Re: 7/30/01 - [GENI] NY Observer: Back to Genesis: Khashoggi Floats a Big Pile of Junk
July 30, 2001|0:09 AM
Back to Genesis: Khashoggi Floats a Big Pile of Junk
by Christopher Byron
Remember how great it was when we had Iran-contra? Every day we had real honest-to-God news … stuff about hot-looking secretaries sneaking out of the White House with files and notes in their pantyhose and all that sort of thing. We had stories about creepy arms traders, and Hawk missiles, and the Sandinistas and Ross Perot and Lawrence (“Mad Dog”) Walsh. It was great!
So guess what? I have encouraging news from the good old days. Wandering the widow’s walk, as we are wont to do at sunset each day here at Curmudgeonly Arms, scanning the horizon for news from distant lands, what should I spy recently but the approaching sails of a boatload of fond memories. Just when we thought all hope was lost, the ghost of scandals past returns to our shores. He lives, folks! Adnan Khashoggi is back in town!
If you can’t remember the exact details of what Adnan did in the Iran-contra thing, it’s O.K. Just trust me, they were great. He was the reason the whole thing came unglued and the world wound up discovering what Oliver North really had going on down there in the basement of the White House.
Adnan was the “wealthy Saudi Arabian businessman” you were always reading about in the scandal: the man who surfaced ready to write out a multimillion-dollar check to swing an arms shipment to the ayatollahs—if only someone would just lend him a fiver until payday. He was the guy who lent $10 million to Oliver North for a load of guns to Iran, only to ’fess up thereafter that it wasn’t actually his money that he’d lent at all, and that it belonged to two Canadian guys who’d lent it to him at one of those interest-rate levels we just love to read about here at C.A.: 20 percent for 30 days. Pretty soon, everyone was grabbing for the money and people were popping up with deals like “Instead of $10 million, maybe I could pay you in Hawk missile parts.”
Oh, it was just spectacular, and in no time at all we had George Bush (the old guy, who was then the Vice President) claiming he was “out of the loop,” even as everybody’s dirty laundry was flapping in the breeze like Molly’s underpants on the evening news.
Now, a recent financial filing with the Securities and Exchange Commission puts Adnan at the center of another one of those confidence-inspiring deals for which the “wealthy Saudi businessman” is so famous—in this case, a nifty little stock maneuver for a company bearing the name Genesis Intermedia Inc.
Even corporate raider Carl Icahn has turned up in this deal, pledging $100 million in acquisition funding to the company—in return for which he gets back warrants to acquire 5.5 million shares of the company, or about 24 percent of the total, at prices ranging from $2 to $9 per share.
When the credit line from Mr. Icahn was announced on June 29, Genesis’ stock had already touched an intraday high of $25, so Carl obviously thought he’d struck a pretty good deal. But the very fact of his sweetheart-options package put a top into the stock, which has been weakening ever since and now stands at barely $17.
Since the terms of the deal stipulate that Mr. Icahn has to approve every acquisition before Genesis can make it, and with the company’s stock price weakening by the day, our own guess here at C.A. is that Mr. Icahn will be smart enough not to approve any acquisitions with his money.
Genesis Intermedia is a company that not so long ago had a “.com” flapping opportunistically at the end of its name. Then, when the dot-com bubble popped, Genesis Intermedia—like so many others—simply faded the dot-com from its name and morphed back into a plain old everyday “Inc.”-type operation.
What exactly this company did in the past—or does now—I am not entirely sure. The company calls itself a “marketing technology company that combines innovative marketing strategies with new interactive technologies,” which means—well, frankly, I don’t know what.
When you check out their Web site—which has many overlooked pages that still refer to the company as a “.com” operation—you come across sentences in which the company claims to be “the recognized leader in the operation and deployment of Internet portals accessible in public areas.” This means (I think) that they have kiosks set up in shopping malls, where you can go and log onto the Internet and chill out after a fun-filled day of chasing your children through Baskin-Robbins and the Athlete’s Foot.
The company’s Web site lists 19 malls where it claims to have installed these socially valuable additions to American life. But the list apparently hasn’t been updated in years, for it begins by identifying a mall in Santa Ana, Calif., that “will be” home to the company’s “newest” kiosk-thingie beginning “in August 1999.” A separate list on the Web site identifies 33 malls that have the things.
Whatever they are, and whatever they do, the Internet-portal-kiosks-in-the-mall business really stinks. In all of the year 2000, the company took in a grand total of $451,967 in revenues from these kiosks, and revenues have now fallen by a fifth and are currently running, as of the end of the first quarter, at an annualized rate of about $360,000. If you believe the financials, the company has so far pounded nearly $16 million in capital investment down this kiosks-in-the-mall rat hole.
The company also operates a Web-based car-rental company. It claims to maintain a fleet of 1,000 automobiles that it rents out as replacement vehicles for people whose cars are, for example, being repaired or have been stolen. This looks to be an okay business, I suppose. The 1,000 vehicles show on the company’s books at something less than $13 million, and are throwing off revenues of somewhere around $6 million a year at current rates. But wouldn’t you know it, by the time you get to the car-rental segment’s bottom line, that revenue stream gets transformed into an almost identical-sized loss.
The same thing seems to happen for the company’s main line of business: TV infomercials. The company sells a device that supposedly gives you those rock-hard abs you’ve always craved (and now can have). It sells specially scented lures that “fish can’t resist.” It sells tapes for making money in real estate, for eliminating debt and for communicating more effectively with your wife (or husband, or whatever).
All this crap—plus everything else we’ve discussed—generated $12.5 million in revenues for Genesis Intermedia in the quarter ended March 31. But it also led to $16 million in operating expenses, $3.6 million of cash-burn and nearly $8 million in net losses. With only $225,000 of cash on its books, no working capital and a negative net worth on the balance sheet of nearly $15 million, this is a company that shouldn’t be worth anything at all. And basically speaking, it wasn’t … until Adnan Khashoggi came along. Now the company has become one of the fastest-rising stocks of the year on the Nasdaq, and at latest look was worth nearly $400 million.
Want to know how that happened? Well, it’s simple. The company went public in June of 1999 at $8.5 per share in a stock-and-warrants deal underwritten by a New York outfit called Millennium Financial Group Inc., a promoter of penny stocks like AdStar Inc. ($10 to 75 cents), Standard Automotive Inc. ($18 to 50 cents), ZymeTx Inc. ($10 to 45 cents), and several others that were either withdrawn or are no longer even quoted.
In any case, just three months after the I.P.O., the nearly $17 million raised in the offering was pretty much all gone. Where did it go? For starters, we need to consider the creativity of the company’s majority stockholder and chairman, a Middle Eastern fellow named Mr. Ramy El-Batrawi (whose name was obviously lifted from a nightclub routine by my old friend, Richard Belzer, who plays a character named Swami Belz-a-bami). As it turned out, Ramy Swami-bami happened to have had a little side deal going called “Trade Your Way to Riches,” and he thus arranged to have its mailing lists sold to Genesis Intermedia for $3.8 million of the proceeds lifted from the I.P.O. Oh, and he also handed himself another $362,149 for flying himself around in his private plane to promote the deal on the I.P.O. road show.
What the company needed now was more cash, and to get it Sheik Swami-bami turned to our hero, Adnan, who appears to have lent the company $44.6 million, beginning at the end of 1999 and continuing through the end of 2000—in return for which he got back warrants to acquire enough of the company’s stock that, by last May, he had become its largest single shareholder, with nearly 9.7 million shares—or 45.3 percent of the total—under his thumb via an offshore shell company he’s got in Bermuda called Ultimate Holdings Ltd.
Why would Adnan lend this wretched operation $44.6 million? Well, I am sure he’d say it’s because the operation isn’t wretched at all and really has the sort of bright future that only fellows like Adnan can limn.
On the other hand, maybe the loan was just a handy way to surface some offshore money in the U.S. economy. Adnan’s name has surfaced in connection with devious maneuvers in the past. He was linked in press accounts as a go-between in Marc Rich’s efforts to buy a pardon from President Bill Clinton. He was indicted (though not convicted) for fraud in connection with Rudy Giuliani’s war against Imelda Marcos when Hizzoner was still a federal prosecutor. The man is an arms dealer—which, frankly, says it all.
Whatever his true agenda, it was after Adnan became involved in the shares that they took off, soaring from $1.33 at the end of 1999 to an intraday high of $25 on June 29, 2001. Not only did his company, Ultimate Holdings, exercise warrants to acquire 2.1 million shares against his loan, at $2.33 per share—paying roughly $4.9 million for stock that, by late last month, was worth 30 times that much, or $157 million—but Ultimate Holdings also bought what looks to have been an additional two-million-plus shares in open-market transactions.
Thus, when you add in the nine million shares held by Swami-bami (another 42.3 percent of the total), plus some 4.7 percent more sitting in the hands of various underlings at the company, one can say that, for all practical purposes, Adnan and Swami-bami had effectively cornered the market in Genesis’ shares, tightening the float to the point where they controlled nearly 90 percent of the stock.
Now if you want to know why I think it’s just thrilling that Adnan is back in town, it is this: He apparently forgot about something known in the law as the “short-swing” rule. It prohibits anyone who owns 10 percent or more of a company’s stock from profiting from buying and then selling (or visa versa) any shares in the company’s stock during any six-month period … and Adnan’s company became a 10-plus percent shareholder on June 29, 2000—a year ago! So, according to an S.E.C. filing on July 13, his company now has to disgorge and hand over to Genesis Intermedia profits from numerous trades in the stock since last summer—the very trading that helped force its price into the stratosphere to begin with.
So what can one say but thank God we’ve got fellows like Adnan around to take the curse off the front-page tedium of the “Where’s Chandra?” story. The chap who helped turn Iran-contra into an out-of-the-loop embarrassment for nearly the whole of the U.S. 15 years ago is back to entertain us some more—this time by pumping up the stock of an apparently worthless company, only to see the gravy run through his fingers. Way to go, Adnan!
You can reach me by e-mail at cbyron@optonline.net.
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This column ran on page 1 in the 7/30/2001 edition of The New York Observer.
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