1. Ripped Off From Today's Headlines
the curmudgeonly chairman emeritus of the Five Dumbest Things Research Lab, overflows with good advice about dodging bad investments.
Stay away from tech companies based in Fort Lauderdale, warns Marv. Avoid stocks with cutesy ticker symbols. And never, ever invest in a company with a product demonstration that makes you say, "Cool!"
Yes, as Marv constantly reminds us, the road to poverty is paved with awesome demos.
"A machine that lets you rewind TV shows and skip commercials? Cool!" That's the kind of reaction that gets you buying
for $70 a share. (It's now around $10.) Cool demos are exactly what caused people to lose millions in palm-sized computer manufacturer
( HAND) (once above $100 a share, now trading for a buck), interactive TV pioneer
( IATV) (peaked at around $50, acquired for $1.10) and countless other tech companies.
Products that make you go "Wow!" come from stocks that make you go "Ow!" says Marv. It's not fair. But it's just how it is.
Which brings us to
American Technology Corp.
( ATCO). We haven't experienced a demo of ATC's flagship product firsthand, but apparently it's a doozy. See, ATC makes a speaker system that directs sounds in a beam as precise as the light emitted by a laser.
Cool stuff. As
reported in a big story about ATC in May, the potential applications of the company's HyperSonic Sound are mind-boggling. Imagine an in-car HSS system that could play one CD for Mom and Dad up front and a different one for the kids in back. Imagine in-store audio advertisements for Duracell heard only by whoever is standing in front of the battery display. "Rarely is an invention so unique, so visceral and so simple that in 15 seconds most people who experience it realize it could alter everyday life," wrote
Which gets us to the part about loving the product but hating the stock.
See, as soon as Maney's article hit the streets, people started buying up ATC's stock. And how. In one week, ATC's shares -- which had spent the first part of 2003 bouncing between $3 and $4 -- doubled to $6.39. (Shares closed at $6.07 Thursday.)
So somebody must love this stock. But not everybody. Only this past Monday, for example, ATC registered for sale 2.3 million shares and warrants of the company. It's not ATC that will be selling these securities, though. The stock and warrants will be coming from the institutions who bought them in July in a private transaction.
As a short-seller of ATC stock pointed out to us recently, aspects of this $10 million institutional sale set off alarm bells that might scare investors away from the stock. Among them are the 450,000 warrants issued in the deal -- warrants that have an exercise price of $6.75 but could easily be adjusted downward should ATC issue any stock at lower prices.
And will ATC ever have to do that? Well, as Maney noted, HSS is years away from becoming mainstream. In the meantime, the company had $2.7 million in negative cash flow from operations for the six months ended March 31, and it estimated, before the $10 million July financing, it would need $2 million more to get through the next 12 months.
Even if the company doesn't have to issue more stock, the threat of dilution to current shareholders appears substantive.
As of May 1, the company had 15.2 million common shares outstanding, giving ATC a market capitalization of $92 million. Taking into account preferred stock, options and warrants (most of which appear to be well in the money), and the newly issued stock, we figure there's effectively 23.5 million shares outstanding, giving ATC a market cap of $142 million. (Calls to ATC to check our math and ask other questions weren't returned.)
That for a company that lost common stockholders $2.7 million on revenue of $237,000 in its latest quarter.
There are other little things that bug us.
, a company founded by ATC Chairman Woody Norris that shares office space with ATC -- plus at least one executive -- is trading at 32 cents a share these days, down from $20 in 2000. (Norris, the inventor of HSS, is also busy selling minihelicopter technology via another company called
Plus, there are the press releases -- announcements that are the truth, though perhaps not the whole truth. In February, for example, the company noted that ATC's new CEO, Jim Irish, came from a recent stint as CEO of
, "where he successfully launched numerous new media and promotional products." True, but as we learned from ATC's subsequent proxy filing, ValuMedia filed for bankruptcy in February 2002.
Our other favorite press release: The one in March announcing a new, six-division corporate structure "to streamline operations and provide scalability for growth."
This for a company with about 30 employees! How much division-structuring, streamlining and scalability can it need?
2. Fallen Starbucks
On our way to the office this week, we noticed that the
coffee shop at Broadway and 87th Street had shut down.
Gosh. We're sure this is a random event. One that couldn't have any possible relationship to the expansion-crazed coffee chain's attempt to place a Starbucks within spitting distance of every traffic light in America.
But, fools that we are, we wondered whether this Starbucks' closure could be attributed to its proximity to the Starbucks at 93rd & Broadway. Or the Starbucks at 86th & Columbus. Or the ones at 81st & Broadway, 95th & Broadway, 98th & Broadway, 102nd & Broadway, 76th & Columbus, 67th & Columbus, 75th & Broadway and 70th & Broadway.
Not to mention the
Barnes & Noble
stores serving Starbucks coffee at 82nd & Broadway and 66th & Broadway.
"Absolutely not," is what a Starbucks spokesman told us. "It's 10 years old. That's simply what it was. We just decided there were other stores that were more convenient for our customers."
Ah, yes. That clears things up.
The Starbucks Stop Here
3. Grossing It at the Grasso Household
Let's say a friend of yours told you he had a $140 million lump-sum payment coming to him. Wouldn't you be happy to advise him how to spend it?
Of course you would.
That's why we at the research lab are happy to announce the latest in our haphazard series of reader contests. We call this one "Where Should Dick Grasso Stick His Money?"
I'm In the Money
Yes, as you no doubt read this week, Dick Grasso -- chairman of the
New York Stock Exchange
and friend to all investors --
is receiving a $140 million payout as part of his latest employment contract.
Does Grasso -- he of the distinctively trapezoidal cranium -- deserve the money? We choose to ignore this raging debate.
Instead, we wonder how Grasso should invest this nest egg. And we think you should, too. Send your ideas about where Grasso should stick his money to the research lab in care of
The winning entry will receive our legendary
lunch bucket -- a lunchpail no doubt similar to the one Grasso packs with his tuna-fish sandwich each morning before he heads out to the NYSE.
Entries will be judged on whatever criteria we deem appropriate next week. And speaking of appropriate, this is a family publication. Keep it clean.
4. An Alarming Amount of A's
We used to think that consulting firms had cornered the market on adopting bizarre corporate names.
Not any more.
Earlier this month, you see, the computer systems firm
announced plans to change its name to
We quote the relevant press release: "Pioneer-Standard Electronics, Inc., a leading provider of enterprise computer solutions, today announced that it is submitting to shareholders a proposal to change its name to Agilysys, Inc. (pronounced 'A-jil-e-sis')."
That's a red flag. If you have to explain how to pronounce your company's new name, perhaps you're better off going back to the old drawing board.
We're not the only ones to suspect Dumbness here. Kevin Horne, who brought this to our attention, writes Agilysys "has got to be the worst 'A' renaming ever -- worse than Accenture, Agilent, Altria."
He forgot Allegis.
Pioneer-Standard executive vice president Martin Ellis says there hasn't been any confusion about Agilysys, which is meant to evoke the words "agile systems." Says Ellis, "When I saw the word the first time, I pronounced it the way we wanted it pronounced." In fact, he says, no one he's spoken to about the name has gotten it wrong.
So why the pronunciation guide for Agilysys? That was a board member's suggestion, he said.
We're not convinced. We look at the name Agilysys and think skin disease. Ah, the heartbreak of Agilysys.
5. Naveen There, Done That
Hey! We just thought of what Grasso could do with his $140 million! He could give it to former
CEO Naveen Jain.
Then Jain would be only $107 million in the hole, as opposed to the $247 million he's currently on the hook for.
See, earlier this week, the irrepressibly ebullient Jain was
ordered by a federal judge to pay his estranged InfoSpace $247 million. Something to do with disputed stock transactions in 1998 and 1999.
Now, if someone told us we owed somebody $247 million, we'd be angry. Or upset. No, we'd be depressed.
But not Naveen. Jain, whom we fondly remember as personifying the Internet bubble at its most giddily optimistic, doesn't get discouraged easily. Just as it was five years ago for Jain, failure doesn't exist, not even as a remote possibility. It's like spaghetti rising up off his plate to dance the Macarena. It just couldn't happen.
"We are all puzzled, because there is no logic to this ruling," says Jain through a spokesman. Puzzled, yes, but never defeated.
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