PEGASUS WIRELESS MANIPULATION-- MENTION of STREAMING VIDEO ?
Taken from the SLJB board posting, http://www.investorshub.com/boards/read_msg.asp?message_id=13767017
NOTE: I don't know anything more, just interested in "streaming video" from a wireless
Attack On Pegasus
Liz Moyer, 10.03.06, 6:00 AM ET
There's a hit out on Pegasus Wireless.
As if a 95% plummet in its stock price since May weren't enough, signs of trouble were already popping up before the Fremont, Calif., wireless equipment maker moved its stock from the over-the-counter bulletin boards to the Nasdaq national market in April.
In March, Pegasus (nasdaq: PGWC - news - people ) Chief Executive Jasper Knabb began getting e-mails from individuals in Europe who said they had questions about a private placement in Pegasus. Trouble is, Pegasus had not arranged a private placement.
Instead, a Nevis-based advisory firm called Oxbridge International had arranged it without the knowledge or authorization of Pegasus. According to e-mails and other records, Oxbridge representatives cold-called the investors and got them to invest amounts in the range of $1,700 to $2,800 each by wiring money to bank accounts in Spain or the U.S. and filling out a few forms.
"How stupid I have been," writes one U.K. investor. (See: " Oxbridge Scams Pegasus.")
What took place during the following six months would become a source of increasing alarm inside Pegasus.
It all started in April, when Pegasus listed on Nasdaq. An increase in trading volume was to be expected, as Pegasus shares got wider scrutiny and as they were added to the Russell 2000 index. Institutions stepped in to buy shares. By the end of June, top institutional holders included Goldman Sachs Group (nyse: GS - news - people ), Vanguard and the Ohio Public Employees Retirement System.
But the volume continued to accelerate beyond what some thought was normal-- beyond 1 million shares a day--and the stock, which peaked at $18.90 a share in late May, began a precipitous collapse.
Negative news reports started appearing, even as the company reported positive earnings and made plans to unveil its promising new technology that allows video streaming from a home computer to television sets throughout a house. In late August, Pegasus customers and suppliers began getting strange e-mails attempting to warn them away from Pegasus, claiming mismanagement in one of its majority-owned subsidiaries.
Records held by Pegasus' transfer agent indicated there may be as many as 30 million more shares out there than it has on record. That suggests that short-sellers have been selling shares without actually borrowing them--a controversial practice known as naked short-selling.
Knabb says he pleaded with market regulation officials at Nasdaq to look into the seemingly unusual activity, but it continued. The unrelenting pressure prompted Knabb to make a critical decision a week ago: he would voluntarily de-list his company from the Nasdaq rather than stick around.
"The fight is just beginning," Knabb said in an interview last month. "But I can't win a battle in this market when no one is willing to help us."
Knabb has reluctantly joined a group of companies and individuals who are contending that loopholes in the financial system are giving manipulators wide latitude with which to operate, under the not so watchful eye of regulators and largely outside the knowledge of small-time investors, who won't realize what hit them until it's too late.
Of course it could be that Pegasus is just a poor investment, as some have asserted. At $18.90 a share, the valuation was rich. Revenues are on a trajectory to hit $100 million this year, up from $3 million last year, but a good portion of the growth came from acquisitions. Margins are improving, and sales are set to increase once new products hit the shelves, but they haven't hit the shelves yet.
Pegasus shares have fallen from $18.90 to about 61 cents. They were trading at $13 a share on April 21, the day of the Nasdaq listing.
Pegasus, best known for its wireless Ethernet bridges, is the amalgamation of several reverse mergers and several partial acquisitions in the last few years. Last week, it unveiled what it considers to be its most exciting product yet, a device that allows consumers to wirelessly stream DVD-quality video from a computer or a camera to any television in their home. TV production company Boxx Communications won a technical Emmy Award this year using the technology.
It's the same type of product virtually all of Pegasus' rivals are developing, including Apple Computer (nasdaq: AAPL - news - people ), Intel (nasdaq: INTC - news - people ), Hewlett-Packard (nyse: HPQ - news - people ) and smaller companies like NetGear (nasdaq: NTGR - news - people ). Pegasus claims to be the first out with its version, however.
The technology is the next evolution in a market that has seen an explosion in the popularity of devices for downloading music or real-time news broadcasts. "This is a chance where smaller, more nimbly fitted companies can step out of the shadow" of behemoths like Cisco Systems (nasdaq: CSCO - news - people ) and Apple, says Robert Egan, a consultant at Tower Group.
But while it was gearing up for market, Pegasus found itself mired in something largely out of its control. An official at the U.S. Securities and Exchange Commission wouldn't confirm whether any investigation was taking place. Nasdaq also won't comment on whether an investigation had been opened.
But a market regulator, speaking on background, said, "It's clear that there are certainly some red flags" here.
Published accounts about the company focus on Knabb's prior business history, and allege that Pegasus is a scam run by a penniless snake oil salesman. One article called him a "self-promotional huckster" and concluded that the company was "doomed under his leadership."
Much of what has been written is a distortion or an outright fabrication, Knabb says. At least to the point of his financial condition, a review of his personal bank accounts shows Knabb invested more than $16 million of his own money in Pegasus over the last year, all of it in cash, in exchange for restricted shares.
And the records show Knabb has plenty more cash available to invest in the company.
The steepest drop in Pegasus came after the company laid out the terms of a warrant issue in early August. Knabb says he wanted to reward investors for sticking around while the stock dropped, and he wanted to do so without diluting the shares.
The warrant was payable only to beneficial owners, however, meaning brokerages holding shares in street name for investors would have to report to the transfer agent who owned what and how many shares they had. Some brokers resisted.
The episode raised a fresh round of criticism directed at Knabb, who was accused of trying to manipulate his share price up by forcing short-sellers to cover their positions.
It remains to be seen whether the attack on the stock will make it harder for Pegasus to get its product on store shelves. Costco (nasdaq: COST - news - people ) representatives attended an event last Thursday in New York when the new video-streaming technology was unveiled. Best Buy (nyse: BBY - news - people ), which had also been invited, pulled out.
Knabb says that there are five more products in the pipeline and that the company is exploring a number of opportunities, including a licensing arrangement with Microsoft (nasdaq: MSFT - news - people ).
Just because the stock is down doesn't mean he's going away. "We're going to survive this," says Knabb. "Hopefully, if we've done everything right, our numbers will reflect what we've put in our business."
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