The fall humbled theglobe.com to the ranks of small Florida companies, a volatile segment replete with startups and start-overs. Egan swept the remains of the high-flier to downtown Fort Lauderdale, where he and fellow investor Edward Cespedes have used the shell of theglobe.com to launch a technology that makes low-cost phone service possible from any PC. They're already global. They've put in their own funds, attracted the likes of H. Wayne Huizenga and are hiring for a dozen jobs. The company pays an average of $75,000.
Theglobe.com's market cap jumped nearly 2,000% in 2003, albeit to just $65.7 million, microcap territory.
Meanwhile, on Cypress Creek Road up I-95 just a few exits from Egan's office, another microcap called Ener1 has spent $23 million to turn an old bond trading office into a factory for making high-tech lithium batteries. Like theglobe.com, it could rattle industry giants.
Using technology from Russian and Ukrainian military and industrial R&D, Ener1 can make a battery that's far lighter than existing technology, says CEO Kevin Fitzgerald. For soldiers, it could mean lighter battery packs. For automakers, it could mean hybrid vehicles with more power in less space. For consumers, it could mean the ability to charge a cell phone battery in seconds.
Ener1's market cap leapt to $456.6 million last year, a 2,446% gain.
Welcome to the world of Florida's microcaps, companies that you've not likely heard of -- and for good reason, in many cases. Historically, most public companies with less than $250 million in market value are off analysts' radar screens. Analysts don't follow them because the companies don't generate much in trading commissions for firms, don't produce worthwhile investment banking business, are unpredictable and are high risk. They're even too small, generally, to have their returns captured by the Russell 2000 index of small companies.
A new index focusing on Florida's microcaps, however, offers some intriguing insights into small publicly held companies, their privately held counterparts and the health of Florida's overall economy. The one-of-a-kind index provides a new window into an economically dynamic segment in a state where 98% of employers -- accounting for 39% of the state's workforce -- have fewer than 100 employees.
PCE Investment Bankers, a boutique firm in Winter Park formerly known as Poole Carbone Eckbert, created the index to provide additional information to the small public and privately held clients for whom it raises money, advises on mergers and acquisitions and does valuations and consulting.
Top Performers
The 10 biggest market-cap gainers in 2003GainCompanyStory line+2,446%Ener1
(OTC-ENEI.OB)The cost of complying with new federal securities law has encouraged some small companies to go private. But Ener1 CEO Kevin Fitzgerald knows the value of being public. As CEO of equipment rental company Neff Corp., Fitzgerald rolled up other operators into Neff. Now at Ener1, the top-performing company in 2003 on the PCE Florida Index, he raised $20 million to finance growth. "We would not have been able to raise such financing as a private company," says Fitzgerald. He intends to license Ener1's technology to manufacturers and reap royalties rather than build plants. Ener1 wants to build high-tech batteries and fuel cells.+1,946theglobe.com
(OTC-TGLO.OB)Act II of theglobe.com is telephone calls over the internet. Its GloPhone offers a U.S. phone number from anywhere in the world and local and long-distance service for cheap. Company President Edward Cespedes' parents were paying $200 to $300 a month keeping up with family and friends in their native Peru. Now they use the company's GloPhone service. Unlike the phone companies, theglobe.com has low debt and a low number of employees.+1,222Faro Technologies
(Nasdaq-FARO)The Lake Mary maker of computer-guided measuring instruments used in manufacturing has been racking up impressive sales and profit growth.+969Continucare
(Amex-CNU)The outpatient care company in Miami has overhauled its management, revitalized its balance sheet and is enjoying an improving climate for Medicaid-dependent businesses. "We're trying to build our business into a growth business, which is what it hasn't been in the past," says CEO Richard Pfenniger Jr. Too true. The stock has been climbing since 2003 -- to about where it was eight years ago.+858Technology Research Corp.
(Nasdaq-TRCI)The Clearwater company makes electronic safety products. Ho-hum. But with increased military spending and new domestic regulations designed to prevent cord fires on room air conditioners, its products are in demand, and it's seen an electrifying rise in its fortunes. "We expect to be doing reasonably well," says Chairman Robert Wiggins. "I think the economy is pretty good. We've seen an increase in all sectors.+817SBA Communications Corp.
(Nasdaq-SBAC)Before the telecom sector collapsed, this Boca Raton-based cell phone tower owner traded at more than $50 a share. It could be had for a tenth of that this year.+704HearUSA
(Amex-EAR)Dr. Paul Brown has been trying to capitalize on a growing population in need of hearing help for more than a decade. With 156 company-owned centers in 11 states, his is the nation's third-largest provider of hearing care. The company went public in 1988 at $10 a share, went up in a few months to $16, then down, then up to $75 in 1996, then down to 23 cents, back up to $3.07 this year and then in April back to $1.80. Says Brown: "It's a day trader's orgasm."+584Innovative Cos.
(Nasdaq-GORX)Innovative has been through a few evolutions -- online pharmacy, nutritional supplement maker and now generic drug maker. The Largo company has filed for a new name, Geo Pharma, to reflect the change. The company will keep the nutritional supplement business, which "is giving us a good bread and butter," company founder Jugal Taneja says.+449Gevity HR
(Nasdaq-GVHR)The Bradenton-based human resources outsourcing company for businesses has been buying outsourcing portfolios and saw its profit per share double in the first quarter. Gevity used to be called Staff Leasing.+410Teltronics
(OTC-TELT.OB)Say this for telecom industry player Teltronics: The Sarasota-based company is still standing. That's something in its sector. CEO Ewen Cameron says it has an opportunity in upgrading switching equipment made by a Harris Corp. division acquired in 2000. It announced in March it won a $1.3-million contract from a North African defense ministry to do just that.
"We found there was really a lack of research on Florida companies in general, especially with smaller companies," says firm principal Michael Poole. "Everyone talks about the Dow and S&P," Poole says, but "the business owner wants to know, 'Tell me a little more about my own backyard.' That's what we hope the PCE Florida Index begins to do."
PCE worked with Rollins College in Winter Park to create the index, which is comprised of Florida companies with market caps under $250 million and at least $500,000 in annual revenue. The firms must be up-to-date in their regulatory filings and meet other criteria. The 199 companies that met the tests had an $18.5-billion market value at the end of March. They include agribusiness Alico, restaurant chains Checkers, Shells and Benihana, pencil maker Dixon Ticonderoga, short-line railroad owner RailAmerica, internet information company SportsLine.Com, retailer Stein Mart, fragrance company Elizabeth Arden, boat dealer MarineMax and apparel makers Tropical Sportswear and Perry Ellis.
The index, updated daily on a PCE website (pceindexes.com), provides some interesting insights.
As the nation wallowed in a bear market, for example, the Florida microcap sector tallied an 82.5% gain last year, beating the S&P 500, the 30 stocks that make up the Dow Jones industrial average and the Russell 2000. It also has beaten those measures over the last three- and five-year periods. Through the first quarter, Florida's microcaps are up 10.6%.
But the index, using historical data back to 1985, offers a warning: Long-term, Florida microcaps have returned approximately 7% annually -- with double the risk of blue chips. Poole says it's too soon to tell whether the recent superior performance represents a shift to quality in microcaps.
Other insights from the index:
Most gains over the last five years came in the $50-million to $100-million market cap segment.
Most of the losses over the last five years came in the $200-million to $250-million segment.
Three sectors -- IT, industrials and financials -- accounted for 61% of the index's gain last year.
Three of 43 companies to graduate off the list later filed for bankruptcy, and 19 fell back under the $250-million market cap level, a few of which graduated again.
The number of companies, from microcap to large cap, is shrinking. There were 471 public companies in Florida in 2000. In May 2003, there were 369. With federal reforms, the cost of being a public company has gone up, prompting some to go private.
Worst Performers
The 10 biggest market-cap losersLossCompanyStory line- 97%Hydron Technologies
(OTC-HTEC.OB)The Pompano Beach-based company achieved a modicum of attention in the 1990s when CEO "Hydron Harvey" Tauman pitched its skin-care products on QVC. Tauman was ousted in a 1997 fight over control of the company. It's seeking FDA approval for a new oxygenating product to help heal wounds, bedsores and burns. "It's a large transition for the company," says COO Terrence McGrath. Indeed. In 2003, investors saw falling sales and widening losses.- 94BrandAid Marketing Corp.
(OTC-BAMKE.OB)BrandAid's niche was in-store marketing, distributing things such as America Online CD-ROMS in supermarkets. In the last publicly available quarterly statement -- way back for September 2003 -- it lost $4.9 million on $716,180 in sales.- 93Orlando Predators Entertainment
(OTC-FBLQ.PK)The company now is known as Football Equities, following the sale in February 2003 of its Orlando Predators Arena Football team and the May 2003 sale of a hockey team. For the nine months ended in June 2003, it lost $3.2 million on $577,813 in revenue.- 86Cordia Corp.
(OTC-CORG.OB)An Orlando telecom company aimed at delivering voice phone service over the internet. The company has 23 employees in Florida. In 2003, it made a $583,805 profit on $3.5 million in revenue.- 78Bravo! Foods International Corp.
(OTC-BRVO.OB)The North Palm Beach company began life selling flavored milk in China. It switched to the U.S. market, selling single-serving containers under the Looney Tunes brand. Peer pressure hurt sales -- the over-9 demographic apparently considered Looney Tunes too babyish in the school lunch room -- so it switched to Marvel Comics. It jazzes up the vitamin-fortified notion with supplements tailored to the superhero. Brainy Spider-man gets milk with Omega 3 and choline added; Hulk gets B vitamins. Bravo also has Moon Pie flavors, protein shakes, extreme sports-oriented Pro Slammers for high school kids and Slim Slammers for late teen and adult women.- 76Tropical SportswearInternational Corp.
(Nasdaq-TSIC)The Tampa apparel company sells Savane, Banana Joe, Authentic Chino Casuals and other brands and is a maker of products for Roundtree & Yorke and other brands. Through the first half of '04, sales continued to fall and losses widened, but the second quarter saw improvements as the company cut costs by moving operations from Tampa to contractors in Dominica and Honduras.- 73Singing Machine Co.
(AMEX-SMD)Just three years ago, the Coconut Creek karaoke machine maker was in good voice, with revenue tripling and $4.2 million in profits. Through the first nine months of 2003, it was losing $13 million on falling sales. It also restated earnings in 2003, triggering shareholder litigation that it recently settled. Singing Machine has big-name license deals with MTV and sells through major electronics stores and is expanding its music list. But the company has been slow to find a new CEO and faces competition from bootleggers who don't pay royalties to the recording companies and undercut Singing Machine's prices.- 71Reptron Electronics
(OTC-RPRN.OB)The Tampa electronic manufacturing services company emerged in February from a prenegotiated bankruptcy $80 million in debt lighter. The 1,000-employee company (400 in Florida) sold its money-losing distribution businesses to concentrate on its core electronic manufacturing. "We're expecting a significantly improved operating result this year against the last several," says CEO Paul Plante. Reptron's market cap jumped from $2 million at year-end to $50 million in April.- 68Lasersight
(OTC-LASEQ.PK)The Winter Park maker of technology for laser eye surgery has been in bankruptcy court this year but has a reorganization plan approved. Interim CEO David Liu expects $12 million in revenue this year and says the 25-employee company is focusing on cost control. At one time, Lasersight's market cap was approximately $300 million.- 68Torpedo Sports USA
(OTC-TPDO.OB)The West Palm Beach company makes toboggans, sleds and other winter gear along with a summer line of tricycles, bicycles and wagons. It lost $1.3 million for the six months ended Jan. 31 and reported a $3.3-million shareholders' deficit.
Investor, beware
The investing public has good reason to beware these little-followed companies. There's no blue in these chips. They can have here-today, gone-tomorrow strategies, unproven technologies and decidedly uncertain prospects. The voting power (45% on average) tends to be concentrated in the hands of the founders or a few insiders.
Two of 2003's 10 worst performers were in bankruptcy court within the past 12 months. Many of the stocks are illiquid and trade on the bottom-tier Bulletin Board and Pink Sheets. With their tiny floats of publicly traded shares, they give new meaning to volatile.
But indices such as the PCE Florida are useful tools, says Don Wiggins, president of Business Valuation in Jacksonville, especially as a "test of reasonableness" for values based on other measures such as sales of comparable companies or a multiple of profits.
And the index is also useful as a baro-meter of the health of entrepreneurship in Florida -- and indeed as a broader index of the health of Florida's economy.
Says J. Clay Singleton, the Rollins finance and investments professor who oversaw the students creating the PCE index, "One of the things the index helps us see more clearly is Florida has a vibrant small-company economy."
The 82.5% increase in valuation in 2003 indicates the "robustness of the Florida economy," says J. Antonio Villamil of Washington Economics Group in Coral Gables. Today's nobodies can grow into better-known concerns employing thousands. Graduates of the historical PCE include Chicos FAS, Kos Pharmaceuticals, BankAtlantic Bancorp, Bank-United Financial Corp. and Pediatrix Medical Group.
Growth in employment, here and overseas, already is evident at the healthier microcaps on the PCE index. For example, Ener1, the battery company, employs 75 -- 40 in Florida and 35 overseas, in Russia and Ukraine, where, CEO Fitzgerald says, Ph.D.s can often be had for half the salary they would command in the U.S. Fitzgerald expects to have Ener1's new factory assembly lines running later this year, adding upward of 30 engineers and production workers.
At another top performer for 2003, Technology Research in Clearwater (an 858% increase in market value), employment in Florida increased 15% in the last year to 95. The rest of the company's labor is supplied in Honduras and through contract manufacturing in China.
Going forward, Poole hopes the index will shed light for Florida economic development policy-makers on an easy-to-overlook segment of Florida's economy and on sectors such as IT and consumer durables within that segment. Poole looks for the index to be a weather vane for the health of Florida's private companies, illustrating the condition of the state's emerging businesses. Says Poole: It "mirrors the struggles of the small businesses of the state."
Longtime Small Fries
If you buy stock in a company that makes the fruit for fruitcakes, you obviously aren't betting it will deliver a growth story to rival Wal-Mart. We asked PCE to screen for the companies that historically would have qualified the longest for inclusion on the Florida index.
Seventeen active companies each would have made it for 19 years. They've always had at least $500,000 in revenue but have never moved beyond the ranks of the very small in market cap.
Take Plant City-based Paradise, for instance. Its core business is supplying the candied fruit for fruitcakes. Its market cap is a tiny $12 million. Its stock can go days without trading. The folks at Paradise don't seem too disappointed to spend two decades in the bottom tier of publicly held companies.
"My concern is profitability, whether we're a billion-dollar company or a $20-million company," says Paradise CFO Jack Laskowitz. "The people who own the shares of the company have been satisfied." Chairman Melvin Gordon controls 39% of Paradise shares, and he's the father or father-in-law of three of the senior executives.The 17 LongtimersCompanyHeadquartersBusinessAblest
(Amex-AIH)ClearwaterStaffing servicesBenihana
(Nasdaq-BNHNA)SarasotaTelephone, communication equipmentComdial
(OTC-CMDZ.OB)MiamiRestaurantsConsolidated Tomoka Land Co.
(Amex-CTO)Daytona BeachReal estateDecorator Industries
(Amex-DII)Pembroke PinesFurnishingsDixon Ticonderoga
(Amex-DXT)HeathrowPencils, pens, crayons, artist materialsDryclean USA
(Amex-DCU)MiamiEquipment supplierFlanigan's Enterprises
(Amex-BDL)Fort LauderdaleRestaurants and liquor storesFlorida Public Utilities
(Amex-FPU)West Palm BeachNatural gas and electric utilityGoldfield
(Amex-GV)MelbourneElectrical constructionKreisler Manufacturing
(Nasdaq-KRSL)St. PetersburgEngine componentsMedicore
(Nasdaq-MDKI)HialeahMedical products and servicesNobility Homes
(Nasdaq-NOBH)OcalaManufactured housingParadise
(OTC-PARF.OB)Plant CityCandied fruit and molded plasticsSunair Electronics
(Amex-SNR)Fort LauderdaleCommunication equipmentSuperior Uniform Group
(Amex-SGC)SeminoleUniforms and service apparelTechnology Research
(Nasdaq-TRCI)ClearwaterElectronic safety products