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BOSTON CAPITAL
Investors should keep eye on Zero.net, and hand on wallet
By Steven Syre and Charles Stein, Globe Staff, 6/20/2000
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This morning's subject: the activities of a West Coast investment firm called Zero.net, the man who appears to call the shots there, and the collection of mostly obscure technology companies in Massachusetts and elsewhere that make up its Internet-focused portfolio.
As usual, our question: What's it all really worth?
Zero.net first appeared in this space May 17 when we questioned the sky-high valuation of Envision Development Corp. of Marlborough, its single most important portfolio company. Envision's public shares have taken a fall since then, slipping almost 40 percent from $50 to $30.25 per share yesterday.
Envision Development has turned itself into a business-to-business Internet specialist, but just nine months ago it went public under the name perfumania
.com with a plan to sell discount fragrances over the Web from Miami. After a series of acquisitions, a name change, relocation, and a sale of the perfume business, Envision Development now touts serious high-tech ventures but none that has reported any sales to date.
Subsequent news about Zero.net has come in dribs and drabs. Andrew Evans, notable for his checkered background and former role as personal money manager to Bill Gates, appeared to be the financial decision-maker at Zero.net. There was the brief appearance, then resignation, of the chief executive of New York marketing-advertising giant Omnicom Group on the Zero.net board.
Evans has been a low-profile figure for years now, after he and his wife went to prison on charges related to bank fraud, and unrelated insider trading allegations brought against him by the Securities and Exchange Commission were settled in the mid-1980s. The courtroom publicity forced an apparent split between Evans and Gates, reportedly at the urging of the mother of the world's richest man.
Zero.net promotes itself as an organizer and incubator of young, emerging Internet companies, but no one would mistake its investments for the portfolios of the likes of CMGI Inc. or Softbank.
Even the origins of Zero.net are unclear. The company describes a 22-year history on its Web site, but there is no real evidence that it even existed prior to 1999. A public securities filing stated that the company effectively was created by stock contributions from two other Evans-controlled investment vehicles last year.
Zero.net reports interests in 13 privately owned businesses and another six publicly traded companies, all of them connected with the Internet or high-tech communications.
Among the six publicly traded investments, Zero.net has a small interest in Data Return Corp., an Internet hosting company with modest but growing revenue and a stock market value of more than $700 million.
But the public portfolio also includes companies such as TeleHubLink Corp. of Burlington, which had been in the telemarketing business but more recently refashioned itself as ''a leader in secure wireless encryption technology.'' Talk about a change in directions.
TeleHubLink has a habit of not filing financial statements on time; the most recent information we could find dated to October, when it had recorded sales of $1 million over nine months. The company didn't return our call yesterday.
TeleHubLink shares, which traded for less than $1 at their lowest levels last year, soared to $19 in March, the day before the company announced the closing on new financing from Zero.net and others. Shares were worth $4 yesterday, giving the company a total value of $75 million.
That was surely good news for TeleHubLink's largest investor, Stanley A. Young of Burlington.
Young, who owns 19 percent of the company's stock, was in the news four months ago when he agreed to pay a $100,000 state fine and allow Massachusetts regulators to audit any future business he may engage in to settle charges against him. Young was accused of developing a system to inflate the value of stocks to help fledgling companies find investors, in exchange for consulting fees.
Perhaps the most interesting of all Zero.net transactions took place last month, when separate announcements suggested the company might acquire Envision Development and another of its portfolio businesses, b2bstores.com, a tiny venture that went public in February and has since lost most of its value.
Though it's unclear what, if anything, will happen, such a transaction with either company could provide Zero.net an opportunity to become a public company without ever going public in the typical IPO process. It could assume the public stock of a company like Envision Development and find itself with tradeable shares, just like that.
Then the value of all those Internet ventures in the Zero.net portfolio would become a more serious question. It might not seem like much of a proposition at the moment. But another era of Internet infatuation, if it ever returned, might convince adventurous investors that Andy Evans is the new David Wetherell.
Snap out of it.
Steven Syre (929-2918) and Charles Stein (929-2922) can also be reached by e-mail at boscap@globe.com. |
