Internet advertising company Zulu-Tek backpedaled last week on a November announcement that it had acquired a small tech firm - a deal that had been named in online stock discussions as a potential reason for investing in Zulu-Tek's over-the-counter stock.
Instead of the reported US$3 million cash and stock transaction, Zulu-Tek is now claiming a partnership with Universal Commerce, a two-person, e-commerce technology company.
"ZULU-tek Inc. (OTC Bulletin Board: NETZ) said today it has rescinded its previously announced acquisition of Universal Commerce Inc. ('UC') and has entered into a strategic relationship with UC and its principals," said the release, which went over the wire late Thursday.
The initial release, circulated four months ago, had hyped the potential of combining Universal Commerce's transaction software, used on the RegNow shareware registration site, with the purported TV-quality Internet ads made possible by Zulu-Tek's echoMedia subsidiary. It did not, however, specify how the e-commerce and Web commercial-making technologies could be jointly applied or to what purpose.
The release, which forecast 1998 revenues for Universal Commerce of $13 million, was carried by the Dow Jones and Knight-Ridder business wires, as well as the Providence Journal-Bulletin and CMP's TechWeb site.
Shortly after the November announcement was made, Matt Gregg, an investor who participates in the Silicon Investor forum, posted a message touting Zulu-Tek as a good investment based on the projected revenues of Universal Commerce and echoMedia.
"... This company is poised to become the largest Web advertising software specialist on the planet," he wrote.
In the four months since the announced acquisition of Universal Commerce, Zulu-Tek bought itself a big name in Internet advertising with its announced acquisition of the online ad sales firm Softbank Interactive Marketing, but it issued no press release to indicate that the deal with Universal Commerce had, in fact, stalled.
As recently as Thursday, echoMedia president Thomas Burgess responded to a question about the status of Universal Commerce with: "I think we do own them, but I'm not sure."
Then on Friday Burgess indicated that the company�s decision to clear things up in a press release had been prompted by interviews Wired News conducted this week with Burgess and the principals of Universal Commerce - who made it quite clear that their company had not been acquired.
"We weren't trying to deceive anyone, we've just been busy," Burgess said about the company�s failure to rescind its original acquisition claim before this week. "Between [a conversation yesterday with Wired News] and emails from investors, we decided [on Thursday] that we should clarify the situation with Universal Commerce."
In at least two previous instances Zulu-Tek - under its former name of NetMaster Group - has issued inaccurate press releases.
One, heralding a deal with tech powerhouse Digital Equipment Corp. last year, was corrected immediately, at Digital�s request. The correction clarified that the deal was actually with the Personal Search product of its AltaVista subsidiary. AltaVista now says the technology promised from Zulu-Tek�s echoMedia subsidiary has yet to be delivered. Another deal touted last year with Bellcore, which turned out to be with Bellcore's Soliant Internet Systems, has since fallen through.
However, no releases have rescinded Zulu-Tek�s announcements of those deals.
Speaking generally about how public announcements should be handled, former SEC commissioner Steven Wallman said: "As a rule, if there's a press release that a company issues that turns out to be wrong, the duty arises at the moment that the correct information is known to apprise the market of it. The market can't be left with a continuing misimpression. You have a duty to update."
Gregg, the investor who originally plugged Zulu-Tek based on the November release, spoke with echoMedia president Burgess earlier this year at the company's Newport, Rhode Island offices. He said that while he mentioned Universal Commerce "five or six times," Burgess made no attempt to inform him that Zulu-Tek didn't, in fact, own the company.
"I don't see it as an intent to deceive," Universal Commerce founder Charles Rose said on Thursday, before the release announcing the partnership appeared. "The whole intent was to give commerce to [Zulu-Tek]. We're still working together, and are waiting to announce the relationship."
In addition to starting Universal Commerce, Rose was, along with Burgess, one of the three founders of echoMedia, and has been working at the Los Angeles office of Zulu-Tek/Softbank Interactive Marketing as a consultant.
Rose and Ben Reser, the other employee of Universal Commerce, said they were not given the opportunity to review the November press release that announced their company�s acquisition by Zulu-Tek - then known as Netmaster Group. "I honestly don't know where the release came from," says Rose.
Sources close to the Universal Commerce "acquisition" say that it was engineered - then nixed - by Australian financier Pattinson Hayton, who has been named as an investor in and deal-doer for Zulu-Tek.
One source said that after announcing the purchase, Hayton decided that he was unhappy with a budget that Universal Commerce submitted, and backed out of the deal.
Later, according to this source, Hayton attempted to buy just the name, and not the assets, of Universal. But the company's two founders refused upon receiving legal advice - they feared being held liable for anything that Zulu-Tek did with the Universal Commerce name.
Gregg, who is a student as well as an over-the-counter investor, was less than enthused to see Thursday's release announcing that Zulu-Tek did not, in fact, own Universal.
"I was shocked when I found out," he says. As a result, he liquidated his position in the company.
Gregg puts it simply: "They're not very good at keeping the investors informed."
