Ha ha: "IF YOU NEED MORE evidence that what's driving this
overheated bull market is how much "buzz" a company
can generate, consider the case of Bitwise Designs
(BTWS) ? one of the top performing stocks this year.
Shares of the document-imaging company, which closed
today at $18.50, are up an astounding 1,668% since
January. What makes those gains even more impressive
is that just seven months ago, the small upstate New
York company's shares were trading below a dollar. The
stock was in danger of being delisted from the Nasdaq
Small-Cap Market, and the cash-starved company
defaulted last summer on a $1.2 million bank loan. A
group of investors came to Bitwise's rescue, providing the
company with $2 million in private financing to keep the
operation a float.
Given all that, Bitwise doesn't sound like the kind of
stock investors would flock to. But that's before you
consider the company's major public relations offensive to
tout its new product ? software that authenticates and
time-stamps electronic documents like e-mails, faxes
and computer files. For the past three months, Bitwise has issued a flurry of press releases trumpeting
its AuthentiDate.com system, which lets users time-stamp documents over the Web. The New York
public relations firm doing Bitwise's bidding ? Neale-May & Partners ? has sent around video news
releases on AuthentiDate.com to some 800 television newsrooms.
The final piece of the puzzle in Bitwise's unlikely resurrection was a Dec. 9 press release, noting that
AuthentiDate.com system is compatible with ? you guessed it ? the Linux computer operating
system. The mere mention of Linux sent Bitwise's stock shooting into the stratosphere. The stock
peaked on Dec. 10, when it hit an intraday high of $22.75. But unlike other small companies that have
tried to hitch themselves to the Linux bandwagon, Bitwise's stock has remained strong and is proving to
be more than some one-day wonder.
But is the Bitwise run-up really built on something more lasting than public relations hype? Well, there's
no doubt that AuthentiDate.com is a promising technology. Just this week, the Chicago Board of
Education announced that it intends to incorporate the technology into its record-keeping system.
Bitwise has applied for a patent on AuthentiDate.com, but company officials acknowledge that
competitors are probably already at work developing rival technologies.
The problem is, Bitwise is no fledgling start-up. The company has been around for 14 years, yet since
going public in 1992 it hasn't posted a profit. Meanwhile, revenues have declined from $53 million in 1997
to $17 million this year, after the company sold-off two low-performing divisions. Over that three-year
stretch, Bitwise has rung-up $10.8 million in losses. The company's stock usually trades in a range
between $2 to $5 a share, but it often trades for as low as $1.
Bitwise also has run into trouble peddling its previous bread-and-butter product ? an electronic imaging
system called DocStar, which scans paper documents onto disks and computer hard drives. A recent
Securities & Exchange Commission filing from the company says the "demand and market acceptance
for the DocStar imaging system remains subject to a high level of uncertainty."
James Hartke, the lone analyst who follows the company, is convinced the new technology will result in
a turnaround in Bitwise profitability. Hartke, director of research at the investment firm First Providence
Financial Group, says he sees the company's stock soaring to $50. "They've done a great job getting
publicity," says Hartke, who notes he's got nothing to gain in touting Bitwise because he owns no stock.
But his firm, First Providence, is one of the more active market makers in Bitwise's stock. Any increase
in trading volume in the shares means more money for Hartke's employer. Market makers earn their fees
on the spread, or difference, between the bid and ask price for a Nasdaq stock.
While John Botti, the company's 35-year-old chief executive and president, seems a bit stunned by the
stock's rapid rise, he thinks the gains are sustainable. "I think we're all pretty excited about it...but it's
been climbing for a while now." Botti says now that the company's authentication system is accessible
over the Web, the number of potential users is limitless. He says the investors who have recently found
his company are real believers in its new product.
But a more practical reason investors may be holding onto Bitwise's stock is the speculation that Botti
and other company officials are looking to sell to the highest bidder. (Corporate insiders at Bitwise own
21% of the outstanding stock.) Botti won't comment on these rumors, which make for a popular
discussion item on the various Internet message boards devoted to Bitwise's stock. However, one thing
is certain: Bitwise is now on the mergers & acquistion radar screen for the first time in its 14-year
history."
smartmoney.com |
