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CustomTracks' Difficult Path Takes Toll on Investors: Spotlight
Dallas, Sept. 14 (Bloomberg) -- Investors betting on David Cook's latest plan are about to find out if months of speculating have been worth it.
Cook is founder of the Blockbuster Entertainment Corp. video rental chain and a force behind Amtech Corp., one of the first makers of electronic tags for collecting tolls. Cook sold Amtech's businesses and its name in December, raising $84 million in cash.
He renamed the Dallas company CustomTracks Corp. and today will give shareholders their first glimpse of its ZixMail program for making electronic messages secure.
Cook, the chairman and chief executive, says CustomTracks' design is cheaper and simpler than the myriad of encryption programs already available and can be used with any form of e-mail. It also gives each user a ``digital signature' that can be used for credit-card purchases. ``It's going to be as pervasive as the Internet browser,' said Dallas investor Joe Barton, whose White Rock Capital owns 9.4 percent of CustomTracks. ``They're going to be to the Internet what the drivers license is today.'
Those kinds of statements helped push CustomTracks shares to a closing high of 76 in May from 7 17/32 three months earlier. The comments are unusual coming from White Rock, which bet against Cook at Amtech by selling the stock short in hopes it would fall.
CustomTracks shares rose 1 1/2 to 33 3/4 in late morning trading, giving it a market value of about $515 million.
Internet Chat
Much of the enthusiasm about CustomTracks has been fueled by chatter on the Internet and by a solitary analyst who owns the stock. CustomTracks, like many Internet startups, has no earnings, no revenue and technology few investors understand.
It's delayed the release of ZixMail by a month because of problems with two relays that are needed to set up the system for users of America Online Inc. and Microsoft Corp.'s Hotmail, two of the most popular e-mail systems on the Internet.
The rocky start and the surge in CustomTracks' shares has attracted short sellers, who profit when stocks fall. More than 2.4 million of the 12.6 million publicly available shares were sold short in August, up from 104,420 shares in January.
Unique Code
For his part, Cook, 47, has been silent on CustomTracks' plan until recently.
In the first detailed demonstration for the press, Cook said ZixMail is designed to give every user a unique encrypted code to ``sign' credit-card receipts, authorize trades for brokerage firms, or handle sensitive documents. The signature also could become a uniform login for Internet sites. ``We expect there to be tens of millions of digital signatures out there,' Cook said.
Users would be able to send secure messages to people they've never contacted before. Most encryption methods require lengthy downloads and require two people to exchange ``keys' before secure messages can be exchanged.
Law firms, for example, could use the program to send draft legal documents to other offices, rather than using overnight mail or couriers. What's more, ZixMail will cost users $1 a month. ``If you have one Fed Ex package a year, you've paid for it,' Cook said.
Cook also is working with merchants to offer a payment system he calls ZixCharge, which will use the same technology to allow secure payments. The payments would include ``signed' credit card slips with time and date stamps for verification. ``We have basically consumerized encryption,' CustomTracks President Douglas Kramp said. ``If you can use e-mail, you can use this.'
Software, Toll Tags and Videotape
Cook got his start selling software to the oil industry in the late 1970s. In the early 1980s, he founded Blockbuster and put $2.2 million in Amtech, which wanted to apply technology used for tracking cattle to automobiles.
He sold his interest in Blockbuster to AutoNation Inc. founder Wayne Huizenga in 1987 and retired from Amtech when it went public in 1990. In early 1996, Amtech, saddled with money- losing products and in the midst of a management struggle, asked Cook to intervene.
Cook sold off all of Amtech's existing business, including its name, and found himself at the end of last year with a shell company and $84 million in cash. He changed the name to CustomTracks, thinking he would develop a system for building custom compact discs.
Unable to get enough exclusive music rights to make the venture viable, Cook changed direction and began focusing on secure messaging.
CustomTracks employs about 150 people and has spent about $30 million to set up a data center powered by two Sun Microsystems Inc. Starfire Enterprise servers.
The company plans to rename itself ZixIt Corp. if shareholders approve the change today.
David Weinstein, an analyst with Joseph Charles & Associates in Boca Raton, Florida, whose predictions that the stock could top $200 a share spawned its big rise in May, said he is sticking with his forecast. ``The next step is show me the customers, and that's about to happen,' said Weinstein, who said he owns CustomTracks shares but declined to reveal the size of his holdings. |
