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February 6, 1998
Copytele, Inc. (Nasdaq: COPY)
Feb. 5, 1998 close: $2.25
Stock of the Living Dead
by Lynn N. Duke, staff writer
One stock continues to feed off investors even
after years of undelivered promises.
There's more than one way to fool investors. Along
with the pump 'n dumps and outright scams are
zombie stocks - stocks of companies that have been
around forever, never produce a thing but refuse
to die.
CopyTele, Inc. (Nasdaq: COPY) is a classic zombie.
Founded in 1982, the company has spent more than
15 years and tens of millions of dollars
developing the next generation of
multi-communication technology, dubbed MAGICOM
2000.
What's unusual about this is, not only have they
been unable to get this technology to market in 15
years, but how they've managed to keep the
operation afloat: "To date, the Company has had no
revenues to support its operations," CopyTele's
1997 10-K reads in part. "The Company has expended
approximately $24.4 million for research and
development since its inception in 1982." For the
year ended Oct. 31, 1997, CopyTele reported no
sales and a loss of $5.8 million, or 10 cents per
share, on 57.6 million shares outstanding.
According to CopyTele, the MAGICOM
2000 can slice, dice, grate, puree
and soufflE any type of
communication: "The product offers
many features, including a dual-line
telephone, digital voice mail system,
full duplex speakerphone, fax,
simultaneous voice and electronic
handwriting, e-mail communication,
data transmission, storage and
computer interface, as well as personal copying
capabilities with the use of an optional
printer...and the ability to send to a pager using
a touch sensitive keyboard screen.....MAGICOM(R)
2000 also has other telecommunications
capabilities, such as speed dialing, re-dial,
flash, electronic directory, date and time."
But there are reports that other companies, some
with much deeper pockets than CopyTele, toyed with
this technology, deemed it commercially
unacceptable and abandoned it more than a decade
ago. Still, CopyTele has managed to make a living
off investors' dreams well after the big boys went
on to other things. The company has increased the
stock's market presence at a steady pace,
including four stock splits since 1985 that
increased the number of shares outstanding by
15-fold.
PAPER CHASE
According to CopyTele's 1996 10-K, it has 31
employees. Included in that group are the
company's officers, most of whom have been working
without pay for at least a decade. But that
doesn't mean they're not making money. For the
past two years, CopyTele's stock market fortunes
have been forecast by its press releases.
Seemingly, on cue, after the company announces a
deal - a distribution deal in Russia, a service
contract in the Philippines - the stock spikes.
Coincidentally, this is also when several of the
company's top players - remember the guys who are
working without salaries - exercise some of their
stock options, and make hefty profits. For
example, during the second quarter of 1996,
Chairman Denis Krusos bought 237,660 shares of
CopyTele stock for $1.5 million, and sold 241,660
shares for $3 million, according to documents
filed with the U.S. Securities and Exchange
Commission. Profit: $1.5 million.
Denis Krusos, CopyTele's chairman and
CEO, did not return phone calls. But
that's not surprising. Krusos and
other CopyTele executives have a long
history of secrecy and avoiding the
press. In a 1986 Fortune Magazine
article, Krusos was described by
colleagues as a "charismatic,
self-absorbed promoter with an evasive manner and
mystical turn of mind." One former associate said
Krusos sometimes got his business ideas, or
visions, while traveling in the Greek mountains.
One such vision was that Krusos and his partner,
Frank DiSanto, would be remembered as the late
20th century's Hewlett and Packard.
CopyTele's latest revelation, one that tweaked its
stock by about 25 percent in mid-December, was
signing a letter of intent with a Chinese company,
Shanghai Instrumentation & Electronics Holding
Group, SIEC. This is the latest in a string of
deals CopyTele has made with an alphabet soup of
inter-related Chinese firms: A 55 percent stake in
a joint venture, SCE, with Shanghai Electronic
Components Corp., SECC. Still a third company,
Shanghai International Trade and Investment
Developing Corp, SIT, also has a stake in SCE.
Since SECC is owned by the Chinese government, it
is not clear how these relationships will
translate into capitalist terms of doing business.
After its brief surge in December, CopyTele's
stock has dropped steadily before plunging more
than 30 percent to $2.15 soon after its 1997 10-K
was issued Jan. 29.
Nor is it even certain that the deals are as they
appear. In the past 10 years, CopyTele has made a
series of statements claiming joint ventures or
production partnerships with several companies -
Xerox, Alcatel and Sumitomo Corp. - that later
turned out to be smoke. In fact, several years ago
the company abandoned its previous product - a
high-resolution television - with little
explanation and began touting the wonders of
MAGICOM 2000. This was after it had already
abandoned its original product, a high resolution
copying machine, in the 1980s.
So while Krusos wanders the Olympus Mountains in
search of CopyTele's next divine invention,
perhaps investors should look to that chain's
highest peak for a little divine intervention.
-The Stock Detective
Send the StockDetective some Feedback
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