I have been around smallcap companies full-time for more than twelve years. To me when I read headlines and content that cite “memorandums of understanding” and “letters of intent” I get very weary. No, strike that. I get very suspicious. Why mention a deal before it is a done deal? Many of these don’t even name the other party to the deal. I’ve got a great example below. But first…
Let’s look at each document separately – First the Memorandum of Understanding:
A “Memorandum of Understanding” is simply a document that says you reached an understanding with another party. You could go to PR Newswire when you come back from a car dealership after you put an offer in writing. Have you ever signed a worksheet with a sales guy that says if they get your payment to $350 with nothing down (or whatever the terms are) you will buy this car today? Just write “Memorandum of Understanding” at the top of the worksheet and ask the sales guy to sign it to. Then you both have entered a Memorandum of Understanding (An “MOU” !) that says you will pay $350 per month with nothing down for their highest price car. Great. Put it on PR Newswire, Marketwired, or even Accessline. Get that word out.
Usually you don’t get to do that as the sales manager vetoes the deal and that is that.
With smallcap MOU’s, sometimes companies go out and try to make deals legitimately – but things later fall apart. They put out the MOU and then nothing happens. Well – something happened. The stock traded up for a while on the “good news.” Then it fell apart. Darn. Others plan such manuevers knowing that they are really doing something that is pretend. The other party might be a friend. The other party might be a legitimate business that says, “Hell, Yes. If you walk in here and give me a cashier’s check for $2 million dollars I will sell you this gold producing land.” The CEO might say, “I really need this in writing for the board. Can you sign this ‘Memorandum of Understanding?'” And then he does. Then he wonders why he is getting about ten calls an hour after that strange little company that should be coming back with the check puts out a press release on it.
Now the “Letter of Interest”
The “Letter of Interest” is even more dubious. A CEO might say, “I am interested in buying your entire inventory of widgets, and I would like to pay fair market value and I plan to bring you a check thirty days from now for that inventory. By signing this letter (The “LOI” !) you acknowledge that I am interested and that if I arrive her in thirty days you might even sell me all of your widgets at some price we can agree on later. I ask for your signature so I can take it to the Board of Directors. Please sign here.”
LOI’s are the biggest crock of BS out there. I am thinking of going to an Apple Store and ask the store manager to sign off on the fact that I plan to come back to his store and buy another iPhone 6 for my business. I just need him to acknowledge that I showed interest by signing this Letter of Interest. If I get a signature, I can even put out a press release with AAPL as an extra ticker to tag!
AN EXAMPLE: NSAV
The example here is REAL. Notice they do not name the company that they signed an MOU and an LOI with.
The Company issuing the MOU and LOI is Net Savings Link Inc. – Symbol: NSAV – Trading at $0.0001.
Look this this company using BOTH the LOI and then the MOU. Then things got “delayed.” They are probably on the up-and-up. The issue is WHY PUT OUT NEWS AT ALL ABOUT DEALS THAT ARE NOT DONE? Seriously – WHY?
APRIL 15TH:
NSAV Announces the Signing of a Memorandum of Understanding (MOU) to Finalize the Terms of the Expected Closing
NSAV announces the signing of a Memorandum of Understanding (MOU) to finalize the terms of the expected closing of the acquisition target that was referenced in our April 2, 2015 public announcement; We are also announcing the appointment of David Pecoraro to the Board of Directors as the Vice President of Operations of NSAV
Net Savings Link, Inc. (OTC: Pink: Symbol NSAV) today has announced through its CEO, Steven Baritz, the fully executed Memorandum of Understanding (MOU) to finalize the terms of the expected closing of the acquisition that was referenced in our April 2, 2015 public announcement. Mr. Baritz commented, “As previously announced, we are on target to close on the acquisition of a California firm that is one of the premier developers of a Point of Sale ( POS ) , traceability, and marketing system that will be providing essential servicing to an emerging market space that is one of the fastest and largest growing retail and delivery industries in he the U.S.”
APRIL 4TH:
Net Savings Link Announces Letter of Intent to Acquire a POS Firm in California for the Retail and Delivery Industries
NSAV Announces the formal execution of a Letter of Intent to acquire a California firm that is one of the premier developers of a Point of Sale ( POS ) , traceability, and marketing system that will be providing essential servicing to an emerging market space that is one of the fastest and largest growing retail and delivery industries in he the U.S. We will also be terminating the acquisition process with Bella Vida Brands, Inc.
Net Savings Link, Inc. (OTC: Pink: Symbol NSAV) today has announced through its CEO, Steven Baritz, the formal execution of a formal letter of intent to acquire a Los Angeles, California firm that has effectively prepositioned itself as the premier developer in the capacity of a required and mandated peripheral service provider within one of the fastest growing emerging markets in the country. This emerging market is currently reporting more than $3.5 billion in annual sales, and is projected to grow by 19% year over year through 2020. Projections beyond that point are still being formulated.
The Bottom Line: Regulators Need to Come In and Investigate!
Companies should not be able to put out MOU’s or LOI’s without consequences. If the action suggested in the MOU or the LOI does not come to pass, regulators should get in there and investigate. This company above may be totally legit, but so what. They failed to deliver as they suggested, and there should be a remedy for investors. There is almost alway a reason that companies put out MOU’s and LOI’s, and it usually has more to do with getting the stock to trade than – excuse the term – “transparency.”