Re: 4/2/01 - [ITEX] JohnDoes.org: The Continuing Odyssey of ITEX Corporation
LesLFrench
Veteran Reporter
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posted 04-02-2001 01:09 PM
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The Continuing Odyssey of ITEX Corporation
by Les L. French
Like NASA's recently lost Mars probes, ITEX Corporation is an Odyssey which has never met its mark, at great expense to ITEX' investors. While in its 18 year history, ITEX has never made a profit, investors are nevertheless mesmerized by the concept of an organized barter exchange, and many have refused to jump ship, even though ITEX stock has been trading the thirty-cent range for the past year, with negligible daily trading volume. On March 9, 2001, ITEX surprised investors by filing with the SEC a proxy statement, calling an annual meeting on April 4, 2001, and announcing a new slate of proposed directors.
When we last reviewed ITEX Corporation, the beleaguered Oregon-based barter company which had recently moved its headquarters to Sacramento, California following a Nasdaq delisting, and following an SEC lawsuit alleging fraud and which forced ITEX to restate its financials, the company's CEO, Collins M. Christensen, had just announced an intended asset merger deal with a public shell known as Maxx International (MAXX). Evidently, according to news releases, the intended merger would have sold all of ITEX' assets to MAXX in exchange for MAXX stock, which was trading at over $1.00 (U.S.) at the time. The deal would have left ITEX shareholders with little more than an investment holding company holding shares of MAXX stock, which at the present are trading at less than half the price of ITEX.
But it was discovered that Mr. Christensen was also a substantial shareholder in MAXX, holding over 200,000 shares, as well as over 200,000 shares held by Mr. Christensen's long-time business partner, Bruce Gammil, who held MAXX shares beneficially in his girlfriend's name. In addition to the shares held by Christensen and beneficially by Gammil, Christensen was promised a major stock bonus as MAXX' new CEO of the resulting merger of assets of the two companies. With Mr. Christensen's existing holdings in MAXX and ITEX Corporation, his resulting shares ownership would have approached the total share ownership of the remaining shareholders combined.
ITEX shareholders, who had not been permitted to hold or attend an annual meeting for three years, were outraged. Many of the shareholders voiced their objections to the acquisition on Raging Bull's stock message board. Evidently, the ITEX board of directors heard the cries of outrage, and rescinded the letter of intent to complete the deal. Many shareholders were stunned that the board did not fire Mr. Christensen, who had not previously disclosed his and Mr. Gammil's holdings in MAXX. But that is not all that went undisclosed.
Mr. Christensen and Mr. Gammil's partnership goes back a long way, at least to 1984, when Mr. Christensen and Mr. Gammil were arrested by police for their participation in a scheme to defraud a mortgage company and another principal. Mr. Gammil and Mr. Christensen were charged with multiple felonies relating to financial fraud, and convicted. Mr. Christensen pled guilty to at least one felony, and was sentenced to two years imprisonment, most of which time he spent paroled.
Mr. Gammil, according to his ex-girlfriend, Teri Ortal, allegedly has former connections with the Mafia. According to Ortal, who was a former employee in the Orange County District Attorney's office, Gammil allegedly has had many mob dealings in his various business ventures, at least one of which was partnered with Mr. Christensen. (Indeed, a review of California Dept. of Revenue records indicates that Mr. Christensen and Mr. Gammil both owe the State several hundred thousand dollars in unpaid tax assessments relating to a now-defunct cellular telephone business and other enterprises.) In addition to the Ortal allegations, NewsOp has obtained a court document from one of Gammil's parole officers which includes a police report from San Antonio which reports contacts between Gammil and the Mafia, and purports a mob connection.
Mr. Gammil, according to Ortal, operated a "Christian" internet service which was supposedly a front for marketing pornography over the internet. Today, Gammil operates something called "Pure Vision Internet", a private company which was acquired last year in exchange for over 2 million shares of MAXX stock. According to earlier SEC filings, Pure Vision was draining MAXX of $100,000 per month in a budgeted cash expense operating loss. One unanswered question is whether Mr. Christensen had any holdings, direct or indirect, in Pure Vision, prior to its purchase by MAXX. Maxx claims to have lost over $4 million in net profit last year, with almost a third of that amount attributable to Pure Vision.
Evidently, the operating costs of Pure Vision were too high for MAXX to bare out of its own revenue stream: ITEX Corporation had loaned the company at least $300,000 in cash, which was payable last October at 18% interest. No reason was given as to why ITEX was loaning MAXX cash, and questions are raised as to how much of that cash actually found its way to Mr. Christensen's associate Mr. Gammil, in support of Pure Vision. But what is known is that as of the due date, October 2, 2000, MAXX had defaulted on the note, and as of that date ITEX was unpaid.
A public lien check indicates that both Mr. Christensen and Mr. Gammil have numerous unpaid tax liens resulting from former business ventures, including unpaid sales taxes. According to Ms. Ortal, Mr. Gammil would regularly purchase tax-free equipment and inventory for his business claiming exemption with his California reseller permit, while at the same time claiming to be "inactive" as to not pay sales taxes to the state. Ms. Ortal alleges that Gammil was pocketing collected sales tax receipts instead of reporting them to the Department of Revenue. Indeed, we could locate no copies of bona fide tax returns in our investigation of records filings.
But if you are an officer and director of the Company, tax returns are the last thing you may want to ask about. As former director and CFO Joel Sternberg found out, such an inquiry can get you fired. While Sternberg is tight-lipped about the entire affair, we have been able to piece together from interviews with others the scenario leading to Mr. Sternberg's resignation from ITEX Corporation in 1999. Evidently, Mr. Sternberg's departure was caused by a disagreement with ITEX' chairman Vern Curtis over a proposal to purchase Mr. Christensen's ITEX brokerage for $2 million in ITEX stock, which at the time amounted to 2 million shares. Mr. Sternberg evidently questioned the valuation of a 1000-member brokerage, which ITEX already owned the membership, at $2 million, when at the same time ITEX was negotiating to sell its 22,000-member BXI trade exchange for only $4 million. Mr. Sternberg insisted that the board should demand to see Mr. Christensen's income tax returns for the three previous years, in order to validate Mr. Christensen's revenue figures he was representing to the board. No income tax returns were ever produced by Mr. Christensen, and indeed, shareholders are left to wonder if Mr. Christensen even paid income taxes on the astronomical figures he reported to the board of directors.
Before the day was over, Mr. Sternberg was out, and Mr. Christensen appeared to be firmly seated in his position of CEO. By selling the territory which had been given to him only two years earlier back to ITEX for 2 million shares, Mr. Christensen would become ITEX largest shareholder, and receiving the company's highest salary. Another year would pass before shareholders would have a chance to elect a new board of directors. In the mean time, Mr. Christensen himself had been appointed to the board.
Rather than fire Mr. Christensen for his involvement in the failed MAXX deal, which many argue would have worked to Mr. Christensen's personal benefit while harming the shareholders, it appears that ITEX' board has decided to turn full reign of the company over to him, by nominating a new slate of directors which includes none of the original directors who sat prior to Mr. Christensen's appointment. Most of the proposed nominees for the replacement board appear to be either employees of Mr. Christensen or otherwise friendly to his cause, with only one or two nominees being truly independent outside directors.
The Odyssey. In a letter addressed to ITEX investors which was posted on Raging Bull's stock message board, the former CFO Mr. Sternberg announced his intention to seek nomination from the floor and to run for election to the board. In part, Mr. Sternberg stated: "In order to further these ends, I wish to throw my hat in the ring and seek your endorsement as a Director of ITEX Corporation. Why will I work for you? Because I own 154,151 shares of ITEX, which I bought with my hard-earned money (no barter), just like you. I will not be awarded anything but a token salary, and will not be entitled to any bonuses. Therefore, I will only benefit by an appreciation of the share price, just like you."
Mr. Christensen was livid at the announcement that Mr. Sternberg would challenge him for a board seat. At the behest of Mr. Christensen and his lawyer Bob Harris, a lawyer named David C. Adams, who claims to represent ITEX in securities matters, snapped back a terse and threatening "cease and desist" letter to Mr. Sternberg claiming his Raging Bull post constituted an "improper and illegal solicitation" and demanded that Mr. Sternberg remove the post.
The legitimate investors, like Mr. Sternberg, who actually invested cash into ITEX and did not receive stock gratis through other means, are left to wonder just exactly what part of Mr. Sternberg's public message post was "improper" or "illegal", for Mr. Adams' letter does not state. But one thing appears to be certain: Mr. Christensen does not want independent directors on his board. According to Bob Harris, Mr. Christensen's lawyer, Mr. Christensen has already expressed concerns over at least one nominee who Mr. Christensen "did not know" and therefore would rather not have on the board.
The April 4 shareholders meeting is poised with all the drama of a good old-fashioned proxy fight. Certainly, the threatening letter from Mr. Adams, and the questionable proxy statement comments will be grounds for discussion at the meeting. For example, the proxy statement makes reference to "cumulative voting", which, according to Mr. Harris, is permitted under California law. This arouses curiosity in that ITEX is a Nevada corporation, and has been since 1986, and is domiciled in the State of Oregon.
Indeed, a quick call to the Oregon Corporations Division confirms that ITEX is still registered as an Oregon corporation, domiciled in Oregon, with principal offices in Sacramento. After all, for ITEX to change its state of domicile would require an amendment of the bylaws and articles of incorporation, and if any such amendment has occurred, no disclosure was made to the shareholders. According to the California Secretary of State's office, ITEX is not incorporated in California, not even as a foreign corporation, as of March 24, 2001. Therefore, it would appear, barring explanation from Mr. Harris or Mr. Adams, that ITEX is not even authorized to conduct business in California, let alone hold an annual meeting of the shareholders. Perhaps Mr. Adams can explain under which state's authority ITEX intends on holding this annual meeting?
© 2001 by Les L. French and News and Opinion Network. Please acknowledge the author and content provider when reproducing this article. Mr. French can be reached at barter@johndoes.org. Other articles on this subject can be located at www.newsop.net.
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