3 E International Corp. has been on a remarkable run. Since mid-December, 3 E shares have soared from 12 1/2 cents to over $3.00, on very modest volume, and seemingly insignificant news. What’s all the fuss about? 3 E is merging with its mystery date, a private company called Corbel Holdings, Inc., that used to be a wholly-owned, and inactive, subsidiary of a Pink Sheet company called Pinnacle Business Management, Inc.
Pinnacle used to be traded on the Over The Counter Bulletin Board (the OTC Bulletin Board), but it was delisted after failing to file required reports in December 2000. Pinnacle subsequently resumed filing periodic reports with the Securities and Exchange Commission, but (to clarify the information contained in Part I of this series) apparently never regained OTC Bulletin Board listing. The Company again ceased filing reports in November 2001 when its third quarter Form 10-Q for 2001 came due. It has not filed any public reports or financial statements since that time.
That leaves investors with little current verifiable information to rely upon.
The Long and the Short of It
The merger puts Corbel in control of the former 3 E, but what has Corbel brought to the table? That remains to be seen. Investors are also waiting to see exactly who owns Corbel. Pinnacle’s public filings (before it stopped filing in November 2001) had this to say about the spin-off:In the first quarter 2001 the Company spun off an inactive wholly owned subsidiary, Summit Property Group, Inc. and Pinnacle Business Management Inc.'s shareholders received a non cash dividend of 1 share of Summit Property Group, Inc. for each 100 shares of Pinnacle Business Management, Inc. Summit Property Group, Inc. subsequently changed its name to Corbel Holdings, Inc.
If you thought that meant that the Pinnacle shareholders received 100% of Corbel you would be wrong. As we will see, the former Pinnacle shareholders received only a minority interest in the spin-off.
Then again, they may be fortunate to have received anything at all. As we noted in Part I of this series, Corbel has been having a difficult time determining who is entitled to the spin-off shares – more investors than anticipated have claimed a piece of the action. Some vocal Pinnacle investors theorize that this confusion stems from a large “short” position in Pinnacle stock. Is that likely?
Information about the extent of short positions in Pink Sheet stocks is not readily available to investors. Consequently, anyone attempting to divert attention from the mess at Corbel might be inclined to blame the situation on a mythical “short.” That theory, however, seems to come up a bit “short” itself. Market makers go “short” when they sell a stock with the intention of buying it back later. Are market makers likely to create a short position that requires them to buy back millions (possibly tens of millions) more shares than a company has issued? Under what circumstances would they choose to assume the risk that they might be unable to cover their short positions because there simply are not enough shares in the public market?
In the end, the “short” theory does little to explain why Corbel has had so much difficulty ascertaining who is entitled to receive shares. Shouldn’t the Company, and its transfer agent, be able to determine the names of the shareholders of record? If that were not the case, any company that wanted to pay a dividend could be subject to the same confusion that exists here. Should the existence of a “short” position interfere with that task? Significant short positions exist for many large companies, including those traded on major stock exchanges, yet those companies manage to distribute dividends.
That’s Pinnacle. 3 E may be a different story. Could short sales be on the horizon for 3 E shares? Maybe. It seems quite realistic for a company to fear short selling when its stock is overvalued - and $3.00 a share appears to be a very generous value for $3 E stock.
Perhaps then, it was concern over potential short sellers of 3 E shares that motivated Corbel to announce on January 16, 2002 that it was canceling all outstanding shares and directing shareholders to return their certificates to the Company’s transfer agent. Could Corbel be attempting to get those certificates out of the hands of market making brokerage firms – who might be tempted to short the now-inflated, post merger 3 E stock, and then profit as 3 E share prices decreased? Does Corbel, or someone associated with the Company, want to stave off the short sellers until all of Corbel’s 3 E shares have been registered, and sold, at the highest possible prices. Is that why Corbel warned the individual shareholders that they might lose certain rights “if they failed to surrender their shares or cause their brokerage firms not to identify them as shareholders of record.” Could that be why the Company insisted that its Transfer Agent would “issue the new stock certificates in the specific name of each ‘beneficial owner’ rather than in the name of a retail broker or the ‘street name’?”
Who’s Who Here
The records of the Nevada Secretary of State indicate that Corbel Holdings, Inc. was formed in December 1997 and is presently in “default” status, suggesting it owes filing fees. The Nevada records indicate that Bruce Harlan is Corbel’s President and M. Bruce Hall is its Secretary and Treasurer.The name Michael Bruce Hall is familiar to Pinnacle shareholders. Mr. Hall is the President of Pinnacle. Hall was an engineering design specialist for a Florida recycling firm called Zuma Engineering, Inc. until he joined Pinnacle in 1997. Before that, he held a variety of positions, including a stint as a “financial planner” at E.F. Hutton in the late 1980’s. In 1986 he was named as a respondent in an NASD arbitration proceeding filed by one of his stock brokerage clients. The client was awarded $250,000 in that arbitration.
Pinnacle’s Chief Executive Officer, Jeffrey Turino, also was involved with Zuma Engineering, where he served as Corporate Secretary from 1986 until 1997. In 1995 Mr. Turino consented to a finding by the Florida Department of Banking and Finance Division of Financial Investigation that he failed to prevent corporate agents of Zuma from offering and selling unregistered securities in Florida. He agreed to pay a $10,000 fine and refrain from future violations of Florida’s securities laws.
Messrs. Hall and Turino are also major Pinnacle shareholders. At the end of the year 2000, each of them owned 39,502,000 shares of Pinnacle common stock. That included 27,500,000 shares that each of the two men had received in exchange for “releasing” claims relating to Pinnacle’s failure to pay Hall and Turino agreed upon compensation under their Employment Agreements.
Who represented Pinnacle, and the interest of its public shareholders in those “settlement” negotiations? According to the Company’s public filings, Hall and Turino were Pinnacle’s only officers and Directors at the time. Consequently, as the sole executive officers, wouldn’t Hall and Turino also bear some of the responsibility for the Company’s failure to perform under the Employment Agreements? In reality, were they actually releasing themselves from their own failure to perform – and rewarding themselves for it as well? In other words, could they possibly be objective while negotiating this generous settlement?
Hall and Turino both appear to be familiar with public companies and securities transactions, but what about Corbel’s President, Bruce Harlan? Who is Bruce Harlan? The Nevada Secretary of State files provide no further information about him, other than a mailing address at the office of the Company’s registered agent in Nevada.
We searched the Internet for “Bruce Harlan” and found a nature photographer, an Ohio State diving champion, a lighting specialist, attorneys in Florida and Arkansas, and a sailor by that name. We also discovered a Bruce Harlan who was named in a complaint filed by the SEC in May 2000. The SEC alleged that that Bruce Harlan, of Sharon, Connecticut, offered and sold over $1.1 million worth of unregistered promissory notes as part of a $17.7 million dollar Ponzi scheme conducted by Sebastian International Enterprises, Inc. That Bruce Harlan settled the SEC claims by paying a $5,500 fine and agreeing to an injunction against future securities law violations. (See Promises, Promises for more details on the SEC action against the Bruce Harlan involved in the Sebastian International scheme).
Is the Bruce Harlan at Corbel one of these “Bruce Harlan’s” or someone else? Will investors have to wait until 3 E files a public report to find out about the individuals running the Company?
Opportunity Knocks
Questions continue to surround Corbel. Who are its shareholders? What is its business? Who are the people running the Company, and what is their background? And the big question - why did 3 E choose to turn over control to Corbel?Let’s start with a renewed search for those Corbel shareholders. When it first announced plans to spin-off the subsidiary on February 23, 2000, Pinnacle said that the Pinnacle shareholders would receive approximately 48% of the Summit stock. Who would own the rest of Summit? Pinnacle said that Summit intended to purchase a Tampa, Florida office building from a real estate entrepreneur identified as Kenneth J. Van Ness in exchange for about 52% of the Summit stock. Mr. Van Ness, Pinnacle explained, would then become President of Summit.
Pinnacle didn’t describe the Tampa building, give its address, estimate its value or provide an appraisal of the property that might justify the award of 52% of Summit to Van Ness. Did Summit ever acquire the building, or any other property? Has it ever engaged in any business?
What happened to Mr. Van Ness? He is not the President of Corbel. We discovered, however, that he is listed as Secretary, Treasurer and Director of a Florida Non Profit Corporation that was formed on October 31, 2001, called Thurston Groves Homeowners Association, Inc. The President of Thurston Groves Homeowners Association is one Michael Bruce Hall.
Pinnacle’s public filings repeatedly referred to the Summit subsidiary as “inactive.” In fact, Pinnacle’s June 30, 2001 Form 10-Q (the last quarterly financial report filed by the Company) had this to say:
In March 2001, Pinnacle spun-off Summit Property Group, Inc., ("Summit"), a Nevada corporation and a wholly-owned subsidiary of Pinnacle. This subsidiary remained inactive and had no assets since its incorporation on December 27,1997.
That seems pretty clear, but we discovered something different on the Pinnacle website, which once described Summit Property Group, Inc. as the “real estate division” of Pinnacle. The website went on to claim that Summit “owns rental properties in the metropolitan Tampa Bay area,” and hoped to close on “current contracts” for “commercial properties that are currently leased and maintained by a high profile management team.” None of those “rental properties,” or “current contracts” were identified. Neither were the members of that “”high profile management team.”
The website also predicted that the Summit business would help Pinnacle “qualify for a NASDAQ listing in the near future.” That seems unlikely, particularly now that Summit had merged with 3 E.
Which is accurate? Is Summit/Corbel inactive as Pinnacle has represented in its filings with the SEC, or does it own properties? Alternatively, did it own, and then sell property? Pinnacle’s public filings do not appear to reflect such sales.
In any event, that information on the Pinnacle website seems to be a little out of date. The index to the website does not presently reference information about Summit/Corbel – although these claims for Summit can still be found on a page dedicated to the subsidiary.
Solid as TV in Ghana?
Information about 3 E is also sparse. The Company has filed only one report through the SEC’s Edgar electronic filing system, a Form 10 SB that was filed in March 2000. At that time, the Company acknowledged that it sold no products, offered no services, had never realized any revenues, and had just $417 in cash. Despite these serious limitations, 3 E claimed that it intended to establish a multi-channel television distribution system in the African nation of Ghana.There were no further public filings, but 3 E has maintained a corporate website – although the information it contains seems a bit dated. That website projects sizeable revenues based upon “three large scale international projects” that were already underway in England, Somaliland and South Africa, and an anticipated “4th project during 2001 for the government of Guinea.” And that did not even include plans to design a telephone system and set up wireless cable television operations in the nation of Ghana.
The 3 E website claims that the Company had earned gross revenues of $592,000, and net revenues of $56,000 for the year 2000, although no financial statements, audited or otherwise, are provided. That, however, is just the start according to 3 E. It projects net revenues of $5.3 million in 2001, $17.5 million in 2002, and $34.4 million in 2003 – give or take a few dollars.
Was it all smoke and little substance? We can find no evidence that 3 E realized its dreams, or its projections. If they had, why would the Company choose to surrender control to Corbel?
In the January 22nd press release announcing the reverse-merger, 3E’s Chief Executive Officer Murray Stark offered these thoughts:
"I am very pleased to have found a solid merger candidate. After careful consideration, the board of directors felt that Corbel was the best option for 3E. Corbel's business model and actual project plans have solid market potential. 3E is a publicly traded company and Corbel now has a public vehicle from which it can operate its business and grow the company."
Those operations in Ghana, Guinea, Somaliland and South Africa must not have fared too well if Corbel represented “the best option for 3E.” While Mr. Stark alluded to a “business model and actual project plans” he offered no information about those plans, and no facts that would indicate that Corbel has an operating business.
Equally cryptic were the comments of Corbel CEO Bruce Harlan, who said
"By joining forces with 3E, we hope to build a business with a solid track record of results, a strong management team and the availability of financial resources of a publicly traded company. I believe the combined entities will have an opportunity to build a larger and more profitable company that serves commercial customers and residential communities. We believe this is an ideal strategic move to leverage and expand our business model."
Like Mr. Stark, Mr. Harlan fails to describe that business model. Who will comprise that “strong management team”? Not Mr. Stark. He already has resigned from his post as CEO. So has Robert Fyn, 3 E’s Corporate Secretary.
Could Mr. Harlan be talking about the current officers of Pinnacle, Messrs. Hall and Turino? Will they have a role at the new Corbel, and if so, what will become of Pinnacle?
We will take a look at Pinnacle, and the destination of all those new 3 E shares, in Part III of this series.
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