We Invite Our Readers… Over — For Some Long Holiday Weekend Fun! [/SNARK]

We invite you gentle readers, to see if you can calculate, from this document — whether Mattersight is in compliance with its continued eligibility for lending covenants, here in near the middle of 2017. Or from the companies quarterly results. I looked. I cannot.

The relevant exhibit, to the Hercules lending packet, was never filed.

And management hasn’t disclosed the projections which drive the tests for whether Mattersight has met (or is able to meet, in the future) its covenants, under this Hercules Capital loan agreement.

How can this be?

Please help us out. Interps to SEC Reg S-K, Item 303 require:

…Where financial statements presented or incorporated by reference in the registration statement [Ed. Note: as they are, now — an S-3 is active] are required by § 210.4-08(e)(3) of Regulation S-X [ 17 CFR part 210] to include disclosure of restrictions on the ability of both consolidated and unconsolidated subsidiaries to transfer funds to the registrant in the form of cash dividends, loans or advances, the discussion of liquidity shall include a discussion of the nature and extent of such restrictions and the impact such restrictions have had and are expected to have on the ability of the parent company to meet its cash obligations….

Knowing whether this cash-constrained company will be able to borrow from Hercules — at any rate, high or very high — in the fall of 2017, to meet its liquidity needs, is plainly a material fact.

Anyone? Bueller? … Bueller?!…

[U] Bob & Condor Predict Where Mattersight Will Need To Turn Next, To Get Late 2017 Cash…

UPDATED: 05.26.2017 @ 11:30 AM EDT — We are awaiting some outstanding due diligence / fact-checking requests we’ve made this morning, of the company’s CFO (who is also a full board member, and larger investor), and we’ve made the same request, at the regular investor relations desk — so we cannot update this item in full, just yet. [In the mean time, Bob’s model on projected back-half 2017 additional dilution is at right. Click to enlarge.]

We have asked about whether as a public company, it is even possible to calculate the Hercules covenant compliance tests, since (it would seem) starting in 2017, those numbers are driven off of projections the company provides only to Hercules. We don’t want to jump the gun here, but it would, under applicable SEC disclosure rules, be highly questionable if it turned out that the investors at any given 17 year public company could not calculate, from the public records, whether the company is in compliance (or… in default) with its single largest lender — and whether that lender will thus be obliged to make additional loans in July and September of 2017 (or be relieved, from that same obligation, due to a covenant default). But so far, that particularly bizarre state of affairs… seems to be the case…. Never a dull moment with these folks, indeed.

At day’s end, on Friday, the company hadn’t responded or commented. So — we will now allow our readership to ponder — over the long holiday weekend, whether any public company should be allowed under SEC rules — to play “hide the ball” with respect to the continued  availability of the only financing source it has as “dry powder” at the moment.

That’s some $7.5 million, from Hercules — still undrawn, if memory serves. And the company is quite quickly burning through the $16 million cash it raised in the highly dilutive equity market down round, of just  this past February. We could see that from the sEC Form 10-Q trendlines.

[End, updated portion — more to come later on Tuesday.]

I’ll just let the image speak for itself (but do compare it to Bob’s, above — his may be more accurate, in fact, than mine).

Tomorrow, I’ll explain how (I’ve now surmised that) Mattersight will miss on its Hercules continued lending covenants.

All of this will, in turn, force another down round of equity — it will look pretty much like this:

[U] A Tale Of Successive Down Rounds, And Egregiously Massive Dilution: Executives Get Richer; Shareholders Get… Shafted.

Below are links to each of these offerings to my prior posts…

[U] Bob’s comments: “…They can’t make a profit, and the top executives are wildly compensated based on internal metrics that have absolutely no link to profits, but at least they outfit the offices in the modern way – “What is this a business or a day care?…”

Bob: “…You never hear any of this stuff from the entry-level analysts who basically regurgitate what they are spoon-fed from MATR’s executives and investor relations….”

The last four privately placed Reg D Mattersight equity offerings, then:

February 2017

July 2015

July 2014

November 2013/January 2014

Ahem.

The graphic/chart at right (coupled to my updated guesses, below) really says it all — do click to enlarge. It is a little busy — but one may readily see how badly each of these offerings jilted the ordinary shareholders. Over just the last three and a half years, Craig-Hallum and Mattersight executives have worked hand in glove, to extract some $50.2 million from outside investor pockets, while losing vast sums, on a GAAP basis — and all the while, Mattersight’s top executives received more and more free “give-away” shares — so they didn’t care (too much) about falling stock prices, and the yawning dilution each additional round caused. Disgusting.

It is my assessment that the conventional debt markets are essentially closed to Mattersight, now — except for predatory lenders like Hercules Capital — at well north of 10 per cent per annum. Of course, the dilution at above right takes no account of Hercules’ rights (see directly to the right) to soak up more very cheap equity, coming this fall, if memory serves. [Hmmm… perhaps $3.50/share isn’t cheap any longer, though — here in May 2017 with the stock trading around $2.70 a share as I write this.]

In sum, this is a public company in a pretty significant cash pinch — by late summer or early fall 2017 — unless Mr. Conway brings in several very large, very high margin new engagements — and gets them installed by beginning of Q3 2017. Not likely, given the past 16 quarters’ experience. In fact, in seven of the last eight quarters, the company has missed its own internal targets, and significantly so. Q4 2016 being the lone exception — which, miraculously(!), allowed for big bonus payouts. But $700,000 of the Q4 2016 revenue had to be “given back” in Q1 2017, to a large customer — when (we were at least told that) the install had slowed appreciably.

I wonder if those executive bonuses were likewise clawed back? I doubt it. I also wonder if that’s what the able, hard working SEC staffers are looking at, when they regularly visit here. Hmmm….

You’ve been amply warned. Avoid this name, on the NASDAQ OTC. Word.

UPDATED @ 2 PM EDT: After everyone digests Bob’s cogent comments, below — this graphic will be part of a new post, in a bit — it is my informed guess as to what it is going to cost — in dilution — when (not if) Mattersight cannot meet its continued borrowing covenants (more on that, in the next post) with Hercules (in order to borrow more cash), in the back half of the year. So back to the C-H PPM route, thus:

More Investors From The Private Placement (At $3/Sh) Likely Bailing At $2.72…

Just a smallish note:

This morning, in the first hour and a half of NASDAQ OTC trading — Mattersight saw nearly 400,000 shares change hands. [Normal recent full-day daily volume is like 70,000 shares.]

There were clearly pre-arranged buyers for these shares — otherwise the price would have fallen precipitously.

I would venture a bet that Craig-Hallum lawfully arranged the trades — as part of the continuing stabilization efforts, under the S-3 resale registration statement — which covered the prior Reg. D private placement, from February 2017.

That’s my bet. But I would not expect the Craig-Hallum confab next Wednesday to do much of anything to lift the stock price.

You’ve been warned. [And perhaps — just perhaps — this long-running blog becomes a virtual bill-board, of sorts — to solicit appropriately injured federal securities law class action plaintiffs — there must be thousands of deeply disappointed investors out there, now.]

It is also interesting that computers residing on the US Securities and Exchange Commission’s government IP backbone visit here, pretty regularly… maybe I should ring them up, as well. Wry smile…

In A SIGNIFICANT Break With Prior Practice, Here…

We are now rather likely to seek meetings at, and attend, the Craig-Hallum conference live, on May 31, 2017 — largely to discuss our views with current management — and generally present our competing financial analyses and theses, as to the path forward, for this company.

At this point, quite mindful of the applicable SEC proxy solicitation rules, we are not explicitly seeking any change in the composition of the board. And we (presently) are neither long or short this name.

So mid-next week — after the holiday — we may provide some informative, or perhaps even highly entertaining, blog video, audio and postings, more generally. This too, would be a first for us — in a potential switch of format — to pure satire, for a bit.

Sort of a Tosh.0 goes to a NASDAQ investor conference — to ask. . . impertinent, but highly relevant, questions.

We shall see.

[U] Here Are Bob’s Guesses — At Next Three Quarters Of GAAP LPS…

[UPDATE: I’ve floated this back to the top, as it sets the tone for the rest of the year 2017 — it was originally published on May 11, 2017.

In addition, immediately before the stockholders’ meeting, the long-time full board member, and now CFO, Mr. David Mullen bought a paltry 20,000 shares on the NASDAQ, for a little over $2.57 a share. Yawn.

Nothing of note occurred at the stockholders’ meeting. Given developments on Thursday afternoon, we may run silent here for a bit. We shall see.

End, updated portion.]

I’ll add Lake Street’s when they are updated, but Lake Street will almost certainly be… too rosy.

Bob is on completely on fire, these last several days years:

“…Just looked at the conference call transcript.

Q2 will evidence the low point of their seasonality and just as they’ve missed on every objective, this likely means a fairly disastrous quarter, which, as they have a difficult time throttling expenses, means a big cash burn. Since it’s now known that they adjusted the contract terms for a customer, look for other customers to ask for a similar deal, further eroding the top line.

In Q1, they lost $5M on $11M in revenues, burning in the neighborhood of $4M in cash (all the financing translations take more time to sort out than is worth the effort — ballpark is close enough).

In Q2, they’ll likely generate $10.2M in revenues and lose $5.8M, burning $4.8M in cash. This revenue projection (which could be a best case) — leads to a $0.22 per share GAAP loss….

Always use GAAP numbers in evaluating a company like MATR. EBITDA is for suckers as that depreciation represents true cost of real cash money spent in the past and is only relevant for one-time events that distort the quarter to quarter comparison. Non-cash compensation is a real economic loss to existing shareholders.

Going forward:

– Q3: $10.6M in rev, loss of $5.5M, 19.8 cents per share loss
– Q4: $11M in rev, loss of $5.4M, 19.3 cents per share loss

By September, they’re going to need to find yet more cash to keep the party going….”

Me? I think so, too. Thanks, man.

Well — It’s Good For Grins, At Least: Craig Hallum’s George Sutton Becomes A “Dreamer/True Believer” — Again.

After the NASDAQ close this afternoon, George Sutton — writing for Craig Hallum — reduced his expected Q2 2017 loss per share for Mattersight — by two pennies. Yawn.

After the Q1 debacle, that SIMPLY means the company will be dead even with where Craig Hallum thought it would be coming out of Q2 2017 (had it not missed so completely, in Q1 2017). That is, C-H had the company as posting a Q1 ($0.17) — it actually posted a ($0.19).

Below is the bit, published in a third-level media outlet called “Baseball News” (HAH!) — but the true-believer or “dreaming” portion of the new guesses come from the full-year 2017 projection by Craig Hallum — at a GAAP LPS of “only” ($0.57). [C-H has been the company’s sole placement agent on all three of its last offerings, at least — so it has a powerful incentive to want a serious rise, on this particular submarine’s bow planes (most notably including at $5.93, in July 2015 — for $16.2 million). I don’t doubt that Mr. Sutton has complied with his SEC Regulation AC duties — I just note his firm’s strong interests, here. But the latest round, also led by C-H, was at about half that — for twice as much dilution — to get to $16 million raised.]

Now… please do ALSO note the now-dated late 2016 graphic, at right, in which Craig Hallum had PREVIOUSLY expected ($0.50) for full year 2017. The newly updated full year 2017 is MORE than 10 per cent WORSE now:

“…Analysts at Craig Hallum lifted their Q2 2017 earnings per share (EPS) estimates for Mattersight Corp in a note issued to investors on Wednesday. Craig Hallum analyst G. Sutton now expects that the software maker will earn ($0.15) per share for the quarter, up from their prior forecast of ($0.17). Craig Hallum also issued estimates for Mattersight Corp’s FY2017 earnings at ($0.57) EPS and FY2018 earnings at ($0.41) EPS….”

Again, we will wait past 2018 to see GAAP EPS, for certain. Again, also… DO trust Bob. He has written that Mattersight will see something closer to ($0.80) of GAAP LPS for the full year 2017. I concur. Okay…

Next dive? $2.20!!! Set your bow planes for near term 5 per cent per week down-bubble … All lives going down, on this particular Mattersight U-boat….