Hey Isaac, you made the tape: "TALES OF THE TAPE: C3D's Dramatic Run Invites Questions
12/15/99 14:0 (New York)
By Sean Davis
NEW YORK (Dow Jones)--It isn't often that a Bulletin Board
stock goes from 2 cents a share to $59.50 in less than a year.
That's what happened to C3D Inc. (CDDD), which says it owns intellectual
property rights to a breakthrough in data storage.
Talk of C3D's rise has been filling the Internet message boards
favored by speculators and short-term investors. The little stock
that could has both its champions and skeptics, and only time
will tell who is right.
But one thing is certain: Whenever a company with negative
stockholders' equity and assets of $1.1 million attains a market
value of $813.2 million - its value as of Tuesday's close - investors
should ask questions.
Some of these questions should be asked of any company. What
does it do? Does it have enough money to do it? Who runs the company?
Who are its major shareholders? A few are questions unique to
C3D. What is its link to a Vancouver stock promoter? Why is it
being mentioned in connection with the slaying of two stock promoters
in New Jersey?
What does C3D do? Right now, it develops technology and files
patent applications. The company has never recorded a sale. It
claims to be developing a technology that uses fluorescent material
to dramatically increase the capacity of digital videodisks and
other storage media. C3D plans to form partnerships with other
companies to bring the technology to market in low-cost devices
such as laptop computers, digital cameras and electronic book
readers.
C3D recently held a demonstration of its technology in San
Jose for a number of big storage-industry players. Jim Porter,
a respected disk analyst who attended, says the demonstration
was bona fide. "It's a substantially well thought-out technology."
But Porter says there are some unanswered questions. First,
can the technology be mass-produced cheaply? More important, does
the world want to buy it? Unlike DVD, which is reaching a mass
audience this Christmas, the C3D device isn't rewritable. That
could limit its commercial appeal.
C3D begs to differ. "For things like e-books and turning handheld
computer devices into instruments with much greater storage and
capabilities, you're going to need our type of memory," says Michael
Goldberg, the company's director of legal affairs. C3D is working
on making its device rewritable, he says, but if the company succeeds
in making storage media cheap enough, users won't need rewritable
disks - they will simply throw away used disks and start fresh.
Another obstacle to widespread commercialization of the technology
is establishing it as a standard. That will take some savvy wheeling
and dealing, and right now, Porter says, C3D is stocked with techies
and could use some business types. C3D's Goldberg heartily agrees,
and he says the company plans to hire people with industry experience
to market the technology.
Does C3D have enough money to do what it says it is going to
do? The company said in November it had enough money to fund operations
through the end of the month. It hasn't announced any new financing
since then. Moreover, C3D says it will need $20 million to fund
operations over the next year. Because of the uncertainty over
funding, C3D's independent auditor, BDO Seidman, has expressed
"substantial doubt about the company's ability to continue as
a going concern."
In fact, C3D is in talks to secure cash, Goldberg says, adding
the customary Wall Street warning that nothing is assured. "We
are currently in negotiations with both venture capital funds
and investment banking firms to resolve that issue." C3D wants
to raise enough capital to list on either Nasdaq or the American
Stock Exchange, he says.
Who runs C3D? The chairman of the board is Itzhak Yaakov, a
retired Israeli Army general who holds a master of science from
MIT. For the last 10 years of his military service, he was Israel's
chief of defense research and development. His consulting firm
receives $5,000 a month from C3D, and he owns 50,000 shares as
well as options to buy 100,000 more.
Eugene Levich is C3D's chief executive. He has a Ph.D. from
the Landau Institute of Theoretical Physics in Moscow and has
published more than 90 scientific papers. Although Levich draws
no salary from C3D, C3D's predecessor paid management fees of
$200,000 in 1997 and 1998 to a company of which he is a principal.
Tax Havens And Private Placements
Who owns C3D? First, some history. The company was incorporated
in 1995 as Latin Venture Partners. The names of its original owners
weren't disclosed in C3D's SEC filing. Latin Venture Partners
changed its name to C3D earlier this year. The company didn't
have any business operations until Oct. 1, when it acquired most
of the assets of Constellation 3D Technology Ltd. for 9.75 million
restricted shares. This was a reverse merger that made Constellation
the parent company and C3D the acquired entity. Constellation's
assets included a Delaware limited-liability company that owns
the intellectual property rights to the new technology, a Russian
research-and-development company, 99% of an Israeli R&D company,
and a Delaware shell corporation.
Constellation owns 70.4%, of C3D, representing the 9.75 million
shares it received in the reverse merger. But who owns Constellation?
Well, the trail starts in Israel, makes a detour through the Caribbean
tax havens of Nevis and the British Virgin Islands, and ends in
another tax haven, the tiny European principality of Liechtenstein.
The ultimate owners of 55% of Constellation are three Liechtenstein
trusts, two of which benefit the families of Levich and Lev Zaidenberg,
a C3D director. In total, executives and directors own 5.64 million
shares, or 40.7%, of C3D.
C3D's complex ownership owes to the fact it was designed to
provide tax benefits to the multinational owners of a privately
held company, Goldberg says. "There are some very Draconian tax
consequences in some of these countries." The reverse merger was
the first step in an overhaul of the ownership structure, he says.
C3D has a public float of about 3.5 million shares. Virtually
all of this was issued by the shell company C3D prior to its merger
into Constellation. On March 24 of this year, the shell C3D issued
3,125,000 shares to 16 high-net-worth investors for a total of
$250,000, or 8 cents a share. The main people in this group, including
a businessman named Jim O'Callahan, were based in Ireland, says
Philip J. Garratt, who worked for the group. On May 7, the shell
C3D issued 453,255 shares to offshore investors for a total of
$1,813,020, or $4 a share. C3D's Goldberg says he doesn't know
who bought these shares.
What's the Vancouver connection? One rumor on Internet message
boards is that a Vancouver stock promoter with a shady history
is connected with C3D. These rumors appear to be about Garratt,
an Australia native who is currently chief executive of Shopping
Sherlock Inc. (SSLK), an e-commerce company. In 1994, Garratt
voluntarily resigned as chief executive of Cycomm International
as part of a deal with Canadian regulators to get approval for
a Cycomm stock offering. The Canadian authorities had been investigating
Cycomm's insider trading and its public disclosures.
Garratt says he did work for the investors who bought C3D shares
on March 24. "I was asked to come in and do some due diligence
on C3D before these people put in thier money," he says. As for
the problems at Cycomm, he says they resulted from a mistake in
judgment he made about a business partner. He says contrary to
Canadian media reports, he wasn't a stock promoter prior to heading
Cycomm. "I was an investor."
Finally, what's the connection to the two stock promoters murdered
in New Jersey? In October, the New York Times reported that investigators
were looking into whether the two slain promoters became involved
in a fight over C3D's share price. Traders who were betting C3D's
price would fall told authorities one of the victims was helping
them, and they feared he and the other victim were killed because
of that help, the Times reported. Since then, the Times and other
publications have said investigators are considering other scenarios
as well. C3D's Goldberg says the company had no ties to the slain
promoters, and has not been contacted by any authorities investigating
the killings. |
