Ben Hills 

The Dallas County Sheriff’s officers arrived without warning on a warm spring morning six weeks ago at the headquarters of what Chinese/Australian entrepreneur Johnson Wang once described as his $1 billion-a-year global computer-building business.

The posse marched into the huge hangar-like building in an industrial suburb of Dallas called Carrollton to execute a warrant issued by the local district court, giving them authority to seize anything of value. But the cupboard was by then almost bare.

As the employees of Wang’s Edge Corporation watched in amazement, the officers carried from the building the few pieces of equipment and office furniture left, and piled them on a truck. On May 10, at what is known as a “constable sale” in the nearby city of Irving, the remnants of Johnson’s North American empire were sold for just $US55,500.

That would barely pay the interest on the judgment that triggered the raid an award by the Dallas County Court of $US1.5 million damages to the giant US National Semiconductor Corporation which had supplied Edge with thousands of computer chips the company had never paid for.

It was just one of a series of court cases that sank the company with debts that are now estimated at $US8 million ($14 million) to $US10 million, less than five years after Wang founded it.

That seizure, to all intents and purposes, was the end of Edge in North America and eight subsidiaries, including one named Inc, which is unconnected apart from being controlled by the same man with Wang’s Australian public company eisa Ltd.

The last of the 80-odd employees, including the company’s president, Wang’s right-hand man in North America, Campbell Angus, were laid off with all of them owed back pay. Angry creditors began searching for the missing Wang, and any remaining corporate assets.

The news came like a thunderbolt to the company’s chief financial officer, George Stroesenreuther, who had gone on holiday just two days before with no inkling that there was a financial crisis pending. “I knew nothing of that judgment,” Stroesenreuther told the Herald. “I now realise that there was a lot of information that was kept from me, from the company’s auditors and its attorneys I am very angry about this.”

As for Wang the 38-year-old Beijing-born entrepreneur who just a few weeks ago was the toast of Australia’s dot com community, was hailed as the country’s Bill Gates and was predicted to be our first and fastest Internet billionaire all attempts to contact him failed. While furious shareholders watched the price of eisa’s shares collapse, Wang, his wife and child were said to be “somewhere in Hong Kong”.

Migrating to Australia in 1989 after making (he claimed) his first multi-million-dollar fortune in Hong Kong and losing it in the 1987 stockmarket crash, Wang built his business up from assembling computers in a northern suburbs garage to an international “white box” empire which at its height claimed to have 31 locations in 10 countries assembling computers under the Edge and KTX brand-names.

How some of the more controversial aspects of his career came to be overlooked in the dotcom feeding frenzy of 1999 is puzzling. Until the Herald revealed it in February, few seemed aware that he had been convicted in New Zealand for selling thousands of dummy computer chips, that he had been the victim of a faked armed robbery, and that his house in Killara had been fire-bombed.

When Wang spun off eisa a small Melbourne-based Internet service provider from the rest of his business and floated it on the Australian Stock Exchange on August 31 last year, the float was warmly received. More than 6000 individuals and several large institutional investors such as AMP, Citicorp, and the National and Commonwealth banks invested $57 million in the company.

Even news that undisclosed in the prospectus the 57 per cent of shares attributed to Wang were in fact ultimately held by a “black box” company in the Caribbean tax haven of Curacao whose directors and shareholders are secret, did not deter investors.

When Wang’s media-savvy young chief executive, Damien Brady, announced in February that eisa planned a $325 million takeover of OzEmail Australia’s second largest Internet company from the US-owned UUNet, investors ignored the history of the company’s majority owner, and the fact that small details such as where the company would get the money had not been spelled out. The stock roared to giddy heights over $3.

Brady happily posed for more publicity shots than a pop star and dazzled business reporters with his glib tech-talk at least, until it was revealed that he, too, had not been totally forthcoming in the company’s prospectus. The University of California had no record of his “UCLA-accredited project Master of Business Administration” which turned out to have been issued by an affiliated institution in Asia which he declined to identify.

Even the most trusted business commentators sang eisa’s praises.

In The Australian Financial Review, Alan Kohler reported that “the financing is finished” and “The story of how Australia’s largest [sic] consumer Internet business came to be sold to a tiny upstart called eisa … is a fable about today’s business world.” Indeed it would, if it had been true.

In the same paper, even after news of Wang’s history had been made public, Ivor Ries predicted that eisa could become a billion-dollar company less than a year after listing, and said the “sceptics were ducking for cover” and that “Brady was having the last laugh”.

Stephen Mayne, who describes himself as a shareholder activist, implied on Sally Loane’s ABC radio program that the revelations about eisa had been concocted by lawyers acting for Telstra, eisa’s rival in the takeover. When this reporter sought to correct the record, Mayne declared that he had bought eisa shares at $2.15 and felt “really angry” when the price fell.

It is now apparent that a closer scrutiny would have shown that even before eisa was launched on the Australian Stock Exchange just nine months ago, Wang’s Edge/KTX business was in serious trouble around the world. In Australia on August 4, three weeks before listing, the giant Microsoft Corporation issued a Supreme Court writ claiming what now amounts to $15 million for software it claimed Wang had not paid for.

And in the United States, it has now emerged from records unearthed by the Herald that Wang’s business had been hit with the first of a series of major court claims as far back as July 20 when the Continental Insurance Company filed suit in Texas seeking $US750,000 in damages from Edge and the Federal Express Corporation claiming negligence and “conversion”.

Edge had expanded from Australia into North America in 1996 when Wang sent Campbell Angus, his young offsider, 25 at the time, to open an office in Toronto, Canada.

Within two years riding the craze for cut-price home computers the business had expanded exponentially, opening in 10 cities and transferring its headquarters to that warehouse in Dallas.

In calendar 1998, the company did $US109 million worth of business. And then, as suddenly as it had boomed, Edge went bust, blaming all sorts of factors, from fierce competition to an earthquake in Taiwan which halted its computer chips deliveries. Offices closed, sales in 1999 collapsed to a mere $US35 million and writs piled up as if snowdrifts.

All alleged the same thing, and most were uncontested that Wang’s company had defrauded its suppliers by using their products to build his computers, pocketing the profits and refusing to pay its bills.

By March this year, the company was admitting to seven writs or judgements to totalling $US2.5 million from some of America’s largest and most reputable manufacturers of computer parts and software the total has since increased to more than $US8 million, say company sources.

Wang’s response was remarkable. Instead of cutting costs, boosting sales or improving margins, he decided in the middle of last year to send Angus on a takeover spree, targeting Internet service providers which had been springing up like mushrooms across North America.

Ian Eisenberg is a founder of a Seattle Internet company called Cyberspace, one of at least five companies which became entrapped in serious takeover talks. Eisenberg met Angus at an Internet conference in San Jose last September, and over a three-hour dinner agreed to sell Cyberspace for $US15 million, half in cash and half in shares in Wang’s Inc.

“We thought at the time we were dealing with the Australian public company,” Eisenberg told the Herald. “We had no idea it was part of this Edge group, and we had no idea Edge was in all this trouble.

“It was only when we started doing due diligence that we realised there were a lot of things we hadn’t been told.”

Eisenberg called off the deal when he learned of the sheriff’s raid in April, having wasted a lot of time and money negotiating the deal and having missed his chance to sell Cyberspace before the March “tech wreck” which drove down Internet stock prices. He is also considering legal action if he can find someone to sue.

Another Internet company, Surfree, had agreed to a $US4.3 million takeover by Edge. The deal was only a day or two away from ratification by its board in Los Angeles when the sheriff’s raid took place. A lucky escape for principal Adam Portnoy the price was to be paid in now near-worthless Edge stock.

Only one of these deals came to fruition, and that was the takeover last August of a small Canadian Internet business called Cyberus. Cash of $US700,000 did arrive part of the proceeds of the eisa Ltd float in Australia but the balance of the $US4 million purchase price was in now-worthless scrip.

“The thing that kept us going,” says an Edge insider, “was the prospect of an IPO [initial public offering] on the Nasdaq [stock exchange] that was supposed to raise $US40 million or $US50 million. With hindsight we are very lucky that never happened as there would have been all sorts of consequences.”

As his North American empire tumbled around his ears, Wang and his family left for Hong Kong and mainland China to pursue their dreams he has a wife named Phynea and a son he claims he called “Anderson” after the Netscape co-founder whose name is actually Marc Andreesen.

Last month Wang surfaced to boldly claim in an interview with Hong Kong’s South China Morning Post that he had left Australia because of racially inspired criticism, that he had bought several Chinese Internet sites, and was aiming to create the world’s biggest Chinese finance portal, raising $US100 million by listing a company called Shenzhen Infolink on the Nasdaq.

Wang gave the reporter to understand that eisa Ltd’s bid for OzEmail in Australia was a done deal. However, nothing could be further from the truth.

In three months of increasingly frantic searching for investors, the only backing eisa could obtain was from John Fairfax (publisher of The Sydney Morning Herald), the ANZ Bank, and Melbourne financier Hastings Funds Management. These organisations planned to put up $180 million of the OzEmail purchase price between them by buying eisa shares at $2 each.

As the company missed its deadlines, the news for eisa’s investors and backers got increasingly grim. Its annual report, released last month, revealed that in the four months since the prospectus was issued, all the important forecasts had fallen short of expectations.

In the 12 months to December, eisa had attracted 80,000 subscribers instead of the forecast 100,000; revenue was $15 million, not $19 million; and the company had lost $13 million for the year, more than double the forecast $5 million.

As the share-price fell like a stone, it began to look like an increasingly disastrous deal for eisa’s backers. This week, Fairfax and the ANZ announced they were pulling out, and Thursday’s announcement by UUNet that the deal was off was the final nail in eisa’s coffin.

When the company’s shares were suspended yesterday for the fourth time in its short career they were trading at just 25c, having lost 92 per cent of their value since their peak of $3.18 just three months ago.

According to one business analyst who was not caught up in the eisamania: “The company is now what it always basically was if you stripped the hype out of it: a smallish Internet company with its money running out, battling to stay afloat in a highly competitive market. In the US it would be worth $5 million or $10 million max if you could find a buyer.”

So the elusive Johnson Wang, who at the height of the frenzy was worth, on paper at least, almost $300 million, appears to have lost his third fortune on a third continent Hong Kong, the United States, and now Australia.

Never mind tomorrow there’s China.

Countdown to Crunch Time

30 August 1999

Eisa, internet business spun off from Johnson Wang’s Edge group, raising $57m. Shareholders include AMP, Citicorp, National and Commonwealth banks. Wang interests retain 58pc, which are in escrow and cannot be sold for two years.

15 February 2000

Eisa lodges $325m bid for OzEmail, Australia’s second largest internet access provider, from UUNet, a subsidiary of US MCI Worldcom. Pays $20m non-refundable deposit.

24 February 2000

Herald reveals Wang’s corporated background, including a conviction in New Zealand for selling fake computer chips, a writ from Microsoft over an alleged $15m debt and a firebomb attack on his house. Eisa’s ultimate majority owner emerges as a mystery corporation based in a Caribbean tax haven with no share capital and undisclosed owners and directors.

14 April 2000

John Fairfax and the ANZ bank confirm they will buy 20m shares in Eisa at $2 each. Melbourne-based Hastings Funds Management to buy another 50 million shares at the same price. Both agreements highly conditional.

29 April 2000

The Australian reveals the University of California has no record of the MBA claimed by Eisa’s managing director, Damien Brady, in the company’s prospectus. The board says it was an honorary degree conferred by an unidentified Asian institution and “it continues to have confidence in Mr Brady”.

14-15 May 2000

Fairfax, ANZ and Hastings put their investments in Eisa on hold,. The three, plus vendor UUNet, all insist the deal is still on.

15 May 2000

Eisa’s first annual report shows the company falling short of prospectus forecasts made four months earlier. There are 80,000 subscribers (forecast 100,000), revenue is $15m ($19m), and the company has lost a net $13m, more than double the $5m forecast.

30 May 2000

Fairfax withdraws froom plan to inject funds into Eisa.

31 May 2000

Eisa chairman, author director, hospitalised with severe illnesses.

1 June 2000

UUnet withdraws OzEmail from the market; says it will not sell to Eisa.

9 June 2000

Eisa shareholders to vote at annual general meeting on latest plan to raise about $500 million for the OzEmail purchase and other projects more than four times the company’s current market valuation. It hopes to raise the bulk of the money by selling shares and options.

Publishing Info

Pub: Sydney Morning Herald
Pub date: Saturday 3 June 2000
Edition: Late
Section: Business
Sub section:
Page: 49
Word count: 2648
Classification: Company/Eisa People/Name/Wang/Johnson/Jen Tse/Businessman
Keywords: Profile Timeline
Photograph: by Rob Young
Caption: Into the shadows … the once-celebrated Johnson Wang has abandoned Australia for, it is believed, Hong Kong. Leaving a trail of questions and writs unanswered, he is promoting a new Internet venture in China.
Graph: OzEmail