I was reading this article about zmax and it sounded a lot like TPII, except for a few vital variables, like the stock price.......
In the past six months, Zmax stock has roared to $15.56 1/4 a share at the close of
trading Friday from less than $2 a share. As many as 900,000 shares have changed
hands in a day. At that price, the company's 6.2 million shares have a market value
of about $100 million, an unusually high price for a company that said it has two
dozen employees, has been in business in its present form since November and has
yet to make any money from the Y2K business, its only line of work.
Investors' interest in Zmax stock is unusual as well because there are none of the
usual regulatory filings to mine for information. The company is not registered
with the SEC and has not issued any financial reports to the SEC or shareholders.
An SEC spokesman said that under special circumstances, stock that is not
registered with the SEC can be publicly traded.
Under one circumstance, stock that was initially sold overseas can qualify for
exemption; the SEC recently proposed ending this exemption because of what it
said were widespread abuses. Zmax officials said the company qualified under this
provision.
Zmax President Michael Higgins said the company has hired securities lawyers and
auditors and "is in the process of becoming fully registered. Our target is around
June 1."
Because the stock is not registered now, there are no public records that give
investors such basic facts as how the company is doing, who owns it or who made
money as the stock went up. It would require calls to the company or the
brokerages that trade its stock to find out.
The company now known as Zmax was called Oryx Gold Corp. of Vancouver
until May 1995. Then it changed its name to Mediterranean Oil Co. and moved to
San Diego. In August Mediterranean Oil changed its name to Zmax.
Zmax was then bought by a group of investors who restructured the firm and paid
off its debts, planning to use what amounted to a shell company to acquire another
business, said Carmine Vua, a San Diego securities lawyer who handled the legal
details of that restructuring.
To pay off the shell's $840,000 in debt, the owners sold 2.8 million shares of
stock for 30 cents a share in Europe, Vua said.
The business that Zmax acquired was Century Services Inc. of Germantown.
Century was founded last year by Higgins and Michael Cannon, who had worked
for Integrated Microcomputer Systems (IMS), a privately owned Rockville
computer company. When IMS was sold to CACI International Inc. in January
1996, Higgins said, he and Cannon left to start Century.
Century bought two Y2K "software tools" from IMS, acquired a third from a
research institution in Taiwan, then combined them into a single product, Higgins
said.
Seeking capital to expand the business, Higgins said he was introduced to the
owners of Zmax, who agreed to acquire Century Services and finance its work by
raising $5 million, also from European investors. Under terms of the acquisition,
Higgins and Cannon will get 3.2 million shares of Zmax, but only if the company
reaches its profit goals.
Asked why the start-up company's finances are so complicated, Higgins said, "It's
a question of what kind of options do you have at the time. We needed funding to
move forward."
"I had a business plan. I needed a certain amount of capital to make it happen. We
raised the capital. The business plan is on schedule," he said.
Higgins said he and Cannon have made no money from the rapid run-up in the
company's stock. Who has benefited from the sevenfold increase in the stock price
is difficult to trace because the stock also is traded in Canada and Germany.
While some investors have benefited from the price surge, there are others who
stand to benefit from a decline, including some of the brokerages that deal in Zmax
shares. Some trading firms dealing in Zmax shares are going "short" on Zmax with
large blocks of stock, said Mark Elenowitz of Investor Communications, a
Bethesda shareholder relations company that represents Zmax. In essence the
brokers are selling borrowed stock, hoping they can replace it later with shares
bought for less. The practice is legal. While Zmax has issued no financial reports,
it has set up a World Wide Web site describing its technology and reprinting
glowing reports on the company.
One research report being distributed by Zmax was issued by McNatt, Douglas &
Co. of Denver, which identifies itself as "an independent research firm and a
Registered Investment Advisor." McNatt, Douglas is not registered as an
investment adviser with the SEC, agency officials said. The firm's owner, Douglas
Fahoury, said the company "is registered in my name. I basically am the
company."
SEC officials said Fahoury is registered, but that the company cannot claim to be a
registered investment adviser without also registering itself. Zmax officials said
they took the report by McNatt, Douglas off their Web site Friday after questions
were raised about whether it was a registered investment adviser. |
