SEC sniffs out Ammonia Hold violations.

The Securities and Exchange Commission has sued Ammonia Hold Inc. of Lonoke and its president, Michael Parnell, for securities fraud for schemes that illegally promoted the company to investors and misstated its revenue.

In all, the SEC sued 10 corporations, mostly based in Florida and California, and eight individuals, primarily residents of Florida. The main targets of the lawsuit allegedly made $20 million illegally in the sale of shares in at least 15 over-the-counter stocks from 1994-1996. Ammonia Hold and Stratcomm Media of Winter Park, Fla., are the only companies named as defendants in the lawsuit.

Neither Ammonia Hold nor Parnell are accused of directly profiting from the alleged violations, which occurred between February and December of 1996. There is no mention of fines facing Ammonia Hold, a manufacturer of a patented product that reduces ammonia and odors from animal wastes, or of Parnell in the 73-page civil lawsuit filed Sept. 27. Although nothing has been decided in the case, it's possible that Ammonia Hold and Parnell may escape paying any major fines.

The SEC often does not impose financial penalties on small public companies out of a concern for hurting existing shareholders. That may be the case with Ammonia Hold, which could be severely damaged if it were required to pay a large fine. Ammonia Hold's revenue last year was $1.1 million and its net income was only $81,000. The SEC does seek injunctions against Ammonia Hold and Parnell to cease violating securities regulations.

The 41-year-old Parnell, a former stock broker with PaineWebber Inc. in Little Rock who became Ammonia Hold's president in July 1996, did not return phone calls to discuss the SEC's charges.

Parnell's attorney, Howard Heiss of Morrison & Foerster in New York City, also would not comment.

"We are still in the process of reviewing the complaint, which is pretty lengthy, and considering our options," Heiss says.

Lawrence Iason of Morvillo Abramowitz & Grand in New York, Ammonia Hold's attorney, says, "There isn't much I can tell you at this stage. I think it's premature. We're dealing with [the allegations] and have to review them carefully."

With blistering language at times, the SEC's allegations against Parnell and Ammonia Hold include:

* Selling unregistered Ammonia Hold stock in the United States. To make itself appear to be more successful than it was, the lawsuit says, Ammonia Hold also falsely reported the proceeds of the stock sales as revenue rather than infusions of capital.

* Parnell caused Ammonia Hold to report that $160,000 of the $660,000 paid for the unregistered stock was actually revenue from a licensing agreement with a subsidiary of a Swiss bank. The licensing agreement was a "sham," the SEC says, because the subsidiary, Grace Holdings, never paid Ammonia Hold for any agreement.

* Media promotion of Ammonia Hold in 1996. The publicity came in the various publications of Corporate Relations Group Inc. (CRG) of Winter Park, Fla., a subsidiary of Stratcomm. During the time, CRG acquired and sold more than 1 million shares of Ammonia Hold.

* Ammonia Hold making a $1.545 million public offering of stock between July and August 1996. The stock was offered to CRG in the names of two Costa Rican firms, Fondo de Adquisiciones and C.A. Oportunidad, without proper regulation or a valid exemption. SEC regulations allow registration exemptions on the sale of securities by an issuer if the sale does not exceed $1 million in a six-month period.

In early July 1996, Fondo also bought 488,666 shares of Ammonia Hold for $500,000, an 85 percent discount off the market price of about $6.80. Parnell helped negotiate the price for Fondo, the SEC alleges. Fondo later transferred some of the stock to help James Spratt, a CRG executive, cover a 25,000-share short position on Ammonia Hold. Fondo sold the rest a month later for $3.2 million, a profit of $2.8 million.

Altogether, CRG; two of its principals, Spratt and James Skalko; Fondo; and Oportunidad profited more than $4.7 million in selling Ammonia Hold stock, the SEC alleges.

Expensive Marketing

The connection between Ammonia Hold's Parnell and CRG's principals began in January 1996, the SEC alleges, at a meeting where Ammonia Hold discussed hiring CRG. About that time, Spratt began shorting Ammonia Hold stock, the lawsuit says. On Feb. 5, 1996, Ammonia Hold hired CRG for promotional activities and paid CRG 117,000 shares of unrestricted stock and 500,000 options of common stock, exercisable in blocks of 100,000 shares.

Ammonia Hold had no unrestricted stock at the time and borrowed it from Olympus Investment Corp., an existing shareholder, to pay CRG. The SEC says CRG then sold the borrowed stock for more than $800,000, an average of $6.84 a share.

Parnell then had Ammonia Hold issue 117,000 shares to Banque SCS Alliance, a Swiss bank, the suit says. The SEC says it believes those shares were used to repay Olympus.

In March 1996, Ammonia Hold also issued 550,000 shares of restricted stock to Fondo, the Costa Rican firm. Fondo didn't own the stock and never paid for it, the SEC says.

In various transactions, the Fondo stock was transferred to Grace Holdings and sold to Spratt to help cover his short positions on Ammonia Hold.

Fondo realized profits of almost $600,000 in its stock sales, CRG made $92,000 selling Ammonia Hold stock short, and Spratt and Skalko made $37,000 each as part of a finder's fee, the SEC alleges.

Meanwhile, for 11 months in 1996, CRG was promoting Ammonia Hold stock through its newsletters and magazines.

On Feb. 14, 1996, nine days after Ammonia Hold hired CRG, Spratt featured Ammonia Hold in his Rumor Mill publication, calling the stock his "Pick of the Year" and "his strongest pick yet," the SEC suit alleges. He advised subscribers to place a buy order at a $10 limit when Ammonia Hold was selling at $6.38 and predicted the stock would "skyrocket between $14-$16."

The recommendations were repeated in the April and May 1996 issues of CRG's MoneyWorld magazine. All the while, Spratt and CRG executives had sold hundreds of thousands of shares of Ammonia Hold, the suit alleges.

Downward Spiral

Since 1996, Ammonia Hold's stock has not traded anywhere near the $6 range.

Its stock, which has a 52-week high of $2.19 a share, has fallen 13 percent since the SEC announced its charges after the market closed on Sept. 24, three days before the lawsuit was filed in Orlando, Fla. The stock closed at $1.44 on Sept. 23 and dropped to $1.25 on Oct. 5. It has been as low as $1.09 in that 12-day period.

Jerry Isenberg, one of the SEC's attorneys in the case, notes that the primary defendants in the lawsuit - Spratt, Skalko and Robert Veitia, all principals of CRG; James Rodriguez, a CRG employee; and Jose Antonio Gomez Cortes, president of Fondo, the Costa Rican firm - made more than $20 million from the alleged schemes with the 15 companies.

"For Ammonia Hold and Parnell, we're not alleging that they made a lot of money with respect to the violations they engaged in," Isenberg says. "But we do allege they engaged in fairly serious fraud in connection with the financial statements of Ammonia Hold, which were materially false and misleading.

"I don't want to underplay the charges, but they played a smaller role in respect to the whole case [compared with] the Corporate Relations Group and its people, who are alleged to have been engaged in widespread fraud over many years.

"But to sell stock and then to call that revenue, you don't have to be an accountant to know that's wrong. And it would appear that they knew that they were paying for favorable articles."

Ammonia Hold Inc.

Headquarters: Lonoke

Business: Ammonia Hold manufactures and distributes a patented product that reduces ammonia and associated vapors in areas where animal wastes are present. Its products are used on farms, in poultry houses and for pets. It is sold through coops, large retail chains and grocery stores.

History: The predecessor to Ammonia Hold, Ewing Oil Mining Co. of Utah, was incorporated in 1980. In June 1994, Ewing Oil bought Ammonia Hold, a Texas corporation, and its name was changed to Ammonia Hold. Ammonia Hold went public in October 1994 and is traded as a bulletin board stock under the symbol AMHDE.

President, CEO: Michael Parnell

Chief financial officer: Dan Thompson

Employees: 25

Revenue: $1,134,189 in 1998; $1,110,490 in 1997

Net income (loss): $81,427 in 1998; ($2,781,320) in 1997

Earnings (loss) per share: $0.01 in 1998; ($0.62) in 1997

Assets: $5,962,105 on March 31, 1999; $6,242,837 on June 30, 1998

Stock price: $1.25 on Oct. 5, 1999

52-week high: $2.19

52-week low: $0.94

Price-to-earnings ratio: 46.86

Market capitalization: $8.2 million

Shares outstanding: 7:8 million