Cash Technologies Inc. managed a truly spectacular feat in 1999: It posted a negative return on equity of 8,160 percent.

L.A.'s worst performing public company in terms of ROE might well provide a cautionary tale for other companies looking to develop new technology and enter into Internet and e-commerce activities.

The five-year-old Los Angeles holding company provides coin-processing services and self-service coin-counting machines. It also leases non-bank ATM machines, processes banking, non-banking and Internet electronic commerce transactions and develops and markets transaction-processing software.

Cash Technologies has entered into a number of new partnerships recently, including a deal with RocketCash Corp., a Mountain View, Calif.-based company providing a service that allows users to make online purchases without credit cards.

Cash Technologies' software, still under development, will allow users to deposit cash and checks into its ATMs; those customers will then be able to log onto RocketCash's site to make e-commerce buys.

But Cash Technologies' rush into the e-commerce world is taking a toll on the company's bottom line. For the fiscal year ended May 31, 1999, the company reported a net loss of $5.7 million ($1.74 per diluted share), about double the net loss of $2.7 million ($1.60 per share) in fiscal 1998.

The 1999 loss was partially due to significant investments in developing new products, according to Chief Executive Bruce Korman. He added that the company's primary focus right now is developing and deploying EMMA (e-commerce message management architecture) technology, a software system that can interface with bank networks and non-bank networks, and the Internet. In the future, EMMA is expected to facilitate electronic bill payment, event ticketing and phone-card dispensing from the company's retail-based ATM machines.

Korman is optimistic about the products in development.

"If you visit an ATM, what can you get besides a $20 bill? It's been 30 years now, and they still do nothing more than give out $20 bills," he said. "Banks are typically a little slower to implement new technologies."

Cash Technologies currently has its machines in retail locations, like 7-Eleven markets, and plans to replace those machines with EMMA-outfitted ATMs beginning sometime next year.

The company's ongoing struggles have not been made any easier by the recent turbulence in the stock market, particularly in the tech sector, or by its switch this month from the Nasdaq to the American Stock Exchange. (Korman said the company made the jump because he was advised that Nasdaq would discontinue small-cap stocks.) Cash Technologies' stock dipped into single-digit territory on April 14, and last week continued its steady downward slide, closing at $7 on April 26, down from a high of $22.37 on Nasdaq on March 7.

Korman attributed the fall to recent jumpy nerves about technology stocks overall. "Until the recent decline, we were a $20 stock, and so you're a target for people who want to short stock. You're standing out as a single-digit stock in a double-digit world," he said.

Korman conceded that the company is in for more bumpy times ahead before it can see some profit.

"Because of the substantial expense involved, the company continues to lose money and will continue to do so for a good 12 to 18 months," Korman said. He defends the company's position financially and insists the ROE is meaningless, particularly considering the company's substantial expenditures on research and development.

"I wasn't shocked; we expected that to be the case," he said. "When you're in the mode of developing a product, ROE is not the criteria you use to see if you're succeeding. If you compare us to other developing-stage businesses, we spent relatively little money, considering the nature of our R & D; activities. Most companies delivering a new infrastructure would be spending at a much higher rate."

Indeed, many analysts tend to downplay the meaning of a low or even a negative ROE, especially when looking at a company that has recently started up, is developing new products, or is involved in Internet-based services.

"This does not mean it is the worst company around," said Linda DeAngelo, finance professor at the USC Marshall School of Business. "The first thought that comes to mind is that they have a very low positive equity. That gives you a low denominator, which would blow up any loss number, and would make them look worse than they actually are. The fact that that number is magnified is fairly meaningless.

"I don't think it accurately reflects a company's future profitability," De Angelo added.

Korman said the company continues to survive by internally funding operations. "We have done a series of private placements, a few million at a time, to continue funding the company's operations," he said. "While we aren't capable of doing that indefinitely, the investor marketplace continues to have great confidence in the company."

Indeed, the company as of May 31, 1998 had a stockholder deficiency of $5.1 million, meaning its liabilities exceeded its assets by that amount. But thanks to an $11.3 million capital infusion last year, it showed positive stockholder equity of $70,494 as of May 31, 1999.

"This is a brand-new world," said Casey Stern, an analyst with Star Securities in New York. "These companies are willing to spend to establish a foothold, to carve a piece of the pie. That's what these companies have to do right now."

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