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| A self-described peddler who has made a living the past decade importing pots. pans and other cookware. Joe Compta may be among the telecom industry's most unlikely CEOs.
Compta is chief executive of Bradon Technologies Ltd.. which provides customers with video-conferencing services. Though some people in the media business contend his Toronto company's products are cutting edge and novel. the story of how the 44-year-old Compta founded Bradon may be even more compelling.
Acting on a tip from a friend. Compta five years ago took a closer look at a struggling Nasdaq-listed company called Telum International Ltd. that he figured might represent a way to make a quick buck. Telum's main product was video-conferencing software that allowed companies to hold real-time meetings over a secure Internet site.
At the time. Telum's shares had slipped to the five-cent range ' down from more than $3 in mid-1999 ' and Compta figured that if the shares climbed to even 10 cents.000 investment.
Six months after he bought Telum shares. the company's stock hadn't budged. Worse. Telum's executives were desperate for cash and issued new shares in an anxious bid to remain solvent. Compta. who said he was still enamoured of Telum's technology.000 more into the company.
It wasn't long before Compta said he received an unexpected phone call from Howard Weingrow. a reclusive billionaire who also owned Telum shares. The president of Medis Technologies. a company that makes liquid fuel cells. Weingrew invited Compta to New York to discuss Telum's future.
"He basically sat there and asked what were my intentions for the company." Compta said. "It was pretty wild. I'm a pretty simple guy. I'm a peddler. and here I was sitting in a coffee shop with a billionaire who's asking me for my thoughts about the company."
The number of online conference users. according to IDC Inc.. a Massachusetts technology research company. Compta said he and Weingrow figured that while Telum's technology had potential. the company didn't. Telum was subsequently delisted because its share price had fallen so drastically. So the pair started a new company ' Bradon Technologies ' and poached the St. Petersburg. Russia-based software development team that had created the computer programs behind Telum's software.
Like rivals WebEx Communications and Microsoft Corp.'s Live Meeting software. Bradon's offerings allow customers to schedule meetings with a click of a button. and send any attendees an email containing a calendar listing and a link to the meeting website.
But what sets Bradon apart. is its ability to merge voice. video and other data. For instance. other products allow users to watch streaming video. participants can interact using a standard headset connected to a USB port. That also makes archiving more seamless.
"If we have a client in Germany or anywhere else in the world. we can show them a TV commercial spot or a print ad or anything with this technology." said Bill Sharpe of Toronto ad agency Sharpe Blackmore Euro RSCG. adding that Bradon's fee for the service is about one-third of what its rivals charge.
The ad agency has also agreed to pay an undisclosed annual fee for the right to resell Bradon's technology to its stable of clients such as auto maker Volvo.
Licensing deals aside. Compta and Bradon's other investors may be poised for a far bigger payday. The company has an agreement with New York-based Exertus Partners LLC to potentially find a buyer for Bradon. Glenn Cameron. a principal with Exertus. said Bradon might have a market value of as much as $88 million.
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| Penny Stock IPOs2006-06-11Financial Management; TampaBy Bradley. Bradford D We examine underpricing. and gross spreads for penny stock IPOs over the 1990-1998 period. We find that penny stock IPOs have higher initial returns than ordinary IPOs. but significantly worse long-run underperformance. We also find that penny stock IPOs have longer lockup periods and larger gross spreads. To explore the effect of potential market manipulation. we examine IPOs led by a group of underwriters that were the subject of SEC enforcement actions and/or other penalties. Penny stock issues led by these banks are particularly underpriced and underperform ordinary IPOs led by other underwriters. Standard research on initial public offerings (IPOs) focuses primarily on "ordinary" IPOs and routinely uses filters to eliminate various types of offerings. Examples of groups that are almost always purged include real estate investment trusts. closed-end investment funds. and American depositary receipts. Other groups that are often dropped include spin-offs. reverse leveraged buyouts. mutual-to-stock conversions. and stocks with offer prices below some minimum value. Most of these excluded subgroups have been examined independently; however. there appears to be very little research on IPOs with low offer prices. or so- called "penny stock" IPOs. This lack of research on low-priced IPOs is surprising. given the prominent fraud and manipulation that existed in the 1980s that eventually led to the adoption of the Penny Stock Reform Act of 1990 (PSRA). We explore the similarities and differences between penny stock IPOs and ordinary IPOs in relation to the major findings of IPO research. In keeping with both legal standards and common research practice. we define a penny stock IPO as an IPO that: 1) is not issued by an investment advisor (e.g.. not a closed-end fund). and 3) is not listed on a national exchange or market. Thus. we classify IPOs listed on the NYSE. or Nasdaq National Market as ordinary IPOs regardless of the offer price. Conversely. we classify IPOs listed on other markets (e.g.. the Nasdaq SmallCap Market) as penny stock IPOs if the offering is not issued by an investment advisor and the offer price is $5 or less. Given their scandal-plagued past. penny stock IPOs appear to be particularly well suited for examining issues involving market manipulation and informational asymmetries. The firms involved are generally small and often face limited disclosure and reporting requirements. and they are usually underwritten by low prestige investment banks. In addition. penny stock IPOs are much less likely to be backed by venture capital (VC). and there is likely to be little or no institutional buying or analysis of these issues. Based on the 1990-1998 post-PSRA period. we find that penny stock issues show significantly higher initial returns than do ordinary IPOs. To explore the effect of potential market manipulation. we segregate IPOs based on whether the lead underwriter is among a group of 39 banks that were the subject of SEC enforcement actions and/or other penalties. Penny stock issues led by one of these 39 banks have significantly higher underpricing than do ordinary issues led by banks not in this group. We next examine long-run returns. We analyze three- and five- year market-adjusted buyand-hold returns and find that penny stock IPOs have lower market-adjusted returns than do ordinary IPOs. We reach the same conclusion when we examine the frequency of delistings due to poor performance. as well as monthly abnormal performance using the Fama and French (1993) time-series approach. We show that long-run performance for penny stock IPOs underwritten by the 39 sanctioned banks is significantly worse than that of ordinary IPOs with nonsanctioned underwriters and conclude that the pattern of larger initial returns and subsequent lower long-run returns is consistent with price manipulation in the aftermarket for penny stocks brought to the market by these sanctioned underwriters. In other analyses. we attempt to isolate whether the pattern of higher initial returns and poorer long-run performance for penny stock IPOs is driven by their low offer price or by the market or exchange on which the IPO is initially listed. Our results suggest that initial returns are primarily related to offer price. but that both factors are related to long-run performance. We show that penny stock IPOs typically have much longer stated lockup periods than do ordinary IPOs. These longer periods are consistent with the view that lockup restrictions are a commitment mechanism to help alleviate moral hazard problems. However. we note that the lead underwriter can selectively allow inside shareholders of locked-up shares to sell whenever they wish. longer stated lockup periods might be a device to mislead investors rather than to alleviate moral hazard problems.
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The stock of Pegasus Wireless (Nasdaq: PGWC). a maker of wireless networking devices.000 last quarter. Add that to the "me-too" nature of products and the rollercoaster track record of President Jasper Knabb. and this is a stock that Fools definitely
Valuation with wingsThe company's price to sales ratio is 12. which is sky-high compared to the communications industry average of 5.8. However. the best way to understand the valuation of Pegasus Wireless is to do a sum-of-the-parts valuation. The company recently acquired three companies: AMAX Information Technology for $8 million. CNET Technology for $1 million. and SKI Technologies for $1.3 million. Before these acquisitions. Pegasus wireless was unprofitable. the company had sales of $3.2 million.
Considering that Pegasus was unprofitable before acquisitions. a multiple of four times sales seems generous. That would imply a value of $12.8 million for the legacy business. Summing that with the $10.3 million paid for acquisitions puts the value of the entire business at approximately $23 million. To be generous. you could double or triple that estimate. and the actual value of the business is not in the same order of magnitude as the market capitalization.
To put this in perspective. consider the company's valuation relative to one of its main competitors. Netgear (Nasdaq: NTGR). Over the past 12 months. Netgear booked revenues of $468 million and earnings of $36 million. The market cap of Netgear is $738 million. which isn't much more than Pegasus Wireless' market cap of $664 million. Yet. Pegasus booked revenues of $58 million and earnings of only $623.000. If Pegasus Wireless earned $2.4 million this year. which would require 300% year-over-year growth. it'll earn around $1.5 million this year. which would put the P/E at over 400.
This town ain't big enoughAnother problem is that Pegasus is operating in a very competitive market. which is already crowded with larger. better-financed players like Linksys (owned by Cisco Systems (Nasdaq: CSCO)). Netgear and Belkin. These larger players have recognizable brands. existing sales relationships. and widespread distribution. In this competitive environment. it will be very difficult for Pegasus to generate significant sales growth. The only way for it to overcome disadvantages in brand. and distribution would be to launch a truly innovative product -- something that would break all the rules in the industry.
Unfortunately. the company does not have that kind of blockbuster product. The flagship product. is an add-on device designed to wirelessly connect computers. and plasma/LCD screens on one network. Businesses can use the device to connect to a large LCD or projector in order to give presentations. and consumers can use the device to wirelessly access multimedia stored on a computer and watch it on a television screen. Overall. this is not a bad idea. but also not a new idea. For instance. D-Link already offers a wireless media player that can connect to data on a computer's hard disk. The D-Link device incorporates a DVD player for movies and a memory card reader for pictures. all for less than a complete WiJET setup. And Epson and InFocus have begun releasing projectors with a wireless card embedded. Pegasus Wireless makes an array of other wireless devices. but nothing that appears to be a category-killer.
Don't eat before going on this ridePegasus Wireless President Knabb has been involved with two companies. BIFS Technologies and Wireless Frontier. that have seen huge spikes in share value -- followed by huge losses.
Knabb was an executive at BIFS Technologies. In March of 2000. BIFS Technologies traded at $0.03 per share. Six months later in August. Knabb was the CEO of Wireless Frontier. Between January and March of 2004. the stock had plunged back to $0.13 -- an 86% loss from March. While there is no evidence of wrongdoing by Knabb at BIFS Technologies or Wireless Frontier. the pattern is disturbing.
It also should be pointed out that Knabb has never received a salary from Pegasus Wireless. and he has made significant purchases of company stock. On June 7th. I would applaud management for jumping in with shareholders. I think his stock purchases may give false signals to the market.
No pros is a conAnother concern here is the lack of institutional ownership. After a search of Capital IQ. I wasn't able to find any indication of institutions that own this stock. I don't always agree with strategies employed by the professionals who invest institutional money. but the pros are usually more diligent in researching companies and monitoring their accounting than amateur investors. Not having any pros on board could be the sign of a problem.
In the most recent 10-K filed by Pegasus Wireless. the most significant owners are management and directors. The only other owner listed is Vision 2000 Ventures. which owns 12.7% of the stock as of the last filing. I wasn't able to find any information on Vision 2000 Ventures. and it's probably not an outside investor (considering that its address is the same as the Pegasus Wireless headquarters).
Back to square oneThe bottom line is that Pegasus has been able to post enormous gains in its market capitalization. but upon closer examination. the operations of the business can't support the valuation implied by the current share price. In addition. Mr. Knabb has headed up a couple of companies whose stock rocketed up and crashed down in short periods of time. Most importantly. the company can't compete in a market consisting of larger. established players that have more capital and greater brand recognition. I believe it's only a matter of time until this company returns to penny stock status.
He welcomes your feedback. He does not have a position in any of the stocks mentioned in this article. The Motley Fool has a strict disclosure policy.
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| StockLemon's Influence on small cap companies is undeniable. For those investors unfamiliar with StockLemon. it is a site comprised of investigators who feature companies that might be engaged in securities fraud. stock manipulation or issue distribute questionable information via press releases to the investing public. While their commentary and analysis can be controversial. especially since the principals of Stocklemon might hold a position in the companies that are profiled. their reporting has unquestionably had affects on tiny Over the Counter and PinkSheet companies as there is little information available to investors on those publically traded companies. Just last week. Smart-tek Solutions. Inc. (OTCBB: STTK) announced that it filed a complaint against the owners and operators of StockLemon. alleging causes of action for defamation. intentional interference with contractual relations and economic advantage. and violation of state securities laws. On April 4. shares of Smart-tek began a freefall from about $2.00 to Friday's close of $.25. coincidentally following a Stock Lemon report issued on Smart-tek on April 4. Though you might not agree with what StockLemon reports. do not let your stock investment become a lemon because of StockLemon.
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| Monster shares fell nearly 6 percent Tuesday to $36.40. after falling 8 percent Monday. The shares are off almost 40 percent from a four-year high of $59.99 on May 11.
JMP Securities analyst William S. Morrison said in a research note Tuesday the subpoena and an internal investigation carry the risks of financial restatements. shareholder lawsuits and their attendant legal costs. and Securities and Exchange Commission fines.
Morrison said his research indicates fees related to financial restatements are likely to be in a range of $1 million to $2 million. and financial impact from restatements in a range of $2 million to $4 million.
Morrison lowered his 2006 earnings estimate by a penny per share to $1.32 to reflect the risk of legal and accounting fees. Analysts polled by Thomson Financial forecast earnings of $1.29 per share for 2006.
Morrison lowered his price target to $60 from $68 and reduced his rating to "Market Outperform" from "Strong Buy" because of the risks of the investigation.
The company issued 11 batches of stock options from 1997 to 2002. Morrison said. Six times the options were timed when the stock was trading "near a bottom." and five times the options were timed during what appeared to be normal trading times. Morrison said.
Monster said Monday the U.S. attorney for the Southern District of New York subpoenaed the company over the timing of stock options grants. Earlier in the day. the company had announced an internal investigation into options grants after the Wall Street Journal published a story that options to a company executive between 1997 and 2001 carried strike prices of the lowest closing price of 1997 and the lowest closing price of several quarters.
The timing of grants at Monster and about 40 other companies raises questions about whether the strike prices for options were backdated. or set retroactively to a day when the stock closed at a lower price. Options with low strike prices are more valuable because they're less expensive to exercise.
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