We have one simple question. Is the uAuthorize hype authorized?
"Accidents" are often the product of design – and a good deal of planning. Take, for example, the series of e-mails that StockPatrol.com (and no doubts thousands of others around the world) has been receiving by "accident" since the beginning of January. The e-mails, which are virtually identical except for the name of the alleged "sender," seem at first to be private correspondence between two friends or business associates. All sound the same theme; the sender claims that a company called uAuthorize Corp. (Pink Sheets: UACP) is about to "soar" because of a publicity campaign and some "very positive news." It is, of course, just a promotion – highlighted by a disclaimer at the end of the e-mail that concedes the "sender" (whose true identity is not revealed) was paid $12,500 to spread this "news."
The email campaign may have had some impact on investors. Almost one million shares of the Company's common stock traded on January 3, 2005 at prices ranging from 30 cents to 34 cents. The following day, January 4th, more than one million shares changed hands as the stock hit a high of 35 cents. On January 5th interest began to fade – volume dropped to 689,000 shares and uAuthorize common stock closed at 27 cents. Volume, and share price continued to decrease in the following days, despite several more rounds of "accidental" email. By January 10th, uAuthorize stock was trading at 20 cents. Then, as a new round of e-mails surfaced, share prices crept up - hitting 28 cents on January 12th.
It was not the first time uAuthorize shares had traded heavily in recent weeks. Volume began to climb steadily on December 14, 2004, when approximately 127,000 shares traded. Approximately 7.5 million shares were traded between December 15th and December 31st – including approximately 1.4 million and 1.3 million shares on December 17th and 20th, respectively. Prior to this recent spurt of activity, however, investors had evinced far less interest in the Company. Had some major development suddenly sparked buyers? Was there substance behind the hype? Considering the intense effort to promote uAuthorize, we decided to take a closer look at uAuthorize.
What Webenues?
What do investors know about uAuthorize? Unfortunately, very little. uAuthorize is a Colorado corporation with offices in Houston, Texas and Edmond, Oklahoma. It became public in June 2004 through a reverse-merger with an entity called Newzstand.com, Inc. According to the Colorado Secretary of State, the Company is authorized to issue 100 million shares of common stock and one million shares of preferred stock. Aside from that basic information, there is little verifiable information publicly available about the Company.
Those shares came in handy after the reverse-merger. On June 4, 2004, the Company announced a ten for one forward stock split, immediately increasing the number of shares held by the new ownership team. What did uAuthorize offer as a public company? In a June 4th press release, the Company's CEO, Darrel Uselton, explained that the plan was to acquire "undervalued or otherwise distressed web properties." How did the Company plan to transform these sows' ears into silk purses? Company President, Dino Price, described uAuthorize as "one of the few web-based business platforms to actually have a proven track record of moving large amounts of product over the internet, using several non-intrusive online marketing techniques that our team has perfected."
He did not, however, provide any details of that marketing plan, any evidence of that track record, or any financial information to support the claims of past success.
That information has proven to be elusive. uAuthorize, which trades on the Pink Sheets, does not file regular reports with the Securities and Exchange Commission. Consequently, no audited financial statements are available for investors to review. Neither are annual reports identifying the Company's management, listing its principal shareholders, or offering verifiable information about its business plan and history. Instead, investors must rely upon a smattering of information available on a Company website, in press releases, and through promotional campaigns as typified by the "accidental" e-mails that have been cluttering cyberspace.
And what can investors learn from these limited resources? Consider the Company's website, which describes uAuthorize as "an e-business holding company that builds or acquires multiple websites, software titles, and e-commerce solutions that leverage the Internet to maximize the success of e-business operations." The Company claims that it currently owns more than thirty eight websites that market thousands of products. Although the uAuthorize website does not identify these properties, some of the Company's "operating websites" have been listed in various press releases (including www.Traffic-Matrix.net; www.Pro-Templates.net; www.WebmasterDownloads.com; www.SilentProfiteer.com; www.GrantCheck.com; www.InternetSnake.net; www.SourceChat.com; www.OptInEmailCollector.com; www.Total-Traffic.com; www.1000WebTemplates.com; www.Web-Master-Software.com; www.123EmailMarketing.com; www.1000Mags.com; www.WebCamWatcher.net; www.AllFreeQuotes.com and www.SiteXchange.net).
But if uAuthorize is selling – is anyone buying? While uAuthorize claims that the Company's various websites "are viewed by thousands of users and generate millions page views monthly," it does not indicate whether any of those visitors buy products offered on those websites or account for any revenues.
The marketplace is littered with dotcom wannabes that attracted traffic but failed to generate money. Is there any reason to believe uAuthorize will prove to be a successful pioneer rather than one more dot com dinosaur? The Company offers no meaningful view of the current state of its business or the revenues generated by any of those websites.
And not all of those websites seem to be operating – or pursuing the ventures initially announced by the Company. On September 8., 2004, uAuthorize issued a press release stating that it had finalized the launch of www.WebCamWatcher.net, " a website offering proprietary software that enables the user to watch up to 24 web cams simultaneously!" The Company claimed that the software "will also allow users the ability to set up a live video web cam feed as their screensaver."
What happened to WebCamWatcher? We recently visited that site and found no sign of any proprietary business developed by uAuthorize. Instead, we discovered a search engine that included links to exiting web cam sites. And a sign that said the WebCamWatcher website is for sale.
In addition to its roster of web properties, the Company claims that it also operates
• "4 e-mail newsletters;"
• a business called "World Wide Warp," which it describes as "one of the leading paid subscription-based web master services and support companies on the net with over ## (sic) million products and services supporting internet professionals;" and
• OTCProfiles, "a research advisory organization specializing in business and technology market research."
Here again, uAuthorize provides no evidence that any of these businesses generate meaningful revenues.
The Company did not describe the newsletters or say what they were used to market - information that would be valuable to investors. For example, are any of them used to promote stocks? No web address is provided for "World Wide Warp," and we were unable to locate any website for that operation – despite the Company's claim that it is "one of the leading paid subscription-based web master services and support companies on the net."
We did locate a web address for OTCProfiles (www.OTCProfiles.com) but when we tried to access the site we found that "this page cannot be displayed."
Even some of the answers offered by the Company prove to be less than informative. While the Company's website notes some "Frequently Asked Questions," it does not always provide helpful answers. Consider the following:
Q. When will uAuthorize hold it's (sic) annual shareholders meeting?
A. uAuthorize will hold its next annual shareholders meeting at [time] and [place].
Q. When will uAuthorize release its earnings statement?
A. uAuthorize will release its earnings statement on [date].
Since "time," "place," and "date," are critical aspects of those responses, their absence renders the "answers" useless.
In Search of Its Voice
Oddly, while the Company's website states that uAuthorize operates in "four distinct online arenas for Internet and IT Solutions," it offers no details about one enterprise featured in several company press releases – Voice Over the Internet (VoIP) services. VoIP refers to a category of hardware and software that make it possible for users to make telephone calls over the Internet.
VoIP is a hot commodity these days, with a handful of established players like Vonage, and major cable companies including Time Warner, Cablevision, Cox and Comcast entering the market. That's pretty stiff competition for startup VoIP businesses – but it has not deterred a number of obscure over-the-counter companies from employing the VoIP buzzword to boost interest in their stock.
uAuthorize has been talking about its plan to enter the VoIP market since at least September 17, 2004, when the Company issued a press release announcing that its "Internet technology division is completing development of a global Voice-Over-IP Service aimed at multinational callers using the power of the Internet to place phone calls through its software." The Company said that it expected to launch the system before the end of 2004, and to offer services in markets around the world in 2005, including the United States, Australia, Russia, Japan and the United Kingdom.
The September 17th press release provided few meaningful details. The Company did not enumerate the projected cost of the new business or say how it planned to finance its new venture. Since uAuthorize does not file audited financial statements, investors are hard-pressed to determine whether the Company has the means to support any operations.
Such questions did not deter one promoter from sending out e-mails predicting that uAuthorize shares would "explode" on September 20, 2004 – and predicting a short term price of $1.66 for the Company's common shares based upon "Ground Breaking news" about the VoIP venture. The promoter may have had no facts to support its projections – but it did have a good reason to place a positive spin on the Company's modest news. The "newsletter" writer had been paid $25,000 by an undisclosed third-party to spread the good news about uAuthorize.
uAuthorize continued to issue press releases concerning the venture. On October 15, 2004 the Company stated that its "VOIP technologies division" had completed an agreement to market an Internet Telephony headset "as an add-on product for its voice over Internet telephony services, currently under final development." The press release did not identify the manufacturer of the product or the details of the marketing agreement.
On December 3, 2004, the Company issued a press release disclosing that it had completed "back-end" development of the VoIP program and expected to make the services available in the U.S. on a new website before the end of the year. A subsequent press release, on December 17th, announced that the website had gone "live," and would "allow prepaid users to place calls using stand alone software or browser integrated plug-ins, and compression technology to solve latency problems that have plagued other VOIP solutions."
That website, called "IP Caller, was indeed live when we visited it this week, but it does not appear that uAuthorize is offering its own VoIP services. Instead, the website provides a series of links to VoIP services available from a handful of other vendors. Does the Company receive payment if visitors "click-through" to those sites and purchase services? uAuthorize does not say. Again, it is not clear how the Company plans to generate revenues from this venture (other than by advertising products from other businesses).
U The Warrior
UAuthorize's executive team consists of Darrel Uselton (Chairman of the Board and CEO), Debe Nease (Chief Operating Officer and Chief Financial Officer) and Dino Price (President and Chief Technology Officer).
Uselton, who founded the Company in 2003, is a stockbroker with a recent disciplinary history. In March 2004, Uselton was fined $15,000; suspended from association with any NASD member firm, in any capacity, for six months; and suspended from serving as a principal at any brokerage firm for one year, after the NASD charged that he and his brother (Mark Uselton) caused a member firm to engage in business when it lacked the capital required by the SEC.
NASD also found that the Uselton brothers caused their firm to file inaccurate reports and failed to ensure the maintenance of accurate books and records, resulting in their inability to provide financial information on the firm. Compounding this disregard for rules, the NASD found that Darrel Uselton acted as a general securities principal for the firm although he was not registered in that capacity.
Both Uselton's consented to the sanctions, without admitting or denying the allegations – standard litany in many securities industry settlements.
Uselton's biography – as posted on the uAuthorize site – does not mention the suspension, but notes that he serves as Managing Director of Warrior Capital LLC, an "investment banking concern," and runs a professional stock trading business at ProTrading .com. In addition to his responsibilities at uAuthorize, Uselton also is CEO of Land Investors of America, Inc. (Pink Sheets: LIVA), another over the counter company trading on the Pink Sheets. Land Investors, like uAuthorize, does not file reports with the SEC so the status and condition of that Company remains something of a mystery.
What, if anything, is the relationship between uAuthorize and Warrior Capital? The two companies share more than a CEO. Warrior Capital, which describes itself as a "private investment firm" is located at 16000 Barker's Point Lane, Suite 170, Houston, Texas – the exact same address occupied by uAuthorize.
Warrior Capital says that it is engaged in acquiring private companies, taking them public, and developing trading strategies. It also states that it helps companies evaluate mergers and acquisitions, including one method "recommended" by Warrior Capital – reverse-mergers by private companies into public shells. Its website does not identify any of those companies, although it appears that uAuthorize – the product of a reverse-merger - falls into at least one of those categories.
According to its website, Warrior Capital also specializes in "sponsoring emerging companies to the public market place" by pursuing listings for NASDAQ, the OTC Bulletin Board and the Pink Sheets. Some of those listings, of course, require the companies to meet significant thresholds. Companies cannot be listed on NASDAQ unless they comply with quantitative and qualitative standards. To be listed on the OTC Bulletin Board a company is required to file regular reports with the SEC. No such rigid requirements are imposed on Pink Sheet companies. The Pink Sheets, run by a private company, simply provide a medium for posting stock prices for publicly-traded entities. The Pink Sheets do not regulate those companies or impose any listing standards. The Pink Sheets is where uAuthorize has elected to trade – despite Uselton's affiliation with an investment banking company that purports to be well-aware of the process for gaining OTC Bulletin Board listing.
The Warrior Capital website identifies only one member of the Company management team – Darrel Uselton - and offers a summary of his investment banking experience, reciting his securities licenses but neglecting to mention his recent suspension. According to his biography on the Warrior Capital website (which is considerably more detailed than the bio appearing on the uAuthorize site) from 1996 through 2002 Uselton was Chairman and CEO of The National Capital Companies, "a publicly traded financial services company" which owned National Capital Trading (a market making operation); National Capital Merchant Group (for merchant banking); Travis Morgan Securities (a retail brokerage and investment banking firm); Cornerstone Capital Management (which was involved in asset management); American Investment Services (another retail brokerage); NC Capital Markets (offering investment banking and advisory services); and National Capital Securities Research (which provided securities research).
As we discovered, brokerage firms operating under the National Capital umbrella during Uselton's tenure at the helm ran into some problems with regulators. In June 2001, one of the National Capital subsidiaries, Travis Morgan was suspended by the NASD for failure to provide required financial information. The firm subsequently was reinstated.
American Investment Services, also identified as a subsidiary of National Capital, has been sanctioned by the NASD on several occasions. In February 1998, American Investment Services was fined after the NASD found that the firm failed to maintain minimum net capital requirements, prepared inaccurate net capital computations, failed to provide the NASD with adequate information about customer complaints, and failed to comply with restrictions imposed by the NASD. In October 2000, American Investment Services was censured and fined by the NASD after again failing to maintain minimum net capital requirements, filing inaccurate financial reports, and failing to provide adequate information about customer complaints. American Investment Services was suspended by the NASD in June 2002 for failure to provide required financial information. Finally, in November 2002, American Investment Services was expelled by the NASD for failure to pay outstanding fines.
As noted in his online biographies, Uselton is Chairman of two public companies, uAuthorize and Land Investors of America. Here again, the two companies have even more in common than their relationship with Uselton. Like uAuthorize and Warrior Capital (and ProTrading.com), Land Investors maintains its office at 16000 Barker's Point Lane, Suite 170, Houston, Texas.
What does Land Investors do? The Company's website appears to be somewhat out of date. It claims that Land Investors plans to generate revenues by acquiring and developing land and generating mortgage income. An October 26, 2004 press release, however, suggests that Land Investors "has decided to exit the land investment business and enter the more lucrative Government Contracting business." The Company said that it had agreed to acquire 37.5 of FJN Worldnet, which it described as a "U.S. Federal Government Contractor firm based in Grafton, North Dakota" and would change its name and stock symbol "in the near future."
As of January 10, 2005 Land Investors had not changed its name and its stock symbol, or issued any further press releases clarifying its relationship with FJN Worldnet.
Who Authorized It?
Considering the uncertainties surrounding uAuthorize, there seems to be little basis for the enthusiasm expressed by the "accidental" e-mails that stimulated our curiosity. The unnamed promoter touting uAuthorize called the Company its "best pick since March 2004." That probably does not say much for its other picks – which, of course, were not identified.
What was the basis for this enthusiasm, and predictions of prices ranging from $1.25 to $1.50 a share (shares closed at 18 cents on January 9, 2005)? The email cited "Ground Breaking news" about the Company's VoIP division. In fact, there has been little recent news about the VoIP service, the website does not seem to offer any proprietary products, and there is no indication that uAuthorize is poised to capture any meaningful share of a highly competitive market.
This probably did not matter to the promoter, which had ample reason for its enthusiasm. The promoter had been paid $12,500 by an unidentified third party to distribute the report. The anonymous e-mail writer also conceded ownership of an unspecified number of uAuthorize shares which it boldly proclaimed it planned to liquidate at a profit.
Who sent those e-mails and who paid for them to be distributed? Like virtually everything else concerning uAuthorize, that information has not been made available.
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