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Profiteer or Persecuted Entrepreneur?


Its corporate headquarters is a few cramped, messy rooms in a Long Island (N.Y.) office park, and its product line consists of helmets, goggles, and other safety gear. ESafetyworld (SFTYE) was as humdrum as a company can be--until Oct. 19, when it announced that it had developed a "revolutionary product" that would make it possible to safely open anthrax-laced mail. By day's end, eSafetyworld shares had soared fivefold on huge volume. But trading was swiftly halted by Nasdaq, which sought further information on the company's claims. On Nov. 12, eSafetyworld said it was fighting expulsion from Nasdaq. Says CEO Edward A. Heil: "I'm sorry we invented the damn thing."

WIDELY HELD. Is eSafetyworld an unscrupulous profiteer from the anthrax scare--or a victim of regulatory paranoia? That's one of the questions facing investors as they strive to make sense of the trading frenzy over stocks of companies seeking to profit from the post-September 11 public-safety concerns. Regulators warn that overly enthusiastic--or even outright false--corporate pronouncements may be unfairly exploiting the crisis, sometimes with dire results for investors. In the case of eSafetyworld, which says its claims for its product are valid, potential investor losses are considerable. Almost 6.6 million shares--more than twice its 3 million shares outstanding--traded on Oct. 19 and 1.9 million on Oct. 22, the next trading day, at prices four to five times the recent average. None of the shares can be sold until the company satisfies Nasdaq's information request. Heil says it has done that. But after three weeks, trading remains halted.

Investors in eSafetyworld aren't the only ones in limbo. On Nov. 7, the Securities & Exchange Commission temporarily halted trading in 2DoTrade Inc. (TDOT), which claimed to be developing an anthrax disinfectant. And Vital Living Products (VLPI), whose stock skyrocketed on publicity over its anthrax test, saw its share price collapse when one of its early statements proved incorrect. Vital stands by its product, and 2DoTrade says it is cooperating with the SEC.

ESafetyworld's Heil insists his $800 MailSafe Containment Chamber will win over the sternest skeptics, including Nasdaq. At the center of the fuss is a glass box just under a yard wide, resembling a fishtank with rubber gloves protruding into it. The unit is sealed with gaskets, and Heil insists it is airtight when latched shut. The company demonstrated it for BusinessWeek in a conference room it shares with other companies in a Bohemia-(N.Y.) building. Air pressure in the box is reduced when the lid is shut, but the demonstration did not reveal whether the chamber was totally airtight. The company says it tests all units for air-tightness before shipping and that it has received 30 orders, of which half have been shipped.

AWAITING RESULTS. ESafetyworld has demonstrated the product for Nasdaq, too. Nasdaq said in a statement that it had asked the company for more information and that trading would remain halted "until eSafetyworld has fully satisfied Nasdaq's request for additional information." So, has eSafetyworld passed the test? Nasdaq did not return a call seeking comment, and eSafetyworld attorney Neil Kaufman said "we wouldn't think so" when asked if the product failed the Nasdaq demonstration. He declined further on-the-record comment, saying that was at the behest of Nasdaq.

Kaufman and Heil expect to defeat the delisting effort, which was a Nasdaq "staff determination" that eSafetyworld is appealing. In a Nov. 12 press release, eSafetyworld said Nasdaq was concerned about the company's failure to make a timely filing of its annual report and expressed a "concern about the content of and procedures relating to its recent press releases, its reported financial results, including revenues, and other matters."

If "content" is an issue, it could be serious stuff. Still, the company is hanging tough. "I hope you won't lump us in with that company that was suspended by the SEC," said Kaufman. In eSafetyworld's view, regulators are being hasty and unfair. But by acting swiftly when confronted with questionable claims, Nasdaq has sent a stern warning to companies that might be tempted to give their stock an unwarranted lift by dashing off a press release: Capitalize on post-September 11 misery at your peril. By Gary Weiss in Bohemia, N.Y.


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