To all,
The following information was recently sent to me. I don't know the source. I've decided to post it because I think it might be of interest to SCMS shareholders.
Byron
*********************************************************************
MPhase Technologies was struggling to get the attention of investors early
this year, so it hired a promoter to stir up discussion about the company on
the Net.
A San Diego company, IP Equity, which calls itself a "venture consulting firm," agreed to feature mPhase in an online newsletter and disseminate press releases about the company. It also promised to "use [its] best efforts to initiate and maintain discussion boards to facilitate online discussion" of mPhase, according to a document the company filed with the U.S. Securities and Exchange Commission.
IP Equity said it would target stock-chat message boards on Silicon
Investor (www.techstocks.com), Yahoo! Finance (quote.yahoo.com) and
FreeRealTime.com (www.freerealtime.com), the filing said. In exchange
for all of the promotion, mPhase agreed to pay $56,000 in cash and
50,000 shares of its stock, and to grant an option for 50,000 more shares
at $2 a share.
Shares of mPhase, based in Norwalk, Conn., surged to 7 3/8 from 3 1/16
in February, shortly after IP Equity first issued press releases and posted
messages about the company. In June, they rose again, hitting 10 amid
another flurry of press releases and online chatter -- and after an
investment banking firm made positive comments about mPhase. The
stock, which is quoted on the OTC Bulletin Board, traded at 4 3/16
Thursday afternoon.
The use of message boards to promote stocks isn't uncommon. Individual
investors use boards all of the time to talk up their favorite stocks. But the
practice of companies hiring professional promoters to chat up their
prospects on message boards isn't as common, and mPhase's detailed
SEC disclosure about its pact with IP Equity shines new light on the
practice.
Ronald A. Durando, mPhase's chief executive, said in an interview that he
hired IP Equity "to get the word out about us to the electronic investor
community, and in that they did very well." He says the two separate jumps
in his company's stock reflects growing investor appreciation of mPhase's
digital subscriber line technology. DSL technology boosts the capacity of
copper telecommunications lines. A small phone company in Georgia, run
by mPhase's biggest shareholder, has begun testing mPhase's technology.
But critics say the stock's performance merely demonstrates the power of
online hype. They point out that mPhase's regulatory filings show its DSL
product is an unproven "working prototype," and that mPhase's
accountant, Schuhalter, Coughlin & Suozzo in Raritan, N.J., says there is
"substantial doubt" that the company can "continue as a going concern."
(MPhase, in the filing, said it expects to remain a viable company.)
Two postings were made on the Silicon Investor site using the name
Internet Stock News (www.internetstocknews.com), IP Equity's online
newsletter that carried the profile of mPhase. Chris Agarwal, chief
executive officer of IP Equity, says the postings were made by IP Equity.
He says his firm's employees didn't intend to hide their identity and weren't
trying to tout mPhase's stock. "That's not something we would do," he
says.
One of the postings, in February, noted that mPhase had been featured at
the Internet Stock News site and gave the site's Web address. An Internet
Stock News article included an "investment opinion" that cited mPhase's
"unique position in the emerging market for high-speed Internet access." A
second message-board posting announced that mPhase had hired a new
executive and established a venture with InfoSpace.com, a company that
provides content and other services to Web sites.
The two postings generated a considerable response. Forty-eight
messages were posted on Silicon Investor in February after only two
messages during December and January.
Other message boards were even more active. As of early this month,
about 2,200 messages had been posted about mPhase on a message
board that was created on the Raging Bull site in February. More than
1,000 messages have been posted about mPhase on FreeRealTime.com
site. There had been only one message on the site before IP Equity was
hired by mPhase.
Mr. Agarwal says IP Equity didn't initiate the online chatter on Raging Bull
and FreeRealTime. Spokesmen for both sites decline to comment on the
matter. Message-board operators generally refuse to identify users who
make anonymous postings unless faced with a subpoena.
After the flurry in February, Internet Stock News stopped featuring
mPhase and the message-board banter fell silent. MPhase's stock traded
at around $4 for a period before perking up again in early June. Mr.
Durando attributes that rise to enthusiasm after mPhase's products
appeared at a trade show. At the same time, Internet Stock News started
issuing press releases again on the company. Mr. Agarwal says his
company didn't post on any message boards "but we have 100,000
readers and they can post whatever they want." The message-board
chatter resumed on Silicon Investor.
MPhase shares hit their $10 peak on June 10, after Investec Ernst & Co.,
a South Africa investment bank that advised mPhase on a $10 million
private placement that month, issued a report saying that mPhase shares
are worth $11. "MPhase is different from its larger rivals," said Investec
Ernst analyst John Garrity, in an interview. "It is developing its DSL
product to deliver 400 digital television channels, while other DSL
developers are focused more on speeding up Internet connections," he
said.
Mr. Garrity of Investec Ernst says the fact that the company was able to
raise $10 million to pay for this fall's trial of mPhase's DSL product in
Georgia is a sign investors remain confident in the company's future.
Critics of mPhase point out that rival DSL developers, such as Cisco
Systems and Lucent Technologies, are in much better financial shape than
mPhase, which in its most recent regulatory filing reported $2.5 million of
assets and $3.4 million of liabilities, not including the proceeds from the
$10 million private placement in June. |
