Hey guys, thought you might be interested in this BAAT article
that appeared in the local san diego business section on saturday.
uniontribune.com
Title: Powered by hype, stymied by reality
By Dean Calbreath
STAFF WRITER
February 20, 1999
TIJUANA -- Somewhere at the convergence between hype and
reality lies Joe La Stella's tiny maquiladora just south of the Otay
border crossing.
The reality: a couple dozen laborers working by hand to assemble
imitation Humvees and low-cost pickup trucks, crafted from Volkswagen
chassis and composite body shells.
The hype comes from La Stella, a tough-talking New Yorker who heads
Battery Automated Technologies, or BAT International, in Chula Vista.
"When these Rhinos get to a showroom, they're gonna be a killer!" La Stella says, referring to the Humvee knockoffs. "Everyone's gonna want 'em. We're talking to top people in Mexico City about 'em. We have tomato growers in Sinaloa who are ordering hundreds of them."
La Stella's enthusiasm extends from the Rhinos to BAT's other products: batteries from India, electric bikes from China, power generators from Mexico.
"There's never been a company like ours. Ever," he exclaims. "People devote their lives to work in a company like ours."
While La Stella's hype is enthusiastic, it has also landed him in hot water. Last year, the Securities and Exchange Commission launched an investigation to see if his buoyant pronouncements were responsible for a whiplash swing in the company's stock.
The stock rose from 7 cents to $3.25 last February before plummeting to 50 cents. It currently sells for 35 cents.
The Stock Detective, an Internet-based analysis group, relies on one word to describe BAT: "Stinky." The Kiplinger Reports used BAT as an example of why people should not invest in a penny stock. And BAT investors, many of whom got burned during the company's roller-coaster stock ride last year, are still smarting from the money they lost.
"I heard the SEC is going to open a branch office in Chula Vista just to handle all the complaints," a disgruntled investor named Don P. joked early this month on the Silicon Investor web site.
Potential and promises
In a way, it's too bad.
Even BAT's harshest critics say some of its products have potential -- but nowhere near what La Stella promises. The problem is that the hype often gets in the way. And, as last year's free fall on the stock market shows, investors can get hammered.
BAT was founded in Salt Lake City in 1992 when La Stella, a former
employee of Consolidated Edison, decided that a flurry of clean-air legislation would create a market for nonpolluting automobiles.
La Stella started by retrofitting Ford Rangers and Chevy Geos with electric motors and diesel engines.
Energy Department reports show that while the cars performed better than the government's minimal targets at the time, they lagged behind the country's two biggest electric-car makers, U.S. Electricar and Solectria, in nearly every category.
The department's lukewarm assessment did not prevent La Stella from hyping his handiwork. He promoted the cars with panache, driving to the top of Pike's Peak to show how well they performed, as a film crew from a TV station recorded the event.
Mounds of debt
While the Pike's Peak climb generated headlines, it did little to improve the company's balance sheets. With no noticeable revenues, BAT generated mounds of debt. In 1995, La Stella abruptly closed his plant, abandoning or disposing of most of his equipment and moving to Burbank.
BAT's most recent financial statements, released last June, say the company still had $81,000 in unpaid debts from the Utah operations, but La Stella says the company has since paid some of those bills.
In Burbank, La Stella continued to work on the cars, aided by a reverse merger that allowed him to start selling stock.
In essence, a reverse merger allows a privately held company to gain a stock listing by merging with a shell corporation that already has a listing. In that way, the private company can avoid many key reporting requirements needed to take a company public.
Using his shares as if they were currency, La Stella set up a series of subsidiaries through stock swaps with some of his suppliers, setting up a joint venture in India, for instance, to produce batteries for his cars.
But his heart and his hype remained with the automobiles, staging a series of test drives to gain publicity for his technology.
In one well-publicized test in June 1997, one of his cars, powered by a zinc-air battery, ran more than 1,000 miles on a single charge. "This proves that battery technology exists today to compete with gasoline cars," he enthused to reporters at the time.
No new ground
However, industry analysts say the test, involving a stripped-down Asian taxi traveling 40 mph on a smooth test track, broke no new ground. The results would be impossible to replicate on city streets in a standard automobile, they say.
Additionally, BAT's zinc-air battery would be impractical for the typical consumer.
"Zinc-air batteries can't be recharged. They have to be replaced. And they're so heavy, you need a forklift to replace them," says Dan Sperling, who heads the Institute of Transportation Studies at the University of California Davis. "Zinc-air might be suited for large fleets of vehicles, but not for individuals."
For his next major test, La Stella shifted to diesel power. In early 1998, he boasted that he was about to unveil a diesel engine that could get as much as 100 miles to the gallon. In a media blitz, La Stella hinted that this would bring a flood of business to his company, which was still deep in red ink.
"BAT is planning to license a whole array of engine technologies to major auto manufacturers immediately after the demonstration run," he announced a week before the tests began.
The promise of fresh revenue acted like a strong dose of Viagra for BAT's stock. In just two weeks, the stock -- it had always sold for mere pennies -- zoomed from just 7 cents to a brief all-time high of $3.25 per share, before settling at $2.06.
La Stella did little to calm the frenzy. He told reporters that he could soon be doing billions of dollars of sales if his technology was successful. And he enthused about BAT's prospects in the company's Internet chat room.
Lackluster reception
Then a strange thing happened.
On the eve of the much ballyhooed test, the stock began to tank, sliding to $1.75 in one trading day. La Stella blamed "short-sellers" who, he suggests, may have pumped the stock to stratospheric heights so they could make a profit on the way down. But the move seemed to anticipate a lackluster reception to the race.
In test runs around the California Speedway in Fontana on Feb. 10, La
Stella's GEO averaged 93.8 miles to the gallon at 40 mph. The test run elicited yawns from Detroit, where the Big Three automakers said it broke no new ground compared to the cars they are preparing to roll out to the market. And even La Stella described the test as a failure.
In the wake of the test run, BAT stocks plummeted. In just five days, the price dropped to just around 50 cents.
Within days, the SEC launched an investigation to see if La Stella had improperly boosted the value of his stock. Among other things, the agency subpoenaed BAT's press releases and chat-room log to see whether La Stella had misstated the company's business dealings.
No results have been announced, but La Stella has declared victory.
"The SEC went through everything I ever wrote with a fine-toothed comb," he says. "If they found I had done anything wrong, they would have shut me down a long time ago. But everything I've said about the company has been the truth."
The SEC says it cannot comment on an investigation -- or even say whether an investigation has been abandoned. But La Stella is continuing to use his Web site financial pronouncements to hype the stock.
BAT's Outlook for 1999, for instance, writes that "many people believe that there is a discrepancy between BAT's technologies, companies, progress and expansion and BAT's stock price."
Piles of records
While it's easy to find glowing statements in the company's Web site, it is hard to find up-to-date financial figures. Under pressure from the SEC last year, BAT also was forced to produce its first-ever quarterly financial report. The report showed a $323,647 loss for the first three months of 1998. No other report has been produced since.
"With operations in Mexico and India, we have piles of records that don't necessarily conform to U.S. standards," La Stella explains. "It's difficult to put them all together."
Besides, he says, he has had an ongoing dispute with his accountant.
"He keeps writing in our financial statements that it is unclear whether we are a going concern," La Stella says, referring to boilerplate language that auditing firms often use for poorly capitalized companies. "I told him that if he does
that again, he's fired."
Despite the glitches, La Stella insists that the company, which moved to San Diego last fall, still has great potential, partly thanks to the lubricants, batteries and other technology that it has developed on its quest to the perfect alternative car. Sales by those divisions are slow-going, however.
BAT's Electrobike subsidiary, for instance, was supposed to import its first shipment of electric-powered bikes from China before Christmas. Bike dealers who have seen prototypes of the vehicle say that they're better-designed and cheaper than most other electric bikes on the market.
The bikes cleared customs two weeks ago, but so far BAT has sent none to its distributors. "Unfortunately, these things take a little longer than some people would like," says Marcus Hayes, who heads the electrobike division.
'Where are they?'
In the meantime, customers are getting impatient.
"I was so excited when I first saw these bikes that I told all my customers to buy them," says Ron Oliver, a bike dealer in Palm Springs. "But now they're all asking me, 'Where are they?' "
La Stella seems to be devoting most of his time to the Rhino operation in Tijuana. Only half a dozen of them have been completed so far -- and La Stella concedes that at its fastest, the plant could only produce one vehicle per day.
Nevertheless, he's talking about selling fleets throughout the United States and Mexico. And he's opening a sister plant in Sinaloa, where he hopes to produce standard Rhinos as well as bulletproof versions for the police.
"We've had extremely important, high-level officials from Mexico City in here. They're really excited about it," he says, citing a recent visit by officials from the Ministry of Commerce and Industrial Development.
Raul del Campo, chief of the automotive department in SECOFI, the
Mexican Ministry of Commerce and Industrial Promotion, confirms that "our initial reaction to the project was good."
But he adds that so far, "we haven't heard back from them about whether they're fulfilling any of the legal requirements for manufacturing in Mexico. We don't even know if they're still in operation. They haven't filled out any of the paperwork."
La Stella says he has "hired the best guy in Mexico" to fill out SECOFI's legal forms but adds that he is not ready to file because he is still working out the specifications on his vehicles.
In the meantime, production in Tijuana -- and the hype that surrounds it -- continues. |
