Shares of Fleet Management Solutions (PINKSHEETS: FLMG) have experienced significant volatility over the past two days, hitting high of 0.0595 on Monday after closing Friday’s trading session at 0.0245. The big gain on Monday was short lived, closing the day at 0.0410 and has since slid to a low of 0.0330 on Tuesday with trading volume topping the one million mark by mid-afternoon.
Driving the heavy trading volume and temporary share price hike was a press release issued by FLMG announcing an independent business valuation from Valuation & Research Specialists declaring the fair value of the company, using projections from 2011 through 2015, to be in excess of $29 million. According to the press release, the first issued by FLMG this year, the fair value was determined after applying the Discounted Cash Flow (DCF) methodology for a conservative growth scenario.
This $29 million valuation was reached by “projecting the Company’s operating profits, and then adjusting for taxes, depreciation, capital expenditures and working capital, then end up with the future free cash flows to the firm. Discounting those cash flows with the weighted average cost of capital (the interest rate that weighs both own capital and debt employed by a company), then end up with the Company’s enterprise value, also known as EV that equals with equity value (or market capitalization) plus debt minus cash.”
Aside from how figures can be manipulated to create a favorable valuation, the biggest concern investors may have with FLMG is the fact that there are 143,000 preferred shares that can be converted into 143 million common shares. To say that shareholders will find their position diluted is a significant understatement.
Shareholders shouldn’t just be worried about dilution; they should also be concerned about FLMG’s business operations, focused on providing a full spectrum of automobile fleet solutions throughout Greece and the Balkans area. This isn’t exactly the most stable financial environment at the moment and their ability to offer clients (leasing companies and corporations) “numerous comprehensive fleet management solutions such as online fleet management, maintenance programs, 24 hour roadside assistance, fuel management programs, insurance programs, license and title services, telemetric and acquisition and lease buyout programs, and re-marketing of used vehicles” may not extend through 2015.
It should be remembered by investors that FLMG was born out of the same company that was incorporated in the State of Florida on January 7, 1987 under the name of Progressive General Corporation, which name was changed to Crys*Tel Telecommunications.com,Inc. on December 18, 1998 and then to Juma Technology, Inc. on April 13, 2006. On July 6, 2006 the company changed its name to Silverton Mining Corp. and finally to Fleet Management Solutions Inc. on December 15, 2008. Needless to say all of those other ventures failed.
Looking at the most recent financial information reported by FLMG it would stand to reason that this latest venture could follow the same path as its predecessors. For the period ending June 30, 2011 the company reported total assets of $6,560,874 of which $708,115 was in cash; the bulk of what they considered total assets came in the form of Accounts Receivable and Inventory, $1,416,550 and $3,349,992 respectively. Unfortunately for FLMG their total liabilities for that same period amounted to $6,238,267; the bulk of which came in the form of Accounts Payable, a very real $5,181,959.
What this paints is a picture of a company in desperate need of cash to cover their bills and while they may list Accounts Receivable and Inventory as a chunk of their total assets they simply don’t have the cash to satisfy their liabilities. To get that cash those preferred shares can quickly be converted and flood the market, leaving investors with an extremely diluted position that won’t soon be improved.
While FLMG reported in their press release detailing their $29 million valuation that ABI Research expected the company to reach $9.5 billion in sales annually by 2015 how they determined that figure is suspect at best. Right now FLMG is fighting to remain in business and throwing around massive projections doesn’t help with their credibility, an important factor for any investor.