PacWest Equities (GM:PWEI) is a wildly-overvalued, promoted company with little in the way of a real business, destined to fall 95% once the stock promotion ends (as I argued in my first report on the company). But far more importantly and more sinisterly, I believe that the company is being operated for the purpose of promoting itself and helping insiders (specifically, the former owners of PacWest Equities' subsidiary World Eco Source) sell tens of millions of shares, rather than being operated as a bona fide company with the goal to make products, sell them, and eventually make profit that can be distributed to shareholders. Anyone who owns shares of PacWest Equities as an investment is a fool and deserves to lose their investment. Any traders who cynically play the stock promotion game and bought shares have made a great trade the last two weeks, but many of those traders will lose not only their gains but also their principal when the stock craters in the near future. As per the policy of OTC Microcap Research, I do not have any position in PacWest Equities; I also am not aware of anyone who is short the stock at the moment. Note that as of the day this article is published (November 5th, 2012), PacWest Equities has just completed a 3 for 1 forward split and will trade as PWEID for the next two weeks (it will then revert to PWEI). All share prices and share counts in this article have been adjusted to account for the split. Articles and filings I link to in this article all use pre-split prices and share counts.
Before I lay out my case against PacWest Equities, let us review what happened after my first report on PacWest Equities was published. That report was posted on October 16th prior to the market open, following which the stock opened at $0.22 then hit a high of $0.243 before dropping to a low $0.0467 and closing at $0.0598. While I would love to take credit for causing the drop, the stock was ripe for a fall and tweets (at 10:17am EST) followed by a report by Infitialis on Seeking Alpha accusing the company of illegally registering 465,000,000 shares for sale (155,000,000 shares pre-split) certainly helped to drive the stock lower. In light of its quick drop I decreased my technical price targets for the stock the next day; in hindsight, that was woefully wrong, as the stock bounced all the way back and closed at $0.3467 on Friday. But it is truly rare to see a pump and dump recover from such a steep drop on such serious accusations, and while my near-term price predictions were wrong, all my fundamental criticisms of PacWest Equities remain valid.
I believe Infitialis' accusations to be credible, and while I am far from a securities law expert, even a small possibility of their accusations being correct makes me drop my estimation of the fundamental value of PacWest to $1,500,000; two-thirds of that value is due to the company being listed on the Pinksheets (rather than being a private company); the remaining $500,000 in value is attributable to the newly-acquired PurGro business (valuing it at one-third of sales). I now believe that all the existing 'businesses' owned by PacWest Equities other than PurGro are essentially worthless. I have thus reduced my fundamental price target on PWEI to $0.001 (one-tenth of a cent). Also, Infitialis was not the only person to argue that those shares were illegally issued: "Nodummy" of PromotionStockSecrets.com wrote, "I don't even think that 155,000,000 newly issued shares [465,000,000 post-split shares] can be free trading throwing up a major red flag."
After publishing my first report on PacWest, I found more a lot negative information about the company: enough to convince me that World Eco Source Corp., the PacWest Equities subsidiary that is the subject of recent press releases and whose former owners owned 465,000,000 shares of PacWest just a month ago (155,000,000 pre-split shares), is not being operated as a bona fide business with the goal of making sales and profits, but is simply being operated so as to generate hype that can be used to sell those 465,000,000 shares to naive individual investors. Let me be clear that I do not have evidence that proves that the company is lying in its press releases and it may be telling the truth - but I strongly believe that the company is not being operated with earnest intent to make a profit (utilizing the second definition of bona fide according to Merriam Webster). In the rest of this article I will present a large array of evidence that backs up my belief.
One thing I noticed is that while the company indicates by using the ® symbol that it has registered trademarks on the terms "MobileFeed" and "MobileFood", those are not registered trademarks in the United States. Here is an excerpt from the company's October 25th press release:
PacWest Equities, Inc. (PINKSHEETS: PWEI) through its subsidiary World Eco Source Corp. announces plans for the initial filing for a U.S. Patent on its highly-advanced MobileFeed® and MobileFood® systems "Feed Tube", a revolutionary cylinder used to maximize production in their proprietary systems, which would replace the international market's current use of highly-inefficient tray systems.
A search of the U.S. Patent and Trademark Office records shows no trademarks or servicemarks for "MobileFeed", "Mobile Feed", "MobileFood", or "Mobile Food". Specifically, I searched those words/phrases in the 'combined word mark' field, requiring that all search terms be in the word mark. It is illegal to use the "®" symbol on a mark that is not a registered trademark, although it is acceptable to use that symbol if the trademark is registered in a foreign country. World Eco Source is based in Belize so it is possible that it has registered those trademarks in Belize (I could not find a way to search Belize trademarks online). But as its prior press release announced, it has done business in Hawaii, so to not have registered its trademarks in the United States is at the very least quite stupid. For comparison, I registered the service mark of "Everyday Investor" (the name of my defunct value-investing newsletter) back in 2006 without the aid of an attorney; it only took me a few hours of work and a nominal fee.
Stock Promoters Got the News First
Another thing I noticed about PacWest Equities is the timing of its first recent press release (as I mentioned in my initial report, this press release was the first time PacWest named the company it had acquired for 465,000,000 shares - 155,000,000 pre-split shares - in April). The press release was issued at 4pm EDT on October 9th. However, the stock promotion emails that I received at 9:30am EDT that same day said the following (bold added by me):
It's taken some time but we are ready to announce our BRAND NEW HUGE pick. Our past picks have shown our subscribers gains of over 1000% and we believe that this one will blow everyone away. Our new pick is:
PWEI - PacWest Equities Inc.
PacWest Equities Inc. may soon be known as one of the leaders in green technology. PWEI specializes in working with companies to bring together resources needed so they are able to reach the next level.
World EcoSource Corp., a PacWest Equities Inc. company, is a technology based company which has developed the MobileFeed and MobileFood systems helping offset deficient worldwide food production for both animals and humans.
Each system provides turnkey solutions for either the production of fodder for livestock or protein and vegetables for humans.
In recent years due to the global warming, many countries have been affected by water shortages, drought and adverse climatic conditions.
It is estimated that $40 Billion dollars annually is spent on rotating livestock from summer to winter pastures. The MobileFeed system could essentially eliminate this expense completely!
On the human side of things, aquaponic systems are an economical, efficient, and environmentally friendly way to harvest large amounts of vegetables and high-protein fish for healthy dining and nutrition.
The MobileFood system combines the latest technology with the finest in hydroponic growing techniques to bring Organic Vitamin Rich Proteins and Vegetables into a portable trailer.
Keep in mind that we've waited a long time to bring you this gem. Our team is dedicated to our subscribers and is committed to bringing winners every time we send a pick!
We are asking all subscribers to put PWEI on your radar immediately and be on the lookout for more exciting updates!
The PennyStockHeroes Team
This shows that the stock promoters knew the news about the acquisition before it was officially announced in the press release or in any sort of filing with OTCMarkets.com. This is obviously another huge red flag and it leads me to believe that the former owners of World Eco Source are behind the stock promotion.
Either Nonsensical or Highly-Dilutive Acquisition Payment
I want to return to one of the problems I noted in my last report: the acquisition of PurGro Electronics LLC. PacWest issued a press release announcing that the purchase of PurGro has been completed (here is the earlier press release). Below is the full text of the press release (except for the descriptions of PacWest and World Eco Source and the legal boilerplate):
LAS VEGAS, NV-(Marketwire - Oct 15, 2012) - PacWest Equities, Inc. (PINKSHEETS: PWEI) today announced that, through its wholly owned subsidiary, World EcoSource Corp., it has completed the acquisition of PurGro Electronics, LLC in exchange for cash and stock in a deal valued at US$15 Million in annual sales, along with the rights to 5 projected international patents in China, and 11 projected patents to file in the US. Included in the sale is PurGro Electronics' current sales volumes, customers, and revenue streams, along with the projected revenue from the US and International patents, which could possibly exceed $50 Million in annual sales.
This purchase could propel World EcoSource to quickly become the leader of technology-based Organic Food Production companies. With unique MobileFeed® and MobileFood® systems for year round organic food production, even in the harshest of climates, the acquisition of PurGro's technological advances in the automation of hydroponic growing systems make sense in this key acquisition.
PurGro's proprietary, automated growing solutions virtually eliminate the need for human interaction in the growing cycle, with automatic temperature, humidity, and watering programming. Any variations in the preset optimum growing environment cause the system to immediately send out text and email alerts to prevent a disruption in the growing cycle. When combined with World Eco Source's proprietary water and electrical conservation techniques, the economic gains make the MobileFeed® and MobileFood® systems sustainable and profitable.
PurGro, unlike World Eco Source, appears to have a real business. But I doubt the business will become more than a niche business. The company has $1.5m in annual sales (reported in the initial press release about the acquisition). Its products actually look useful to me - but being purchased by a glorified shell company with no assets is not the way to improve distribution and greatly grow sales. And PacWest Equities still has not given any details on how many shares were issued to pay for the company nor how much cash was used (if any - as I noted before, PacWest Equities had zero cash and zero current assets on their balance sheet in their most recent filing with OTCMarkets.com, so despite saying that they paid with "cash and stock" they must have paid solely with shares). In an email, I asked PurGro's President, organizer (pdf) of the company (see its filings with the State of Georgia), and presumable owner, Greg Richter, if he could give any details on the purchase consideration, but he understandably declined to comment on those details.
Considering PacWest Equities' lack of cash or other current assets, I have to assume that the entire purchase price of PurGro was in restricted shares. The press releases indicated that the deal was valued at $15 million, and the first press release about the purchase was on October 10th. Assuming that the company valued its stock at the prior day's closing price of $0.0706 ($0.2118 pre-split), a $15m valuation implies that 212,464,587 shares (70,821,529 shares pre-split) were issued to purchase PurGro. That would mean an increase of 15% in PacWest Equities' share count. Considering that PacWest Equities' stock had barely traded prior to one day before the acquisition was announced, I believe it much more likely that the payment for PurGro is closer to 500,000,000 shares, somewhat more shares than were issued for the company's previous acquisitions earlier this year (which had no sales and minimal assets). This would fit with PacWest Equities having increased its authorized share count to 2,000,000,000 shares on October 19th. So I estimate that 500,000,000 shares were issued to pay for PurGro, giving PacWest Equities 1,914,680,429 shares outstanding, resulting in the company having a $663 million market cap as of Friday's close at $0.3467 ($1.04 pre-split).
Besides the problem of PacWest Equities not disclosing the payment for PurGro, they also added the silly and misleading statement that the acquisition came "along with the rights to 5 projected international patents in China, and 11 projected patents to file in the US". This is actually less clear than the first press release about the earlier press release about the acquisition that stated that PurGro had "5 international patents pending in China and 11 patents to be filed in the US." It is just dumb to describe patent applications that have not even been submitted to the USPTO, as I describe below.
Immaterial and Stupid Patent Press Release
PacWest Equities' press release at 3:06pm EST on October 25th announced plans for filing a patent on its "Feed Tube" (entire press release except for the standard legal boilerplate is quoted below; emphasis added by me):
PacWest Equities, Inc. Announces Plans for Filing for a US Patent on Its MobileFeed® and MobileFood® Systems "Feed Tube" LAS VEGAS, NV-(Marketwire - Oct 25, 2012) - PacWest Equities, Inc. (PINKSHEETS: PWEI) through its subsidiary World Eco Source Corp. announces plans for the initial filing for a U.S. Patent on its highly-advanced MobileFeed® and MobileFood® systems "Feed Tube", a revolutionary cylinder used to maximize production in their proprietary systems, which would replace the international market's current use of highly-inefficient tray systems.
World Eco Source Corp. is expected to quickly become the leader of technology-based Organic Food Production companies. With a unique mobile Live Food and Live Fodder solutions for year round Organic Food Production, even in the harshest of climates, the technological advances of the Feed Tube and the automation of hydroponic growing systems should propel them out front in the $50 Billion Organic world food production race.
World Eco Source's proprietary automated growing solutions virtually eliminate the need for human interaction in the growing cycle, with automatic temperature, humidity, and watering programing. Any variations in the preset optimum growing environment causes the system to immediately send out text and email alerts to prevent a disruption in the growing cycle. When combined with World Eco Source's proprietary water and electrical conservation techniques,the economic gains make the MobileFeed® and MobileFood® systems sustainable and highly profitable.
The two statements I highlighted in bold are both mind-bogglingly stupid. First, a plan to file for a patent is not material news. A company that wants to keep its investors well-informed would not bother to issue a press release about that - it takes substantial time and money to put together a patent application that is to have any hope of succeeding, so the intent to file a patent application is not worthy of a press release (the submission of a patent application could be material). Even once a patent application has been completed, it can take years for it to be reviewed, revised, and finally accepted. So this press release has little substance but lots of hype - the word 'patent' sounds great, even if the company never gets around to filing that patent application.
The second statement that I boldfaced, at the end of the press release, is even more outlandish. The company asserts that its systems are highly profitable, and yet there is no data anywhere on their website or in their filings with OTCMarkets.com about tests of their technology including energy / water inputs and crop yield outputs, information that would be necessary to evaluate the potential profitability of their product. In fact, there are no details anywhere on their MobileFeed / MobileFood product - all that exists on their website and in their press releases are vague generalities. As I stated in my first report on the company, they have precious few assets, so I have to wonder whether they even have a functional prototype of their product, let alone tests that would demonstrate its economics. In the absence of evidence to the contrary, I do not even believe that their MobileFeed/MobileFood product exists (except perhaps on paper in technical specifications).
No Evidence that Their Sole Customer Exists
As I wrote in my previous report, I could find no evidence that the one customer World Eco Source has actually exists. I researched further and I still have not found any evidence that "K. Hill Livestock" exists on the Big Island of Hawaii. I also sent an email to the company asking for contact information for K. Hill Livestock on October 22, and no one responded to my email. Below I detail how I searched for information on K. Hill Livestock.
First, I performed Google searches. A search for ("K. Hill Livestock" Hawaii -Pacwest) yielded no results. Removing the word "Hawaii" still gave me no results. There were 2000 results if I did not exclude results with "Pacwest" in them. So all the web pages with "K. Hill Livestock" as World Eco Source's press release spelled the name, also mention PacWest. In other words, they just republished the press release. Next, I looked for ranching industry associations in Hawaii and found two. The Hawaii Cattleman's Council does not have online information listing the names of members and they did not respond to an email requesting contact info on "K. Hill Livestock". A website listing producers of grass-fed beef did not list K. Hill Livestock or anything that could reasonably be confused with that name (I searched for grass-fed beef because of this line from the press release: "one trailer can produce 1500 pounds daily of organically grown grass for year round livestock consumption"). The Hawaii Cattle Producers Cooperative Association, which has 50 members who own 58% of the state's cows and heifers lists its members on its website but does not list any member with a name similar to "K. Hill Livestock."
Next, I checked out the Hawaii Secretary of State's business name search and searched for any business with the word "Livestock" in its name (here are all the results). This search finds corporations, LLCs, and trade names. Yet there is nothing with "Hill" and "Livestock" in the name that is registered with the Hawaii Secretary of State. It is possible that "K. Hill Livestock" is not a registered name and instead "K. Hill" is just the owner's legal name. In this case registration may not be necessary (I am not sure).
It is possible that "K. Hill Livestock" exists and that they ordered five MobileFeed units. But I have found no evidence that they exist and when considering the other evidence that I summarize below that raises significant doubts about World Eco Source, I do not believe that they exist.
All the Red Flags in a Pretty, Numbered List
- Two anonymous but highly-respected microcap researchers have alleged that the 465,000,000 free-trading shares (155,000,000 pre-split shares) issued for the acquisition of World Eco Source Corp were illegally issued. "Nodummy" of PromotionStockSecrets.com wrote, "I don't even think that 155,000,000 [465,000,000 post-split] newly issued shares can be free trading throwing up a major red flag." On SeekingAlpha.com, "Infitialis" wrote, "we believe that every single free trading share in circulation has been illegally issued." I find their arguments to be highly persuasive.
- There is a massive stock promotion (pump and dump) campaign underway, touting the stock of PacWest Equities. This stock promotion is run by a Belize-based company that discloses that it was paid $500,000 to promote the stock. I discussed the promotion in detail in my first report on PWEI.
- PacWest Equities trades on the Pinksheets and does not report to the SEC. This means that it is not required to file timely, audited financial statements. It only reports limited information to OTCMarkets.com and none of its recent financial statements has been audited.
- PacWest Equities took six months to issue a press release or even name the company that it acquired with 465,000,000 shares (155,000,000 pre-split shares) back in April 2012. The first mention of what the company acquired with those shares was in a press release on October 9th, 2012. This is for a transaction that grew the company's share count by 48%.
- PacWest issued no press releases for months prior to its stock promotion, despite having acquired World Eco Source (the subject of many of its press releases) in April. Yet since the stock promotion began on the morning of October 9th, the company has issued ten press releases in under four weeks.
- The stock promoter Victory Mark Corp. Ltd. touted the news announced in the company's October 9th press release prior to that news being released by the company in a press release at the end of the day.
- There are no details on the company's website nor in its press release about its MobileFeed / MobileFood products. Only vague generalities are given. Despite this, the company strongly asserts, "When combined with World Eco Source's proprietary water and electrical conservation techniques, the economic gains make the MobileFeed® and MobileFood® systems sustainable and highly profitable."
- PacWest Equities had negligible assets prior to the World Eco Source acquisition and showed few assets after that acquisition, which means that World Eco Source has few assets.
- PacWest Equities has not had any cash or current assets on its balance sheet in the last two quarters, yet it stated in thepress release announcing the acquisition of PurGro Electronics LLC that the deal was "in exchange for cash and stock."
- The company has repeatedly issued press releases that lack substance and contain only hype. Good examples of this hype without substance are in the press release announcing the plan to file a patent application and in the description of the "projected patents" that its recent acquisition PurGro Electronics LLC is looking to file in China and in the USA. Speaking of patents, in itsNovember 2nd press release, PacWest Equities refers to its "Patented GroBot Evolution" buts its October 10th press release refers only to "patents pending in China and 11 patents to be filed in the US," not mentioning any actual US patents.
- The one sale reported by PacWest Equities, which is not even a completed sale but rather an "initial purchase order," is to a company (K. Hill Livestock which is located on "the Big Island of Hawaii") for which I can find no evidence that it exists. Furthermore, PacWest Equities did not respond to an email I sent on October 22nd asking for contact details for K. Hill Livestock.
- PacWest Equities did not give any information on how many shares it issued to pay for the acquisition of PurGro Electronics LLC. This means that there is no way for shareholders to know how dilutive this acquisition is. Meanwhile, PacWest Equities has issued three press releases about the acquisition of PurGro (PR 1, PR 2, PR 3) and how it will integrate PurGro's products into its MobileFeed / MobileFood products.
- At a recent price of $0.3467 per share ($1.04 pre-split) and with 1,414,680,429 post-split shares disclosed as outstanding (as I state above, I believe that 500,000,000 shares were issued to purchase PurGro Electronics LLC), PacWest Equities has at least a $490 million market capitalization and more likely a $663 million market cap. This is despite the company having negligible assets and only $1.5 million in annual revenues (all sales coming from the recently-acquired PurGro Electronics LLC).
- World Eco Source has not registered any of its purported trademarks in the United States, despite using the "®" registered trademark symbol. If the company has not registered its "MobileFeed" and "MobileFood" trademarks in another country then it is violating US law by using that symbol. At best, the company was utterly stupid for not registering the trademarks in the USA.
- Essentially all the free-trading shares of PacWest Equities were issued to the prior owners of World Eco Source in the acquisition. According to the company's initial company information and disclosure statement for the quarter ending September 30, 2012 (filed November 1st), there were 468,090,279 free trading shares outstanding (156,030,093 pre-split shares). So all but 3,090,279 of the free-trading shares (1,030,093 pre-split) were issued to the prior owners of World Eco Source. Considering that PacWest Equities' stock has traded well over 300,000,000 shares (100,000,000 pre-split) over the last month, the prior owners of World Eco Source must be selling a large portion of their shares. Consequently, they must also be the ones who have paid for the stock promotion.
The facts above paint to me a very clear picture of a massive pump and dump that was not simply put together to help some investor in the company sell their shares. Rather, the stock promotion was paid for by company insiders (the former owners of World Eco Source) who timed the promotion to begin at the same time as the company began issuing a flurry of press releases hyping up their business prospects.
Who is selling stock? It has to be the former owners of World Eco Source Corp. There is no other possibility: they are the only ones who own enough free-trading shares. Who paid the promoters? It would only make sense for the people selling shares (the former owners of World Eco Source Corp.) to pay for a stock promotion. What subsidiary company has been the subject of the many of the hyped-up press releases put out by PacWest Equities? World Eco Source Corp.
Has the management of World Eco Source Corp (and PacWest Equities, since the acquisition) run the company in a manner that would be expected to maximize earnings or maximize sales? I believe that the answer to that question is clearly no. Time and again the companies have acted in ways that are not compatible with sensible business practices. There is no detailed information about the MobileFeed / MobileFood system on the company's website, which would be useful to acquire customers (compare the World Eco Source website with the new subsidiary, PurGro, which has a very detailed website). There are no significant assets that would be necessary to produce any sort of product, let alone produce prototypes and run studies to determine the economic feasibility of their product. There are no booked sales - only one "initial purchase order" from a company that I cannot verify even exists. The company has repeatedly failed to disclose material information to investors (i.e., disclosing the acquisition of World Eco Source in a press release over five months after it occurred and failing to disclose the number of shares issued to pay for the acquisition of PurGro Electronics LLC). Yet PacWest Equities has had no problem issuing ten press releases in four weeks - an action that I believe clearly shows the company is trying to promote its stock rather than its products.
PacWest Equities' stock will fall over 99% from its current price over the next few months. At that point, some of the investors who believe in the company will complain, asking how the SEC could let something like this happen. The fact of the matter is that it is quite possible that nothing illegal has happened or will happen. While PacWest Equities has failed to disclose useful information, they are not required to because they do not file reports with the SEC. The most important information - the lack of assets and sales - has been disclosed. As long as the company has not lied in its press releases, they have not violated the law. And the former owners of World Eco Source will have enriched themselves by over $30 million (assuming that they sell all 465 million shares at an average price of $0.0667) and they will laugh all the way to the bank.
Additional disclosure: Disclosure: It is the policy of MorningLightMountain LLC for no authors of articles nor anyone connected to the company or their immediate relatives to have positions in any stocks covered on the OTCMicroCapResearch.com website, from the time coverage is initiated until coverage of a company is officially dropped. This ensures that there will be no bias nor conflicts of interest for the authors of articles on this website (or syndicated on SeekingAlpha.com). Furthermore, information about upcoming research reports will not be given to anyone prior to public notice being given via this company's Twitter account or an article being published on the website OTCMicroCapResearch.com. OTCMicroCapResearch.com never gets paid to analyze companies. No member of MorningLightMountain LLC has any relationship with PromotionStockSecrets.com or Infitialis.