Found the article written on IIonline by a guy named Lowensteiner...he killed the stock and got most of the facts wrong...I think this is the second article he wrote, where he tries to make up for the bashing he gave the first time....its still not that good....practically slander the first time from what I heard, and not well researched...this time he did a bit better....I smell a lawsuit brewing...no doubt a friend of the shorts...
iionline.com
iionline.com
Analyst: Adam Lowensteiner
(6/14/99)
Harking back to the halcyon
days of Iomega (NYSE: IOM -
Quotes, News, Boards) euphoria,
Ashton Technology (NASDAQ: ASTN
- Quotes, News, Boards) has
become hot copy for the message
board warriors.
And like Iomega, the company
has its legions of detractors
and table pounders. The
company's shares soared from a
measly $1.06 last year to $18
in late May, but has since been
steadily dropping back down.
Like this
Article?
In fact the stock took a good
beating on Friday, dropping
$1.81, or 16%, to $9.44.
At this juncture it's time to
wonder if the stock will be
revisiting its penny stock
status, or is just catching its
breath before the next leg up.
The wild and wacky price chart
reflects the fact that bulls
and bears could both make a
convincing case for and against
the stock. On the one hand,
there have been scores of 144
filings, as lots of initial
investors of Ashton were given
restricted stock at $1.50 a
share and are now looking to
exit. Each passing day brings
tens of thousands of new shares
into the market from those
early investors who apparently
express little conviction for
further upside.
On the other hand, Ashton's got
a decent management team and a
decent business plan. Ashton
essentially has three
subsidiaries: Universal Trading
Technologies Corporation
(UTTC), Gomez Advisors, and The
Electronic Market Center (eMC).
UTTC runs an on-line network
that allows for secure and
anonymous trading through
various public and private
communications systems. The
system is also well equipped to
handle after-hours trading. CEO
Fred Rittereiser says UTTC's
first product should launch
around July 1st, and thinks the
unit could transact $20 million
daily within six months, which
could translate into $200,000 a
day for Ashton.
Rittereiser expects to launch
the same service for Canada and
China. He also might be looking
to register this as an
exchange, with eventual plans
of taking the exchange public.
Rittereiser will need about $50
million to launch this venture,
most of which he plans to get
from institutions.
70% owned Gomez Advisors is a
provider of consumer-based
electronic commerce research,
tools and analysis. It has a
decent presence on the web, at
gomez.com, known for its
ratings of on-line brokerages,
and could go public one day as
well. For now, Gomez recently
raised $5.5 million in a
private placement, which should
keep it afloat. Rittereiser
declined to release revenue for
the unit, but it is likely
insubstantial. Even if Gomez is
brought public, it might not
make a significant contribution
to investors, as recent
Internet-related IPOs have
flooded the public arena,
making one no different from
the next.
Ashton's third subsidiary, The
Electronic Market Center (eMC)
was formed to provide banks,
financial institutions, and
brokerages with on-line
brokerage capabilities.
Rittereiser's dream is to put a
brokerage into every bank with
eMC. It is in its initial
stages, but Rittereiser hopes
eMC will also get the mid-size
brokerages back in the game by
having the capabilities to
compete with other on-line
brokers, like Merrill Lynch
(NYSE: MER - Quotes, News,
Boards) and Charles Schwab
(NYSE: SCH - Quotes, News,
Boards). This product won't
likely be ready until later
next year.
To his credit, CEO Rittereiser
has not taken a salary in his
tenure at Ashton. 'I'll take
[salary] when we return
profits,' he says. He is the
company's largest shareholder
with over 2.2 million shares.
And he brings a wealth of
experience to the company,
having developed and introduced
electronic securities trading
systems while serving as
President of Instinet -- a
leading alternative trading
network.
So far so good
The story sounds good. Trouble
is, Ashton has been burning
through cash like a scalding
knife through butter. It has
already burned through $15
million in cash since the
spring of 1996. And at $9.44 a
share, Ashton has a market cap
of $142 million, with $3.5
million in total assets, and
$1.1 million in sales in the
first nine months of fiscal
1999.
And to bring its plans to
fruition, plenty more dough
will be required. $30 million
alone will be needed to build
out the eMC unit according to
Rittereiser. Throw in the
projected $50 million more for
UTTC, plus an untold sum to
develop Gomez, and you're
looking at some serious capital
raising.
Not that Ashton execs are
averse to doling out yet more
shares. Ashton had already
issued four rounds of preferred
stock, most of which has been
converted into common stock,
according to Rittereiser. 'All
but $6 million has been
converted,' he said. But with
stock price in freefall, Ashton
had better lock up more
financing soon. The lower the
price sinks, the higher the new
share count will be.
The company's balance sheet
will need a cash injection
fairly soon, and the could
become vulnerable to a bout of
'death-spiral financing.' This
is when potential investors
smell weakness and hammer the
stock price even lower through
devious means to get even more
shares for their money. Not a
pleasant thought for current
investors.
As noted, though, Rittereiser
doesn't appear troubled by ever
expanding share counts. The
company issued nearly 5 million
options in the last quarter to
employees and vendors. At the
end of the last quarter,
Ashton's income statement noted
that there were almost 11
million shares outstanding.
Combining the options and the
conversion of preferred stock,
Ashton now has 22 million
shares outstanding according to
Rittereiser.
Investors should also be
concerned that options granted
at $1.92 a share will certainly
be exercised, assuming the
stock retains its present
status, lending more supply to
the already weakening share
price.
Bottom Line:
Ashton's business plan is
certainly intriguing. But until
the company positions its
balance sheet to handle its
expected costly development,
the shares could come under yet
more pressure.
Tell us what you think in ASTN's Board
Like this
Article?
I.I. Online's profiles are condensed reports on companies that may be
attractive investment opportunities. You should thoroughly investigate any
company presented here before making any investment decisions. |
