Tsai Cashes In on 'Blank Check' Firms
Whenever Others Use Them to Go Public
DEALS & DEAL MAKERS
By TIMOTHY D. SCHELLHARDT
Staff Reporter of THE WALL STREET JOURNAL
Aaron Tsai is phasing out his wholesale camera business because he is just too busy starting other companies. One hundred and one, in fact.
The 29-year-old Evansville, Ind., businessman is at the leading edge of a resurgence in "blank check," or shell, companies, publicly held concerns with few if any assets, income, products, or activities, no business plan and no experienced managers.
That may sound like a prescription for disaster, but companies in the business of doing nothing are helping turn Mr. Tsai into a millionaire. The allure is that these blank-check companies can be used by private companies to go public in "reverse mergers" without the hefty cost and the hassle of doing their own initial public offerings.
The idea isn’t new, but it has taken on new life because of the stock market’s surprising gains in recent years, especially the pulse-pounding performance of many Internet-related offerings. For the first nine months of this year, 458 blank-check companies made Securities and Exchange Commission filings, up from 320 for all of 1998 and 260 in 1997.
Mr. Tsai, who retains 3% to 10% of the merged company’s shares outstanding, has registered 20 blank-check companies with the SEC and has the others waiting in the wings. Already, he has merged or is in the process of combining nine of his companies, and he says three others are committed to suitors.
One of the companies he merged with in March is SurgiLight Inc., a Winter Park, Fla., operator of laser-eye centers. He retained more than 372,500 shares of its stock, which was listed for trading on the over-the-counter bulletin board yesterday.
"I’ve been very busy," he says. "It’s exciting. Every deal is different."
Blank-check companies have had a checkered past. Most states outlaw them. In 1992, the SEC tightened regulations on them because many were being used for fraudulent purposes. The SEC and several states required blank-check concerns to place proceeds from a public offering into an escrow account and then, when merging with a going concern, to disclose information on the deal and give stockholders the opportunity to have their funds returned.
For his part, Mr. Tsai says he has run into some "not very reputable" people as he has sought to find partners for his blank-check companies.
"You’ve got to be careful," he says. He gets referrals from a wide range of sources, including attorneys, accountants, and financial public-relations firms.
Not much has been heard about blank-check concerns until the recent revival on interest in reverse-merger deals. Among other Internet-related blank-check companies that have registered recently with the SEC are Acquireu.com, of Boca Raton, Fla., which pursues "a business combination in the Internet Industry," Dynadapt System Inc., of Wheat Ridge, Colo., which seeks information-technology acquisitions, and E-Commerce Group Inc., of Las Vegas.
"Internet and dot-com companies have been attractive and the bloom may not be off the rose entirely," says Richard Heller, a New York lawyer advising Acquireu.com.
The SEC won’t comment publicly about the increase in blank-check companies, but it is watching closely. In May, for instance, James H. Ridinger, chief executive and president of Market America Inc., of Greensboro, N.C., and former stockbroker Gilbert Zwetsch, of Spokane, Wash., agreed to pay more than $2 million to settle SEC allegations they violated antifraud and other provisions of federal securities laws in connection with an unregistered sale of the direct-marketing company's shares. Without admitting or denying any wrongdoing, the two men agreed to be barred from violating securities laws in the future.
In its complaint filed in Washington, D.C., the SEC alleged, among other things, that Mr. Zwetsch arranged a series of blank-check public offerings and then had the shell companies file materially false and misleading registration statements with the SEC that failed to disclose that he owned all of their shares. Under an agreement between the two men, the SEC says, one of the shell companies was to be used in a reverse merger with Market America in an effort to take Market America public. The two men were to own all of its shares.
Because of their very simplicity -- the SEC filing fee can be under $50 and incorporating a company can cost less than $100 -- blank-check companies attract a colorful assortment of people of all ages and backgrounds.
Many of them are started by people in their 20s while some are led by septuagenarians. The CEOs include a ski instructor, a personal trainer, teachers, and real-estate salesmen. The two principal officers of Bioincubation Corp., of Chicago, are 27-year-olds, one with a background in computer technology and the other in marketing. The president of N.T. Properties Inc., of Irvine, Calif., is a 49-year-old fitness consultant for an adult day-care center in San Clemente, Calif., while the president of Dream Team International Inc., Las Vegas, is a 59-year-old master carpenter. A locksmith heads Be Safe Services Inc., and its corporate secretary is a New York City teacher.
"It's not as if there’s great brainwork to set one of them up," says Bert Blevins III, who with four partners recently registered five blank-check companies with the SEC. The 28-year-old is executive vice president and chief information officer of Campbell Mello Associates, a three-year-old Las Vegas corporate-securities consulting firm that tries to link public shells with potential merger candidates. Its CEO is 27-year-old Anthony Mello III, who also writes a monthly column for Casino Executive Magazine. Mr. Blevins says the five blank checks will be added as a button on Campbell-Mello’s Web site for prospective partners to inspect.
Mr. Tsai, born in Taiwan, moved to Indiana with his family when he was 13. He attended New York University’s Stern School of Business and began his camera business in November 1992. A bachelor, he says he spends six days a week on his blank-check business, filing regular SEC reports on each, seeking merger partners, and advising others. He says he’s focusing his reverse-merger transactions primarily on Internet and technology businesses.
Mr. Tsai's first combination was completed in December 1997 when MAS Acquisition III Corp. merged with Salient Cybertech Inc., formerly Sloan Electronics Inc., of Sarasota, FIa., a maker of electronics-monitoring devices. For that transaction, he received 819,917 shares, or 8.7%, of Salient's stock outstanding, and another 100,000 shares as payment for consulting services. In August 1998, according to SEC filings, he sold nearly 726,000 shares for $162,000, or 23.3 cents per share. Salient was recently quoted on the OTC bulletin board at about 31.25 cents a share.
In recent months, besides the combination with SurgiLight Inc., he has completed reverse mergers with NetStaff Inc., an Internet-based multiple-listing service for the professional staffing industry, based in San Francisco, and with Dimgroup.com, an Internet-publishing company headquartered in Toronto. He retains a 6.8% stake in Dimgroup.com and a 9.6% holding in NetStaff Inc.
Mr. Tsai says he has "big dreams." Eventually he says he wants to establish a full-service Internet investment-banking firm. "We believe the Internet will open the equity markets to individual investors, create alternative stock-trading systems for them and thereby change the model of capital formation that exists today," he says.
"I know I have to be realistic," he says. "I have to take this one step at a time." |
