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IMA's Roller-Coaster Ride
NASDAQ moves to de-list software maker just as it announces radical new business mode
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Business New Haven
5/1/2000
By: Mitchell Young
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If believers in the new economy are seeking an example of "creative self-destruction," they just might find it at Information Management Associates (NASDAQ: IMAAE).
The Shelton software company historically has developed and marketed what it calls Customer Relationship Management software, primarily for the call center telephony markets. For the nine months ended last September, revenues fell 23 percent from a year before to $30.2 million. Net losses rose 92 percent, to $15.9 million, as the company undertook an expansion into new Internet-related products and markets.
On April 10, the company announced the formation of its second Internet subsidiary, employing a radically different business model. The new subsidiary, known as Freefire, will effectively give away, license-free, the company's new eCRM, (electronic Customer Relationship Management) software through a Web site, www.freefire.com.
Current IMA CEO Albert Subbloie will become CEO of the subsidiary and turn his IMA duties over to interim CEO Donald Miller, a current IMA director and former CEO of Posi-Seal International.
The new subsidiary will be based in Irvine, Calif. and employ some 100 workers. The company says Subbloie, current chairman of the Connecticut Technology Council and a lifelong Connecticut resident, will continue to reside in Connecticut.
Announcing the subsidiary, Subbloie said: "The Internet has revolutionized the way businesses communicate with their customers. Freefire is creating a frictionless eCRM purchasing environment and leveling the competitive landscape, allowing corporate buying decisions to be based on the best combination of software, support and delivery resources. With this bold new move the company is changing the way eCRM software is developed and acquired in this market space. Freefire is more than a web site; Freefire is the marketplace for eCRM."
Software available free from the site includes Freefire's Java-based eCRM suite, which includes multi-channel management, e-mail response, Chat, Collaboration, Voice-Over IP, and Computer Telephony Integration (CTI). The software is available for download from a prototype site 24 hours a day, seven days a week beginning April 10. The company expects to launch the Freefire site officially this June.
Without licensing fees, the company will generate revenues by providing service and support. This business model is currently being employed by several companies promoting the Linux operating system, and is credited by many for helping to spread the usage of that software.
One company, Red Hat Inc. (NASDAQ: RHAT), with revenues of less than $20 million, has a market capitalization in excess of $4 billion as investors gamble that Red Hat's free-distribution model will propel the software into a new industry standard.
Unfortunately, on the same day that IMA made its Freefire announcement, NASDAQ halted trading of the stock for what it called "additional information requested."
On April 20 the IMA reported that NASDAQ had sent a further notice indicating it would de-list the company on April 27 if it did not receive its form 10-K, due on April 14.
IMA Public Relations Manager Christine Sten said difficulties filing the 10-K stemmed from an audit and change of accounting firm. The audit was undertaken to respond to SEC concerns about the value and collectibility of certain receivables, as well as the recognition of revenue on certain software transactions. The company has stated previously that the results of he audit may cause a restatement of prior-period earnings.
Sten said the company expected to make the filing in early May and would appeal NASDAQ's de-listing decision. The company said NASDAQ would stay the delisting while it heard IMA's appeal. The company's current stock symbol was changed from IMAA to IMAAE as of April 20. IMA was trading at $4.325 when trading was halted April 10.
The April events were the latest episode in a year of turmoil and change at the company.
IMA's huge early 1999 losses sent its share price tumbling to $2 on May 7, 1999. In early June, however, the stock began moving up on rumors of a new Internet project. The share price eventually shot up to $14 as more than 40 million shares traded hands in one week in late August (see BNH, Sept. 6, 1999). The run-up in the stock came after the company revealed a $10 million investment by a group of venture investors including CMGI@Ventures (NASDAQ CMGFI) and Wand Partners - two of the most well-heeled and sophisticated Internet venture capitalists - in IMA's new buyersedge.com subsidiary.
IMA's buyersedge.com is what the company calls "an open market bidding system that enables online buyers to make purchases by submitting product requests and to evaluate merchant responses before making a purchase." The company says that buyersedge.com now has more than 5,000 participating merchants.
In a nod to the new economy, Erick Schonfeld in his column "The Armchair Venture Capitalist" for Fortune Investor (an online magazine published by Fortune magazine) recommended the stock - despite the SEC warnings, the pending restatement of earnings and a bevy of related shareholder lawsuits. Schonfeld pointed out on March 6 that public investors could buy buyersedge.com (58 percent owned by IMA) for less than the venture investors paid and get the rest of IMA thrown in, which he said would "appear to be a dog of a company" considering its recent losses.
Indeed, Sten indicated that IMA's buyersedge subsidiary (also based in Irvine, Calif.) was about to announce that it had received a second round of financing.
Citing its investment in the Freefire subsidiary and the need for expansion capital for Freefire, IMA also said it was in discussions with several outside funding resources to raise additional capital.
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