BTW, I got the link from this article. I do not know if you are aware of it but stockdetective has started putting some great articles on their web site. I am impressed with the content. If yo go to the site it gives you the links in this story.
SUSPICIOUS STOCKS
Suspicious: IVP Technology
financialweb.com
By Bob Davis
Friday, June 30, 2000 1:31:00 PM
A slick, cleverly prepared report spins a great tale, but this story seems to have a few missing pieces that weaken its plot line...
The stock of IVP Technology Corp. (OTCBB: TALL) sat quietly at $0.18 per share on February 8. For at least the previous eight months it had lain there, rarely rising over $0.20 or falling below $0.10. However, the stock was about to get "wider exposure within the investing community," as National Capital Companies would publish an extremely positive report on the stock.
This report became the basis for a number of additional highly positive reports during the next few weeks that were distributed through e-mail and Internet web sites. Almost all of these write-ups were direct quotes from this original piece.
By the end of February, TALL's price had doubled. But in early March, the stock really took off, reaching the $5.00 level before mid-month. From there, it began its inevitable slow decline back to its current level below $1.00.
The report itself is highly professional in appearance, but it lacks some important elements that are normally found in such research reports.
One of these is an analysis of the company's financial capability to carry out the strategies laid out in the report -in other words, do they have the money to get the job done?
Another is an assessment of the competitive environment in which the company will operate -who else already has competing products and customers who are buying.
Net-net, the TALL report concentrates heavily on the potential inherent in Windows CE and hand-held computers, but it does not explain how TALL will exploit these very real opportunities.
What's the "Story"?
To summarize the "story" behind TALL, the company's current product is PowerAudit, "a market-intelligence software product designed to provide a platform for remote data collection, with multiple applications" to which it has gained marketing rights from its developer, Orchestral Corporation, a private Canadian software and systems developer.
As a result of this, "The success of the Company going forward is contingent on two primary factors: (1) the marriage of the handheld and corporate IT markets, of which there is strong evidence that this has already occurred; and more specifically, (2) the acceptance of HPCs for data collection and transfer." It appears that these two assumptions are reasonably valid.
However, there are several other assumptions underlying TALL's plan, that need to be evaluated more carefully:
One assumption is that TALL will be able to dedicate capital and management expertise to PowerAudit and also to additional ventures. The report states that TALL is "dedicated to rapidly building shareholder value through the identification and acquisition of private companies (and/or their technologies) in the high technology field that meet specific investment criteria." One of these criteria is that "every potential acquisition must demonstrate strong growth potential that will be accelerated by the infusion of capital and management expertise made available by IVP."
Another assumption is that there are few competitors for PowerAudit. "Currently there are few business software applications dedicated to the Windows CE platform," and as a result "Clearly, this is an extraordinary opportunity for IVP to position PowerAudit in this industry."
What's Wrong with the "Story"?
TALL does not have the capital needed to carry out this program:
According to its initial filing with the Securities and Exchange Commission, TALL was effectively insolvent at year-end 1999, having only $281.00 in cash and no other assets that were likely to produce cash in the near future. This was offset by $233,412 in accounts payable and accrued liabilities -- bills it clearly was unable to pay.
As the result of selling stock during the first quarter, the company was able to increase its cash position to $263,214 as of the end of March. However, even this $263,214 apparently will not be enough to allow it to meet its current commitments. In its latest 10-Q Report, filed on May 22, 2000, the company states:
Orchestral has agreed orally to accept from us a payment equal to the minimum royalty for the first year of the agreement, equal to $162,500, which is due by May 30, 2000, to extend the Distribution Agreement for a one-year period. We are seeking to secure funds to make said payment but can provide no assurances that we will obtain the funds prior to the expiration of the Distribution Agreement.
On June 20, TALL issued a press release to explain that it has issued an additional 1.0 million shares of its stock to Orchestral Corporation to satisfy its obligation to pay them the $162,500, which was due by May 30. TALL also announced that it now has a three-year licensing agreement with Orchestral; however, these additional two years may be meaningless, given TALL's very weak financial position.
In its latest 10-Q Report, the company clearly stated that it lacks capital:
The company has an urgent need for equity capital and financing for working capital requirements. No agreements with lenders or investors have been reached and there is no assurance that such will take place. Because of the operating losses of the past two years and the working capital deficiency as at March 31, 2000, the company's continuance as a going concern is dependent upon its ability to obtain adequate financing and to reach profitable levels of operation. It is not possible to predict whether financing efforts will be successful or if the company will attain profitable levels of operation.
TALL does not have the necessary "management expertise":
According to its initial filing to the SEC, "The Company has 2 part time employees," neither with any experience in this industry.
PowerAudit faces overwhelming competition from established suppliers:
There are currently a number of well financed companies offering strong product lines, based on MicrosoftCE and using HPCs, that perform the same tasks, and that have already been sold to established customers. For example:
RW3 Technologies, whose current customers include Nestle, Johnson & Johnson, DelMonte, Abbott Labs, Ocean Spray and Warner Lambert.
Information Retrieval Methods, whose current clients include AT&T, Bayer, BellAtlantic, Frito-Lay, Keebler, Land O'Lakes, M&M/Mars, Miles Labs, Mattel, Motorola, Oscar Mayer, Philip Morris, Procter & Gamble and Seagrams.
Thinque Systems, whose current customers include Taco Bell, Odom Corporation, CKE Restaurants, Hasbro and Anheuser-Busch.
Sales & Marketing Automation magazine recently published an overview that covers the use of MicrosoftCE and HPC's to carry out these tasks. This article does not mention either Orchestral or IVP Technology.
The Latest Rumors
TALL announced June 29 that "Orchestral Corporation is developing a Palm OS version of the PowerAudit client software." According to the market research firm, International Data Corp., Palm currently holds a 76 percent share of the handheld-device hardware market. However, most of the previously listed vendors who currently have a presence in this market are working with the more robust MicrosoftCE operating system.
During the last week or so, the various I-net forums for TALL have seen a wave of rumors about upcoming alliances with Microsoft, Nokia and other major high-tech players.
At least one of the I-net forums includes a Reuters article from its office in Stockholm, Sweden. This article discusses pending Microsoft relationships with Ericsson, also a Swedish company. Interestingly, there is another -- and apparently more substantial -- IVP Technologies, located in Sweden and involved in "a unique technology: the smart vision sensor." This could all be a case of "mistaken identity," combined with overheated imaginations trying to find a story where there is none.
However, a June 19 Microsoft press release listed its "industry partners" who are working on Windows CE products for its Pocket PC, and gave an additional list of "Solution Providers":
Today at Pocket PC launch events in New York City and London, Microsoft Corp. and industry partners announced that companies including Jamba Juice Co., Starwood Hotels, Nabisco Inc., EMC Corp., Dresdner Bank Group, Husky Oil Ltd., Avis Europe and the United Kingdom's Royal Mail are piloting or deploying Microsoft® Windows®-powered Pocket PCs.
Neither IVP Technology nor Orchestral are included on these lists of Microsoft "partners."
And One Last Point...
Since the beginning of the year, TALL has sold a significant amount of stock at below-market prices; these sales were highly dilutive to current shareholders. For example, its latest 10-Q report states that:
On March 6, 2000, we completed an offering of 4,500,000 Shares of Common Stock at an offering price of $.15 per share common stock pursuant to Rule 504 promulgated under the Securities Act of 1933. Of the 4,500,000 shares offered, we sold, 3,000,000 were sold for cash, aggregating $450,000 and we sold 1,500,000 shares for services rendered valued at $225,000.
The balance at the beginning of the year of the common stock account is 27,490,848 shares, amounting to $9,450,606. During the year the company issued 4,850,000 shares for $675,000. The balance as March 31, 2000 is 32,340,848 shares, amounting to $10,125,607.
In other words, during the same period that individual investors were buying TALL's stock on the open market at substantially higher prices, the company increased the number of its shares outstanding by 17 percent, selling them at $0.15 per share. It would be an understatement to say that $0.15 per share is substantially less than TALL's market price during this period.
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Bob Davis is the editor and founder of The Napeague Letter, has 15 years' experience as Chief Financial Officer of two different Nasdaq companies and a Harvard MBA. He does not own stock in, has not been compensated by and has no affiliation with any of the companies he analyzes or their agents or affiliates.
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