|And another Lee Webb article|
Posted by: TheFraudStopper
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Date:5/11/2007 1:23:41 PM
Post #of 148287
Conversion Solutions ex-CEO's holdings draw questions
Conversion Solutions Holdings Corp (U:CSHD)
Shares Issued 103,135,657
Friday May 11 2007 - Street Wire
by Lee M. Webb
Conversion Solutions Holdings Corp. major shareholder and former chief executive officer Michael Alexander's extremely tardy insider disclosure regarding disposing of millions of shares raises questions about his role in twice ousting the company's now reinstalled leader Rufus Paul Harris last year.
As previously reported, the U.S. Securities and Exchange Commission (SEC) suspended Conversion and followed up with a securities fraud lawsuit against the company and then chief executive officer Mr. Harris on Oct. 24, 2006.
In the wake of the SEC action, Mr. Harris was twice given the boot as chief executive officer in November on the purported strength of Mr. Alexander's control position.
At one time, Mr. Alexander reportedly controlled more than 78 per cent of the shares of Conversion's OTC Bulletin Board predecessor, the FrontHaul Group Inc., by virtue of a deal he inked with a public shell in August of 2004.
The sweetheart deal
On Aug. 26, 2004, Mr. Alexander's FrontHaul was acquired by an OTC-BB shell in exchange for 20 million common shares and 500,000 preferred shares convertible into an additional 50 million common shares.
The right to convert the 500,000 preferred shares into 50 million common shares was tied to a formula based on a very modest 12-month revenue schedule under which 25 per cent of the preferred stock could be converted if the company had $250,000 in revenue, 50 per cent for $500,000 in revenue and 100 per cent for $750,000 in revenue.
If the company failed to meet any or all of the revenue thresholds by the one-year anniversary date of the deal, it could either ante up 50 cents per share for the unconverted preferred shares or Mr. Alexander had the right to convert the whole amount into 50 million common shares.
As it turned out, the meagre revenue thresholds were not met, but the company did not redeem the shares, so Mr. Alexander had the right to convert the preferred shares to 50 million common shares as of Aug. 26, 2005.
In addition to the sweetheart share swap for his fledgling private company, once in control of the public company, Mr. Alexander inked a rather nifty employment agreement as chief executive officer that, among other things, provided that his stock ownership would never fall below 60 per cent of the company's issued and outstanding shares.
Alas, the OTC-BB outfit turned out to be a money-losing operation and approximately 15 months later Mr. Alexander steered the cash-strapped company into an onerous financing deal.
The toxic deal
Under Mr. Alexander's leadership, FrontHaul, which billed itself as a trucking brokerage and logistics company, set about bleeding red ink.
By Sept. 30, 2005, just over a year after Mr. Alexander took control, the company had an accumulated deficit of approximately $2.7-million, a working capital shortfall of approximately $256,000 and chump change of only $9,227 in cash. (All amounts are in U.S. dollars.)
In November of 2005, the haemorrhaging company hooked up with a coterie of financing outfits at least nominally led by Corey Ribotsky for a badly needed cash infusion.
Mr. Ribotsky is the frontman for AJW Partners LLC, AJW Qualified Partners LLC, AJW Offshore Ltd. and New Millennium Partners II LLC, which are quite active in providing toxic financing to floundering OTC-BB companies.
On Nov. 18, 2005, Mr. Alexander signed convertible debenture purchase agreements for an aggregate $2.5-million with Mr. Ribotsky's companies.
The convertible debentures were floorless, constituting what is commonly known as a death spiral financing.
Under the terms of the agreements, the toxic financiers advanced $1-million on Nov. 18, 2005, and another $750,000 on Dec. 23, 2005.
The remaining $750,000 was to be paid upon the acceptance of a registration statement covering approximately 50.4 million shares to be issued to the toxic financiers, but that never happened because FrontHaul almost immediately triggered a default provision in the agreements that made the $1.75-million already received immediately payable along with a penalty of $528,288.
In a March 28, 2006, SEC filing Mr. Alexander reported that FrontHaul intended to redeem the convertible notes, but there is nothing to indicate that the virtually penniless company ever managed to do that.
Oddly, while Mr. Ribotsky is not known for just walking away after handing over $1.75-million and, in fact, is not shy about suing companies that attempt to welsh on deals with his toxic financing outfits, there is nothing to indicate that he has taken any action against FrontHaul or its successor, Conversion.
Interestingly, the financing agreement with Mr. Ribotsky's companies called for Mr. Alexander to pledge more than 25 million of his shares and deliver them to the financiers along with an executed transfer form.
Given that Mr. Alexander changed the OTC-BB company's name to FrontHaul on April 13, 2006, by virtue of his reported control of more than 75.1 million shares representing more than 78 per cent of the company's stock, he apparently still had control of the 25 million shares pledged to the financiers at that time.
Indeed, setting aside Mr. Harris's recent disputed claim that Mr. Alexander's 500,000 preferred shares were cancelled under the terms of the July 2006 merger agreement between Conversion and FrontHaul, it was not until Jan. 16 of this year that shareholders received even a hint that Mr. Alexander did not still control 75.1 million shares.
As mentioned in the first of this series of articles, Mr. Alexander made a series of posts about Conversion and Mr. Harris on HotStockMarket.com on Jan. 16.
During the course of the Jan. 16 Internet finger pointing at Mr. Harris and revelations regarding a criminal probe, Mr. Alexander made a number of claims that raise questions about his own conduct and apparent disregard for following disclosure requirements.
For example, Mr. Alexander claimed that his wife had sold 500,000 shares "when the merger first happened," but they both held all the rest of their shares as of the middle of January.
Interestingly, Mr. Alexander's wife, Paula L. Alexander, served a stint as an officer of Conversion's OTC-BB predecessor and filed a statement with the SEC in October of 2005 in which she disclaimed owning any shares at all.
There was no subsequent filing to disclose just how or when Ms. Alexander acquired her shares; nor was there any filing regarding her unloading 500,000 shares.
In one of his Jan. 16 posts, Mr. Alexander, who denied selling any stock at all, pegged his own holdings at 64.4 million shares.
"I started out with 14.4 million common and 500,000 pref (preferred shares) ... which converted to 50,000,000 (common shares) when I took the company back over," Mr. Alexander wrote.
Oddly, Mr. Alexander's tally of 64.4 million shares could not be reconciled with his April 13, 2006, SEC filing in which he claimed to control approximately 75.1 million shares, leaving a discrepancy of more than 10.7 million shares.
In other Jan. 16 posts, Mr. Alexander offered conflicting accounts of just when he purportedly converted his 500,000 preferred shares to 50 million common shares.
In one post, Mr. Alexander indicated that he had converted the shares prior to Oct. 16, 2006, which was the supposed date of record for Conversion's announced cockamamie scheme to distribute six additional shares for every share owned to the company's stockholders by the end of that month.
Mr. Harris did not bother to follow the proper procedures necessary to effect such an issuance of shares, so the goofy distribution never materialized.
In any event, after claiming that he had converted his preferred shares prior to the announced record date in order to qualify for the distribution, Mr. Alexander went on to claim in another post that the conversion took place when he "took the company back over," which occurred on Nov. 2, 2006.
Strangely, both of Mr. Alexander's conflicting claims regarding the date of the conversion were contradicted by a letter from the company's transfer agent stating that the preferred shares had not been converted as of Nov. 30, 2006.
Perhaps Mr. Alexander's Jan. 16 Internet posts, or the pointed questions they provoked over the following days, tweaked his memory regarding some neglected and long overdue SEC filings.
On Jan. 31, Mr. Alexander filed a Form 4, statement of changes in beneficial ownership, with the SEC disclosing the acquisition of the 500,000 convertible preferred shares effective Dec. 30, 2004.
According to an explanatory note, the issuance of the preferred shares more than two years earlier had been "previously overlooked."
On Feb. 7, Mr. Alexander followed up with another delinquent Form 4 disclosing a number of other previously unreported and very peculiar transactions.
According to the Feb. 7 filing, Mr. Alexander disposed of more than 10.7 million shares valued at 12 cents per share by way of a gift or gifts to "various charity, non-affiliate entities and/or non-affiliates" on April 27, 2006.
On Aug. 18, 2006, Mr. Alexander disposed of 500,000 shares at a reported price of $1.12 per share in a transaction that he claims was executed by his wife.
On Sept. 23, 2006, the generous Mr. Alexander disposed of two million shares valued at $2.60 per share by way of a gift or gifts with a total value of $5.2-million.
On Jan. 17 of this year, contrary to his conflicting and contradicted Internet claims, Mr. Alexander reportedly converted his 500,000 preferred shares to 50 million common shares.
On the same day, Mr. Alexander reportedly gave away another 7.5 million shares.
On Jan. 25, the incredibly beneficent Mr. Alexander claims that he gifted a further 42.5 million shares.
To this point, the beneficiaries of Mr. Alexander's remarkable largesse, which accounts for the disposition of more than 62.7 million shares worth millions of dollars, remain unidentified.
In the wake of his staggering share give-away and other belatedly disclosed unloading of stock, and assuming that he has not overlooked any other transactions, Mr. Alexander reportedly now holds approximately 11.9 million shares.
In any event, quite apart from concerns about Mr. Alexander's apparently cavalier attitude with respect to reporting obligations and setting aside Mr. Harris's claim that the former FrontHaul leader's preferred shares were cancelled under the merger agreement, the belated disclosure that he did not even purportedly convert those shares until January of this year raise a number of other questions about the whole Conversion imbroglio.
Conversion's corporate muddle may be far more convoluted than many of the company's Internet followers seem to realize.
In fact, while there has been considerable debate and controversy regarding Conversion's Keystone carousel of revolving chief executive officers since last November, the convoluted muddle traces at least as far back as April of 2006.
As remarked in an earlier article, preferred shares typically do not carry voting rights and there is nothing in any of Conversion's predecessor's SEC filings to indicate that Mr. Alexander's preferred FrontHaul shares had any voting privileges prior to conversion into common shares.
On April 13, 2006, however, Mr. Alexander filed an information statement with the SEC in which he reported that he was amending the OTC-BB company's Delaware certificate of incorporation and changing the corporate name to FrontHaul.
Under Delaware law, any such amendment had to be approved by shareholders holding at least a majority of the company's voting shares.
In the information statement, Mr. Alexander represented that he controlled more than 75.1 million voting shares comprising more than 78 per cent of the company's stock.
At the time, however, he had not converted his preferred shares into 50 million common shares and in the absence of any disclosure that the unconverted preferred shares carried special voting rights it is not at all clear that Mr. Alexander had the authority to amend the articles of incorporation.
While an improperly executed Delaware incorporation amendment may be a relatively small matter in the grand scheme of Conversion's corporate muddle, it may cast at least some doubt on subsequent events including the merger agreement with Mr. Harris's outfit just three months later.
In any case, questions have certainly been raised regarding Mr. Alexander's role in Conversion's comical chief executive officer switcheroos.
As it happens, those shenanigans are even murkier than many Conversion fans might suspect.
As previously reported by Stockwatch, at 3 a.m. on Nov. 2, 2006, a Conversion news release issued from the company's purported headquarters in Kennesaw, Ga., announced that the board of directors had removed Mr. Harris as chief executive officer.
It is important to note the board of directors that first claimed to oust Mr. Harris was made up of the Georgia promoter's associates who assumed their duties under the terms of the merger agreement with FrontHaul and was generally accepted as being legally constituted.
It is also worth noting that a board of directors has the power to appoint or dismiss a company's chief executive officer.
In the same news release announcing the board's decision to remove Mr. Harris, it was also reported that the board would announce his successor at a later time.
As it turned out, that never happened.
A scant 12 hours after the news release was issued in the wee hours of the morning from Kennesaw on behalf of Conversion's board of directors, Mr. Alexander issued another announcement from Lake Dallas, Tex.
According to Mr. Alexander's Nov. 2, 2006, afternoon news release, a special meeting of majority shareholders holding more than 51 per cent of the company's voting shares had given the boot to the existing board of directors and management and had installed him as Conversion's sole officer and director.
As previously reported, that development turned on Mr. Alexander's purported controlling interest.
Once again, however, it is not at all clear that Mr. Alexander had the necessary voting clout to effect the change in the board of directors, given that he had not converted his preferred shares.
Similar doubt is cast upon subsequent shenanigans as Mr. Alexander handed the company back to Mr. Harris on Nov. 14, 2006, and then gave him the boot again in favour of Vancouver promoter John Arlitt just two weeks later.
Citing health issues and concern over possible litigation over the manner in which he was installed, Mr. Arlitt bailed out of the derailed promotion, claiming to put it all back in Mr. Harris's control, on Feb. 28 of this year.
Tracing through the murky morass, if a legally constituted board of directors dismissed Mr. Harris and did not get around to appointing a successor, and if Mr. Alexander did not have the requisite voting power to give effect to the subsequently announced corporate changes, it may well be that Conversion has not had a properly appointed chief executive officer since Nov. 2, 2006.
Setting aside the convoluted corporate intricacies, of course, Mr. Harris is clearly the de facto and uncontested head of the skunky promotion.
Given that penniless Conversion is little more than a messy shell with no verifiable assets that is being sued by the SEC and is the subject of a criminal investigation, it does not seem likely that anyone will be challenging Mr. Harris for the title of chief executive officer.
In a following fourth and final article in this particular series, Stockwatch will examine Mr. Harris's belated slipshod response to the SEC lawsuit and review some of his more recent outlandish claims as Conversion's leader.
In lacklustre grey market trading, only 60,100 shares changed hands as Conversion closed at 1.5 cents on May 10.
Comments regarding this article may be sent to email@example.com.
(More information regarding Conversion Solutions Holdings Corp. is available in Stockwatch articles published on Oct. 13, 16, 18, 20, 24 and 26; Nov. 2, 3, 7, 10 and 16; Dec. 5, 7 and 11, 2006; and May 9 and 10, 2007.)
© 2007 Canjex Publishing Ltd.