First, a brief recap.
When we first wrote about Providential in June 2002, the Company had no revenues, no assets, and no operating business. See Providential Holdings, Inc. – Holding What? The Company’s business, or at least the business it hoped to develop, was based upon a number of vaguely described relationships with other companies, including some that were centered in Vietnam.
Virtually all of those ventures failed to develop, or were subsequently abandoned. For example, Providential claimed to have signed an agreement in March 2001 with the International Center for Training and Consulting (ICTC), “an organization under the Ministry of Trade of Vietnam that promotes economics, trade, investment and training activities between Vietnam and foreign organizations.” While the Company initially said that ICTC had introduced several potential ventures, it now concedes that no projects have been completed or are in progress.
Ditto for claims that Providential planned to work with Chu Lai Industrial Zone (CLIZ) Authority, of Vietnam, to develop an industrial and export processing zone, upgrade a paper mill, and implement two to five investment projects in by the end of 2002. As of September 30, 2003, Providential had not assisted in funding that project.
The list of abandoned projects and failed plans goes on. At the time of our initial profile, Providential was trumpeting Manna Technologies, a joint venture to manufacture LCD’s in Vietnam with someone named Mimi Ban. No plants were established, and the joint venture was abandoned in May 2003.
In a similar vein, an agreement for Providential to acquire control of a barely existent company called SlimTech, Inc. also fizzled, and was cancelled in May 2003. Plans to set up Providential Advisory Services as a financial advisor also fell by the wayside, as did the Company’s line of credit arrangement with something called Mercator Group.
Other ventures, although not abandoned, have failed so far to generate revenues. Yet, despite these failures, Providential has continued to announce new projects with the same abundant optimism. On April 3, 2003 the Company declared its entry into the homeland security business, issuing a press release that described plans to acquire control of Real ID Corporation, a Korean company that marketed bio-encryption and bio-authentication products. Providential suggested that it now would become a “leading hardware and software supplier for airport, corporate and homeland security.” So far, there is no indication that this project has generated any revenues.
One week later, on April 10, 2003, Providential announced that its subsidiary, Nettel Global Communications, was about to receive a purchase order totaling $5.53 million a month, over a twelve month period, for pre-paid calling cards and PINs..
Along these same lines, on September 2, 2003, the Company said it had launched a new division, Touchlink Communications Company, to provide prepaid calling cards and related services. According to subsequent press releases, Touchlink now has arranged to provide prepaid phone cards and other services to members of the Korean American Grocers Association, and to purchase certain value-added telephone routing services from Providential’s subsidiary, Nettel.
And, most recently, there was Providential’s October 8th announcement that it had acquired ATC Technology, whose products include a video game system. Later in October, the Company issued pres releases stating that ATC had received “Christmas” orders for its product from Wal-Mart stores in the United States and Canada. The timing of those announcements seems odd, however, since most stores order, and inventory, their Christmas products well in advance of the holiday shopping season.
So far, there is no indication that these latest ventures have generated revenues for the Company.
So where did Providential get that $4.44 million dollars?
Valuing Lexor
That sum is based upon the purported value of 1.5 million shares of common stock that Providential received for providing consulting services in connection with a September 29, 2003 merger between Lexor International, Inc., a private company, and Western Silver-Lead Corp., an OTC Bulletin Board company that had $39 in the bank as of June 30, 2003. Western Silver is now called Lexor Holdings, Inc.
Interestingly, on September 26th – just three days before the merger – Western Silver registered 6.5 million shares of common stock for its “”2003 Employee Benefit Plan.” Western Silver did not say who received those shares.
The 1.5 million Lexor shares that Providential received for its consulting services constitute the basis for the Company’s claim to $4.44 million in revenues. How did the Company arrive at that value? So far, no financial statements have been filed indicating the historic revenues or current assets of Lexor International – the company that folded into the Western Silver shell. An 8-K filed on October 7th promises those financial reports before the end of November 2003.
In any event, Providential did not claim to base the $4.44 million value on the underlying financial strength of Lexor. Instead, it said simply that the stock had been valued at $2.90 a share.
Where did that number come from, and did it reflect a realistic, fair value for the Lexor stock? Between October 17, 2003 and October 31, 2003, immediately following announcement of the merger, Lexor stock flirted with prices that ranged as high as $3 per share. By November 7th the share price had slipped to $1.25.
But do either of those figures represent a fair value for Providential’s 1.5 million Lexor shares. Between October 15, 2003 and November 14, 2003, a total of 5,770 shares of Lexor common stock were reported as traded? Volume was insignificant, suggesting that any attempt to flood the market with a large number of Lexor shares would be likely to flood the market. Perhaps just as important, there is no indication that there would be a market for considerable volume – such as 1.5 million shares – at any price. In other words, is the market liquid enough to support any significant volume?
The $4.44 million revenue number is reflected in Providential’s most recent unaudited financial statements. Would auditors place such a lofty value on the thinly traded shares of a business that has yet to report its revenues?
Despite such questions about the share valuation, and the fact that these “revenues” represent a one time event, Providential’s Chairman and CEO Henry Fahman recently commented that “[t]he positive trend should continue in the coming quarters as the Company’s subsidiaries are generating additional revenues and new acquisitions are coming on stream.”
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