NOTHING VENTURED : NOTHING GAINED : Founder Says CorpCap Has Good Ideas; What It Needs Is Financing

“You’ve probably never seen worse financials in any company that’s taken a public offering.” That’s the assessment of Corporate Capital Resources in Westlake Village--not from a disgruntled shareholder, but from the company’s founder and president, Daniel D. Weston.

: CorpCap was set up as a publicly traded venture-capital firm that would invest in new companies with terrific ideas in exchange for a stake in those businesses. When one of those companies would go public, CorpCap stockholders would receive some of the shares and their investment would grow with the new company.

It hasn’t worked out that way. In the past four years, CorpCap has created or acquired 37 companies, but none of them has gone public. At least 23 of them have never opened for business. Some of the ideas that have yet to go into production include a fish farm, a Washington lobbyist group for small investors, a sterilization system and a soilless lettuce farm.

Of the few that have reached production, Weston concedes, most have never made more than a few thousand dollars. There is the business that sells water beds to hospitals, for example. It has sold 15 in the past three years.

CorpCap’s ideas haven’t done much for its bottom line. The audited results for CorpCap’s fiscal year ended Sept. 30 listed a net loss of $2.1 million, while current assets were a negative $2,977. Unaudited results for the nine months ended June 30, meanwhile, showed an operating loss of $452, with current assets of $79,541.

In the past several years, CorpCap’s stock has fallen from a high of $4.125 a share in 1983 to $1.06 on Friday. Interest in CorpCap’s stock is so thin that Weston gave away 2,000 shares as a door prize at an investment club convention last year.

Weston maintains that CorpCap has good ideas for start-up companies, he just needs financing to make them work. He has raised about $2 million in recent months from a public offering. But he’s hoping to raise much more from a group of investors who live on Kwajalein Atoll, part of the Marshall Islands in the western Pacific Ocean. So far, however, Weston hasn’t seen a cent from the islanders.

Some of the ideas for the start-up companies are Weston’s, but he also relies on outsiders.

In 1985, for example, CorpCap formed four joint ventures with officials of Magna Technologies, a Thousand Oaks firm, to market such products as an underwater treadmill for race horses and portable testing centers for acquired immune deficiency syndrome.

Magna later closed. Then in May, the Securities and Exchange Commission filed a civil suit alleging that Magna was “a sham” and its sole reason for being was to manipulate its stock price.

Besides agreeing to several joint ventures, Weston also ordered some Magna stock. “Let’s face it. Those people were polished,” he said.

In the meantime, CorpCap waited three years for the SEC to approve a desperately needed $15-million offering. Because the company had little in the way of funds, few of its ideas for start-up companies got into production.

By comparison, some of CorpCap’s rivals have been more far more successful. Colorado Venture Capital in Boulder, for example, has a portfolio of 12 companies, and has taken seven of those public since it started in 1981. Biotech Capital, a New York venture-capital firm, helped six companies go public since 1981.

But in February, the SEC finally approved CorpCap’s public offering for warrants that later are converted to common stock.

“Now we are effective. We are bringing in money. We are funding our companies, and you will see within the period of the next three to four months one after the other coming forth,” said Weston, 63, who draws an annual salary of $100,000.

One venture capitalist, who worked at one of the country’s most respected venture-capital firms, reviewed CorpCap’s prospectus and concluded: “I can’t imagine people putting money into this thing. Every one of these businesses is junk.”

But Norma Yaeger, president of the Encino brokerage firm Yaeger Securities, is recommending CorpCap. “This is an excellent opportunity for investors,” she said.

CorpCap’s prospectus lists an impressive body of 34 advisers overseeing its investment choices, including Stephen McNichols, a former Colorado governor; a former Federal Reserve Board governor, and Cleveland’s Businessman of the Year. While these advisers did sign agreements to counsel CorpCap in exchange for a fee, Weston said none of them has been actively involved with the company.

“I don’t know anything about them short of that I’m on their mailing list and they’d like me to invest in their company,” said CorpCap adviser Izhak Rubin, a UCLA professor.

Asked About Role

Andrew Brimmer, former Federal Reserve Board governor who now sits on the boards of Bank of America, DuPont and Gannett, is also listed as a CorpCap adviser. Asked about his role, Brimmer paused and said, “Oh, that’s that company out in California, isn’t it?”

Weston said he hasn’t called on CorpCap’s advisers because the company hasn’t had money to fund ideas or pay advisers.

Some of the adviser biographies listed in CorpCap’s prospectus are inaccurate because Weston has not updated them since he first tried to get his offering approved in 1984.

CorpCap adviser Slawamir Lobodinski, for example, is listed in the prospectus as head of the biophysics department of the UCLA Krump Institute of Electronics in Medicine. But a Krump official said Lobodinski never worked there. CorpCap also lists him as an assistant professor at California State Polytechnic University. But a university official said he has not taught there since 1983.

“Whether they have changed jobs or not changed jobs, it’s not really material to our changing our prospectus,” Weston said.

$2 Million Raised

So far, investors haven’t been lining up to invest in Weston’s dream. He has only managed to raise about $2 million. The prospectus said CorpCap hopes to retire $3 million in debt after the offering.

Since May, however, Weston has said in interviews and press releases that half of CorpCap’s offering, or $7.5 million, was on the verge of being sold. In a complicated three-way deal, Executive Telecommunications, a publicly held firm in Tulsa, Okla., that provides answering services, would buy $7.5 million worth of CorpCap warrants with money loaned to it by a group of landowners on Kwajalein, a 60-mile-long loop of islands about 1,800 miles west of Hawaii.

Last spring, Newport Beach businessman Gerald Roberts traveled to Kwajalein to present investment opportunities to the landowners. Roberts said he garnered signatures from some of the landowners and formed the Kwajalein Atoll Trust to invest the islanders’ money. Their first investment was to be the Executive Telecommunications-CorpCap deal.

But the islanders have missed three deadlines, most recently last week, and Weston still is waiting for the cash.

David Lowe, an attorney on the island who represents Kwajalein landowners, said residents listened to Roberts and some signed papers, but a trust has not been formed.

‘Trust A Nonentity’

“The Kwajalein Atoll Trust is a nonentity. It’s not worth the paper it’s not written on,” Lowe said.

“There was no money in the trust and it never came to be,” said Sen. Ataji Balos of Kwajalein.

Roberts insists that the trust does exist, but that all transactions are confidential. “It’s a very clandestine thing,” he said.

Officials at Executive Telecommunications said they still expect to buy $7.5 million of CorpCap’s offering. Weston said an Extel executive is scheduled to meet with Roberts on Thursday.

But Weston said he’s not in negotiations with Extel and the Kwajalein trust.

“Either they come up with the money or they don’t,” Weston said. “I’ll sell the units to anybody.”

Started as Stockbroker

Weston spent the first 17 years of his career as a stockbroker. In 1969, he founded WesCo Publishers, a financial public relations firm that hired out to public companies and distributed favorable reports on its clients to stockbrokers and potential investors. In 1981, Weston took his company public, raising $2.4 million.

Then in 1980, Congress passed a bill lifting many of the restrictions on public companies that invested in smaller businesses. The idea was to give the small investor a chance to have a stake in promising companies and relieve the burden on the Small Business Administration.

In 1983, Weston took his first step. He set up his new venture-capital firm, Corporate Capital Resources, and spun off the financial P.R. firm. CorpCap kept 7% of the P.R. business and, to give investors an idea of how a flourishing venture-capital business could work, he distributed some of the remaining stock in the P.R. firm to CorpCap’s shareholders.

But four years later, most of CorpCap’s bazaar of small businesses have gotten no further along than to be registered in Delaware as corporations--they exist only on paper.

Most of the firms are technically headquartered at CorpCap’s Westlake Village office, which has 12 employees, several empty rooms and a couple of Apple Macintosh computers.

1 Company Went Public

The only company CorpCap has brought public was the original financial P.R. firm. Now known as Information Bureau, headquartered in Garland, Texas, it lost $46,000 on $1.3 million in sales last year; in March, its accountants questioned whether the company could continue to operate because of slowing sales and high debt.

CorpCap survived the past few years, Weston said, by borrowing $3 million from its officers, their relatives, private placements and bank loans. Several parties sued CorpCap for failing to repay loans, including Chemical Bank over a $141,000 loan. Weston said CorpCap is repaying Chemical, as well as its other obligations.

Although the Kwajalein Atoll Trust has missed three payment deadlines, Weston remains hopeful of somehow raising the $7.5 million.

If Weston does raise the money he needs, among the first ideas he plans to pour the money into will be the soilless lettuce farm, a water purification system, an energy-saving device for fluorescent lighting and a brokerage firm that will sell CorpCap stock “for the rest of time.”

He added, “We’re either going to get these companies successful, or then people have put their money into an empty hole.”