April Fools Day
April Fools Day is no laughing matter to shareholders of Pinnacle Business Management, Inc. (Pink Sheets: PCBM). April 1, 2002 is the date when Pinnacle is supposed to begin paying off a $6,692,465 promissory note. The money is owed to Vincent and Kim LoCastro, who sold their auto dealerships (“All-Pro Auto Mall” and “All-Pro Daewoo”) and a telecommunications business (“All-Pro Communications”) to Pinnacle in January 2001. Vincent LoCastro, who remains the Chief Operating Officer and President of the All-Pro operations, indicated on February 26th that he had “no current intentions of declaring a default under our agreements.” Of course, he could change his mind at any time.If Pinnacle shareholders are feeling uneasy it is hard to tell from recent trading activity. Despite the absence of concrete information about the Company’s plans and activities, Pinnacle shares have been trading at an unprecedented rate. Share prices hover at about 6/10ths of a cent, but daily trading volume has exceeded 35 million shares several times since mid-March, surpassing 50 million shares on more than one occasion, including 51 million shares traded on March 29th. Is there any explanation for this activity?
As we pointed out in our earlier articles, Pinnacle stopped filing regular reports with the Securities and Exchange Commission in November 2001 when its third quarter Form 10-Q for 2001 came due. (See 3 E International Corp., Part I - Lighter Than Air; Part II - Falling From the Pinnacle; and Part III - From All Pro to All That Dough). Now, however, Pinnacle has taken an unusual step by publishing audited financial statements in a press release – but just for its All-Pro businesses. That March 28, 2002 press release contains audited financial information for All-Pro for the years 2000 and 2001, but no numbers for the public company, Pinnacle.
As a result, it presents shareholders with a rather skewed picture. Sure All-Pro seems to have made money, but why does Pinnacle decline to present its overall results, particularly since All Pro appears to be the bulk of Pinnacle’s business. Are there skeletons in the financial closet?
The March 28th press release makes clear that Pinnacle’s agenda is to spin-off “All Pro” as a separate public entity. Speaking for the Company, Vincent LoCastro indicates that plans are underway for All-Pro to “make the necessary Form 10 registration statement to be fully reporting…and become fully reporting.” Is that how Pinnacle plans to pay off the All-Pro debt, by giving All-Pro and LoCastro their freedom? Is there any other choice? Aside from the revenues generated by All-Pro does Pinnacle have any other means of paying the LoCastro debt? The absence of complete audited financial statements casts a giant shadow on the state of Pinnacle’s finances.
Who will get shares of All-Pro if it becomes a separate public company? The Company does not say, but if it plans to issue any of that stock to current Pinnacle shareholders, those shareholders can only hope that the Company has learned from its past experience. Pinnacle’s 2001 spin-off of its Summit Property Group subsidiary (subsequently called Corbel Holdings, Inc.) has been a seemingly endless stock odyssey. The Company still seems to be struggling to determine who was entitled to receive those shares – a process that persists now that Corbel has agreed to a take over another non-reporting public company, 3 E International Corp. (Pink Sheets: TEIL).
In the final analysis, are the audited financial statements for All-Pro encouraging, or symptomatic of more problems on the horizon? The March 28th press release attempts to place a positive spin on those results, noting “a 543% increase in total equity, a 23% increase in total assets and a 24% decrease in liabilities”. That, however, is just part of the story.
The audited financial statements actually indicate that All-Pro’s current assets shrunk by over $500,000 in the year 2001. That’s not all that is down. Vehicle sales decreased by almost $2 million – more than 20% - from $9,160,029 to $7,210,356. Telephone system sales were down as well. In total, All Pro’s sales and services decreased by almost $2.9 million from $7,854,613 in 2000 to $6,045,677 in 2001.
The financial statements attached to the March 28th press release may be audited, but they are not complete. Schedules I and II, itemizing All Pro’s Cost of Sales and Operating Expenses, have not been included.
The not so comforting bottom line show that the income from All Pro’s operations slipped by almost two thirds in just one year, from $1,229,030 in 2000 to $416,681 in 2001. Net income also suffered, falling from $753,502 to $253,457.
If All Pro does become a separate, reporting public company, its expenses are likely to increase. Given the recent direction of revenues, that does not bode well for potential investors.
It Ain’t Heavy, It’s a Website
Which brings us to the current status of the last Pinnacle spin-off, Corbel Holdings. In January 2001, 3 E International announced plans to acquire Corbel in a reverse-merger that would leave the former Corbel shareholders in control of the surviving public company, which henceforth would be called Cobe, Inc. The news triggered an inexplicable rise in the price of 3 E shares – from 12 1.2 cents on December 19, 2001 to $3.05 on February 19, 2002 – despite the fact that Corbel did not appear to have any business or assets. As of March 30th, 3 E shares were trading at $1.50, although the value of the deal, and the Company, remains purely speculative.Why do 3 E shares continue to trade at such inflated prices? There has been no further news about the state of the reverse-merger, but some promoters have been calling attention to Cobe’s new website which promises that:
Cobe is committed to developing prime real estate on the West Coast of Florida. We bring luxury to the masses through solid management, value to our investors.
In reality, while Cobe may be “committed” to developing a real estate business, it does not seem to “bring luxury” or anything else to the masses or investors just yet. Indeed, while the website states that Cobe is “poised” to take advantage of the “extremely lucrative” real estate market on the West Coast of Florida, and has “plans” to develop “high end” residential housing, there is nothing to indicate that Cobe either owns or manages any real estate interests at the present time.
Cobe does say that it has “an option to purchase three commercial projects in Florida's Pinellas and Pasco counties,” with potential revenues “estimated at $18,000,000.00.” That information, however, has little real value to potential investors. Cobe does not disclose any of the terms of that option, describe the property, or indicate how it would finance any acquisition.
Despite the absence of any identifiable operations, the website suggests that Cobe is “Florida’s Premier Estate Builder,” a bit of hyperbole that would likely be difficult to support since Cobe does not appear to have built any Florida real estate.
Is this just an innocent overstatement? Exaggeration can prove costly. Consider the fate of promoter Mark Rice. On February 25, 2002, the SEC announced that it had filed a lawsuit in federal court charging that price sent out millions of fraudulent “spam” e-mail messages containing misleading information as part of a “pump and dump” involving the shares of four micro cap companies, including Pinnacle. On March 15th, in settlement of those claims, Rice was barred from participating in future penny stock offerings.
That should keep Rice away from Cobe. Investors may also want to keep their distance until Cobe comes up with something more than plans, promises, and a website.
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