We published Part I of our investigation into the financial underpinnings of CET
LLC, CET International, and CET Technologies last week. In that research we
found reams of data on Infinite Networks Corporation, which became the parent
company of the CET companies in 2006. Though Infinite’s history is quite
interesting, rather than pursue that further, here in Part 2 we focus specifically on
the 2006 and 2007 transactions involving CET and Alberto Solaroli, who has been
reported to be close to fielding a two car Porsche prototype (RS Spyders) team in
the American Le Mans Series. This report does not make reference directly to the
financial structure of CET Racing/Solaroli Motorsports, and though some will
perhaps wonder at that, to us it is just the point. Other than that which could be
provided by Solaroli’s businesses, we have been unable to turn up any race team
financial data at all, particularly interesting in the light of Mr. Solaroli’s public
statement that he has not sought any outside sponsorship. We cannot say for sure
whether this racing venture will prove successful or not. We can only present what
we have discovered.-Editor-
Communications to Coffee
Having gone from communications to coffee, then back to communications,
Infinite Networks Corporation decided to make another of its frequent and radical
strategic moves in 2006 by dumping its communication-focused holdings. Eller
Industries was acquired, then its shares distributed to Infinite’s own registered
shareholders to accomplish the divestiture. The new strategy (or, as the company
termed it, focus) was in energy. There, it created a new subsidiary, Cosmic Energy
Corporation with Donald Miller (former Infinite CEO) at the helm. Its big move,
however, was to be the acquisition of CET, LLC, a Florida corporation that (in the
words of a recent Infinite document)(1) “represented it had a worldwide license for
the Solaroli patented technology," (U.S. Patent 6,282,898). Infinite and Alberto
Solaroli signed the agreement on January 25, 2006. The acquisition was
completed in October 2006.
ffffA little cash, a bit of stock and a big note
Infinite acquired from CET International and CET, LLC an exclusive worldwide
license for the Solaroli technology, excluding the racing industry, for royalty
payments of 5% of gross annual sales and 10,000,000 restricted (2) shares of
Infinite Networks common stock. The acquisition was a triangle merger in which
Infinite Networks Corporation acquired 100% ownership of CET, LLC, in turn the
holder of an irrevocable license agreement with CET International, the owner of
the patents. In March 2006, Infinite further activated an option agreement to
purchase up to 40% of CET International with a down payment of $450,000 and an
unsecured promissory note for $71,217,000 payable in 59 equal installments to
begin in April 2007.
Following the merger/acquisition agreement in January, Mr. Solaroli became a
member of the Infinite board of directors, but resigned in May, 2006 while
remaining CEO and President of CET Technologies, the newly-created Infinite
Networks Corporation subsidiary that held the assets of the former Solaroli
companies.
Boat Deal
After the agreement, Infinite raised a bit more than $3 million by selling nearly
seven million shares of its common stock in a private placement to accredited
investors at an average price of about $.50 per share. The company said that $2.6
million was working capital to support the development of the new engine
technology. That development included performance on a 2005 agreement with
Fountain Boats, an opportunity it was believed would provide worldwide
recognition and a platform for testing and proving this new technology in a racing
environment. CET Technologies built six marine engines for Fountain. According
to Infinite documents and a contemporary press release, dynamometer tests in
June 2006 further proved the torque and horsepower potential of the engines. The
CET engines raced in August and September but fell prey to mechanical failures.
According to Mr. Solaroli, the August failure was caused by a loose oil canister,
and in the September incident, the wrong pistons had been supplied by the
manufacturer.
Misunderstanding
A Porsche was showcased by Mr. Solaroli to show that the technology was viable.
Infinite’s goal was to develop the retrofit market as soon as possible. Mr. Solaroli
wanted to focus on the racing industry and build new engines using this
technology that would further provide technical data for commercialization and
gain worldwide recognition. There was nothing remarkable in the progress made
other than its slow pace relative to Mr. Solaroli’s statements elsewhere, and
perhaps also relative to the expectations of Infinite. In any case, trouble between
the parties was brewing. In its March filing, Infinite said,
“Subsequent to the signing of the original acquisition agreement, Infinite
discovered, among other matters, that no patent assignment to CET International
had been recorded at the U.S. Patent Office. As part of the completion of the
acquisition, a closing agreement was entered into with the reorganization parties
and Al Solaroli individually in which Mr. Solaroli again represented that he had
assigned the patent rights to CET International and that he would cause the
assignment to be recorded in the U.S. Patent Office. Mr. Solaroli has been
repeatedly asked to record the patent assignment, but has (according to a March,
2007 company document) failed to do so.
As a result of the failure of Al Solaroli to record the patent assignment, and the
resultant inability of Infinite to show that it has a license agreement backed by the
recorded ownership of the patent in CET International, Infinite has not been able
to move forward with the exploitation of its license rights or to seek additional
capital based on having the license rights.”(3)
Mulligan
For whatever reasons, it seems that by the end of 2006, Infinite had enough of Mr.
Solaroli, and Mr. Solaroli had enough of Infinite. They agreed he could buy back
CET, LLC. In November they signed a letter of understanding that Solaroli would
re-acquire CET LLC plus 28,000,000 shares of Infinite stock for a total purchase
price of $105,461,000.(4)
Banking on Cameroon
The source of those 28 million shares was Karamouzi Bank & Trust Ltd., Republic
of Cameroon, which had acquired shares in 2004 in exchange for a little cash and
a $25 million letter of credit, after some glitches in that agreement, those shares
reverting to Infinite in a 2006 settlement. In May 2006 the 28,000,000 shares were
conveyed to Mr. Solaroli in trust, then transferred by him to a series of foreign
entities as part of a capital formation program. In this new agreement Solaroli
would take back CET and retain the Infinite shares. The re-purchase transaction
was to be paid in 12 equal installments beginning at the end of 2006. Mr. Solaroli,
however, did not ratify this agreement, but rather proposed a new one (which
terms we do not know) in 2007 that was not acceptable to Infinite.
Mr. Solaroli may have hoped to use the Cameroon bank’s shares to raise capital
to complete his repurchase, but there have been no transactions that we know of
involving those equities. Infinite believes they are still held by Solaroli’s foreign
entities, has demanded their return, and placed an administrative hold on them.
Unconsummated
Absent a satisfactory agreement and without the effective control of the Solaroli
patent that it thought it had acquired, in February of this year Infinite rescinded the
option agreement of March 2006, voiding its promissory note and asking for the
repayment of its $450,000 down payment. This unilateral rescission of the option
exercise has been questioned by Mr. Solaroli, and the funds have not been repaid.
Stocks, No Cash
It seems neither Infinite’s original purchase of CET, nor Mr. Solaroli’s repurchase
has been executed. Solaroli is reported to have received $450,000 cash in the
original agreements, plus 10,000,000 shares of stock that he could not sell under
even the most liberal definition of SEC Rule 144 until February of this year. In the
100 or so trading days since then, Infinite trading volumes do not seem to have
been adequate to have accommodated such a block, and even if they were sold
over time, there has been but one intra-day spike to $1 a share and no daily
volumes greater than 225,000 shares; most trade share prices have fallen below
twenty-five cents in the period. The stock actually closed on 21 May at 1 cent per
share. Thus it’s our conclusion that the 10,000,000 shares reported to be involved
in the original transaction have not likely yielded more than $3 million, if anything
at all. The profile of this transaction is similar to that used by Infinite and related
companies through the years - lots of shares, little cash.
The other elements of the sale that might yield revenue are first, the 5% royalty to
be paid on sales, and second, any revenues that Mr. Solaroli might have made in
the excluded “racing industry.”
In regard to the first of these, there is no indication that Infinite has any sales, or
any revenue from any sales – of any kind. The company’s Disclosure Statement,
which includes results from inception (March 27, 1996) through 2005, documents
cumulative net losses from operations is over $14 million and no year in which
Infinity in any of its forms or any of its subsidiaries has recorded net positive
income. Nor is there anything in the description of 2006 operations that would
cause one to conclude that there is any production, services, sales, or revenue in
prospect. In fact, Infinite has its own reservations about its prospects as a “going
concern.”(6)
Since there is no record of sales of any kind from any of these companies, we
have to conclude that the funding of this team comes from investor’s money –
something the principals may find the Securities Exchange Commission frowns
on.
Alberto’s Been Racing?
As to the second potential for income, we found this statement in Infinite’s
director’s biography for Mr. Solaroli: “…he holds an FIA professional automobile
racing license and competes on various circuits throughout North America and
Europe. He has implemented the CET technology in various cars used in these
events and the positive results can be described to potential investors should they
be interested in meeting Mr. Solaroli.”(5)
Though we think that various sanctioning bodies might wonder when an adiabatic
engine might have graced their grids, we have no problem concluding from our
own observations that Mr. Solaroli has not derived any significant revenues from
racing applications of his patented technology.
CET Racing/Solaroli Secret Funding?
In our view, there is simply nothing on the record to indicate that CET
Racing/Solaroli Motorsports has or can obtain the funding required for its
American Le Mans Series racing program, and a great deal that indicates that is
has not and will not. We know that the Spyders were delivered, but contrary to
assertions we have seen, it’s not likely that Porsche invoices were paid in full at
the time of delivery. Payments to Porsche may actually be substantially in arrears.
If that is the case, we don’t expect the long-awaited driver announcements
(driver’s due diligence being among the best in our business), and we don’t
expect to see Spyders 706 and 707 at Lime Rock Park or at Mid-Ohio Sports Car
Course. The wheels are about to come off these Spyders.
We’ll hope for the best, of course. We certainly want to see more cars, particularly
of the quality of the Porsches, on the series’ grids, and trust we will – sometime in
the future, and in other hands.
Notes
(1) Disclosure Statement Pursuant to Rule 15C2-11 Securities Exchange Act of
1934, dated March 19, 2007, page 3.
(2) Restricted stockowners need permission of the SEC to sell, and there is a
statutory waiting period of one or two years, the latter applying to individuals in
high management positions. (Which would include Mr. Solaroli, according to the
opinion of security industry experts.) See SEC Rule 144.
(3) op. cit., Disclosure Statement, March 19, 2007, page 5.
(4) This price was based on an independent appraised value of $73,130,000 for
the license, plus an additional purchase of 28,000,000 Infinite shares currently
held in the name of foreign entities by Mr. Solaroli for $32,331,000.
(5) op. cit., Disclosure Statement, March 19, 2007, page 9.
(6) ibid., page 29, Note 9. “As shown in the accompanying consolidated financial
statements, the Company has suffered recurring losses from operations and has
an accumulated deficit of $11,918,655 as of December 31, 2005 and $10,455,631
as of December 31, 2004. These factors, among others, raise substantial doubt
about the Company’s ability to continue as a going concern.”
Copyright Tom Kjos and Last Turn Clubhouse
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