To: Anaxagoras who wrote (477 ) 4/25/1999 10:27:00 AM From: Anaxagoras Read Replies (1) | Respond to
Here are some of the reasons why I, a rinky-dink small time investor who often makes mistakes, am short this stock. (1) Large 144's filed on the day of the Apollo announcement 4/15/99. Geeee, what a coincidence. If that's not a crock....(2) The back door origin of the company by reverse merger into a shell. In this way it instantly is different in important respects from first rate Net stocks; pedigree tells you a lot.(3) The desperate financial condition of their pitiful balance sheet dated 12/31/98 (the most recent data which we publicly have) that required a recapitalization recently because they claimed they were having a problem getting financing.(4) Going concern warnings by their auditors (who have been changed) not only for the shell, but for the most recent year after privately held Rare was acquired (which, BTW, was purchased for $46.2 M, only $10M was cash).(5) A toxic convertible financing (in this case cleverly contrived) that is done only by companies in the most desperate of financial conditions- it even allows short selling by the single investor, an "investor" which has been "helpful" with other pathetic companies I know like SYQT (bankrupt), RACE and others.(6) Then comes a hype announcement by the company that they have gotten some sweet heart deal with Apollo for financing that folks swallow hook, line, and sinker even though there are no details released. Now, based on their financial condition at the time, it is obvious that the company was in no position of strength to negotiate- why would Apollo do this deal with this balance-sheet challenged company unless they got great terms? And what actually is their commitment? Who the heck knows? Can't wait for the 8-K. And then management does a conference call, puts out the press release, goes on CNBC to talk it up and the stock soars on a brief short squeeze that isn't sustainable because the float is huge when compared to other I-nets. Hey, I'm not blaming management for doing this- the internet is hype, and you live or die by it- but I'm not going to be snowed by it either.(7) I'm not impressed with their core business and they've now flailed their way into a new business model, their incubator VC concept of buying companies at a PSR of 2x. However the fact that the purchases will generally be at most $5M tells you that the largest companies they are presently looking at have TTM revs of $2.5 M- we're talking teenie-weenie and at a very late stage in the game. Even in the unlikely event that they hit a grand slam, when you're starting from such a tiny size it takes a long time before it develops into something large and the VC biz is notoriously risky. Meanwhile the company will presumably burn cash. Besides, it's not clear to me how and which companies they will keep intact and incubate and which they will blend into the core business. They think their supposed ear to the street will give them an edge in picking and choosing. Remains to be seen; possible, no doubt, and dreaming is important for an entrepreneur- but not for a stock buyer- "Hey, ya never know" is better left for the lottery. If you listen to what is said in interviews, it's fluff, IMO. And folks want to spit out more than half a BILLION dollars for this thing? Good thing it's mostly the day traders involved right now.
