Here is the article. ( I think part II will be issued on
monday )
3 E INTERNATIONAL CORP. (Pink Sheets: TEIL), Part I – LIGHTER THAN AIR
February 22, 2002
We should have learned long ago that logic has little to do with the securities markets. For instance, logic suggests that a public company’s share price would decrease if the number of outstanding shares almost tripled. With all that dilution, there are more potential shareholders to share the same corporate pie – the slices just get smaller. No one would be surprised if the stock price dropped under those circumstances.
What if this same public company announced that it would be issuing most of those new shares to the owners of an inactive private corporation, and turning over control to that private entity as the result of a reverse-merger? Is there anything about the acquisition of an inactive business, with no apparent revenues, assets or operating history that is likely to cause share prices to rise? Logic would say no.
Which brings us to the curious case of 3 E International Corporation, a Delaware company, whose offices are in Ontario, Canada, and whose shares trade on the Pink Sheets – when they trade at all. Prior to January 2002 there had been little interest in 3 E stock, despite the Company’s claim that it had business operations in venues ranging from Great Britain to Ghana, and its projection of multi-million dollar revenues for 2001 and beyond. Despite such claims, the Company’s stock languished, and rarely traded. As recently as December 19, 2001, 3 E shares were selling at 12 1/2 cents a shares.
Then logic went out the window and 3 E share prices soared, reaching $3.05 on February 19, 2002. This dramatic price surge was accomplished despite modest, sometimes insignificant, trading volume. On December 27th, for example, only 1000 3 E stock shares were traded, but the stock price moved from 5 cents to 85 cents a share - a 1600% increase. 3 E shares remained at 85 cents through January 17, 2002, but with the exception of 2500 shares that changed hands on January 15th, no other shares of 3 E traded during those 14 trading days.
That changed on January 18th, when the market price of 3 E shares increased by nearly 250%, to $2.95, on volume of 40,900 shares.
What accounts for the sudden rise in 3E shares? Only one event stands out. On January 22nd the Company announced a reverse-merger with Corbel Holdings, Inc., a privately held Nevada corporation. Control of the surviving public company would be turned over to the former Corbel shareholders. What value was Corbel bringing to the combination? That remains to be seen. At last report, Corbel had no assets and no operations.
Had some individuals with “inside” knowledge of the pending merger started to move 3 E prices higher four days before the merger was announced? Could share values possibly have soared based upon this underwhelming combination? Market makers typically raise, or lower, stock prices based upon a variety of factors, such as a company’s financial performance, important developments, and investor demand. As a general proposition, stock prices respond to news about a company – whether good or bad. But is the Corbel merger the kind of news to get investors, or market makers, excited? And, one wonders, who are the market makers who have been lifting the bar for 3 E stock? Volume remains modest, so demand hardly seems to be the motivating factor. Corbel has no operating history and the only indication of its future business is the vague claim that it is a “real estate development company.” Just what is it developing, other than a market for shares?
Logically, then, investors should be asking this question. Why has the market value of 3 E gone from about $800,000 in mid-December (when there were roughly 6.4 million shares outstanding and prices hovered at 12 1/2 cents ) to over $46 million on February 20, 2002 (with as many as 15.3 million shares issued, and shares trading at $3.05)? It hardly seems likely that this activity was fueled by the prospect of real estate development.
So much for logic.
Spin Offs and Ons
Maybe the market makers are just acting like Olympic figure skating judges; they’re giving Corbel points based on experience. Corbel began its corporate life as a wholly-owned subsidiary of Pinnacle Business Management, Inc. Like 3 E, Pinnacle presently trades on the Pink Sheets. And also like 3 E, Pinnacle has not been filing quarterly financial reports with the Securities and Exchange Commission – at least not lately.
Pinnacle shares had been listed on the Over the Counter Bulletin Board, but they were delisted on December 13, 2001 because the Company failed to file its Form 10-Q for the third quarter of 2001. Pinnacle had been removed from the OTC Bulletin Board once before, exactly one year earlier, on December 13, 2000, when it failed to file required public reports. Pinnacle resumed its public filing obligations after the initial delisting, but on November 15, 2001, it notified the SEC that the September 30, 2001 Form 10-Q would be filed late because “[a] subsidiary of the company has recently relocated, causing delays in the preparation of the filing.” In any event, Pinnacle assured the SEC, and investors who anxiously awaited the up-to-date financial information, that the report would be no more than five days late.
Pinnacle did not indicate at that time, or subsequently, why the subsidiary’s move would cause an accounting delay. Nor did it file five days late as promised. Instead, the Company announced on November 22, 2001, that it intended to file its third quarter financial report for 2001 on November 27th. This time, the Company claimed that the filing had been “delayed due to unforeseeable circumstances.” No details of those circumstances were provided, and there was no further reference to the “relocation” issue. But Pinnacle reportedly claimed that the filing was expected to show a net profit.
When November 27th arrived, Pinnacle still had not filed the financial statements. It did, however, issue a press release that day saying it planned “to file its third quarter report as soon as practically possible in which it will record an operating profit of more than $500,000.”
Almost three months now have passed and Pinnacle has never filed that quarterly financial report.
The November 27th press release also contained this brief reference to Corbel: “It is our understanding,” said Pinnacle Chief Executive Officer, Jeffrey Turino, “that Corbel Holdings, Inc. is in the process of completing plans to trade publicly.” Was Mr. Turino referring to the 3 E merger – still two months away? He offered no details.
Corbel has taken a circuitous route to the public marketplace. Corbel used to be called Summit Property Group, Inc. It was formed as a Nevada corporation in December 1997, and apparently remained a wholly owned, and inactive, subsidiary of Pinnacle until March 2001. At that point, Pinnacle says it “spun off” Summit by giving Pinnacle shareholders one share of Summit for each 100 shares of Pinnacle stock that they owned.
As best we can determine, Pinnacle did not specify why it had decided to spin-off an inactive subsidiary. Was the Company looking to establish a separate vehicle that could merge with a public company in the future? Was this going to be a “safety valve” so that management would still control a public company if Pinnacle failed?
So far, however, that spin-off has been a bumpy ride. According to Pinnacle, the spin-off occurred in the first quarter of 2001, but there still seems to be some confusion about just who was entitled to receive those Summit shares. That’s difficult to understand; surely Pinnacle knew how many shares it had issued, and to whom, didn’t it?
The ownership of Summit – now Corbel – is no longer a mere administrative problem since it will determine who gets shares of 3 E. Who was entitled to receive the Summit shares? A January 16, 2002 press release claimed that there were approximately 457 million Pinnacle shares outstanding at the time of the distribution. In that case, 4.57 million shares of Summit should have been issued. That seemed simple and straightforward enough, but was it accurate? Pinnacle’s Form 10-Q for the quarter ended March 31, 2001 showed that there were actually 635 million Pinnacle shares issued as of March 31, 2001, including 178.7 million restricted shares. The Form 10-Q did not indicate whether any of those shares were issued after the Summit distribution date. Did the 457 million share figure omit those 178.7 million restricted shares? If so, why?
On April 25, 2001, Summit changed its name to Corbel Holdings, Inc., purportedly to avoid confusion with another, unrelated public company using the Summit name. That’s when the spin-off share distribution began to unravel. Summit shareholders were given until May 30, 2001 to surrender their Summit shares in exchange for Corbel stock. Pinnacle maintained that, under Nevada State Law (Nevada Revised Statute 78.250 and 78.235), the shareholders could lose certain rights, and their shares could become null and void, if they failed to deliver the Summit certificates.
Is that the case? Can shareholders lose their right to dividends or other benefits if they do not deliver certificates? Under Nevada Revised Statutes section 78.250, a company can order shareholders to surrender their shares if that company amends its Certificate of Incorporation – as it would to reflect a name change. The company would then issue a new certificate bearing its new name. In that case, under Nevada law, the company may provide that a shareholder will not be entitled to vote, to receive distributions, or exercise any other shareholder rights until that shareholder has surrendered the old stock certificate. Once the shareholder complies with the company’s order, however, and surrenders the old stock certificate, it can again exercise those rights. So shareholders can lose rights – but only until they comply with the company’s order to surrender the old certificates.
The certificate surrender date was extended on at least two occasions. On May 30th, Corbel said it had identified more shareholders than it had anticipated, and extended the exchange date until June 30, 2001 to process all of the requests. Then, on July 10th, Corbel discovered another problem. Although Pinnacle claimed that only 4.57 million Corbel shares had been issued through the spin-off, shareholders had submitted requests for approximately 6.7 million shares of Corbel stock.
Did the higher than anticipated requests reflect the 635 million shares that Pinnacle had issued through March 31, 2001? Corbel did not say. In any event, the certificate surrender deadline was extended again, until July 31st. Unfortunately, that didn’t resolve the problem. Corbel says it eventually received requests for approximately 10 million shares.
Where were all of these shareholders coming from? That remains a mystery, but on January 16, 2002 – just days before the 3E merger was disclosed - Corbel announced that it was canceling all certificates issued through its transfer agent, and would be issuing new certificates to all Pinnacle shareholders who were shareholders of record as of March 2, 2001. This time, there was no indication of how many shares Corbel expected to issue. The exchange was to take place by January 31st. We have seen no further announcement suggesting that it was completed in a timely manner this time around.
Perhaps Corbel will finally determine the identity of its shareholders, and who ultimately will receive 3 E stock. But who will control the post-merger 3 E? Who, for that matter, controls Corbel and Pinnacle?
We will examine those issues, take a further look at Pinnacle, and consider some possible implications of the Corbel merger, in Part II of this series.
©2002 Stock Patrol.com. All rights reserved.
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