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  • American Power Corp (AMPW.OB): Smoke and Mirrors
    Quick Stats
    Ticker AMPW
    Share Price $1.57
    Market Cap $142 million
    $ traded/day $1.1 million
    Borrow Cost -9.4%
    Borrow Difficulty Hard
    Est. Short Interest (Dec 2010) 47,500
    Days to Cover 0.2

    Thesis
    American Power Corp (AMPW:OTCBB) is an $142 million market cap exploration-stage coal company that uses smoke-and-mirror agreements to obscure its lack of real assets or capital. It’s another stock promotion that I believe will go to zero sooner or later. The promoter and majority shareholder of AMPW, Johannes Petersen, also promotes another penny stock, (SILA:OTCBB) which has declined from $1.40 to $0.22.
    What does AMPW own?
    I estimate a current cash balance of $600k minus promotional expenses over the past quarter. A property in Montana is being held in escrow until the company delivers $1.2 mn in cash and certain documents (reserve estimate and mining feasibility study) to the sellers.
    The Property Scheme
    The company signed the following agreements in April 2010:
    •$700k to acquire 40% of a “coal property” in Montana, with a call option on the remaining 60% struck at $1.25mn.
    •$700k to acquire 40% of a “mineral rights property” in Montana, with a call option on the remaining 60% struck at $1.25mn.
    Deal issues:
    •It’s a seller-financed deal. The company only invested $200k total up-front. If these properties have any value, why is the seller giving away a huge option to the buyers? Would you give 20x leverage to a company with no real assets at a 5% interest rate with an interest waiver for the first two years?
    •The company has invested $800k so far over the past 9 months (call it a time-weighted 4.5 month investment period.) The notion that these assets are worth $142mn today, is simply not credible.
    •SILA has similar option arrangements to purchase properties
    My opinion:
    The property is worthless.
    The Capital Scheme
    On Sep 10, 2010, AMPW entered two agreements with a Marshall Islands corporation named Black Sands Holdings, Inc. (BSH).
    •AMPW issued BSH ~417k shares to settle an obligation of ~$208.5k
    •BSH granted a “put” option to AMPW to issue Units (1 Unit = 1 share + 1 warrant) to BSH for up to $10 million, priced on a 10-day VWAP formula. Exercise is limited to $1 million per 3 months.
    I think the implication (what we are supposed to believe) is that the settlement priced stock at a generous level to BSH and BSH in return issued this put option to AMPW as a “fair trade”.
    Deal issues:
    •Both agreements are ridiculously favorable to AMPW: There was roughly zero asset value in AMPW prior to Sep 10, and who writes a put struck at VWAP with a penny stock promoter on the other side?
    •The value of a long-term, $10 million option is not in the same ballpark as the $200k obligation
    •Why are the two agreements separate? I'm not sure the option contract is even legally binding, as there is no consideration due to BSH
    •SILA has a similar “put option” agreement with another mysterious offshore entity
    My opinion:
    BSH is likely to be owned by the promoters or their affiliates.
    Note: On Oct 5, 2010, AMPW issued ~600k Units to BSH for $500k, outside of the option agreement.
    Promotional actions/statements:
    The most recent press releases from the company are:
    •2/1/11--Company has retained a small investment bank to explore strategic alternatives
    •1/4/11--Paid research report put out by Cohen Independent Research Group (their disclaimers state that they receive compensation… I love the asterisk next to “Independent Research” on their website)
    •12/13/10—“American Power Corp. Well Financed to Advance Pace Coal Project”—announcing the BSH put option deal, which they call a “financing” with a “European institutional investor”
    •12/7/10—“American Power Corp. Pace Project Update”—Company announces that it has retained Mission Engineering of Billings, Montana to prepare a permit application. The CEO makes some non-sequitur comments about Western Coal and Riversdale being taken out at $3bn+ each.
    I’d also recommend checking out the company’s website, www.americanpowerco.com/. It’s extremely flashy, appeals to patriotism with a huge American flag, and even plays up an emerging market angle (“Powering Asia”) by citing trade statistics.
    Management
    Johannes Petersen, the CFO, owned 52.6% of the stock at Sep. 30 (market value ~$72mn today).
    Other public company associations:
    •CEO, Century Petroleum (CYPE:PINK-$0.01)
    •CEO, Paloma Resources (PLO-H:Venture-$0.15, C$1.2mn mkt cap)
    •CEO, Gold American Mining Corp (SILA:OTCBB-$0.22)
    •Former CFO, American Sierra Gold Corp (AMNP:OTCBB-$0.04, $2.7mn mkt cap)
    •Former CEO, Dragon Gold Resources (sold as a shell for an RTO in 2007)
    Alvaro Valencia, the CEO, went to the same college in Peru as Petersen and owned 0.2% of the stock at Sep. 30.
    Conclusion
    I believe this stock is worthless. Short selling may be difficult due to borrow issues and the skill of the promoters. Nevertheless, the longs should beware.
    Disclaimer: The information and opinions presented in this article are provided for informational purposes only, and do not constitute investment advice. Securities investing involves a high degree of risk. Potential investors should seek the advice of a professional before engaging in any investing or trading activity. The author of this article and/or his affiliates have a position in the securities mentioned in this article at the time of publication. The author and/or his affiliates may change their position at any time without disclosure.
     
    Feb 02 11:13 AM | Link | 332 Comments
  • Willow Creek Enterprises: A Classic Stock Promotion?

    Quick Stats
     

    Share Price  $0.695 
    Market Cap $186 million
    $ traded/day $1.25 million 
    Borrow Cost -6.5% 
    Short Interest (Est.) 350,000 
    Days to Cover  0.15


    Willow Creek Enterprises (WLOCD:OTCBB) is a $186 million market cap exploration stage mining company with no discernible asset value and a promotional management. I believe the stock is worth zero. 

    What exactly does WLOCD own?

    In August 2007 the company paid $6,000 (six thousand) for a mineral claim in British Columbia. In October 2010, the company purchased 20-year rights to explore the Dolly Varden Property in Nevada. It paid $10k up front and owes an additional $10k annually. On November 17, 2010, the Company acquired 7-year exploration rights for the Hercules Property in Nevada. WLOCD owes $290k over the term of the lease and must provide $3.5 million in work commitments. The payment schedule is $20k up front, $10k monthly for four months, and then annual payments.

    As of the most recent financials on Aug. 31, 2010, the company had $0 (zero) in cash and current liabilities of $66k. 

    The most recent press releases from the company are:

    • 1/13/11 – The company announces a 4:1 stock split effective on 1/14. 
    • 1/4/11 – “Willow Creek Samples Positive Quantities of Copper, Silver and Gold on Dolly Varden”. Literally, the company found 16 rocks, some with “anomalous quantities” of metal. This vague press release does not mention the name of a third party engineering firm, probably because is no such firm, or if there is one it is not of high quality. 
    • 12/29/10 – “Willow Creek Outlines Preliminary Exploration Programs for Early 2011” I saw only one sentence that actually discusses the company’s plans: “Early 2011 exploration program to include: trenching, sampling, ground geophysics, mapping and further targeting; then, advancing the exploration program in the early spring.” 
    • 12/15/10 – The company raises $250k in equity by selling shares and warrants to an entity incorporated in Belize. There was no press release, though the company did file an 8-K (though they don’t always seem to file 8-Ks for the press releases…) 

    How much does the company intend to spend on the exploration program? According to the 10-K filed Dec 2010, they plan to spend $35,000 for exploration over the next 12 months. That’s right: the company tells us that it will spend $35k exploring claims that the stock market values at $186mn.

    In the extremely unlikely possibility that there is a material amount of precious metal on these claims (about as likely as the CEO going to the 7-11 and buying a winning lottery ticket), the cost of building an actual mine is significant. Since the company has only ~$200k cash (from the Belizeans), shareholders would face significant dilution. 

    WLOCD has invested a total of $46,000 in its various rights and claims—less than the amount it currently owes to creditors. Most of this money was invested in the past 3 months. If these assets are really worth $186 million today, these investments rank amongst the greatest in history.

    Management

    So who exactly is responsible for this magical 4000-bagger in 3 months? The CEO, President, CFO, Secretary, and Treasurer positions at WLOCD are all held by a “Mr. Terry Fields, LL.B., BSc.”

    A quick search also revealed that Mr. Fields is also CEO or president of the following public companies:

    • Uniontown Energy (UTOGD-OTCBB, $1.65) 
    • Formcap Corp (FRMC-Pink, $0.02)
    • Daulton Capital Corp (DUCP-OTCBB, $0.19) 
    • Spirit Exploration (SPXP-Pink, $0.01) 
    • First Pursuit Ventures Ltd (FPV-Venture, C$0.16) 
    • Malwin Ventures (MLWN-Pink, $0.23)

    And associated or formerly associated with the following companies:

    • Yankee Hat Minerals (KHT-Venture, C$0.07) 
    • GoEnergy (GOEE-Pink, $0.55) 
    • Liberty Silver (LBSV-OTCBB, $0.43) 
    • Meadow Bay Capital (MAY-Venture, C$0.18)

    (source: investing.businessweek.com/research/stoc...)

    So in addition to being one of the world’s greatest investors, Mr. Fields is also able to run 6 companies at once. That’s quite an impressive feat. How much does such a talented executive cost?

    According to the 10-K, Mr. Fields received 2 million unrestricted, pre-split shares when he became CEO in August, and another 5 million pre-split shares from a Mr. Sidney Swick on October 21, 2010. That’s a cool $18.7mn total at market today.

    Who is Sidney Swick? According to the 10-K, Mr. Swick was the majority shareholder of WLOCD at August 31, 2010 with a holding of 105 million shares, and “On October 22, 2010, the Company and Mr. Swick agreed to retire a total of 100,000,000 restricted common shares owned by Mr. Swick.” There is no stated reason why Mr. Swick would agree to cancel $80 million worth of shares (The stock was trading at $0.80 at the time).

    Here is a profile of Swick (source: investing.businessweek.com/research/stoc...)

    “Age: 36

    ... 

    Sidney Swick served as the Chief Executive Officer of Willow Creek Enterprises Inc. until August 9, 2010 and served as its President, Chief Financial Officer, Secretary, Treasurer and Principal Accounting Officer from January 16, 2007 to August 9, 2010. Mr. Swick has been employed as an insurance broker since 2004 specializing in group benefits for small and medium sized businesses in Edmonton Alberta and surrounding area. He served in the telecom industry at Bell Canada until 2004. Mr. Swick served as a Director of Willow Creek Enterprises Inc. from January 16, 2007 to August 9, 2010.”

    So who else is associated with this company? There are only two directors on the board at WLOCD. One is Terry Fields, and the other is a Mr. Larry Eastland.

    From the 10-K:

    “Since 1980, Mr. Eastland has been Chairman of the Board of Directors of LEA Capital Advisors, Inc., an international business and investment advisory group specializing in taking private companies public with various offices worldwide”.

    And this is what the State of California thinks of Mr. Eastland and company:

    “the California Corporations Commissioner is of the opinion that Larry Eastland, Justin Eastland, and LEA Capital Advisors, Inc. have effected transactions in securities as a broker-dealer without having first applied for and secured from the Commissioner a certificate authorizing them to act in that capacity, in violation of Corporations Code section 25210. Pursuant to section 25532 of the Corporate Securities Law of 1968, Larry Eastland, Justin Eastland, and LEA Capital Advisors, Inc. are hereby ordered to desist and refrain from effecting any transaction in, or inducing or attempting to induce the purchase or sale of, any security in this state, unless and until they have applied for and secured from the Commissioner a certificate, then in effect, authorizing them to act in that capacity, unless exempted under the provisions of Chapter 1 (commencing with Section 25200) of this part.”

    (source: www.corp.ca.gov/ENF/pdf/2010/LEACapital_...)

    Conclusion

    I believe that the buyers of this stock are retail victims of a classic stock promotion. Even for a penny stock, this is such a blatant promote that I suspect that many of the buyers are knowing participants in a greater fool game. When the downside comes it will be violent. 

    Disclaimer: The information and opinions presented in this article are provided for informational purposes only, and do not constitute investment advice. Investing in equities and other securities involves a high degree of risk. Potential investors should seek the advice of a professional before engaging in any investing activity. The author of this article and/or his affiliates have a position in the securities mentioned in this article at the time of publication. The author and/or his affiliates may change their position at any time without disclosure.

     


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: The author of this article and/or his affiliates have a short position in the securities mentioned in this article at the time of publication. The author and/or his affiliates may change their position at any time without disclosure.
    Jan 14 10:45 AM | Link | 14 Comments
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