[GreenYes] Disposable Phones

[Olga Meydbray <omeydbray@svtc.org>]

Looks like we won't be seeing disposable phones anytime soon!

No clear connection for phone company
Touted disposable cell all promise, no delivery

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/02/10/BU233665.DTL

If you listen to the media buzz, Hop-On.Com Chief Executive Officer Peter 
Michaels could be close to launching one of the hottest gadgets around: a 
cell phone so cheap you can toss it away when you are done.

In December, Time magazine dubbed Michaels' $30 disposable phone one of the 
best inventions in 2001. A Washington Post business columnist raved about 
Hop- On's "exceptionally clear" reception last month. And BusinessWeek 
mentioned Hop-On in three separate issues in November and December.

Michaels, 37, says the phone, about the size of a deck of cards, would be 
perfect for parents to give to their children or to keep in a car glove box 
for emergencies.

The stripped-down phones, initially designed to make only outgoing calls, 
would come with 60 minutes of air time.

But despite promising in a news release to deliver the phones to stores by 
October, Michaels has yet to deliver. The company also missed its revised 
launch dates in November and December.

A closer look at the publicly traded Garden Grove, Calif., company 
indicates it might be as thin as the plastic phone itself.

Hop-On is officially registered as a Las Vegas corporation that focused on 
online gambling under its prior name, NWDP.com. It also is intertwined with 
a defunct online betting firm, also run by Michaels, called World Wide Web 
Casinos. That Orange County company was raided by California regulators two 
years ago for allegedly fleecing hundreds of investors out of as much as 
$20 million.

A separate shareholder lawsuit filed against WWW Casinos accused Michaels 
of siphoning off funds to pay for at least five cars, a $125,000 racing 
boat and gambling trips in Nevada. The suit was settled out of court two 
years ago.

In addition to Hop-On, three small rivals have been touting the disposable 
cell phone concept. But none of those companies -- or Hop-On -- has 
received approval from the Federal Communications Commission to ship the 
devices.

Many analysts are skeptical about whether disposable cell phones are 
economically viable.

"It is probably vaporware at this point," said Giga Information Group 
wireless analyst Ken Smiley.

One of the firms, San Francisco's Telespree, which wowed reporters last 
year with a prototype of a one-button, voice-activated phone, now says it 
has no plans to develop the device. Instead, the company will focus on 
wireless software, said Gail Redmond, marketing vice president.

The other two firms promoting the device are small and have little track 
record.

One, New Horizons Technologies International of Orlando, employs 25 people 
and doesn't have a Web site. It didn't garner any media attention until it 
showed off a disposable phone prototype at a Las Vegas trade show last month.

"We have tried to stay totally below the radar screen before we were ready 
to launch," said Stephen Romeo, the company's marketing director.

Romeo said New Horizons plans to offer a $40 plastic phone in March through 
a network of resellers and Duane Reade Pharmacies in New York. He wasn't 
sure when the product would be available in the Bay Area.

Another firm, Dieceland Technologies in New Jersey, is still searching for 
office space and has even fewer workers on the payroll. Company founder 
Randi Altschul, a toy inventor in Cliffside Park, N.J., said she wasn't 
sure when or where the phone would premiere. Dieceland signed a 
distribution deal with GE Capital Communications Services last year, but GE 
spokesman Eric Jones said the company hasn't decided when or if it will 
actually ship the phones. "We have not finalized our plans," Jones said.

Analysts note that major telecom players like Nokia and Motorola have shied 
away from the market so far, apparently because they don't regard it as a 
viable or lucrative business.

"I don't see it as a very large market," said Scott Ellison of 
International Data Corp. "If there is any kind of market, it is less in 
retail and more in promotional opportunities, like giving away free 
long-distance calling cards."

But ever since someone labeled the super-low-cost phones "disposable" more 
than two years ago, the concept has caught fire in the media.

No company has received as much attention as Hop-On in recent months.

In the fall, Hop-On struck a deal with Universal Studios to give away 
several thousand pinkish phones in May branded with Jurassic Park's logo. 
(The company already sent working prototypes to The Chronicle and other 
publications.) And Wakefern Food Corp. of Elizabeth, N.J., agreed to sell 
up to 50,000 phones through its ShopRite Supermarkets in the Northeast.

Hop-On's stock soared last year from as little as 2 cents per share to $1. 
50 after the deals were announced before falling to 42 cents Friday in 
over- the-counter trading.

But even with those accomplishments, it's unclear when Hop-On phones will 
be available in stores. Hop-On hasn't shipped the phones to Wakefern yet, 
and Wakefern spokeswoman Karen Meleta said last week she wasn't sure when 
the phones would be available.

The company issued press releases last year promising the phone would 
premiere first in September or October, then November or December. But the 
company missed those launch dates.

Hop-On Vice President Dan Demo said the company has reached an agreement 
with Cingular Wireless of Atlanta to use its network.

But Cingular executive Michelle Mindala said: "We are in discussions with a 
number of disposable phone vendors; however, we have not signed an 
agreement with anyone."

Hop-On has also suffered from some executive turnover.

In October, the company issued a press release saying it hired accountant 
Allen N. Kimble as its chief financial officer. Two months later, Kimble 
left the company, according to a Hop-On receptionist. The company did not 
publicly announce his departure and declined to say if it has hired a 
replacement.

Another former executive and board member, Kenneth R. Toll of Beverly Hills,

complained to the state labor commissioner last March that he was paid only 
sporadically from 1997 until he resigned as vice president of software 
development in November 2000. After Hop-On failed to show up at a hearing 
last June, the state ordered the company to pay Toll $168,103 in back wages 
and penalties.

Hop-On has two board members, according to the company's most recent filing 
with the state of Nevada. One is Michaels. The other is his mother, Carol 
Michaels, who also served as a secretary and treasurer for WWW Casinos. 
Carol Michaels did not return a phone message left with the company last week.

Though Peter Michaels spoke to The Chronicle on two occasions, he did not 
respond to repeated phone calls and e-mails during the past two weeks after 
The Chronicle discovered additional information about his companies. David 
Pasquale, a Hop-On spokesman who works for a New York public relations 
firm, also declined to comment on the findings. He said Michaels was busy 
raising money for the company and signing deals with partners. "He's been 
on the road, " Pasquale said. "He's running the company."

Michaels also has been aggressively promoting Hop-On to other reporters. He 
told a publication called the Wireless Reporter in August that the company 
would reach $500 million in sales in the next year. "Even that prediction, 
he thinks, is conservative," the online publication said.

And Michaels told the Newhouse News Service in August that the company 
would ship 30 million phones this year, making it one of the world's 
largest cell phone manufacturers. Experts said there's little hard data to 
support his claim.

Though Hop-On is publicly traded, it doesn't file financial statements with 
the Securities and Exchange Commission or publish quarterly earnings 
statements. The company told the SEC it need not file under Regulation D, 
an exemption for small businesses that have raised little public capital.

"That is the first red flag," said Bob Davis, a securities analyst who runs 
a Web site that tries to identify fraudulent companies 
(www.securitiessleuth.com).

"Here is a company that is going to do great things and have $500 million 
in sales, and they haven't put the effort into getting an initial filing 
with the SEC."

And a cloud remains over WWW Casinos, which Michaels described as Hop-On's 
predecessor company.

In 1996, the state ordered WWW Casinos to stop selling stock in California 
until it properly registered the securities. Two years ago, state 
investigators, cooperating with local law enforcement authorities, seized 
six computers and 50 boxes of records from the company to probe whether it 
swindled millions of dollars from investors, said Andre Pineda, assistant 
commissioner for the state Department of Corporations, which helps regulate 
stock sales in California.

Prosecutors haven't filed any charges, but investigators say the case 
remains active. "Because of the nature and complexity of the investigation, 
it is still being worked through," Pineda said.

Separately, a 1997 shareholder lawsuit filed in Orange County Superior 
Court against WWW Casinos accused Michaels of squandering money on 
everything from an opulent office to buying a worthless potato chip company 
and diverting funds to a complex web of other corporations he controlled.

The suit also detailed some unusual business practices. The board of 
directors never held any meetings. The president of the company, Peter 
Demos, complained in sworn testimony that he wasn't able to see detailed 
financial statements. And the financial records were so disorganized that 
accountants couldn't complete an audit, the suit said.

But Michaels' attorney points out that the court never ruled on whether the 
claims were true because the case was settled.

"They are unproved allegations," said Marcello M. Di Mauro, Michaels' 
lawyer, who is based in Glendale, near Los Angeles. As part of the 1999 
settlement, WWW Casinos agreed to pay the shareholders' legal tab and 
exchange their shares for stock in Hop-On. Michaels described the lawsuit 
as a nuisance suit.

At least one stock watcher, however, said Hop-On has all the hallmarks of a 
penny stock investors should avoid.

"The whole thing smells," said Davis, the financial analyst. "It is totally 
irrelevant that it has been mentioned in Time magazine."


Olga Meydbray
Silicon Valley Toxics Coalition
760 N. 1st St.
San Jose, CA 95112
408.287.6707
omeydbray@svtc.org
www.svtc.org

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