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Since The Raging Bull profiled Diversinet (DVNTF) back on March 16,
1998, the company's stock has been on fire. Shares of the security technology
development company have risen 52% to a recent $4 15/32. Diversinet shares
have been as high as $5 3/8 within the past week, and were less than a $1 back
in early January. A wild-ride to say the least.
Driving the action in the stock has been a wild assortment of official and
"non-official" information floating around popular Internet chat rooms. Most of the
chat room discussion has focused on Diversinet's opportunities in the digital
certificate authentication market. In addition, Diversinet has benefited from
general investor enthusiasm over companies providing security solutions for the
networked world.
What is particularly interesting about the `Net discussions, however, is the
prevalence of negative accusations against Diversinet and individuals associated
with the firm. While we usually disregard these types of claims made by posters
on Internet sites as the targeted ramblings of short-sellers, in the case of
Diversinet there are very few shares held short. At the end of March, the NASD
indicated that 46,235 DVNTF were short, versus a daily average volume of
150,000. That is insignificant.
So on Monday, in search of some answers, we called Diversinet World
Headquarters in Ontario, Canada. "Bear" in mind, several weeks ago, we tried to
contact the Chief Executive Officer, Mr. Moustafa, hoping that he could shed
some light on the issues driving Diversinet. Unfortunately, he never returned our
call as he promised. So we decided to call again.still no Mr. Moustafa, but the
company did provide us with the Investors' Relations spokesperson. He greeted
us with a jovial "hello," and a sly inquiry of whether the next Ragingbull piece
about the company would have a "positive or negative" spin.
The IR told us that Mr. Moustafa still couldn't talk to us because he is
MIA, as he is reportedly out of the country. We asked if we could speak to
anyone else at the firm. He told us the CFO was not yet doing interviews
because he was not up to speed since he had just joined the company. As for
the Investors' Relations spokesperson, he told us that he "could not go on
record" for the company. The only thing we learned all afternoon was that the
Investor Relations spokesperson follows the DVNTF thread at RagingBull "very
closely." Hmmm.
While prominent faces of technology bellwethers (Netscape, Microsoft, to
name a few) have joined the Diversinet ride, a little "due dilligence" Ragingbull
style has left us with some concerns and unanswered questions about
Diversinet's recent transition from working on copiers to becoming an
encryption/e-commerce powerhouse. The three following topics are our primary
concerns:
Litigation-
(From: 1997 Diversinet Annual)
The Company has been served with a statement of complaint, as a co-defendant,
wherein the plaintiff is seeking rescission of an international offering private
placement transaction it entered into with the Company in August 1995, in which
it purchased 850,000 common shares from the Company for U.S. $3,700,000.
The plaintiff is also seeking punitive damages in the amount of $25,000,000 plus
interest and costs.
Management is of the opinion that the claim is without merit and has filed a
motion to dismiss this claim. As a result, no provision for loss has been made in
these financial statements.
… What is the status of this lawsuit? Is DVNTF currently involved with any other
legal entanglements anywhere in the world?
$10,000,000 in Technology-
Of equal concern is the company's $10,000,000 "purchased technology" in
Section 7 of the Notes to Consolidated Financial Statements in the Company's
1997 Annual Report.
What kind of technology is this? From whom was this bought? We
expected the Annual Report to be more detailed.
Jack Banks-
Finally, we would like to know what role Mr. Jack Banks plays in running
Diversinet. According to filings, Mr. Banks owns a substantial number of DVNTF
shares. We are interested in this information because he allegedly has a poor
history of associating with dead-end companies, i.e., Instant Publisher, Gaming
Lottery, etc.
For further information on Diversinet, please see RagingBull.com's 3/16/98
Market Meditations and 4/1/98 Inside Scoop articles. Also discuss the company
in our DVNTF message board.
Disclosure: No staff member or associate of The Raging Bull, or employee of
Atlas Internet Ventures, Inc., has any financial stake whatsoever in Diversinet,
Inc.
The Raging BullTM aims to provide a forum for investment ideas. Our articles and
columns should not be construed as investment advice, nor does their appearance imply
an endorsement by Atlas Internet Ventures, Inc. of any specific security or trading
strategy. An investor's best course of action must be based on individual
circumstances. This material is for personal use only. |
