Core Solutions, Inc. (OTCBB: CSOU) is back at it again. The Company, which used to be called Premier Axium ASP, Inc., has been busy issuing press releases to announce potential acquisitions and other corporate initiatives.
When we first profiled the Company on April 18, 2002, a group of promoters had been paid well to tout its prospects – with few facts to back up their recommendation. (See Premier Axium ASP, Inc. – 25 Million Reasons) As we pointed out at the time, the Company had no cash, was operating at a loss, and had gone through four presidents within the past year.
Considering its shaky financial state and doubtful prospects, there seemed to be little legitimate justification for the promoters’ enthusiasm.
So why was Core Solutions the second most actively traded stock on the OTC Bulletin Board on September 10, 2002, with more than 145 million shares changing hands? And why were another 112 million shares traded on September 11th? After all, only 121 million shares changed hands in all of August, and a mere 13 million shares were traded in July.
What is going on here?
Making News
We wondered whether the answer could be found in a series of press releases issued by Core Solutions since the beginning of August 2002. But did they really offer any vital information that would generate realistic enthusiasm for Core Solutions stock?An August 13th press release said that the Company was “currently executing due diligence activities on 10 separate acquisition targets representing $42 million of annual revenue.” Core Solutions called those potential acquisitions “a critical milestone in the development of its revenue.” It went on to claim that the Company still was on track to achieve its “three-year annual revenue goal of $250 million though the development of their corporate infrastructure, sales and the market activities, and a staunch dedication to M&A.”
What businesses was Core Solutions proposing to buy, and how would it pay for these acquisitions? The press release did not identify a single one of the “10 separate acquisitions,” provide any terms of the proposed acquisitions, or offer any details of the $42 million in revenues.
Such details were also absent from an August 15th press release claiming that the Company was considering two more acquisition candidates “representing an additional $11 million in revenues. Was the Company likely to conclude any of these acquisitions? As we noted in our April 18th article, the Company has not fared well in previous acquisition attempts. A plan to acquire Axium ASP in April 2001 was subsequently aborted. According to the Company’s Form 10-Q for the period ended June 30, 2002, planned acquisitions of Saavy Employer, Inc. and Active Employment Solutions, Inc. also failed, forcing the Company to write off acquisition costs of $2 million.
Core Solutions reiterated its “goal of $250 million in annual revenue within 36 months” in an August 20th press release announcing plans to expand the Company’s client bases beyond Southern California and Hawaii. The Company claimed that this initiative followed “a comprehensive demographic, market and competitive study.” No details of that study were provided, and the Company did not indicate by whom it had been prepared.
Next up was an August 22nd press release claiming that the Company’s restructuring plan was “moving in a very positive direction” and predicting “substantially increased earnings by year end.” Although the Company said it had removed costs and eliminated consultant agreements, this announcement, like the earlier press releases, was short on details. And, of course, President Christine Favara, reiterated her confidence in that annual revenue goal of $250 million.
They better get moving. Just four days later, on August 26th, Core Solutions filed its Form 10-Q Quarterly Report for the period ended June 30, 2002. It showed revenues of $329,719 for the first six months of 2002, but only $12,145 for the period from April 1st through June 30th. It was a precipitous drop, and hardly suggests a business headed toward a quarter of a billion dollars in revenues.
Dwindling revenues didn’t tell the entire story. Net losses for the first six months of this year were over $6 million, including approximately $4.8 million in consulting fees and $1.5 million in salaries.
And the Company had no cash – as in zero dollars. In fact, as of June 30th its current assets consisted of a meager $1244 in accounts receivable. Its only other assets were property and equipment worth $14,184.
Still, there apparently was enough money in the bank to keep cranking out press releases. On August 28th the Company announced the launch of its new website, as “the first milestone in [its] 5-stage Technology Plan to be completed over the next month.” Core Solutions did not say how it planned to pay for the development of that “Technology Development Plan,” or what it might be expected to include. When we last looked, the website include a brief summary of the human resources services that Core Solutions proposes to offer to its clients, as well as copies of the Company’s recent press releases and SEC filings.
Did any of these announcements explain the increased trading volume for the Company’s shares? And if not – what did?
Selling and Buying
Core Solutions doesn’t appear to be treating its lack of money as an impediment. On September 10, 2002 the Company announced plans to buy back “up to 100 million common shares over the next four months in the open market in block transactions and in privately negotiated arrangements.”That should be a neat trick, unless the Company comes into a boatload of cash. Even at its current depressed price - three hundredths of a cent a share - it would cost $30,000 – which was exactly $30,000 more than the Company had in the bank account as of June 30th.
The decision to buy back shares is particularly striking in light of the Company’s recent inclination to hand out stock – lots of it. On July 14, 2002, the Company filed a Form S-8 Registration Statement registering 5 billion shares for its 2002 Benefit Plan. The Company said it planned to issue those shares to employees, consultants and advisors. It did not specify who would be receiving those shares, or when.
The Form S-8 threatened massive dilution to the Company’s existing shareholders, who held an aggregate of just over 1.5 billion shares. That apparently included over 1 billion shares that the Company issued to various consultants during the first quarter of 2002.
Of course, with up to 6.5 billion shares outstanding, a one million share buyback sounds like a drop in the bucket.
Or just another reason to issue a press release.
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