implemented an action plan by assessing the Company's and Seesmart's financial accounting resources, hiring an experienced CFO for the Company, engaging a senior accounting expert, and adding outside resources to assist internal resources from the Company and Seesmart. In addition, the Company hired a controller for Seesmart who assumed his responsibilities on April 8, 2013 and hired additional accounting resources at the corporate level. Finally, as part of its 2013 evaluation of internal controls over financial reporting, the Company expects to engage outside consultants to assist with an assessment of internal controls, develop a remediation plan to address deficiencies including material weaknesses, implement the plan and test internal controls, all within 2013.

Now we all know that RVLT was sued by Phillips for infringing on their patents, well now it appears that Seesmart might have engaged in the same activities:

Prior to the merger of the Company with Seesmart, Seesmart also received a letter from Philips claiming patent infringement and threatening litigation if a license agreement was not negotiated. As a subsequently acquired subsidiary of the Company, Seesmart falls under the Company's settlement agreement with Philips. However, Philips and Seesmart must first agree to the scope of infringing products, and Seesmart may be required to make a payment to address historical product sales.

That pesky Phillips.

Weird, a company that has nothing, appears to acquired a company that also has nothing. A match made in heaven. But, the LaPenta show must go on. However, our little baby needs more money. Don't worry there is a sucker born every day willing to buy dreams.

On February 21, 2013, the Company closed on an investment agreement whereby the Company issued 5,000 shares of Series E convertible redeemable preferred stock to RVL 1 LLC for cash of $5 million.

These securities are convertible into shares at $1.17.

Now are you confused on the capital structure yet? I am. Remember first rule in a stock market manipulation/promote. KEEP IT COMPLICATED.

Taking a Step Back - What does RVLT really do?

I apologize I should have brought this up earlier, let's talk a little bit about what RVLT does. They sale LED light bulbs and provide installation services. Yes, that is right they sale light bulbs. They have no IP (stole Phillips, sued and lost). Ok, let's get back to the field of dreams.

Out with the Old in with the new

At the beginning of the year the boys at Aston realized that they needed to get rid of management and put themselves in the executive suite. Hey why not they have years of experience distributing light bulbs. So Mr. Bauer and Mr. Langford were let go and replaced with Aston guys. Nothing to see here. Oh by the way does anybody see a conflict that now all the executives at RVLT are Aston employees, and that both the audit committee and the compensation committee are made up of the Aston executives, which are now the company executives. Confused yet? Me too. But again, when running a stock promote, remember Rule 1, keep it as complicated as possible. From the company's SEC filing

The Company has entered into two separate investment agreements with RVL, an affiliate of Aston Capital, LLC, which is controlled by our Chairman and Chief Executive Officer, Robert V. LaPenta, whereby the Company issued to RVL the Series C Shares and the Series E Shares, respectively. Messrs. LaPenta, James A. DePalma, Robert V. LaPenta, Jr., and Robert A. Basil, Jr. serve on the Company's Board of Directors and are also members of Aston Capital, LLC and officers of each of RVL and Aston Capital, LLC.

What is shocking for such an advanced company that trades at 35 X sales and burns $20mm in cash a year they can't even update their website. They still list Mr. Bauer and Mr. Langford as the CEO and CFO six months after they were fired. Odd? Not sure what to say about this other than they don't want someone to know everything. Again, keep it very complex.

And to add to the conflicts of interest Aston moved the RVLT offices into their own and charged the company a consulting fee. Oh and they issued themselves 500,000 shares for consulting with themselves? I wish I could pay myself $2.5mm for talking to myself.

Who owns the stock - Retail and weird RIA firms

What i find particularly weird is that not a single real investor owns this stock, mainly just retail holders. The benefit is several fold. First institutions read SEC documents and in this case if you actually do work you clearly see the Ponzi scheme. Retail investors mostly look at the pump/promote (aka fake press releases). The other benefit of keeping it with retail, is the benefit of the stock not being in lending programs which keeps the shorts away. Very savvy, very savvy indeed. But again why wouldn't an institution want to own this beauty? Could it be the declining organic revenues, could it be the crazy cash burn, could it be the admittance of zero corporate governance, could it be they resell light bulbs? I really don't know? I mean this all sounds so great. I mean $20mm in sales, $12 mm in losses a year, and i can have this for just $400mm? NO BRAINER.

So after our buddies as Aston convert their stock they will have way over 80%. They have created $300mm in value for themselves. There is just one problem, how to get out. This is the true $300mm question. Pump the stock enough and then dump?

If you can't Sell it, give them the Money to buy it

I found the last press release from the Aston boys to be very impressive. Given the terrible sales at RVLT, they were getting desperate. I mean, when you trade at 30 X sales for reselling somebody else's light bulbs you can resort to desperate measures.

I can just see LaPenta and boys sitting around the table giggling as they concoct the idea of creating a fund, which will lend money to companies to buy light bulbs from RVLT. I mean I admit I really love the name LightCap I. Sounds sexy. So let's get this straight, RVLT can't sell product, so Aston is going to create a fund that will lend money to people to buy light bulbs. And to boot throw out a really big number, how about $50mm!!!!!!!! But here is the issue, the fund doesn't have any money, they need to get that from investors. I can just hear the pitch now:

"Invest in LightCap I, so you can lend money to low credit companies to buy light bulbs from a promote pump and dump company we control"

I bet investors are just lining up around the block to invest in LightCap I. I bet Apollo and Blackstone are nervous that they are going to lose investors for LightCap I.

But it worked!!! Retail investors read the $50mm headline and bid the stock up $1. Very impressive LaPenta. But unfortantely, Lightcap I will likely be a hoax and will never materialize.

Valuation and target

I value RVLT at $0. There is zero value for a company that resells light bulbs at a loss. My guess is the Aston boys can work the stock a little higher through fake press releases. But ultimately the sales will never come through. They will probably try to roll up a couple more crappy distributors to try and get a little more sales, since the organic sales are negative. In the end the stock will finish at fractions of a penny on the pink sheets just where it started. LaPenta will walk away a free man with millions of dollars with retail investors holding the bag. Or just maybe, the SEC might dig into some of the misleading statements from the company and take some actions.

P.S. Mr. LaPenta, if you read this can you please update your website at least once every six months? Thanks in advance.

Disclosure: I am short RVLT.