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CyberBucks—Titan suit seeks to quash short sales of stock

PeopleFirst.com Acquires Texas-based Subsidiary Of DaimlerChrysler

In an effort to stop what it calls “unscrupulous short sellers” who have allegedly conspired to drive down its stock price in recent weeks, Titan Corp. filed a lawsuit against the unnamed group.

Titan, like many other high-techs, was once a high-flyer, trading at about $60. But sometime in May, its price started to drop from $44.75 to about $20 as of Aug. 22. It has since bounced back to about $25 as of Sept. 5, but much lower than what its management team believes is the right price.

Titan claims short sellers of the stock are to blame for the stock’s dive. Short sellers are investors who borrow shares at one price in hopes it will decrease, then buy the shares at a lower price, and pocket a profit in the process.

Yet, a look at those shorting the stock as of early August represent about 5 percent of the total shares outstanding, hardly a substantial number, says Ted Kunzog, chief financial officer for Internet Stock News, a San Diego-based Web site catering to online stock investors.

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Looking at the short position and the continuing decline of the stock, Kunzog said management’s allegations those investors are primarily to blame is probably misplaced. Short selling is no more unscrupulous a practice than buying a stock and holding it for the long term, Kunzog said.

“It’s not evil or wrong, and in fact, it’s a requirement of a free market in order for it to maintain liquidity that there be both buyers and sellers,” he said.

Titan contends a group of short sellers using the anonymity of Internet message boards spread false information, reports and rumors about the company that caused its stock to plunge starting in May.

The suit cites some three dozen names culled from various message boards. When the suit was filed, the court also ordered a subpoena of the Internet service, Yahoo!, demanding the company that provides the message boards to reveal the identity of the anonymous message posters.

“We will remove the cloak of anonymity so that the world will see how these operators spread false information on Internet bulletin boards and though the guise of so-called ‘analysts’ reports’ as well as through the financial media,” said Marshall Grossman, an attorney for Titan.

The company’s action, though unusual, is warranted if the short sellers are doing what Titan says they are, said David Allen, director of research for Granite Financial Group, a La Jolla-based brokerage.

“If the company believes short sellers are posting erroneous and even malicious rumors, then a company is well entitled to take legal action,” Allen said.

The question is how much of the decline of Titan is caused by the short sellers, and how much is due to the firm’s financial performance.

For its second quarter, Titan lost $12.5 million on revenues of $255 million, compared to a profit of $6.5 million on revenues of $191 million for the like period of 1999. That brought its six-month loss to $27.7 million on revenues of nearly $477 million, compared to net income of $11.3 million on sales of $354 million for the first six months of 1999.

Titan noted it recorded $39 million in acquisition costs thus far for the year. It also said excluding those costs, it would have had a “pro forma net income of $9.4 million” for its second quarter.

Titan, with more than 7,600 employees, said it has a backlog of sales in excess of $2.2 billion.

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PeopleFirst.com Buys DaimlerChrysler Firm: PeopleFirst.com, the San Diego-based online auto lender, said it has acquired giggo.com, a Fort Worth-based subsidiary of global auto giant DaimlerChrysler.

PeopleFirst said it purchased all the outstanding shares of giggo for a 23 percent common stock equity in the new company, which will be called giggo.com, inc. Based on an earlier valuation of PeopleFirst at $200 million in February, that would mean giggo fetched an estimated $60 million.

In addition to the stock, PeopleFirst is also getting a five-year loan of $20 million from DaimlerChrysler in the deal that’s expected to close Sept. 15.

Giggo, which has been around since 1998, refers car loan customers to other lenders, unlike PeopleFirst, which funds and services its loans. It has more than $500 million in its portfolio. Giggo has 70 employees; PeopleFirst, about 160.

The new company will be headed by Gary Miller, CEO for PeopleFirst, while Brian Reed, CEO for giggo, takes over as president. PeopleFirst co-founder Dave Zeller takes over as chief operations officer.

The new company will continue to offer its services under both PeopleFirst and giggo.com brand names.

SkyDesk Alters Strategy, Cuts Staff: SkyDesk, the San Diego Internet backup storage company, said it will shelve its previous marketing strategy to pursue more partnerships with original equipment manufacturers and larger corporations rather than appealing to individual owners of PCs.

Peter Shaw, SkyDesk’s new CEO, said the change would mean few customers, but more business in the long run. After taking over, Shaw proceeded to reduce the company’s employee count from 109 to 77, laying off 32 workers.

The job cuts were across the board, and included some managers, sales, product development, engineers, administrators and testers, Shaw said.

Shaw, the former CEO for Sitematic Corp., which was sold earlier this year, replaced Gary Sutton, who resigned. He said despite the layoffs, the company is on solid financial footing, with some $20 million in cash.

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InterKnowlogy Expands: Carlsbad-based InterKnowlogy, an engineering firm aimed at helping companies with their E-commerce needs, said it had revenues of more than $1 million for the first half of the year, expects to break $3.5 million for 2000, and more than double that for the following year.

Founded in September 1999 by Tim Huckaby and David Lynn, the company has grown to 26 employees. It said it expects to have 35 by the year’s end.

Among the company’s clients are Pacific Life Insurance Co.; Gateway Inc.; Storerunner.com; and Microsoft.

InfoGation Obtains VC Funding: San Diego-based InfoGation Corp., a software developer aimed at connecting cars to the Internet, said it obtained its first round of venture capital of $3.5 million from Nextreme Ventures and BridgeWest.

The company said it will use the funds to expand its information and commerce applications, its sales and marketing activities and its senior management team.

InfoGation is a developer of telematics software, described as the convergence of wireless access, the Internet, and vehicles.

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Tongue-Twister Firm Gets Contracts: It’s tough to pronounce, but Syzygy Technologies Inc. recently received two federal contracts totaling $23 million for support work on advanced Navy command and control systems. Both contracts were awarded for work at San Diego’s SPAWAR Systems Center.

Send tech-related finance items to mallen@sdbj.com.

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