What's in the bag?

By DAVID MOON, Moon Capital Management
February 11, 2007

While boarding an airplane several years ago, I passed a couple of employees from separate East Tennessee companies on business trips. I couldn't help but notice their carry-on luggage.

Both were carrying relatively small black bags, adorned with logos of their employers. The Pilot Corp. employee carried a canvas bag with a modest but familiar insignia from the convenience stores and gas stations.

The other employee was from Ipix Corp., a now-defunct technology company that offered immersive imaging technology for commercial uses.

His bag was obviously nice leather, and it prominently featured the Ipix logo. It was so nice that at any moment I expected Ricardo Montalb'n to appear and begin describing the handbag's rich Corinthian hide.

Since I knew the relative conditions of the companies, that picture became burned in my memory.

At the time, Pilot was nearing $2 billion in annual revenues and was among the 100 largest private companies in the country. It had never relied on outside equity financing.

Ipix, by contrast, lived on outside equity financing. That leather bag was purchased with cash raised from stock offerings. The company didn't earn a nickel and constantly had to raise new capital to pay its bills, but it had fancy employee luggage.

Apparently the people buying the bags at Pilot were acting like it was their money ' because it was. Ipix spent money like rock stars ' first-class travel, exorbitant salaries and little things like fancy travel bags ' because the executives were spending someone else's money. It didn't matter that the Ipix auditors regularly questioned the company's financial ability to stay in business or that national financial publications featured the company as about to run out of cash.

I was reminded of my airplane experience last week when trustee James Reynolds announced that Sony Corp. was the successful buyer of Ipix's intellectual assets at a bankruptcy auction.

Sony's primary bidding competition was newly organized Image Corp. of America, an affiliate of Memphis-based Luminetx Corp. The company had plenty of knowledge about Ipix and its remaining assets, along with some knowledge about its wasted assets, as well; former Ipix CEO Jim Phillips works for Luminetx.

How convenient. Phillips managed Ipix at a time when it had hundreds of millions of dollars in cash, no debt, and a valuable technology. When he left, the cash was gone, as were all the fancy leather bags. But the valuable technology was still there.

Sadly, the shareholders lost all of their money, and didn't even get left holding the leather bags.

Imagine for a moment that Captain Edward John Smith had survived running the Titanic into the iceberg and sinking it. How would you react if he then wanted to lead a salvage expedition to the site of the tragedy to recover the gold at the bottom of the sea?

That's how I felt when I read that Phillips had returned to Ipix's watery grave in an attempt to recover the little remaining gold from the ship.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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