Show r A A. Self pelf Explanatory Report of the Affairs of the 1 i PAN MOTOR COMPANY of Saint Cloud Minn t Chief of ot George A. A Je Levy BOARD DOAnn r A lr Larry 1 IC w AV J. J J. J Ii IC Mullen n V. I. I 1 n. n Mayor INDUSTRIAL A BUREAU E OF F THE CITY I AND COUNTY OF DENVER DEN January 24 1919 J Honorable D. D C. C Bailey Manager of Safety and Excise Denver Den Colorado months this Bureau has been in receipt of Dear Sir For the p past St several se man many communications concerning tho the affairs of the Pan Motor Company of St. St Cloud of its stock selling Belling campaign and suggesting suggesting sug sug- Cloud Minnesota l urging ntO g an nn investigation gesting the refusal refus l of a license se to sell the stock of or the company in m the City and Count County of Denver Much of the criticism add arid publicity given to the affairs of the company were cro the Ule founder and organizer which criticism was ap ap- particularly directed against D cent invited because in the beginning beginning- subscriptions to the tho stock were secured bj v him with only an idea in mind At that time there was no organization i incorporation c location or definite physical plant plant- or equipment as a basis for sellin selling stoc stock for development pur purposes and had bad there been no substantial response to tho the initia initial solicitation of the founder and organizer to make mako real his idea the promotion pro pro- motion would havo o failed and Mr S. S C. C would have gone down into history his his- tor tory as a n monumental failure and promoter But it is to be bo noted that in spite of adverse conditions which are recorded later in this report tho the plan has mot with witha a a. great eat measure of support and there is every reason to believe that the company w will Jl m mic meet t with ultimate success Up until January 1 1919 1910 this Bureau had not been able to satisfy itself as to the tho actual l conditions of tho the company's affairs As s the time timo of the tho year Jear arrived cd when an application for a renewal of the license of the company was likely to be made th Bureau endeavored to secure curo the fullest information regarding the corn com company pany and from reports received was somewhat skeptical as to the tho condition of its affairs an and an its future Earl Early in January this Bureau Iwas was advised that the local representative o of the Pan Motor Ioto Company was applying for a renewal of its license and after a conference conference con con- ference with yourself I recommended that the license be withheld until a personal investigation in of the property and program of of- the company could be secured at first hand Accordingly on January 14 1019 1919 T I loft left Denver cr for St. St Cloud Minnesota accompanied accompanied ac ac- companied b by Bernard Bernar 1 J J. Ford ord Attorney at Law of the City of Denver Den arriving ing at St. St Cloud early in the morning of January and began bean a systematic survey of the entire situation During of tho the time I was making the investigation in I was accompanied into every erY department and office b by Mr Ir Ford who is able to acquaint you as ns to the completeness of my survey suneY At the he outset let me me state that had this survey been made a year ago go instead of f at this tins time I believe e that I would have condemned the entire undertaking as being impossible feeling that the war had first claim upon our citizens and that that great difficulty would be encountered in raising such big money during a 1 time when Libert Liberty Bonds were being subscribed for when materials machinery a and d labor were hard to secure and when many other factors existed which would have e deterred the average a promoter I have read and rea re-rea read re-read ml much ch of of the unpleasant publicity given gien to this company company company com com- pany b by various arlOUS public bodies j including the tho indictment returned against 0 them inthe inthe in inthe the United States Dist District ct Court at Fer Fergus s Falls Minnesota the report of the tho hearings to before the tile Capital Issues Committee of Minnesota tho statement made before COn Longress uy by 1 the capital l issues committee and a report by the firm linn OL or eff efficiency c engineers employed by the Cap Capital tal Issues Committee at Washington ashington r and while I convinced that tha-t in the earl y of the am m early stages promoting of the Pan Motor Company there were exaggerated promises held out to investors still I agree with judge Judge Page Morris of the United United States District Court at Fergus Falls Fan Minnesota at the be hearing of th the caso case on Friday Jam January ary 3 1919 1010 that There Thero is IS no evidence of fraud in the selling of the stock nor In in the promotion of the tho Pan Motor Company I The investigation discloses that those agencies federal state judicial civic and and others who sincerely believed belie they were right in the premises that the promotion promotion promotion pro pro- motion was gas unsound and that the organizer would be the only beneficiary cannot bo be condemned for their findings b for I might b have havo made mado tho the same deductions deductions deduc deduc- lions at the time that that most of these agencies made their investigations in and reports But the situation today discloses that while the early expenses were liberal even e prodigal and the organization and its officers practically unknown tho the present status of affairs indicates that tho the future p promises omis s much I have c as you JOU are aware mac meet several sc hundred investigations In of various com corn companies companies and corporations since the passa passage e of the tho Municipal pal Blue S1- S1 Sky Shy Law known as Ordinance Xo No Series of 1917 1911 and I feel fecI it to bo be true that in no case have haye I ever eyer rendered a report that was not equitable to both the company and the interests of the investors In the investigations in conducted by this Bureau of all corporations coming comingo under the above aboyo ordinance proper credit was as always given to the It promoters for o their good intentions and allowances made maae for un unforeseen delays occurring because of weather condit conditions ons lack of material and equipment labor conditions or transportation transportation transportation trans trans- difficulties and when one ono remembers that the Pan Motor Company ComPy any was being developed eloped during the war period and in consequence encountered some somo dehays de de- Ja lays hays s 's the company can bo be commended for the manner in which the they have o completed and equipped the present buildings It is to be noted also that the period for delays in securing equipment and labor is now past and if the plans outlined b by the present heads of departments are aro carried earned out I can see seo no reason why the company should not succeed The promotion of the Pan Motor Company was a gigantic undertaking and because of its immensity has drawn to itself the limelight of man many investigations in but it appears to have havo weathered the persistent attacks of its critics and now should be able to carry out its program of manufacturing without hind hindrance ranee or dela delay There is a wide difference in the tho promotion plans of the tho Pan Motor Company compared with many other promotions which have ha come under our observation It is a departure from the established order and to mind is our i s founded along g safe lines The Tho plan was to sell stock at double par yar val value no to use the capital for in investment investment in- in vestment in land buildings machinery equipment and ever every ery other factor that enters into manufacturing while the surplus was to be used to P pay tho cost of promotion agents commissions printing advertising arh salaries of the clerical force and every ever other incidental expense attached ec to bringing g the company into complete existence ready to manufacture without impairing g gg g the capital I am convinced it was RS tho the size sizo of the tho undertaking which attracted attention and appalled most people Yet let there thero is not a n conservative industry a no banking institution that is s not promoted and financed alon along similar lines and to sustain my statement a plan which I myself have havo recommended and favored in a n. number of in instances instances in- in stances only of course on a n much smaller scale I q quote note from a n book on COP COn A ACCOUNTING COUNTI G by br R. R J. J Bennett C C. P. P A A. A on page Stock tOol Stock Issued at a 3 Premium to Create a Surplus In the previous illustration the tho stock of an established was sold at a a. premium It is not unusual for a corporation to company sell spa its stock above par at the time tima C of incorporation for the purpose of creating a a. st sur i r plus plus plus-a a practice which is us usually wally followed by insurance companies banks trust companies and other financial institutions A COMPANY WITH A SUBSTANTIAL SURPLUS IS MORE LIKELY TO POSSESS THE CONFIDENCE OF OP THE PUBLIC PUBLIO THAN HAS NONE NONE- AND BY SELLING STOCK AT A PREMIUM A MORE OR LESS SUBSTANTIAL SUBSTANTIAL SURPLUS OR MARGIN IS PROVIDED AT THE OUTSET WHICH MAY BE DRAWN UPON TO MEET ORGANIZATION EXPENSES AND CARRY CARPY THE COMPANY AND GIVE IT SOLIDITY UNTIL mi IT BECOMES ruu i FIRMLY ESTABLISHED When stock is thus sold at a premium the entries aro are tho the same as in any other sale above par For example if a a. share of stock is ia sold for the par value might be he credited to Stock or Capital Stock Stock and tho the 50 50 to Premium or Surplus It is is interesting to note noto that this plan of financing the Pan Motor Company has met with tho the approval of eleven elc of the blue blue sk sky law Y 1 states in in which states I f the tho stock cL of this com company pan is is permitted to be sold and mill despite all 11 that said w was wis is derogatory of the plans of the Pan Motor Company in the beginning beginning such ban have havo o law been thrown around its operations that makes the stock k acceptable to te the blue y administrators i y There lies has been heen n a great deal of criticism of tho the fact that in tho the beginning the responsibility for the expenditures e of the tho entire surplus fund was placed in in 11 the tho hands of Mr Ir S S. S C. C the tho t o founder und organizer of the company who while being president was also its fiscal a agent Tho The criticism criticism was well direct directed d. d It is reprehensible reprehensible rep rep- ble practice and in the past has led lcd to man mall many unfortunate and disastrous consequences consequences con con- s sequences but that practice o with this company has been discontinued and a new ne arrangement or contract has been made with tho the President of the company Mr S. S C. C who as general manager advertising g and sales manager of the Pan Motor Company has since sinco June Juno 1 1918 received but but five fhe per cent on tho the unsold stock remaining in the tho treasur treasury WHENEVER IT JS SOLD in return for all s services r rendered This arrangement was made mado after a hearing before the state officials of ot Minnesota charge blue sk law having ing in charge the enforcement of the blue sky There is d divided opinion as IS to the abut ability y of Mr r. r and Imd his board of directors director to manage tho the affairs of the compa company lY and I could readily agree to such an opinion were it not for the fact that the board of directors meet regularly every Thursday of er c every week to carp for the tho company's interests and the majority of whom live Iho in the thc city of St St. Cloud Clond right nl at home borne where the industry is located and who are arc substantial citizens held in in t esteem i in n their community and were It not for the tho further fact that durin during m my investigation I came in in contact with tho the heads of the manufacturing departments in whose ability is the destiny of the company com com- company pany and that the manufacturing policy appears appear to Lo be in the hands bands of a n. competent factory manager of undoubted experience It has been impossible to review le all of the advertisements and all of the literature liter aturo issued by the company since its inception but hut we have e studied much of it and must confess that it is is very alluring very inviting and offers the tho bo hope of great grent returns Unlike much of the literature of a great number of the highly speculative speculative lathe and purely promotional companies this company compau has at least something tangible something D actual something b real ical on which to base their hopes while whilo most of the others rs deal with tho the intangible r and the unknown Tho The cost of the promotion has as been very y high but hut tho the net act results to tho the promoter on a percentage b basis sis has Ims not been beyond reason for while whilo tho the net returns of Mr tIre arc approximately 10 per cent of all tho the stock sold a aery very ery large figure figuro because of tho the largo capitalization most of his bis receipts have bave been reinvested in such a manner as to indirectly be a n source of great benefit to tho the company While it is true truo that as a result of such investment he lie will have a n. good income the size size and permanency of will depend entirely upon the tho of the Pan Ian Motor commissions commissions' into success Company TIe lie has invested in most of his a new enterprise an enterprise which will increase the efficiency and happiness of most of the es of the tho company for lie ho hohas has bas erected a largo Jargo number of beautiful homes modern In m every cry respect within a n. stones stone's throw of tho the factory facton and which he ho rents to the tho and their families at nt a nominal rental I know of no better plan of homes so high bight grade located near an nn industry that surpass the homes Mr tIre has provi provided e out of his bis commissions as a promoter The cost of the tho tho promotion has been heen heavy y in proportion to promotion expenses expenses ex ex- as usually measured in other industries but tho the unvarnished truth is that thata a n great many expenses have been paid for out of the surplus tho the premium that in many ninny other U promotions would hn have e been paid from the capital Again tho the expenses have havo been heen greatly increased by tho the fact that for a long longtime longtime longtime time apparently for about a n year and a half Mr 1 and his organization have bave been on the defensive because of many criticisms and public announcements suits and indictments which have greatly increased expenses through having to engage attorneys and to print extensive issues of literature defending his own character and the character of his bis organization As time progresses the cost of promotion will ill bo be reduced and a n great part of the tho surplus not needed for for promotion will be diverted to Lo the capital fund fundo o of tho the company We Ye have re read d the contract of subscription to the stock of the company and find a very ery clear and find distinct statement nt as to the purposes for which the money for the subscription is to be bo used and w while the ignorant might not appreciate the statement made in any contract still the language in tho the Pan Motor Company's ys subscription contract is so plain that the tho most unsophisticated ted may grasp its intent Among the many criticisms offered against the company is ono one which calls attention to tho the item in the financial statement of will good or intangible assets which in this case runs into a vast sum of money I desire desiro to emphasize tho the fact that there is a n. nery very ery definite value to intangible D assets |