ZZZZ Best Internal Probe Turns Up ‘Questions’ on Financial Statements
ZZZZ Best, a fast-growing Reseda carpet-cleaning firm, said Friday that an internal probe had turned up “significant additional questions” about the accuracy of its financial statements.
The company also confirmed that 21-year-old founder and chief executive Barry Minkow had resigned because of unspecified “severe medical problems.” Minkow could not be reached for comment Friday.
The company said Bruce T. Andersen, ZZZZ Best’s chief financial officer, was named interim president.
A statement issued by ZZZZ Best said an investigation by its independent directors and legal counsel of previously reported allegations of false credit card charges and irregularities in ZZZZ Best’s insurance restoration business turned up new questions about “financial information relating to the restoration business.” It did not give details, adding that until the probe is completed ZZZZ Best “cannot determine what effect there may be upon . . . previously reported (financial) information.”
In May, Minkow had announced preliminary results for ZZZZ Best’s fiscal year ended April 30 that showed a record profit of at least $5 million on $50 million in sales. “ZZZZ Best has never done better,” he said then in an interview.
The Times reported in May that ZZZZ Best had rung up $72,000 in false credit card charges from November, 1984, to March, 1985. The company laid the blame on a half-dozen subcontractors and six of their employees. ZZZZ Best said the subcontractors were fired and the charges repaid.
The Securities and Exchange Commission is known to be investigating the company’s public financial disclosures. SEC officials could not be reached Friday.
In documents previously filed with the SEC, ZZZZ Best disclosed that 89% of its $33.3 million in revenue for the nine months ended Jan. 31 came from insurance restoration work, repairing carpets, flooring or furniture that have suffered water or fire damage.
Restoration work previously announced by ZZZZ Best include contracts in Tempe, Ariz., Oakland, and Dallas. In May, for example, ZZZZ Best said it had won a $13.8-million restoration contract to work on two Dallas buildings. The contract was awarded by Interstate Appraisal Services of Culver City and Assured Property Management of Sacramento.
But Kurt Blackmon, president of Blackmon, Mooring Steamatic Catastrophe Inc., a major Fort Worth restoration firm, said in an interview that he had never heard of a contract that large in Dallas.
“A $14-million contract would be the biggest contract ever to be let. That we wouldn’t know about a deal like that in our backyard would seem incredible,” he said.
By comparison, Blackmon said, when his company did the cleanup after the fire at the Las Vegas Hilton several years ago, the contract amounted to $2.1 million.
Thomas Padgett, president of Interstate Appraisal Services, declined in an interview last month to give any details of the restoration contracts his firm had given ZZZZ Best, citing confidential agreements with his clients.
Before the initial disclosure of false credit card charges, ZZZZ Best’s stock had traded as high as $18.375 a share in the over-the-counter market. It closed at $3.50 Thursday, as about 2 million of its 11.6 million shares were traded. Minkow owns about 6 million ZZZZ Best shares.
Although the stock market was closed Friday for the Fourth of July holiday, there was speculation in the investment community about what will happen when the market reopens Monday.
One trader in ZZZZ Best’s stock, who asked not to be named, said, “I would think the stock would get creamed on Monday. . . . " He is one of a number of investors who have taken “short” positions in ZZZZ Best stock--selling borrowed stock in anticipation that the price will drop and the shares can be replaced at a lower price, with the investor pocketing the difference.
Reputed ‘Whiz Kid’
For the month ended June 15, the amount of so-called “short interest” in ZZZZ Best soared to 1.5 million shares from 133,838 the month before.
In recent years, Minkow has been considered a “whiz kid” and has generated much favorable publicity. He started ZZZZ Best in his parents’ Reseda garage when he was 15. As the company grew, he appeared on various television programs, made anti-drug commercials, launched a major TV ad campaign for ZZZZ Best and won a commendation from Mayor Tom Bradley.
Involved in Lawsuits
Minkow also wrote a book of financial advice entitled, “Making It In America.” On the front cover he is pictured leaning on a Rolls-Royce. The back cover reads, “Barry Minkow . . . didn’t inherit a nest egg, win a lottery or have a rich uncle. He earned every penny of his fortune himself . . . (His) book is worth its weight in gold because he doesn’t deceive you into thinking there is a magic formula for instant success.”
Minkow has been involved in a number of lawsuits, including one filed against him by Jack M. Catain Jr., a reputed Los Angeles organized crime figure who died earlier this year. In 1985, according to court papers, when Minkow was short of cash, Catain arranged loans for Minkow--but at interest rates of 2% to 5% per week.
During the past month several class-action suits have been filed against Minkow and ZZZZ Best alleging that the company made misleading statements in its stock prospectus last December.