TheTruthseeker announces victory Jig. Never a hypster or a pumper be, truth is what we all should live by. Thank you all for the many emails and P.M.'s I have received for telling the truth!! I only wish I had made money shorting this one but I never take positions in stocks I write about. If I did I would not be unbias.
TheTruthseeker.com Initiates Coverage on Ariel Corporation,( NASDAQ:
Released
TheTruthseeker.com Initiates Coverage on Ariel Corporation,( NASDAQ:
ADSP ), with an immediate SELL RECOMMENDATION.
In light of the recent news announcements, made by the Company , we felt it
was necessary to dig and try to find the truth under the PR.
Here is what we have determined to be the facts.
Ariel's RS4200 PCI Interface card is nothing more than a T1/PRI Interface
card for the PC. Basically this card is not what it seems and has major
drawbacks. The card is merely the T1 Interface with 96 modems. It is not
one card but 2. The card requires the Computer to be the router. This is
not acceptable to the ISP because the computer is an extremely poor router
because of speed. The PC can't process IP packets and route them as quickly
as a router. The fact that they were able to achieve certification for
EUROPEAN, CANADIAN, and US digital telco systems is not a major feat. They
can read the specs and follow them. Every router has certification for
these telecommunication networks. ASCEND, CISCO, LIVINGSTON, BAY, all have
these certs. The difference is that these terminal servers are also routers
which give them a major advantage in reliability and performance. The major
problem here is that the RS4200 cards are nothing more than an interface
that depends on the services built into Windows NT Server or LINUX.
CNBC, erroneously interpreted remote access to mean a wireless solution,
"Nothing could be further from the truth, this is using a standard T1/PRI
line to provide 56K and ISDN access to the Internet. This technology is a
saturated market with far superior means to provide this service. The
future is in broad band technology not a PC based terminal server which is
what the RS4200 is.", according to Carmen Grasso, President of Computer
Integration Technologies, Inc. a small sized ISP provider trading as CIT
Network Services located in Thorofare, New Jersey.
The RS4200 product was originally announced on 10/18. This introduction had
no affect on ADSPs stock price at the time. However, the recycling of this
PressRelease on 11/24 resulted in a frenzy in the stock market .What was the
difference the second time around? In the 11/24 release, Ariel announced
that they had received "Worldwide approvals For Connection to International
Phone Networks".. A very convoluted way of saying that their system works on
phone lines. All similar products from 3Com et al. are also routinely
certified every day and every week but are never mentioned in a Press
Release, according to Mr. Grasso.
Additionally, we have discovered that Ariel has no manufacturing facility
and is simply repackaging a product made by Mapletree,
mapletree.com,
which can be OEM'd By anyone in the marketplace, even The Truthseeker
himself can sell these PC cards, which he intends to do on
bigamazon.com for
a savings of 50% off of the price charged by Ariel, making the Truthseeker
the new low price leader in this microscopic segment of the market.
The final point and most important piece of information is that Ariel is
consumed in red-ink, is almost out of cash based on their most recently filed
10-Q. and based on the current burn rate and cash available , they have
approximately 6-9 months of working capital left and have seen a tremendous
decline in revenues.
Couple all these factors together and we place a 12 month price target of 1
to 2 dollars.
TheTruthseeker.com is an Interactive Online Magazine and E-mail
service site. TheTruthseeker.com issues Truthseeker Reports on a
weekly basis. Some of the past reports by The Truthseeker include
USATalks.com (NASDAQ: USAT) Citron (NASDAQ: CTRN), NET COMMAND
TECH INC (NASDAQ: NCDR), 2TheMart.com (NASDAQ:TMRT), ( NASDAQ:
PBYP), ( NASDAQ: PLSIA ) and various others . The Truthseeker Reports are
sent to our members and often are forwarded on to other the Regulatory
bodies. Past reports in the archives are available for free to members of
the public.
Thetruthseeker.com agents, associates, and or employees may or may not have
positions consistent with the above position.
To view the most current reports please visit our site below or for
additional info, please visit us at: thetruthseeker.com
CONTACT: TheTruthseeker.com, Newton
Floyd Schneider, 201/226-7386
Fax: 201/843-5997
The Truthseeker
11/29/99 TheTruthseeker.com reaffirms our SELL RECOMMENDATION on Ariel Corporation
Released
Issue date of report 11/29/99
TheTruthseeker.com reaffirms our SELL RECOMMENDATION on Ariel Corporation, (NASDAQ:ADSP) , and places an intermediate-term price target of 6 dollars, with highly volatile strong downward price pressure in the immediate/near term timeframe.
Investing in ADSP, at these levels, is much akin to stepping into a Quicksand trap. Long-term investors need to be aware of the risks before they become "STUCKHOLDERS" sinking within the trap. The actions of ADSP stock over the last two trading days, makes this Investment of the HIGHEST RISK to any serious investors and current stockholders. ADSP will rapidly join the ranks of other 1-3 day "wonders"
This report is extensively detailed to explain the "wonder" but cutting to the bottomline:
TheTruthSeeker maintains our HIGHEST WARNING to Investors, and maintains our STRONGEST SELL RECOMMENDATION on Ariel Corporation, (NASDAQ:ADSP)
The huge interest in Ariel on Friday was related to the perception that any company in the area of wireless Internet connections will benefit from the possibility of AT&T doing an initial public offering of its wireless unit. Mondays reality for Daytraders is that Ariel isn't in that business. It provides "remote access" products -- but not wireless equipment
In light of recent attention drawn to the company by its press releases, as well as frantic trading in this stock last week, it seems timely to review and summarize our findings with respect to this company's valuation and prospects. Details for each point are provided below:
* The company's product is NOT wireless technology, rather obsolescing 56K dial-up modems
* A case of mistaken identity may have misled some investors
* The company's product is NOT new, just an incremental upgrade
* Long history of deal announcements, but no corresponding revenue
* The product serves a shrinking niche market
* ISP's perceive many disadvantages to the company's product compared to competition
* The company's latest product was introduced over 6 weeks ago -- with no market reaction
* The company's "certification" announcement is not materially significant
* The company's products are OEM'd from another manufacturer, not made by the company
* "Linux compatibility" is not material to the company's prospects for selling its product
* The company is in deteriorating financial condition
* Recent day-trading and market manipulation excesses are not an indicator of value
* The company has no material news pending with regard to recent stock price movement
* The company product IS NOT wireless technology Ariel?s product is a two-card kit that installs in the PCI slots of a Windows-NT or Linux PC to support up to 96 dial-up modem sessions from a T1line connection. Ariel's PR calls their product a "remote access solution", but their website describes their products as "modem pool cards". Ariel Corporation
Definitely a less sizzling-sounding description of the same product. This technology is obsolescing rapidly -- most demand for technology connecting computers to networks is in broadband (ADSL, cable modems, satellite) or wireless, not dialup 56K modems or ISDN.
A few news organizations, including CNBC, incorrectly reported Ariel's product to be related to wireless communications, which appeared to stimulate momentum buying. Two months ago, Ariel announced the Aviation Communications Division of AT&T's Wireless Services had selected its product for one of its projects, but this was for its existing product only; there is nothing in the release associating Ariel with any wireless technology.
* Mistaken identity?
In fact, we believe some hasty investors may have mistaken Ariel's business sector for that of Aeriel Communications (NASDAQ:AERL) an unrelated company, who is truly a wireless services provider.
* Ariel's product is not new
Ariel's recently announced RS2400 (which is still under development according to company statements) supports up to 96 dial-up or ISDN modem connections or ports. Its prior products, the RS2000 and RS1000, support 30 or 60 ports. (see Ariel product page link, above) In fact, the descriptions of the company's technology in a May 1998 Press Release sound identical to its new product: "Ariel Corp. offers the industry's highest density and most cost-effective remote access data solutions for open systems platforms ... PC-based modem pools which support 56-kbps, v.34+ and ISDN remote access sessions, connect to T1, E1, ISDN and POTS lines."
This hardly makes the new product revolutionary; it is merely an incremental upgrade of existing products. Note that sales of these products over the last year have been paltry, less than $1 million per month, and declining year over year. It is unlikely that the increase from a 60 to a 96 port card kit will drastically reverse this pattern.
* Long history of deal announcements, but the revenue never came
Ariel's 30 port product has been available since late 1997.
In late 1997, the company announced all the following deals based on 30 and 60 port products: Modem pools-9/29/97
In early 1998, Dow Jones reported the company was riding high, on the promise of "significant contracts from major computer manufacturers."
Raging Bull ADSP Post #1647
(Note that in its most recent 10-Q, the company attributes shrinking revenues to the termination of an OEM agreement with Compaq.) "Analyst Anthony Stoss," (best known for his prediction that the resignations of all the officers at Source Media was great news -- harbingers of its long promised deal with TV Guide. Instead TV Guide sued, and Source Media is nearly bankrupt), was actively touting the company's impending sales boom. (Note that Stoss's firm brought Ariel public.) These "analysts" predicted Ariel would bury Ascend's more expensive product. Now they claim it will blow away Cisco's, Lucent's and Nortel's routers on price.
Instead, of course, Ascend was purchased by Lucent for $20 billion in stock, while Ariel's stock eroded from a high of 11 to 2 by the end of 1988 as its sales never materialized and earnings disappointments mounted.
Its 1998 annual revenue was only $17.4 million, and declined 30% to appx $1million per month so far in 1999. Now its two years later, the industry has shifted to broadband technologies (cable modem and ADSL) and Ariel's only product is essentially the same 1997 product with 96 ports. How can anyone believe sales are about to skyrocket?
* Ariel's product serves a shrinking niche market. In a recent interview, Ariel's director of marketing estimates an impressive sounding number of new ports expected to come online this year. But he also admitted that Ariel's products are marketed to "smaller ISP's," for whom a lower price point per port may be appealing. Note that the ISP industry is quickly consolidating, with smaller ISP's numbers dwindling rapidly as they are being absorbed into larger and more competitive regional or national ISP's. Smaller ISP's comprise only a very small share of the estimated new ports. For larger ISP's, Ariel's product is not scaleable, and therefore not even considered. Under these circumstances, it is absurd for Ariel to suggest that it will compete with Cisco, Nortel, Lucent and others.
* ISP's doubt Ariel's product can compete with mainstream routers. Owners of ISP's we interviewed stated deep skepticism about PC-based router solutions due to maintenance costs, security and performance. A PC platform is a more complex and higher cost foundation to maintain compared to a standalone router, and tougher to protect from hackers. They believed the marginally lower per-port cost of Ariel's solution would likely be dwarfed by higher maintenance costs. Concerns about performance were also expressed, since many functions are left to the operating system. Ariel's claimed $100 per port cost advantage overstates the saving by leaving out the cost of the PC and its higher maintenance, infrastructure and programming costs.
* The news which propelled Ariel's stock last week is not new News of Ariel's RS2400 product is not new; in fact, the company announced the product, its price and capacity in a press release dated October 18, 1999. As far back as April 27, 1999 it announced its intention to partner with Red Hat for the purpose of hosting its PCI card solution on LINUX computers. During the six month period prior to its press release of Wednesday, November 24, ADSP traded in the range of 2 - 5 dollars per share, and the product news obviously had no material effect on the share price during that entire period. Where are the revenues?
* Certification is not newsworthy
The press release of November 24 is "manufactured news," containing no new information, except that the previously announced product has "won certification" for connecting to digital telephone networks. Note that this certification is entirely routine for telephony products; in fact, no switching product that connects to a telephone network is saleable at all without it. All major companies who produce telephony-based technology must obtain independent certification of their products, and they do so daily, without generating press releases for each certification. Imagine a mainstream computer maker announcing their product won "UL" approval and could now be safely plugged into household electric outlets. This type of PR is inexpensive advertising, but ludicrous as news.
* LINUX compatibility is not material
While LINUX software firms are getting a lot of attention from investors, LINUX support will not drive sales of Ariel's products. The competitor in this case is not another software platform, but standalone routers from Cisco, Nortel, 3Com, Lucent, and others, which have established the standard in the market. All but the most marginal ISP's base hardware decisions on maintainability and reliability, because those costs will quickly dwarf the cost of committing capital. If ISP's continue to resist adopting PC-based routers, as they have done to date, it does not matter what operating system the PC-based router runs.
* Ariel's product is OEM'd from another manufacturer
Ariel has no capacity to manufacture any of its products and is simply repackaging a product made by Mapletree Networks Inc., which can be OEM'd by anyone!
Mapletree's website gives a product description identical in many details to Ariel's. The product is clearly being offered to other companies on an OEM basis. Ariel claims only one patent-pending for its software architecture; in fact, Mapletree claims the patent-pending on the "Uniporte" design promoted in both companies' PR. If there were enough demand in Ariel's market, larger, better-funded companies could easily compete for market share. With Ariel making sales of barely $1M per month, they won't even bother. Should the market for this product grow substantially, there is no significant barrier to entry for other firms wishing to compete. 2100 Series UniPorte PCI Adapter Card
* Ariel is cash poor and in worsening financial condition
The final and most significant point is that Ariel is drowning in red-ink and is almost out of cash based, on their most recently filed 10-Q.
On November 15, it reported sharply declining sales for the most recent 9-month period compared with last year. International sales claimed to be viable outlet for its current product, produced less than $1M in the last 9 months. It reported spending a total of only $4,230,325 on Research and Development, which also declined (23%) from the prior year. (This is a minuscule sum compared to competitors like Lucent and Cisco with which it compares itself.) Cash and cash equivalents have fallen by 2/3 since the beginning of the current year, from approximately $18 million to approximately $6 million, and it is currently burning cash at the rate of $1 million per month.
Ariel has had to renegotiate its debt twice this year to avoid and/or resolve violations of debt covenants.
Ariel's 10-Q states "There is no assurance that the Company will generate sufficient cash flow from operations to liquidate liabilities as they come due. In the event that the Company is unable to liquidate its liabilities, it may delay or eliminate some expenditures and planned operations may be scaled back. Accordingly the Company expects that it will need additional funds to meet obligations through the next twelve months and will seek to raise such amounts through a variety of options including expected future cash from operations, borrowings, proceeds from equity or debt financing and scaling back operations.
Additional funding may not be available when needed or on terms acceptable to the Company, which could have a material adverse effect on our business, financial condition and results of operations."
* Day-trading excesses are not to be misunderstood as valuation of the company
Day-traders noticing the company's impressive-sounding PR, and spurred by the erroneous reporting of CNBC mentioned above, drove the price of ADSP from approximately 4 dollars to 10 on Wednesday, the day before Thanksgiving. Then, in the confines of post-market and pre-market trading, it gapped to over 20, setting up a powerful short squeeze which was executed by professional market makers during the first hour of the short post-Thanksgiving trading day Friday, driving the price to 55, after which it collapsed to the low 30's before closing at 37.
It is interesting to note that these short pre-holiday / pre-weekend trading sessions are notorious for market manipulations, because many of the pro traders are not at their desks. Exactly one year ago, the shares of Books-a-Million (NASDAQ: BAMM) were driven from 4 to 48 dollars over the day before and day after Thanksgiving, on news that the company had "revamped its website for improved usability." We believe BAMM's chart indicates a pattern strikingly similar to Ariel Corp. By mid December, BAMM's stock had fallen 10, causing huge losses for all investors who bought into the rapid run-up. BAMM has since traded in single digits for most of the year, except for occasional unsustainable spikes. The short squeeze effected in BAMM was hauntingly similar to last week's action in ASPD, and we believe ADSP's share price prospects going forward are similar too.
* The company has no material news pending with regard to recent stock price activity.
In light of the dramatic run-up of ASPD's stock price, NASDAQ required the company to state whether there was material information that was connected to the stock movement. The company affirmed that there is no pending announcement to explain the stock activity.
Conclusion:
This is a tiny, financially weak company with a single outdated product, which it buys and OEM's, rather than owns outright, and a long history of failing to sell it, trying to repackage it using whatever hot buzzwords attract attention. It serves a small niche market, but it is improbable that it will ever compete with standalone routers manufactured by companies thousands of times its size, with thousands of times its R&D budget. Instead it will soon run out of cash.
Its stock ran merely on a combination of erroneous media coverage, a possible case of mistaken identity, daytrader mania around a holiday, and marketmaker manipulation, but has little or no underlying value or the market opportunity for enough growth to make it profitable. For a projection of the outcome for the stock price, consult the chart of BAMM for the Thanksgiving period last year, or any other pump and dump spike since then.
TheTruthseeker.com is an Interactive Online Magazine and E-mail service site.
TheTruthseeker.com issues Truthseeker Reports on a weekly basis. Some of the past reports by The Truthseeker include USATalks.com (NASDAQ: USAT) Citron (NASDAQ: CTRN), NET COMMAND TECH INC (NASDAQ: NCDR), 2TheMart.com (NASDAQ:TMRT), ( NASDAQ:PBYP), ( NASDAQ: PLSIA ) and various others . The Truthseeker Reports are sent to our members and often are forwarded on to other the Regulatory bodies. Past reports in the archives are available for free to members of the public.
Thetruthseeker.com agents, associates, and or employees may or may not have Positions consistent with the above position.
To view the most current report, or for additional info, please visit us at:
thetruthseeker.com
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