Pacific Equity Investigations OInitiates. (NASDAQ: EGLO) with an
immediate Sell / Short Sell recommendation and a short term price target of
4 dollars per share and an intermediate term price target of 1 dollar per
share. The stock doubled Friday to 9 3/16, and traded up to 13 1/4 in
aftermarket trading.
Financial Condition:
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EGLO's claims of high percentage growth thinly mask its desperate financial
condition. It has appx. 2 million in cash, lost appx. 19 million last
quarter, (over 20 million cash outflow this year), and its cost of revenue
was 97.5% of gross income. Current liabilities exceed current assets by
nearly 2:1.
The company has issued at least 14 classes of preferred stock, plus
warrants, and just last month, pledged to issue 40 million shares of stock
to purchase a Trans Global, a company it values at $80 million. (implying
a $2 valuation for EGLO stock) Without immediate additional dilution, the
company is close to insolvency.
Background
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The company has a history of changing its business model when it failed to
execute on its business plan. It used to be known as Executive Telecard
Ltd., where it lost millions in the phone card business. Now it is losing
millions in the private network (VoIP) business because it cannot possibly
compete in a commodity business with numerous large, well-capitalized,
better executing competitors. So it is attempting to pump its stock by
claiming it is now in the hot "Business to Business" sector, and
associating with the equally hot "China" fad.
Fraudulent and Misleading Press Release
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Friday EGLO it issued a press release announcing it plans to create a joint
venture to conduct "Business to Business" e-commerce in China, under a
subsidiary i1.com. Potential investors are advised to explore I1.com's
link to "test drive" its software, which is not a business to business
solution at all, but "Instant E-Store" a pathetic web storefront utility.
The software is not I1's, but a repackage of a Crystal Computing Corp.
product, and is nothing that cannot be found for free at Yahoo, Quicken, or
any of several hundred "online malls", nearly all of which are
unprofitable. The shops have few or no items for sale, are laced with
broken links, and they all share the same bogus visit counter. The payment
method offered, Visa or Mastercard, does not even remotely constitute a
"Business to Business" e-commerce solution in the US and certainly not
China. The partial translation of this software into Chinese does nothing
to qualify it as a business-to-business solution for China.
The name "i1.com" has apparently been chosen to mislead the public because
of the potential for confusion with i2.com (ITWO), a legitimate web-enabled
procurement solution provider. I1.com's domain registration is owned by
Intelisys, Inc., another attempt to create confusion (via misidentification
with Intelisys Electronic Commerce, a New York-based B2B spinoff of Chase
Manhattan Bank with which it has no relationship). Intelisys, Inc.'s phone
number is the home number of Hsin Yen, a longtime EGLO officer who is
claimed in the PR to be the CEO of i1.com
Analyst Recommendation
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Kaufman Brothers is famous for promoting TRBD, ABTE, CYOE, KBRO and
numerous other issues whose miserable track records speak for themselves.
Conclusion:
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Business-to-business e-commerce is a very hot investment sector, but is
incredibly complex and expensive to implement. EGLO has no expertise and
no resources to invest in any such venture. EGLO has manufactured a
misleading and possibly fraudulent press release which touts primitive
web-store software as a B2B solution. This is intended to cause an
unsustainable run-up in the stock, with an inevitable crash to follow, to
feed some cash into the company via further dilution, to stave off
creditors for a little while longer. |
