CaddyShack, CEO of the year antics and turkey sandwiches: Lakeba back in the revenue bunker

by Michael West | Dec 19, 2023 | Business, Latest Posts

Lakeba Group managed a meteoric 25-fold rise in revenues, then went revenue negative. Michael West reports on the latest hijinks from the kaleidoscopically colourful tech entrepreneur Giuseppe Porcelli.

It was only a few months ago that Giuseppe Porcelli, the colourful CEO of Manly-based Lakeba Group, was rubbing shoulders with some of Sydney’s business elite at the CEO Magazine night of nights, hoping to snag the coveted “CEO of the Year” award.  

This was another attempt by Porcelli to get some sort of recognition after entering himself for several other awards that did not go to plan. He had been entered into this pay-to-play competition for CEOs of businesses with $100m or more in annual revenue.

As Bill Murray’s famous groundskeeper in Caddyshack might have declared, “It’s a Cinderella story, came from nowhere…!” For Porcelli’s magical rise in revenues – a 25-fold rise – had come thanks to some smoke and mirrors on the accounting front. 

The amazing Giuseppe Porcelli hits the CEO big-time without the help of a single customer

It was extraordinary. Previously, Lakeba’s third-party revenues stubbornly hovered around the “just a few million” mark. It seems the trick to the supersonic increase in revenues was finding an auditor that would support a change in business classification from “software developer” to “investment company”.

While aimed at organisations with a primary business of investing in entirely independent businesses, this change of classification was used by Porcelli to claim the perceived increase in value of Lakeba’s controlled subsidiaries as revenue.  

Largely defunct businesses suddenly had a new lease on life, and those generating relatively small cash revenues got extravagant valuations based on undisclosed “independent valuations”. Boom!  Look at him go – a newly $100m revenue business even though the underlying businesses only had a few million in actual cash revenue … combined!

Turkey sandwiches?

Several shareholders questioned this approach at the last Lakeba annual meeting, held so close to Christmas that it should have served turkey sandwiches.  

The previously unknown auditor from auditing minnow ASK Audit was unfortunately (or fortunately?) struck down by Covid on the morning of the AGM and he couldn’t answer the many questions lodged about this approach to revenue recognition where a company actually controls the entities in which it is investing.  

It’s a little like being a judge at the school talent competition that your own child is performing in. On the surface, you might expect shareholders to be delighted with this incredible growth in revenue.  

Those among them with experience in accounting felt something was as aromatic as a wheel of Italian Parmesan. Yet those who questioned Emperor Porcelli were dismissed as “disgruntled shareholders”, although it must have been difficult to find “gruntled” ones given there has been absolutely no return on investment to date.  

Oh, except for the amazing Giuseppe selling some of his own shares to incoming investors to supplement his already generous CEO salary.

Whether it was a case of long Covid or just the heat of the spotlight upon him, the bold auditor signing off on last year’s accounts resigned several months ago, and a new auditor was appointed. 

Hall Chadwick, a second-tier accounting firm, stepped up to the plate and reviewed the work of the last auditor, as new auditors are required to do. The result? A plummet from $100m in “revenue” in 2021 and a further $80m in “revenue” in 2022 to a LOSS before tax of minus $30m in 2023. 

Yes, ‘minus’ revenue. A boast which few could ever make. That’s an overall reduction of $110m of revenue (or subsidiary valuations, to be more accurate) in just 12 short months. Maybe CEO Magazine needs a new category for Biggest Tiny CEO of the Year? But there would not be an earn for the publisher in such a caper as business people would be unlikely to pay for this type of award.

The nitty gritty

What happened? The 16 ventures lauded on Lakeba’s website seem to have been narrowed down to a handful of operational companies. Overall, the Lakeba ventures were slashed in value by over $33m.  

Many were written down to $0. At least Lakeba’s cash-in-bank position improved from a dizzying $8,000 (that’s eight thousand dollars … in a company with claimed revenues of $80m) at June 30 last year to just over $300,000 this year – and current liabilities still dwarfed the available cash and receivables at around $2,000,000. The auditors must have required quite a bit of convincing that the business was still solvent.

Let’s hope they have paid their D&O insurance for the sake of the few independent directors who are still on the Lakeba Board.

So what ventures are the pride of Lakeba? Bricklet, the property fractionalisation play that offers small pieces of houses, farms and even wineries to brave investors, is often held out as the rising star in Lakeba’s galaxy of soi-disant commercial success stories.  

Indeed, it did get a fine run in the AFR, which enthused, “Bricklet uses blockchain to settle housing sales instantly”. Unfortunately, those buying fractions of property on the Bricklet platform are finding out that it’s a bit like swimming on a Winter’s day … easier to get in than to get out. Bricklet only lost around $500,000 in the last financial year on revenues of nearly $700,000.  

Smooth Talker: Lakeba entrepreneur Giuseppe Porcelli takes tech punters for a rude ride

DoxAI, the Frankenstein venture made up of Ezidox, Verimoto and Kreano, beat that by losing around $1,000,000 despite its claim to major clients like ANZ and Macquarie Bank.

Shelfie, another venture with quite a few years on the clock, managed to lose around $600,000, but at least it had some revenue totalling a not-very-impressive $50,000, unlike poor old EziFin which had zero income despite existing for a number of years and raising a chunk of cash to “build a better bank”. Less of a cracker than the middle of a donut.  

Quixxi, seemingly the favourite biz-child of Porcelli, is the only venture that looks like it made a profit. A whopping $85,000, with “Other Revenue” almost equalling Sales Revenue.  

Perhaps Quixxi should focus on generating more of this “Other Revenue” stuff?  One can’t help but wonder if this venture is worth what Lakeba paid Porcelli himself for the rights to it some years ago.

The 2023 accounts note that “Under Giuseppe’s leadership, Lakeba has successfully developed and commercialised a broad range of ventures including Ezidox, Verimoto, Prophetico, 360degrees, and Blockchain Against Fraud. 

These ventures are the predecessors to the pathways now being pursued by DoxAI, Bricklet, Shelfie and Quixxi”.

Roll up, roll up!  

In other words, a bunch of failed ventures have been rolled up into a few ventures to try and convince shareholders that there is some sort of “strategy” that will one day bring a return. It has as much truth to it as Lakeba’s oft-repeated claim to having enjoyed 3 successful exits to date with no actual evidence of two of them and a less-than-impressive exit value of $50,000 (yes, that’s in thousands again) for the third.

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The old adage “Cash is King” rings aloud. A business can claim whatever value it wants, assuming it can find a willing independent valuer and, more importantly, a willing investor or buyer.  

Plenty of software companies claim stratospheric valuations despite generating little actual revenue … but most eventually crash back to earth when the revenue charade is finally revealed.  

What you can never fudge is cash. Cold, hard cash. Where is the real revenue for Lakeba after 10 long years of operation? Well, it seems that quite a lot of it is in Giuseppe Porcelli’s pocket through high salaries, performance bonuses and various other cash extraction methods.

In order to bolster the board’s intellectual muscle with some deep business experience to navigate the good ship Lakeba through these rocky revenue times, Porcelli’s first-born son, Prince Alfonso, has been freshly anointed as a director.  

Still in his 20s, Porcelli Jr cut his teeth on a business called CoinPokt, which went the way of many crypto businesses soon after launch, like Lakeba’s own Paid by Coins, which sunk without a trace after a failed sale to publicly listed Mobecom (now Graffitii). At least Lakeba kept a few shares in that deal, which look like they have sadly plummeted by 95% in value over the last 5 years. Another insightful investment by Porcelli – il Ragazzino Prodigio.

In fact, nepotism runs deeply in this “family business”, with all members of Porcelli’s family employed somewhere in the Lakeba group of companies.  

Living the Manly seaside lifestyle of fast cars and luxury boats can’t be cheap. 

So when does Porcelli Jr get to face shareholders at this year’s Lakeba AGM?  It’s been called for December 22, even closer to Christmas than last year’s AGM.  

Perhaps management will require shareholders to come down the chimney lest they try to turn up and pose any tricky questions again. And if there is a next year, perhaps they can set aside an AGM for Christmas Day, or possibly New Year’s Eve?  

With Lakeba, anything is possible. Come on, who else has pulled off a revenue trajectory of $4m to $100m back to negative $30m? That … is … flair. It is one for the truest of true believers, one to celebrate. As the song goes: “cel-eb-bration, come on and celebrate and have a good time!”

CEO Magazine Night of Nights. Photo: CEO Magazine

Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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