IN THE MONEY:Aero Marine - "I Think I Can, I Think I Can"
By CAROL S. REMOND
A Dow Jones Newswires Column
(This article was originally published Tuesday)
NEW YORK -- Here's a little creative financial alchemy for you.
Begin with three shell companies that appear to have total cash on their books of less than $7,000.
Now, one of these companies forks over $1 million to buy some assets that are valued at $65 on the acquired company's books.
Toss in a reverse merger between two of the three companies. Add a name change. For good flavor, sprinkle with a 3.1-for-one forward stock split. And hire a promotional newsletter called The Intrepid Investor to spread the good word about the revolutionary engine technology this new company is developing.
What we end up with is a company called Aero Marine Engine Inc. (ARMR ) that carries a market capitalization of about $81 million.
Not a bad day at the office for the four main investors in this company who own stock worth in the area $60 million. Especially given that they just created all of this over the past several months.
Aero Marine Engine was formed in May through its reverse acquisition of publicly-traded Princeton Ventures Inc. in a stock transaction, according to the company's filings with the Securities and Exchange Commission. In June, Aero Marine acquired all the assets of another public company called Dyna-Cam Engine Corp. (DYCE) for $900,500 in cash and one million shares.
The filings don't explain why Aero Marine spent close to a $1 million to acquire Dyna-Cam's assets, which were listed on the company's balance sheet at $65. A recent press release from Aero Marine said that "to date there has been approximately $8 million invested in developing the cam engine."
The Dyna-Cam engine was first developed in the late 1980s. No engine has ever been sold. But Aero Marine sees great potential in Dyna-Cam because it has "approximately 50% fewer moving parts than a conventional internal combustion engine, has a greater power to weight ratio, produces high torque at low rpm, operates with less vibration, and is lighter than the competition."
Meanwhile, as if the buying/selling/reverse merging/stock splits etc. isn't enough to keep you head spinning, Aero Marine, and/or another public company controlled by the same four insiders, is apparently in the process of buying a majority ownership in another company which will be central to its production of the Dyna-Cam engine.
According to The Intrepid Investor newsletter, which was paid by what it calls a "non-controlling shareholder" of Aero Marine called Mayapan Enterprises Inc., Aero Marine recently acquired 70% of Bogner Industries Inc. of Ronkokoma, Long Island.
"The acquisition of Bogner's production facilities, warehouse and highly trained staff gives Aero Marine the resources it needs to begin manufacturing the Dyna-Cam engine," The Intrepid Investor tells readers.
The Intrepid Investor, which was sent to subscribers in early August, isn't shy when it comes to promoting the potential of Dyna-Cam calling it "The little Engine that could...make you a fortune!"
The newsletter tells readers that Aero Marine is "a new, well financed company" formed to bring the Dyna-Cam engine into production. But what The Intrepid Investor doesn't tell readers is how Aero Marine financed its purchase of Dyna-Cam.
The newsletter also doesn't provide information about the four insiders who control Aero Marine, including one who has filed for personal bankruptcy six times in the last 10 years and who was recently ordered to stop selling unregistered securities by Pennsylvania state regulators.
These four insiders include Garth Bailey, Robert Fyn, Murray Stark and Peter Mergenthaler and they own 38 million shares of Aero Marine, or about 76% of the 50 million shares outstanding. These same four also recently took control of another publicly traded company called Perma Tune Electronics Inc. soon to be renamed Trans Max Technologies Inc. (PTUN).
Bogner, which according to its website is a maker of processing and packaging equipment, looks to have fallen behind on some of its bills in recent months and has been in default on a $638,661 judgment obtained by J.P. Morgan Chase & Co. (JPM) since February. J.P. Morgan obtained the judgment after Bogner failed to repay a loan.
According to John Pittoni, a lawyer that represents J.P. Morgan Chase and its claim against Bogner, Mergenthaler recently offered to pay the bank $300,000 to erase Bogner's debt through Trans Max. A deal that J.P. Morgan Chase accepted.
Corporate records show that Mergenthaler is chief executive officer, director and major shareholder of Trans Max which was created through a reverse merger in July.
Mergenthaler said in a telephone interview with Dow Jones Newswires that he only recently became aware of The Intrepid Investor's Newsletter report on Aero Marine. He said he didn't know who controlled Mayapan, the firm that paid some $425,000 to produce the newsletter. He also said that Trans Max, not Aero Marine, is taking over Bogner.
"It's a misprint, a misinterpretation" of the Bogner transaction, Mergenthaler said of The Intrepid Investor's version of events. He said that after many discussions between Aero Marine and Bogner, the two couldn't come to an agreement.
"Trans Max has loaned a substantial amount of money to Bogner," Mergenthaler said, adding that "Bogner will enter in a contract to do the final development of Aero Marine's engine."
Garth Bailey, Aero Marine's chief executive officer, wasn't available to comment. David Loev, legal counsel for Aero Marine and Trans Max, said that to his knowledge Aero Marine didn't finance The Intrepid Investor write-up on the company.
Asked where Trans Max got the $300,000 to settle J.P. Morgan Chase's claim against Bogner, given that the company had just $6,608 in cash on its books at the end of June, Mergenthaler said that "a group of us has invested in excess of $2 million" in Trans Max.
J.P. Morgan Chase lawyer Pittoni was quite taken by Mergenthaler, describing him as "quite a guy, a well-heeled industrialist" who owns a number of companies.
But court records in Florida show another side of Mergenthaler, that of a man who on multiple occasions over the last decade filed for personal bankruptcy in U.S. Bankruptcy Court Southern District of Florida.
Records show that Mergenthaler's attempts to settle his debts were thwarted by the court on six occasions, including one in 1995 when he used his dead mother's social security number to file for Chapter 13 protection.
Mergenthaler, who also used the first name William, told a reporter for the Sun Sentinel in 1995 that he assumed the false identity of William (using his deceased mother's social security number) to hide his bad credit history.
Mergenthaler said in the interview that he filed for bankruptcy as a way to forestall his creditors and in the "hope to come to some form of accommodations with" them. After first saying that he never used his mother's social security number, Mergenthaler said that he didn't remember using it or talking to the Sun Sentinel reporter about why he did it.
Court documents show that Mergenthaler's most recent bankruptcy petition in 2002 was dismissed by the court last September.
In 2001, Pennsylvania state regulators ordered Mergenthaler, another individual Charles G. Van Mehren, and a company called Falcon Security Systems Corp. to stop selling unregistered securities of Falcon in that state. Mergenthaler is identified as chief executive officer of Falcon, a company that claimed to be in the business of developing condominium security vault complexes to store valuables.
Mergenthaler said that he simply accepted a fee to write a business plan for Falcon and was not related to the firm. He said that he sent a number of letters to the Pennsylvania regulators to request that his record be expunged.
Meanwhile, Aero Marine's stock closed at $1.65 a share Tuesday after topping at $2.54 last week.
Given the lack of information about the company and its finances, and the history of one of its insiders, a man who appears central to one of the company's latest acquisitions, would-be-investors may want to wait a little bit before ponying up any of their hard earned cash. Especially since no Dyna-Cam engine, however revolutionary the technology could end up being, has ever been sold.
(Carol S. Remond is one of four "In The Money" columnists who take a sophisticated look at the value of companies and their securities and explore unique trading strategies.)
-By Carol S. Remond; Dow Jones Newswires; 201 938 2074; carol.remond@dowjones.com
Updated August 27, 2003 7:32 a.m.
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