PITTSBURGH, Feb. 19, 2008 (PRIME NEWSWIRE) -- Industrial Enterprises of America, Inc. (Nasdaq:IEAM), an automotive aftermarket packager and supplier, announced today an accounting and operational update.
On February 5, 2008, the Company announced both the resignation of John D. Mazzuto as CEO, CFO and a member of the Board of Directors, as well as the appointment of James Margulies as interim CEO, CFO and a member of the Board of Directors. The Company is currently delinquent in its filings with the SEC and much of the information in the public domain as to operations and accounting needs to be addressed. While the Company has been attempting to address the most crucial issues of the filings, it has also been reviewing the current state of disclosures with a view toward clarifying the information in the public domain in order to ensure that all shareholders have the most current and accurate information the Company can provide.
With that in mind, the Company would like to answer some of the key questions that have been asked of the Company in the last six months:
DELAYED FILINGS: SOME BACKGROUND
The Company first announced that it would be delayed in its filings in October 2007. Initially, the questions about the Company's filings related to two issues: first, the SEC had made an inquiry with respect to private investments in the Company that had occurred prior to and during FY 2006 and the calculation of warrant issues; second, in its third quarter Form 10-QSB filed in May 2007 for the period ended March 31, 2007, the Company indicated that its accounting for "buy and hold transactions" which occurred in the December and March quarters needed to be reviewed.
As many shareholders know, with Mr. Margulies' departure as interim CFO as of December 3, 2006, John D. Mazzuto assumed the role of interim CFO. Shortly thereafter Dennis O'Neill was hired. He became ill and was unable to continue. Mr. Mazzuto again stepped in as CFO until Jorge Yepes was hired in September 2007. Mr. Yepes was suspended on November 7, 2007 pending an internal investigation. He has subsequently been terminated for cause. His termination was based solely on his actions.
Another contributing factor was the announcement on Friday, October 19, 2007 that Martin Weisberg, a then-partner of the Baker & McKenzie law firm was indicted by a grand jury for securities fraud. These actions occurred before Mr. Weisberg was admitted as a partner of Baker & McKenzie and were unrelated to the business of the Company. Mr. Weisberg has subsequently left Baker & McKenzie. Mr. Weisberg and Baker & McKenzie had been acting as securities counsel to the firm since 2005. In addition, as previously disclosed in a Form 8K filed February 1, 2005, Mr. Weisberg was a shareholder of EMC Corp. when it was purchased by IEAM on October 7, 2004. Additionally, Mr. Weisberg was serving as the outside general counsel to IEAM since at least some time in 2006, a fact that was not known to the current independent members of the Board of Directors.
However, as a result, Baker & McKenzie is no longer acting as securities counsel to the Company. The Company has also had to replace Baker & McKenzie in all actions where it has been representing the Company. Further, outside counsel to the Company is reviewing all transactions/actions involving Baker & McKenzie.
THE SUBSTANTIAL INCREASE IN SHARE COUNT ANNOUNCED IN THE JULY 12, 2007 PRESS RELEASE WAS A SURPRISE TO INVESTORS AND TO THE BOARD. THE VALIDITY OF THE ISSUANCE OF CERTAIN OF THOSE SHARES IS NOW UNDER REVIEW.
At the time of Mr. Margulies' departure as interim CFO, on December 3, 2006, the share count was approximately 10,000,000 shares outstanding. Since his departure as interim CFO it is apparent that the number of shares of the Company's common stock issued and outstanding has drastically increased. The Company has directed that a full investigation of this rise in the number of shares be conducted and that review has begun.
The Company's preliminary investigation indicates that the vast majority of the increase in the number of shares were properly and rightfully issued on the exercise of convertible debt and warrants related thereto; however additional shares appear to have been issued by the former CEO based upon authorization granted to him by the December 2004 Board of Directors of the company which consisted of Mr. Mazzuto, Crawford Shaw, and Michael Collyer, now deceased. The Company has begun a process of reviewing all of the underlying transactions of those additional issuances to determine whether or not they had a valid business purpose.
In addition to reviewing these issuances, the Company will also be reviewing the most recent financing wherein the Company entered into an agreement to issue up to 2 million shares to an investor group for the privilege of allowing them to give the Company a secured loan of $1.5 million in two tranches, subject to many conditions.
The disclosure of that financing was one of the primary reasons for the independent board members requesting that Mr. Margulies step in as interim CEO and CFO for the purpose of guiding the Company through its submission of its FY 2007 and FY 2008 securities filings.
THE COMPANY'S FINANCING NEEDS
The Company is also engaged in an active review of the Company's public disclosures and a reading of the conference call transcripts. As an initial matter, this review seems to indicate that the Company generated both positive cash flow but also had a need for a reasonable line of credit to support normal operations. As many of you may know, IEAM is a holding Company with 100% ownership of three subsidiaries: EMC, Pitt Penn, and Unifide. All borrowings have been done at the holding company level. The vast majority of the Company's revenues are generated in the Pitt Penn subsidiary. Because of the cancellation of indebtedness which occurred as part and parcel of Mr. Mazzuto's separation agreement, the holding company debt consists largely of a $5 million credit line issued by Sovereign Bank.
Prior to its acquisition in January 2006, Pitt Penn required a working capital line of approximately $8-11 million. While the audit of the Company's financials has not been completed, largely due to a final review of the aforementioned stock issuances, the Company does have audited and reliable numbers for the operating subsidiaries. Due to the concern about these various transactions, it is self-evident that the subsidiaries may be more creditworthy than the parent. The Company recently requested that its current lender, Sovereign Bank, consider splitting the current line into two separate lines at the Pitt Penn and EMC level who then would pay down the Company line. The Company has also requested an increase in the Pitt Penn line to the levels that it has historically required. Two additional banks have also been approached with the same request. Diligence packages were provided to the two banks last week.
In the interim, the Company is reviewing its current funding options including approaching Sovereign Bank with a request for a temporary line increase to help support the Pitt Penn operations. Additionally, the Company has identified a potential lender who may be willing to bridge the Company's additional cash needs on a mostly non-dilutive basis to current shareholders.
PRIOR PRESS STATEMENTS
In reviewing all of the press releases issued since July 1, 2007, it is appropriate that we clarify a number of statements:
* The Company's stock buyback program has been suspended. Since the end of FY 2006, the Company has purchased over 1,000,000 shares for a consideration of over $5,000,000.
* The Company has suspended both bulk sales and the "bill and hold" practice.
* With respect to the previously announced Variable Interest Entity issue, the Company has found that the entity involved is, in fact, a Variable Interest Entity. However an audit of the entity's financials is not necessary as management of the Company has determined that the entity is immaterial to the Company's financials.
* On October 15, 2007 the Company announced that the litigation reserve was increased to $13.5 million. That reserve was used principally, as previously disclosed, in the payments made to Trinity Bui and to the bulk sale purchasers.
CONCLUSION
The Company is turning a new page with a focus on running its business in a profitable manner. The Company will continue to focus on corporate governance issues. The Company's management is reviewing all transactions in preparation of the Company's upcoming securities filings. As part of that review the management of the Company will review all share issuance transactions. Finally, the Company is reviewing financing alternatives to add liquidity to the Pitt Penn subsidiary.
About Industrial Enterprises of America
Industrial Enterprises of America, Inc. is an automotive aftermarket packager and supplier that specializes in the sale of anti-freeze, auto fluids, charcoal fluids, and other additives and chemicals. The Company has distinct proprietary brands that collectively serve the retail, professional and discount automotive aftermarket channels. For more information please visit www.ieam-inc.com
Except for the historical information contained herein, the matters discussed in this press release may include forward-looking statements or information. All statements, other than statements of historical fact, including, without limitation, those with respect to the objectives, plans and strategies of Industrial Enterprises of America set forth herein and those preceded by or that include the words ``believes,'' ``expects,'' ``given,'' ``targets,'' ``intends,'' ``anticipates,'' ``plans,'' ``projects,'' ``forecasts'' or similar expressions, are forward-looking statements. Although the Company's management believes that such forward-looking statements are reasonable, it cannot guarantee that such expectations are, or will be, correct. These forward-looking statements involve a number of risks and uncertainties which could cause the Company's future results to differ materially from those anticipated, including: (i) the Company's history of ongoing operating losses; (ii) the overall marketplace and clients' usage of products, including demand therefore, the impact of competitive technologies, products and pricing, particularly given the substantially larger size and scale of certain competitors and potential competitors, control of expenses, and revenue generation by the acquisition of new customers; Other risks are detailed from time to time in the Company's 2006 Annual Report on Form 10-K, as amended, its Quarterly Reports on Form 10-QSB, and in its other Securities and Exchange Commission reports and statements. The Company assumes no obligation to update any of the information contained or referenced in this press release.