Global Resource Corporation: Needed Technology; Unanswered Questions About Management
On July 3, The Energy Blog told us about a process of turning old tires back into valuable oil and gasses. Given the problems of Peak Oil and plastic waste which can mimic almost anything in the environment, I was intrigued, and I had the feeling that other watchers of the alternative energy space would be, too. After a quick review to make sure that the technology was based on sound science (I believe it is, although that is no guarantee that it can be commercialized), and a search for information about their governance policies and a board list (which I did not find), I noted that they have all their SEC filings available on their website, which I took to be a good sign. I bought small amounts of the Global Resource Corporation (GBRC.pk) stock for several of my more speculative clients (at prices between $2.20 and $2.35), based on the intuition that I would not be the only one to see the potential for this technology, and that others would write about it. I expected that the favorable press would drive up the price of the stock.
I then began more in-depth research. If the company turned out to have a quality management team, who I felt would be able to realize the true potential of the technology, I fully intended to take substantial positions in all my managed accounts for which the company would be appropriate. I began reading through their SEC filings, and sent an email to their general inquiry line, asking for management bios and any governance documents they had adopted.
Two days later, I heard back from Jeff Andrews, Global Resource's CFO, but not with the list of the Board of Directors and bios I had requested, but rather with a request to call him "next week." "Next week" passed with a game of phone tag, and eventually I set up (by email) a phone appointment with him the following Tuesday, the 17th.
Cause for Concern
In the meantime, I had had a chance to review the SEC filings (the most interesting reading is their most recent 10K), and gleaned the following information:
- Global Resource was the product of a reverse merger between blank-check company Advance Medical Technologies Inc. (formerly Email Mortgage.com Inc.) and Carbon Recovery Corporation, a company which inventor and current CEO Frank Pringle had created in the hope of commercializing the technology he had invented while at Mobilstream Oil.
- The only members of the board of directors of GBRC were Frank Pringle, the CEO; Jeff Andrews, the CFO, and Frederick A. Clark. Since Mr. Clark is "representing the company in Pennsylvania for matters with respect to the proposed tire disposal facility," there are no independent board members.
- The list of related party transactions is quite long, with a complex web of interrelationships between GBRC, Molbilstream Oil, and Careful Sell / PSO Enterprises, all of which seem to be controlled at least in part by Mr. Pringle.
- The company had been negotiating an acquisition of some unknown company, but the deal had fallen through, and GBRC had terminated a private offering (at some expense to themselves) with which they had been planning to fund the acquisition. This deal could possibly have been the reason I had been having so much difficulty speaking with Mr. Andrews.
- GBRC had retained the services of QualityStocks.net, a somewhat spammy internet promoter and purveyor of stock newsletters. While this may be a smart move for a company hoping to pump up its stock price in anticipation of a secondary offering, it is not something I would expect of a company planning to preserve its long term reputation.
On Tuesday, I called Mr. Andrews at the appointed time, and was put directly through to him by Global Resource's front desk without having to identify myself. He claimed to be pressed for time, and asked if we could reschedule for the next day. Due to my calendar constraints, we settled on Thursday.
His continued unavailability, along with the unaddressed concerns raised by my research made me decide to sell GBRC in all accounts. Fortunately, my prediction of a small flurry of interest in the blogosphere had been accurate, and I was able to sell at prices near $5. I reasoned that if Mr. Andrews were able to adequately address my concerns, I would be able to buy the stock at lower prices when interest inevitably shifted to the next hot technology. If he could not, there was no reason to hold the stock now that it had already received the expected media attention.
On Thursday, I again called at the appointed time, and was again passed through to Mr. Andrews without difficulty. He asked if I could call back in two hours when he "had more time." I asked, "How much time do you have now?" to which he replied, "Two seconds, I'm with my accountants, and trying to get them out of here." The line then went dead, as did any remaining interest I had in the company. I decided to write this article without speaking to management.
Later, when I had time to read through Global Resource's most recent 10K more thoroughly, I found several other worrysome items.
- The company dismissed its accountants in November 2006. The auditors had questioned the company's ability to continue as a going concern.
- In their Sarbanes-Oxley compliance statement, Mr. Pringle and Mr. Andrews
had raised concerns over the lack of sufficient written
policies and procedures to insure the correct application of accounting and financial reporting requirements, as well as a deficiency in internal controls relating to a lack of segregation of duties. While they have hired an accounting firm to help them remedy these weaknesses, Mr. Andrews had not provided me with any information in this regard in response to my initial request asking for governance documents.
- The company does not currently have a code of ethics.
- The company is the subject of a lawsuit arising from its former incarnation as Advanced Healthcare Technologies, alleging the company "fraudulently induced the plaintiffs to convert certain debt to equity in the Company, which equity has subsequently become valueless." While this lawsuit does not concern the actions of current management, it raises concerns about the level of diligence of current management in their planning for the reverse merger. There are also obviously concerns that the lawsuit might be successful, although management "does not believe that any judgment, or any settlement of the litigation, will have a material effect on the profit or loss of the Company."
Perhaps, if I had spoken with Mr. Andrews at length, he could have allayed my concerns. However, I am also concerned about his lack of availability in itself.
On Friday, I tried to short the stock at $5.10, but was unable to do so. It has not been above $5 long enough to be marginable.
UPDATE: I recently received an email from a UK citizen who feels his family has been the victim of a boiler-room scheme involving Mobilestream Oil and Global Resource Corp.
DISCLOSURE: Tom Konrad and/or his clients do not currently have positions in GBRC.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.
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