Power Save Energy Co: Non Existent Internal Controls

Mea Culpa.

We often get request from readers to add companies to our Alternative Energy Stocks list.  Since the field is very active, we do some quick checks to make sure that the companies at least:

1. Provide enough information to make an informed investment decision.
2. There's nothing obvious which indicates serious investors wouldn't be interested.

We by no means feel that everything in the list is a good investment, but we do feel that our list a good place to start your own research. Usually.

Last weekend, we received a request from a shareholder to add Power-Save Energy Corp (PWSV.ob) to our list.  It fell to me to check it out, and while I did check that the company provides enough information to make an informed investment decision (it filed audited financial statements with the SEC,) the contents of those statements would have made me flinch, at least if I had bothered to read them.

Non-Existent Internal Controls

Fortunately for us, we have many diligent readers, and one of them quickly pointed out that PWSV did not belong on our list.  Here are a few things I should have read the first time around:

From the auditor's opinion (italics mine):

The Company is not required to have, nor were we engaged to perform an audit of the Company's internal control over its financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Since the auditors don't have an opinion on internal controls (this is not particularly unusual for an over the counter or pink sheet company), I should have looked to see what I thought of any controls they might have.  I would have found:

1. Not only is the CEO Michael Forster also the Chairman of the Board, he is the Chief Financial Officer as well.  He may, in fact, be the only employee.  Given no separation of duties, it is impossible for the company to have any sort of financial controls.
2. The Board consists of Mr. Forster, a 38 year old relative of Mr. Forster, and a 23 year old whose most relevant experience was managing daily operations at a restaurant.
3. Under the internal review of controls and procedures, "The Certifying Officers [who, you will note above, are actually one person, Mr. Forster] have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and believe that our disclosure controls and procedures are effective based on the required evaluation." At the very least a lack of separation of duties should have been highlighted as a material weakness in this section.

Why Internal Controls Matter

None of this is to say that Power-Save might not be a viable business.  It may or may not be.  I'd have to do more research to find out.  But there is no reason to do more research, because even if the company had discovered a process for turning lead into gold, there is no reason to believe that shareholders would ever see any of the profits.  Mr. Forster does not even need to write out a company check to himself, he can simply grant himself excessive compensation in the form of cash and stock so that all company profits flow directly into his pay packet. This may be already happening, although I did not dig far enough to find out.

DISCLOSURE: None.

Comments

[john s. gordon:]

a classic scam (or attempted scam, you don't have to fall for this one).
> jack

2008 Sep 15 08:18 AM

[growingmone...:]

Are you saying Solar Systems and Wind Turbines don't work
Please don't tell T. Boone Pickens and the American People.
Please Explain

2008 Sep 15 05:40 PM

[growingmone...:]

Are you Telling us that Solar Systems and Wind Turbines don't work ?
Please Don't tell T. Boone Pickens or the American People.
Please Explain

2008 Sep 15 05:41 PM

[ohm:]

I believe the ROI on solar systems is a lot less than wind turbines if installed in areas that have power lines already in-place.

A 2 ft by 4 ft solar panel provides 15 watts of power , enough to power one 13 watt compact flourescent lamp (CFL). Installed cost would be about $200. Do the math.

2008 Sep 16 09:12 AM

[growingmone...:]

Are you aware of the rebates offered by the local utility companies and States ?
These rebate make owning a system Free.
Power-Save makes owning a complete system easy.
The Power-Save web site is helpful and informative about the free rebates.
They'll drop ship your energy save system direct to your home
Power-Save Intends to 'Make Renewable Do-able!'

2008 Sep 16 11:40 AM

[rcraig:]

Looks like a hack came to the rescue of a poorly managed and reported company.
My guess is the CEO is a recent graduate or a dropout from an accounting school and jumped on the next best thing since bread.
Getting pat the rift-raft, if a company wants my investment they could at least invest in hiring H&R Block to do an external audit. At least I would know more about the company. Not to say it is the only criteria for my approval to invest in a company, but it is a good start.

2008 Sep 16 12:26 PM

[beachsidfreddy:]

altenergystocks.com is a fine group, and made a mistake its just that simple. They let PWSV slip through the cracks. When I pointed it out to them I received emails from two editors and they apologized for the error and the next day yanked PWSV off their list. The fact the co. has no CFO, lists one employee in SEC docs, has no board, no governance, constant corrections to press releases, and questionable stocks sales well below market to unnamed persons was enought for the Altenegrystock people to instantly remove PWSV from their list.

2008 Sep 18 08:24 AM

[dr_cosmo:]

gmwg doesn't mention all the permutations involved in getting wind &/or solar P.V. rebates and incentives!!! most states require certified equipment and installation before issuing the 1 year per W. generated incentive and the 10 year utility buyback agreement (net metering). Also the permits, utility agreement and local codes must all be satisfied, equating to a lot of time, research and paperwork. So the $5 / Watt price from PowerSave can not be used to determine your free energy cost. Most solar professionals use $8 to $10 / Watt for a complete P.V. system which extensively changes the payback period, therefore PowerSave's claims are vaporware, nothing more. B.T.W. saw their ad last nite on one of the 'green' channels, pretty slick looking install van, wonder if they have more than one of them????

2008 Oct 22 12:39 PM