SWMX: How Not To Be Transparent and Fair

New York-based SoftWave Media Exchange (SWMX), a competitor to Google’s radio ad placement business, announced its Q2 results last week.  The results were weak–revenue declined year over year.  The press release didn’t draw any attention to this fact, however: Instead it trumpeted a new deal that SWMX said “validated” its business model.

What the release also neglected to mention is that SWMX is ostensibly bankrupt.  To figure that out, however, readers had to dig deep into the 10Q to find the section headlined LIQUIDITY AND CAPITAL RESOURCES.  After several paragraphs in that section, careful readers would find the following:

On July 1, 2007 the Company was in default  under the credit  facility as it had not raised $10 million in equity as required under the agreement.  As of July 2, 2007 the Company entered into a forbearance agreement whereby BlueCrest canceled the Revolving Loan,  increased the interest rate on the Term Loan by 2% and gave the Company  until August 1, 2007 to cure the event of default.  The Company did not cure the event of  default  and  BlueCrest  Capital  Finance,  L.P.  has not extended the forbearance.

The Company has incurred  substantial losses from its inception through June 30, 2007, has a stockholders  deficit of $1,991,386,  a working  capital  deficit of $5,367,203 and is in default under its credit facility,  which raise substantial doubt about its ability to continue  as a going  concern.

For those not familiar with accounting convention, the highlighted sentence is known as “going concern” language.  Accountants put language that in SEC filings when the patient’s heartbeat has flat-lined and doctors are searching frantically for a pulse.  This is why SWMX’s stock trades at 9 cents.  Not that you’d have known that from reading SWMX’s triumphant Q2 release.