[NOTE: Please do forgive any typos. I'm doing an all-nighter, and I'm too tired after writing this to proof-read it. Let's just hope I got it right. (LOL)]
By Thomas Kupper
STAFF WRITER
January 30, 2000
>>>Richard Wood knows that e.Digital Corp. is a tiny company, with just $3.2 million in assets as of September, and that it has lost $35 million over the past six years.
He's read the San Diego-based company's filings to the Securities and Exchange Commission, where e.Digital's own accountants say there is "substantial doubt" the company will even survive.<<<
Because of improved business conditions and improved market performance, a Nasdaq filing is days away for eDigital. OK, now read through SEC filings of any company IPOing onto Nasdaq. Do you see the same "substantial doubt" type language articulated in the respective risk assessments of these companies? Indeed, risk assessment is where a company, by law, self-critiques itself and alerts investors to possible worst case scenarios? EDIG is no different.
>>>He doesn't care.<<<
In context, he cares.
>>>Since reading about e.Digital on the Raging Bull Internet chat room and buying shares a year ago, Wood has watched the stock go straight upward, from $1 to $5 to $10, finally closing as high as $22.75 a share last week. At its closing price of $13.781/8 a share Friday, the company was worth almost $1.6 billion, more than at least a dozen Fortune 500 companies.<<<
Since the time Mr. Wood first bought, how many basher messages did he have to digest? And did not every time the price rose it subsequently slipped? And is not eDigital a provider of Internet-related products? What's different about investors investing prospectively into eDigital than say other Internet-related stocks, most of which have experienced similar gains?
>>>The company, formerly Norris Communications, adopted its new name last year. It started playing up a new "Micro-OS" technology for digital music players, which allow consumers to play music they download from the Internet.<<<
The company virtually hybenated for several years in a research and development phase. Norris, like Philips, Sanyo and many others got clobbered by Sony in the dictation/transcription field. To attempt to continue to survive on these products would have been suicidal for the company. So it took a risk and concentrated on R&D efforts for products it thought could compete successfully in the future.
And since when does a serious company conducting serious business in a seriously competitive sector suddenly decide to "play up" its technology. Is Mr. Kupper inferring to his readership that EDIG reps showed up wearing clown suits when communicating with Liquid Audio and Lucent representatives?
>>>It touted partnerships with big players, including Lucent and Intel, and threw parties in Las Vegas during computer conferences to woo investors.<<<
"Touted?" Name one company in America, or anywhere, which doesn't have a sense of pride if able to conduct business with the likes of a Lucent or an Intel. "Touting?" Go to the eDigital's website and look under news. Note how the company let IBM and Lucent make the major announcements. A typical penny stock would have been blowing a horn so loud the market makers would be wearing ear plugs. Quite the contrary, the company was very humble with respect to such announcements. Mr. Kupper, prove evidence of "touting."
Threw parties to woo investors? Mr. Kupper please prove this to be true. I suspect it was the larger corporations throwing and footing the bill for the parties. And, again, the point was made: Was it businesspeople or investors? Do you really know, Mr. Kupper?
>>>The point has been made.<<<
You mean you or the top brass of the San Diego Union-Tribune have an agenda, a point to be made, in writing the way you did, Mr. Kupper?
>>>The stock, which had once traded for as little as 51/4 cents a share, started to move. Fast. Investors talked it up in Internet chat rooms. They told all their friends to buy.<<<
I've been in many, many investor chat rooms, Mr. Kupper, where it's been talked up and friends told to buy. Guess what? It rarely happens that way, but not for effort of trying. (LOL)
>>>Never mind that e.Digital employs fewer than two dozen people and that it only recently unveiled the first prototype of its Micro-OS device. Or that founder Elwood "Woody" Norris has a long history with companies whose stocks soared, then fell just as quickly.<<<
Of the two dozen employees, how many are engineers or technical staff?
>>>In one of the more amazing episodes of the stunning bull market, small investors like Wood bid up the shares of e.Digital a staggering 35,000 percent in one year, from 7 cents a share in January 1999 to its high point last week.<<<
Ever watch CNBC? Ever hear of Commerce One? Redhat? Nothing unusual about a stock getting noticed and its share price performing.
>>>It's the kind of phenomenon that worries many market observers, who see Americans betting an increasing amount of their savings on unproven high-tech companies and wonder what will happen if these companies go bust -- and take the market down with them.<<<
Yes, the market can go bust. That wouldn't be all that new, would it? But have you ever known it not to recover? Ever? Sure it can get uncomfortable. But that's why buy and hold is one of the more secure ways of investing in this market. And why'd EDIG's price go up? Because everyone wanted to buy and hold.
>>>Investors like Wood, who monitors chat rooms and trades from his home in Visalia, have made a ton of money. He bought in for 80 cents a share, and he has become convinced that e.Digital will be a high-tech powerhouse, more than justifying the current share price.<<<
Does he have good reason? I think so. So do a lot of other good folk.
>>>"This Micro-OS, I'm telling you, is bigger than Microsoft," he said. "It's bigger than Intel. It's bigger than Texas Instruments -- combined."<<<
Well, what do you expect to read in an investor chat room, a bunch of folks sitting 'round condemning their own investments? Over enthusiasm is a factor, but can't this be tempered in a field of facts? I assure you, every time a statement like that gets made there is a response urging caution and balance. And there's even a bevy of bashers available to plain out condemn such remarks.
>>> The stock has become near legendary on Internet chat sites, where investors tout other penny stocks as having the potential to become "the next EDIG." On Raging Bull, where Wood discovered it, e.Digital has become the most discussed of all stocks, with some 180,000 messages posted.<<<
Only because investors are always looking for the next Microsoft, the next Intel, the next Qualcom, and, yes, even, given recent successes, "the next EDIG." What's wrong with that? "It don't pay if you don't play."
>>>All this happened despite the fact that e.Digital trades only on the over-the-counter bulletin board, which means the large institutional investors who drive the movement of most stocks won't touch it. The company was bounced off the Nasdaq market in 1997, though it now plans to try to get back on.<<<
You know, Mr. Kupper, this was a very bad way of putting it. Especially since I, personally, in response to your request for information, supplied you with a much more thorough and accurate description of what happened with respect to Norris and Nasdaq. You didn't use any of the information I provided. How come? Because you intended your article to have a negative tilt. And it does!
Did you know other OTC stocks have traded higher than EDIG? Did you know they too were prospective stocks, like eDigital?
And didn't I inform you that it's easier for an investor to invest in a stock with a long history of being on Nasdaq prior to delisting? And didn't I inform you that the delisting was a direct result of Nasdaq making its listing requirements more stringent and that it was unfortunate that Norris strategically moved into a non-revenues earning research and development phase simultaneous to Nasdaq changes?
So, to a lot of us, we're not merely investing in a typical OTC stock such as one which began trading from scratch on the OTC, or one which is a converted shell company. Norris was a legitimate company functioning in a legitimate market with legitimate products before its delisting.
>>>People like Wood bought in and then recommended the stock to friends and neighbors. They posted glowing reports online about how much money they were making, attracting new investors who pushed the stock ever higher. They seized on every bit of positive news from the company as evidence that
big things were ahead.<<<
For the most part, these investors weren't making loads of money. eDigital's rise has been only recent. And, again, I assure you--you left this out of your article!--there's been more than a sufficient quantity of bashers, unbelievers, doing their utmost to bring the share price downward, not upward. They didn't "seize every bit of positive news." It's a simple fact: The news was positive. It existed. It was there for an investor to make a considered decision.
>>>"It's like wildfire," said Gerald Dillon, who bought e.Digital and then urged customers of his Spring Valley hardware business to do the same. "Everybody I've talked to, I've recommended it to."<<<
You know not every stock tip is a bad one.
>>>Worth it?<<<
You bet it was and I continue to bet it will be.
>>>Maybe Micro-OS will become the standard for Internet music players, as e.Digital hopes it will. But if it flops, investors may get hurt badly.<<<
Mr. Kupper, please, oh, please go down to the local convenient 40 percent mark-up stores and stop those folks from buying them scratch tickets. Get religious about it, why don't you. (LOL)
>>>It won't be people like Wood or Dillon, who bought in early and will almost certainly recoup the low prices they paid for the stock -- and then some. Or the insiders who stand to make millions off the company's sudden notoriety.
Rather, the losers will be those who bought in at the top, when the online discussion was at its most frenzied. Indeed, those who bought at the high point Monday are currently out 44 percent of their money.<<<
What about the folks who bought Disney high, or Compaq or Dell or Waste Management, for that matter? And the AOL investors are now in a bit of a pickle, aren't they? I'd venture to say most OTC investors--except for some rookies, but they get screwed on the bigger boards as well, don't they?--know the level of risk involved, just like the scratch ticket folk.
>>>Tom Rietz, a business professor at the University of Iowa who has studied the impact of stock chat rooms, said it's very possible for heavy online chatter to move the price of a stock, especially the stock of an otherwise little-known
company such as e.Digital.
Even if there is no illegal or unethical behavior, Rietz said, information that is merely highly optimistic on a stock board can lead people to buy stocks they otherwise wouldn't -- and to pay more.
"There are some people that get taken in by it," he said, "and to move the price of a stock, that's what you need."<<<
Hey, a good thing is a good thing and word of mouth will spread it. How do you think NetZero got all those people signed up to free ISP? Yup, it was word of mouth! Yes, it's powerful stuff. It's also what makes good products work and eventually the branding marketing takes over. You've really gotta consider that some folk are happy buying pet rocks.
And when the Mets are winning, word gets out!
Just out of curiosity, do you think possibly the same thing is happening in the stock market, i.e., word of mouth, with respect to fiber-optics? Or is it better when analyst mouthpieces come on the boobtube and tell us: OK, now it's time to buy finance stocks, or retail stocks...whatever!
Well, guess what Mr. Kupper. As much as fiber-optics are hot and word is spreading the same is true with micro portable wireless devices. And this word of mouth spreading came not just from EDIG, but the recent CES convention in Los Vegas. That convention did far more to skyrocket EDIG's share price than anything I or someone ever wrote about on Raging Bull. Please read this paragraph again, Mr. Kupper!
>>>There are real questions as to whether e.Digital is worth $2.7 billion, which was where the market valued the company at the stock's high point Monday. For one thing, a long list of larger companies, with far bigger resources than
e.Digital, are also trying to establish themselves at the center of the downloadable music business.<<<
But do they have the same product eDigital is offering up? Let me put it to you this way. How could a little mouse roar so loudly in the face of IBM, Intel, Lucent, Texas Instruments and Lanier and even get noticed? Have you ever known OEMs to look for shortcuts to they can bring their products to market in an expeditious manner? Once you realize this, then you're beginning to realize there's a bit or roar in the lil' EDIG mouse.
>>> Then there are the company's less-than-stellar finances. It made money for a few years in the early '90s, when it was called Norris Communications. But then it collapsed in 1995 and 1996, as a dictation recorder for doctors that it
had developed failed to take hold in the marketplace.<<<
Like I informed you, Mr. Kupper. Sony blew everyone away and captured very large marketshare. Norris was a sitting duck. It had to reengineer its business plan, its technology, its executive management. It had no choice. And I submit that Mr. Fred Falk is a far more capable CEO than was the techno-genius, Woody Norris.
>>>The company brought in only $1.1 million in revenue in its last fiscal year, through March 1998. It hasn't turned a profit since 1992. Outside auditor Ernst & Young reported in June 1999 that there was "substantial doubt" about the company's ability to continue.<<<
Mr. Kupper, this is your real sin. (Sorry for the strong lanague--LOL) It's the statement above which should cause you to ask forgiveness, or, at a minimum, enter a business school for an education about business reporting and accounting practices.
I dare ya! Call any certified public accountant and ask them about their boilerplate language used in every instance of audited reports. It's protection against liability phraseology. The SEC reports require this of companies. Again, read through the risk assessment sections of the new companies now IPOing onto Nasdaq. You see the same kind of language! And yet you use what should be construed as responsible language, to make EDIG appear worse than it is, especially in the context you used. Yes, what you did here was horrible!
>>>Beyond that, founder Norris -- who has resigned from e.Digital but remains a consultant -- has a history with companies that built up tremendous expectations but never delivered. After Norris Communications flopped, he shifted his energies to a second company, Patriot Scientific, that had acquired a new kind of computer chip.<<<
Well, I think it's an enhanced Java related chip. And Java's still relatively new, is it not? Mr. Kupper when did Mirosoft begin operations and how long did it take 'em to get real good?
>>>A buzz about that chip drove Patriot's stock from 50 cents a share to more than $4 in the first few months of 1996. But the chip didn't catch on, and by the end of the year the stock was back at $1.<<<
Indeed, you failed to mention the current share price which, interestingly, happens to be at that glorious four dollar mark once again. Why are you leaving everyone short-shrifted by saying it traded a buck at year end. Check your price quote folks. Mr. Kupper left out some recent developments.
>>>Then came American Technology, which still shares office space with e.Digital. That company's stock tripled in value in 1998, when Norris was working on a technology known as HyperSonic Sound, but by the end of the year that stock was back where it started.<<<
Well, I yield here. I don't know a lot about American Technology. I haven't examined it. But the fact of the matter is we're only talking about three companies, the three of which have largely been involved in research and development. What's the matter, Mr. Kupper--you don't think a small fish can make something a big fish might like? And does it have to happen overnight?
The way you write, you make it seem like Mr. Norris has been putting together "rip off the investor" type companies over the past two decades. You might as well go so far as to accuse Mr. Norris of hiring that guy in the commercial who calls Mrs. Goober to see if she might be intersted in some stocks.
Mr. Kupper, you're way out of whack. You're out of date, out of context and I wished your paper had run out of ink before releasing your story. 'Cause all you've done is cozy up the short-print folks who are the ones, more than not, who do real harm to innocent investors. Don't believe me? Go on the stock chat boards and read some bashing language and do some truth measurements.
>>>Red-hot.com<<<
Cute. Your best line in the feature.
>>>Still, Dillon thinks e.Digital is for real.<<<
So does IBM, Intel, Lucent, Texas Instruments, Lanier, Liquid Audio, RioPort, Maycom (maker of I-Jam digital MP3 player). Also, e.Digital is also an inaugural member of the newly-formed SD Association announced during a Matsushita/Toshiba/SanDisk press conference at the Consumer
Electronics Show (CES) 2000. Mr. Kupper, do you think EDIG is for real?
But don't believe me, here, below are press releases which verify eDigital's reality.
edig.com
>>>Last fall he [Dillon] went to Comdex, the big computer show in Las Vegas, to check it out for himself. It was an important event for the company, the first opportunity to show off a prototype of a Micro-OS player for a large audience.
The company is touting the player as an advance over current digital players, in part because it allows the use of different systems for translating audio and video from the Internet.<<<
Mr. Kupper, would you kindly refrain from repeating the word "touting." But it good to note you're finally beginning to allude a bit to eDigital technology.
>>>That could be an important selling point, because the recording industry is uncertain which system will become standard. If e.Digital's player allows the use of multiple systems, the company could license the technology to various
manufacturers and collect royalties of as much as $10 on each player.>>>
Not bad, huh? Mr. Kupper, would you rather have eDigital ivnestors buying scratch tickets and discussing all of the different scratch games on the stock discussion threads?
>>>At the Comdex show, the company brought in musicians and then played back a recording of their performance. Dillon thought it sounded great, and he says he's hanging on to his stock until it hits $200 or $300.
"It's a no-lose situation, I think," he said. "Granted, the bubble could break, but I don't know how."<<<
Let's get another perspective of the CES Conference. It's a good one, quite comprehensive.
ragingbull.com
ragingbull.com
>>>Robert Putname, [sic] e.Digital senior vice president, shrugged when asked if the company is worth $2 billion or $3 billion. But he pointed out that in the era of
red-hot dot-com stocks, there are plenty of unprofitable companies with multibillion-dollar stock values.>>>
Internet-related stocks have consistently outperformed value stocks over the past five years. And have done so convincingly. Mr. Putnam is correct, whether he shrugged his shoulders or not.
>>>Putnam said e.Digital is certainly in a much stronger position than it was in the days when the stock traded for 5 cents a share. For one thing, it has $3 million in orders for its first product, a high-end voice recorder for doctors
that it is making for office supplier Lanier Worldwide.<<<
Mr. Kupper, if you knew about the three million in new orders, why didn't you include this very important figure at the beginning of your story? Huh? Or didn't it fit nicely into yours, or your editors,' slant of the story?
>>>But the real money would be in the Micro-OS technology, which Putnam said could eventually go into other devices in addition to music players. Some analysts think Americans could buy 30 million or more downloadable music players in the next few years, and if e.Digital gets a big piece of that market, it could become a very profitable company.<<<
Hey, I feel like Mr. Putnam getting this quote included is like an equivalent of us being thrown a fish.
>>>"If we are successful in making Micro-OS a standard out there, that puts us on the map for years to come," Putnam said.<<<
It's true.
>>>Word-of-mouth
Like Dillon, many of the company's shareholders have become evangelists for e.Digital. They hear about it from people they've never met, buy the stock and then get as many of their friends as possible to buy it.<<<
Mr. Kupper, please read other stock discussion forums. There's nothing unuual about EDIG, except there's a strong interest among investors to invest in stocks which will play a role in the future and thus become profitable investments.
>>>Ron Gallihugh, who lives near Washington, D.C., read about e.Digital on an Internet chat board, got some shares for himself and then persuaded about 30 friends to buy. He says one of them was enthusiastic enough to buy 122,000 shares -- worth almost $3 million at the high point last week.<<<
You know, folks made that kind of money investing in Microsoft and AOL, etc.
>>>In April he sent an e-mail to Larry Jenkins in New Hampshire, someone he'd corresponded with about stocks in the past. They plan on getting together at this year's e.Digital annual meeting to celebrate all the money they've made.<<<
I've been to a dinner in New York City which was attended by approximately 30 eDigital investors. Real people. Incidentally, such gatherings are happening all over the country. I recommend you buy a share or two and attend one. It just might change your perspective.
>>>"I talk with Ron just about every day and, remarkably, have never met him," Jenkins said. "There's hardly a week that goes by when I don't thank him." Then there's Peter Baylies. He invests from his home in Massachusetts, where
he stays home to take care of his kids, and he heard about e.Digital from his broker.<<<
Whoah! You mean brokers are recommending EDIG? Something wrong here. I thought one was only supposed to buy it from hearing about it on Raging Bull. Or so the tilt and slant of the article seems.
>>>At that point the stock was already up to about $2, so he wasn't able to buy the huge number of shares that earlier investors who bought at 10 cents or 50 cents a share got. But with 15,000 shares, he's still made big profits.
Enough, in fact, to prompt him to produce his own Web site,
www.edigpage.com, to let others in on the story. He's counted 16,000 visitors so far and lately has been getting about 500 a day.<<<
So it's not just RagingBull.
>>>Even after the stock sagged this week, reducing his paper worth by more than $200,000, Baylies said his enthusiasm didn't dim. He's convinced that e.Digital is on to something big, and nothing will change his view.
"In two or three months it will be back at its high," Baylies said. "All you need is one announcement from Intel that it has EDIG inside."<<<
Indeed, the story ended on a positive note.
Folks, forgive me if I've been too harsh on Mr. Kupper and the San Diego Union-Tribune. There are some positive elements, but not many. Plus a whole lot got left out.
And we still are waiting for some big announcements. When this happens, the picture will change substantially, and much of the cynicism will disappear. Perhaps if Mr. Kupper fully understood the battles we've been through to get to the point where we're at--what with severe bashing and all--he might have written differently.
But one thing is clear. You cannot blame eDigital's rising share price on Raging Bull. The rise is due to something much different than chitter-chatter. It has to do with the quality of changes within the company, the quality of the products it now produces and the technology it now licenses. It has to do with the quality of eDigital's view of the future for itself as a company and for us as shareholders.
In closing, I'm most pleased to be an eDigital shareholder and expect I'll go through the remainder of my lifetime always holding shares. |
