UPDATE: COMBINED PROFESSIONAL SERVICES, INC. (OTCBB: CPFS) – A SHELL BY ANY OTHER NAME…
October 25, 2002
On July 31, 2002 we profiled Combined Professional Services, Inc. (OTCBB: CPFS), a public shell company whose stock was then trading at $6.63 a share. See Combined Professional Services, Inc. - Something Shell-Y's Going On. The Company had no business, no immediate prospects, and could not even locate its former accountant. Still, at the time, its market cap was $62 million.
The market cap is down, and so is the stock price ($1.90 a share on October 24th), but Combined Financial claims it now has secured a business. It is not the Company’s first attempt. Since August 12, 2002, Combined Professional has announced plans for a string of mergers, involving distinctly different businesses.
First, on August 12th, the Company issued a press release claiming it had entered into a letter of intent to acquire Muni-Financial Inc., a Florida-based financial services company that purportedly offered “insurance, financial planning and real estate financing services.” The press release also said that Marc Baker had resigned as the Company’s President and director and had agreed to surrender 4 million shares of Combined Professional stock. The new President and director was Jeff Spanier, who had been given 4 million shares of the Company’s stock. According to his employment agreement, however, Mr. Spanier would forfeit those shares if he ceased to be employed by the Company within two years, or the Company failed to acquire a business with sales of at least $60 million, and net income of $3.5 million or more.
There was nothing in the August 12th press release that suggested Muni Financial met those parameters. In fact, there was no information about Muni Financial’s financial performance. It didn’t matter. The letter of intent apparently did not lead to a definitive agreement. Instead, on September 5th Combined Professional switched gears and announced that it had signed a letter of intent to acquire National College Planning Group Inc., which it described as a “financial membership services company that advises families, individuals and companies regarding college funding services, insurance products and employee benefit packages.”
Combined Professional provided no information about the financial condition or operating history of National College Planning Group. Once again, it did not matter. Three weeks later Combined Professional had moved on to another potential acquisition. On September 27th the Company issued a press release declaring that it had entered into a “definitive” agreement to acquire all of the shares of a private company called Patron Systems, in exchange for Combined Professional stock.
The Company praised Patron’s management team, which would now be running the public company, but made no mention of Patron’s current operations or financial condition.
Perhaps that’s because there was no business to describe. Patron had been formed quite recently - in April 2002 - “to provide comprehensive, end-to-end information security solutions to global corporations and government institutions.” Although the September 27th press release noted that the “information security market is a $10 Billion market,” it did not indicate that Patron had captured a single dollar of that business. It appeared that Patron, like Combined Professional, had plenty of plans, but no operating business.
The “definitive” agreement did not provide audited financial statements for Patron, and, none were included with the Form 8-K that Combined Professional filed with the Securities and Exchange Commission disclosing the transaction. In fact, neither the Form 8-K (filed on October 10th) nor an Amended Form 8-K (filed on October 11th), indicated when audited financial statements would be forthcoming.
Reporting companies – which would include Combined Professional – are required to file audited financial statements when they conclude a material acquisition. The Patron transaction certainly would qualify as material since Patron shareholders were to receive 29.4 million shares of the Company’s stock, giving them an overwhelming majority of the outstanding shares. Fewer than 7 million shares had been outstanding prior to the deal.
Despite the paucity of information, on October 11th the Company announced that the share exchange had been completed, with the former Patron shareholders receiving 25.4 million of the Company’s common shares (down from the 29.4 million in the original agreement). In addition, the Company said that 4 million options had been granted and another 11 million shares had been reserved for potential acquisitions. None of the terms of those acquisitions were disclosed. Neither was the financial condition of the possible acquisition targets.
As part of the deal, Jeff Spanier resigned as President (and returned his 4 million shares) and was replaced by Patrick Allin. The Company claimed that Mr. Allin’s credentials included positions as President of “various” billion dollar companies in the U.S. and Canada. Oddly, it did not name those companies.
The share exchange agreement also provided that approximately 1.8 million shares would be issued to a group of employees, consultants and “finders,” including Spanier (600,844 shares). It did not specify what services had been provided in exchange for those shares.
One of the entities receiving shares in connection with the Patron acquisition was PBJ Holdings, Inc. (600,444 shares). The Company previously had disclosed that it owned 4.9% of PBJ, which was the parent company of a licensed brokerage firm, Florida Discount Securities. Patron also agreed to pay fees of $250,000 to Florida Discount Securities – although the parties have not said what role Florida Discount Securities played in the transaction.
Combined Professional plans some more changes. The Company will now be called Patron Systems, and plans to move its corporate home from Nevada to Delaware.
The Company continues to announce acquisitions. On October 22nd, the Company announced that it had entered into a Letter of Intent to acquire Entelagent Software, Inc. in exchange for an unspecified number of shares of Combined Professional stock. According to the Company’s press release, Entelagent provides electronic e-mail surveillance solutions. The Company did not provide any financial information for Entelagent, or indicate whether Entelagent has assets or revenues.
Two days later, on October 24th, the Company announced that it had signed a Letter of Intent to merge with TrustWave Corp., a private Maryland corporation that provides “Enterprise Information Assurance Services to…corporate, educational, and government clients.” The press release explained that TrustWave, whose staff has had extensive experience implementing security solutions, will comprise “the initial security specialist resource requirements for Patron Systems client projects.”
Patron said it would not disclose any terms of the merger until a definitive agreement is concluded. Will there be cash involved, and if so, where will it come from? Investors will have to wait for that information.
They also will have to wait to learn the financial condition of TrustWave. The October 24th press release provided no details of TrustWave’s assets, revenues or expenses.
Combined Professional has found itself a merger partner in Patron, and a potential acquisition in Entelagent, and another possible merger with TrustWave, but what has it acquired? Is Patron just another shell? Does Entelagent have any assets? Does TrustWave? What will the mergers and acquisitions cost? Without audited financial statements and details of the deals, investors are left to wonder.
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