United States Investor, April 10, 1909, pages 561-563:

Phantom  Wireless  Stocks

Loss es  of  from  $15,000,000  to  $20,000,000--Wireless  Transmission  of  Energy  a  Great  Scientific  Achievement  but  Without  Corresponding  Commercial  Possibility--U. S.  Government  Has  Selected  Best  Features  of  Every  Known  Device,  and  Operates  Own  System--Statement  of  U. S.  Navy  Department--Any  One  Tapping  Electric  Light  Wire  Can  Have  Plant--High  School  Boys  Interfered  with  Operation  of  Plants  of  the  Government  and  Wireless  Companies--Little  Hope  for  Investors.

    Wireless telegraphy, regardless of all favorable developments of recent date, still appears to be a most chaotic melange of great scientific achievement, infinitesimal commercial possibilities and unscrupulous stock jobbing.
    How many investors' millions have disappeared in exchange for the various phantom wireless stocks is a most interesting question, but one which is not answered by the only people who could give the information.
    The whole story is that while the development of the wireless transmission of energy has been a notable scientific achievement, the developers have never discovered any way of making an amount of money out of it which they thought proportionate to the magnitude of their accomplishment except through the exploitation of the market for the stock and the foisting of wireless securities on a susceptible public
    The general idea is that Marconi and DeForest were the pioneers because the most has been heard about the rival claims of these two companies. As a matter of fact, however, the underlying principle was DISCOVERED BY AN OLD GERMAN by the name of Hertz before either DeForest or Marconi saw the light of day. The story is that Hertz, with the Teutonic love of music, happened to be in a room where there were two harps opposite each other in just about the right position. When he touched a string on one harp he noticed a vibration and the emission of sound from the corresponding string on the other harp. Then the principle of wireless transmission of energy was discovered and since that time thousands of scientists all over the world have been endeavoring to develop it.
    The first patent relating to telegraphing without wires, so far as can be ascertained from American records, was taken out by Mahlon Loomis, of Washington, D. C., on July 30, 1872. Since that time many thousands of patents on various devices have been secured by other parties.
    It should be borne in mind that the principle of wireless transmission cannot be patented because it is simply a force of nature, the same as gravitation. The man who first saw an apple drop to the ground discovered gravitation, but he couldn't patent the process. It has been a matter of common knowledge in the scientific world for almost a generation that energy could be transmitted without wires but how to do it practically and make a commercial success of it is a problem that even to-day still SEEMS TO BE UNSOLVED.
    The various patents which have been taken out are upon different devices and instruments used. Both Marconi and DeForest claim basic patents, one on account of direct contact with the earth and the other through indirect contact. There have been endless litigation and claims of infringement between Marconi, DeForest and other people, but the total result up to the present time seems to be that they are all floundering around in their endeavor to harness this great force of nature, and it would seem that not one of them has any device which is really worth taking out a patent on. Hence the difficulty and probable impossibility of any one or any group of investors realizing the fabulous profits from the commercial utilization of the system which have been depicted in such glowing terms by the unscrupulous vendors of wireless stock.
    This contention seems to be amply substantiated by the position of this United States government. When Marconi first began to accomplish practical results he endeavored to lease his equipment to the United States government, but this offer was refused and since that time the government officials have been buying wireless equipment from any one who offered it for sale, and have had their own experts devoting their time to the improvement of it as well as to the invention of entirely new devices and methods of operation. The government officials have had no hesitancy in utilizing the best features of every known wireless method and device, so that to-day Uncle Sam actually has a composite and complete wireless system which is THE BEST IN EXISTENCE. He pays no royalties and in a great many cases now makes his own machines and other items of equipment.
    It is understood that there are between 15,000 and 20,000 stockholders in the DeForest companies and probably several thousand in the Marconi companies. It will doubtless be of interest to them as well as to all other investors to read the following, which is an official statement of the position of the United States government in reference to wireless:
Bureau of Equipment, Navy Dept.,
Washington, D. C.          
Frank P Bennett & Co.,
    Publishers United States Investor,
        2 Rector street, New York City.
    Gentlemen:--Replying to your letter the Bureau informs you that its chain of wireless telegraph stations on both coasts of the United States is complete and it is not necessary for the navy department to depend upon any of the established wireless companies to maintain communication with naval vessels on either coast.
Very respectfully,                    
WM. S. COWEN,        
Chief of Bureau of Equipment.    

    Every one will recall the glowing statements of the wireless companies as to their great revenue from the equipment of government stations and warships, but this letter quite effectually eliminates all these profits from their calculation.
    That rapid progress has been and is being made tat wireless transmission is conceded. A few years ago, however, no sooner were the flaming announcements about wireless companies made than every one with a scientific trend of mind began to STUDY OUT THE PROBLEM on his own account.
    They alertly took the announced conclusion that messages could be sent without wires and speedily worked back to the premises. As a result in a short time many of them were able to send out waves on their own account. The foolish investor, however, thought that the proprietors of this epoch-making discovery would be able to collect untold millions in revenue after the establishment of their system, and they were all ambitious to become partners and share in the great dividends which were sure to come.
    The result has been sadly disappointing because the existing wireless companies have had only paltry receipts, which do not pay running expenses, from messages sent to and from boats and instead of leasing equipment on a remunerative royalty basis they have had to sell it at an inconsiderable profit.
    High school boys all along the coast from Maine to Brooklyn have established rheir own wireless stations in the most rudimentary manner on top of a building through the tapping of an electric light wire, and these amateur wireless investigators have frequently interfered with the operations of the established wireless stations of the government and of the wireless companies. And this is the total result of an investment of a sum variously estimated at from $15,000,000 to $20,000,000 by investors all over the country who were crude enough to think that they were becoming part owners in an immense enterprise which would eventually PUT OUT OF BUSINESS all the existing telephone, telegraph and cable companies with their plants representing an investment of over $1,000,000,000.
    Entirely unmindful of these facts and forgetful of the experience of the original investors, after the recent "Republic" disaster, when so many hundred lives were saved through the instrumentality of wireless, there developed a notable demand for wireless securities. The nominal quotations prevailing advanced by bounds, and it is understood that many despondent holders of wireless securities were able to exchange their worthless certificates to quite an extent for substantial dollars. So it would seem to be still the fact that the operations of some investors' minds will always be beyond comprehension.
    At the time of the "Republic" disaster every newspaper of course paid tribute to wireless telegraphy as a scientific accomplishment and agitation began about the enactment of a bill by Congress compelling every boat to carry wireless equipment. Investors immediately jumped to the conclusion that the wireless companies would speedily get the recognition and reward which had been long withheld and that because the wireless principle had been thoroughly demonstrated and proved the wireless companies would soon have bulging treasuries from which to pay dividends. These enthusiasts evidently overlooked the statement by the officials of wireless companies at the time that as a matter of fact their income from most of the boats was insufficient to pay even the small wages of $10 or $12 a week of the wireless operators on the boat, to say nothing about the operators on shore and the general expenses of the company, including elaborate offices in the Wall street district.
    What is known as the AMERICAN MARCONI CO. seems to have enjoyed the best financial management. This company has an outstanding capitalization of $6,044,800 in shares of a par value of $100 each. Some years ago in the height of the wireless boom this stock sold as high as $140 per share. The company has just issued a statement showing assets and liabilities as of January 31, 1909, and this statement shows an intrinsic value of the stock which must be anything but comforting to the unfortunate people who paid $140 or any other number of dollars per share for the stock.
    In the list of assets is $448,802.89 for the account of organization expenses and deficit account. This is surely a valuable asset. Patent rights, good will and contracts are valued at $5,494,268.78. This item, of course, gives stockholders par value in hope. The tangible or possible assets are itemized as follows:
Accounts receivable9,771.71
Stock of apparatus on hand17,678.73
Cost of stations and experimental work,
    less depreciation
Office furniture and fixtures, less depre-
Unexpired Insurance         588.02
Accounts payable$13,928.06
Loans and notes payable10,600.00
Marconi Wireless Telegraph Co., Ltd.,
    London, legal expense account

    Deducting liabilities from the possible profits leaves a net balance of $101,728.33 or a MATTER OF $1.68 PER SHARE. The present market value of this stock is variously quoted at from $25 to $27 per share, i. e. the stock can be bought at these figures. It is quite significant, however, that if you want to sell stock there is no market at all and the brokers will tell you that you will simply have to place your order on file and wait until such time as some ingenuous Napoleon of finance from the back woods appears on the horizon with some of his hard earned savings.
    The directors of the Marconi Co. make very illuminating statements with reference to their earnings. For the year ending January 31, 1908, they stated that the gross profits had increased from $8,157.01 in 1907 to $13,822.55, or a gain of 70 per cent. An increase of 70 per cent. in gross earnings of course sounds cheerful. They did not stop to figure out what these gross earnings were, spread over the entire capitalization, as they probably did not like such problems in infinitesimal fractions of 1 per cent.
    After this announcement of the increase of 70 per cent in the gross earnings, the further cheering statement was made that there had been a saving of $6,499.46 in administration and other general expenses. No reference was made to any net earnings, as of course there were none, as the relation between the decrease of $6,500 in expenses to a gross income of $13,800 would clearly indicate.
    For the year Januaury 31, 1909, the stockholders were vouchsafed even less information, and the general business depression was of course referred to. Mere mention of the fact was made that there was an increase in gross receipts of about $5,000 for the year 1908 as compared with 1907, but the stockholders were cheerfully congratulated upon the fact that there was a further saving during the year in general and administration expenses of about $7,000, so it would seem that net earnings had become even more remote and so far out of reach that they were not even mentioned.
    The company's unfortunate progress is perhaps best seen by the following table of figures:
expense and
deficit account.
Cash.Acc'ts p'y'ble.
1907  384,804    9,626  15,050
1908  422,422    1,757  34,644
1909  448,803       610  45,210

    These figures seem to tell the whole story, particularly when the fact is borne in mind that four years ago the company heralded as a great accomplishment the fact that it could transmit messages over a distance of 100 or 200 miles, while now they can transmit messages across the ocean and only this week announced their long distance record of 3,500 miles, so it would seem that the greater the accomplishment in scientific development the more remote is the hope of returns to stockholders.
    While the results of the Marconi Co. are bad enough, those of the other group of companies, which are now all defunct, with their remnants jumbled into what is known at the present time as the United Wireless Co., seem to have been infinitely worse. It is claimed that all the stock-holders in these various companies have had an opportunity at some time and upon some basis of exchanging their holdings for stock in the nest company, so that the United Wireless Co. to-day represents a consolidation of about all the other wireless exploitations. The story of these various mergers and consolidations is a tale of unexampled and UNCONSCIONABLE JUGGLING of investors' money.
    The first wireless company to be formed in this country was the American Wireless Telegraph & Telephone Co., organized in 1900 in Philadelphia, which had as its basis the Collins patents. This company organized the following subsidiary companies: New England Wireless Telegraph & Telephone Co.; Federal Wireless Telegraph & Telephone Co.; Atlantic Wireless Telegraph & Telephone Co.; Northwestern Wireless Telegraph & Telephone Co.
    These companies were then merged into the Consolidated Wireless Telegraph & Telephone Co., and this company in turn was succeeded by the International Wireless Telegraph & Telephone Co. All these companies were capitalized liberally in the millions, and were extensively advertised in the newspapers. The promoters evidently adopted the system which is said to have been used by some mining men, namely, as the dollars came in from the sale of stock they flipped these dollars up to the ceiling, and the dollars that stuck to the ceiling belonged to the stockholders, and those that came down belonged to the promoters.
    Regardless of this fact, however, the business of selling stock flourished, and the first of the DeForest companies, known as the Wireless Telegraph Co. of America, appeared on the scene. This company was succeeded by the DeForest Wireless Telegraph Co., with a capital of $3,500,000. This capitalization was insufficient, so another company under the same name was organized with a capitalization of $5,000,000. Then the International Company was formed with a capital of $10,500,000, and the two were merged into ONE GRAND INSTITUTION, in November, 1902, called the American DeForest Wireless Telegraph Co., with an authorized capital of $15,000,000 of stock, and $500,000 of bonds.
    It appeared, however, that even this capitalization of $15,500,000 was insufficient, so the American DeForest Co. organized subsidiary companies to operate on the Atlantic coast, the Great Lakes, and a third one for the Pacific coast. The principal business of stock selling was pushed with great vigor during the next four years.
    One of the favorite methods of selling stock was to erect a station near some city where a stock-selling campaign was planned. One instance of this was in the city of Syracuse, N. Y. Of course, the cost of erecting one of these crude stations was inconsiderable, compared with the receipts from the sale of stock. In this and numerous other cases the company neglected to pay some of the bills for construction.
    The results in Syracuse, it is well known, were eminently satisfactory to the promoters. It developed that there were but few school teachers in the entire city who escaped the wiles of the wireless agents, and very many business and professional men bought the stock besides. Aside from its regular agents, the company secured the co-operation of a well-known physician and a manufacturer, who loaded up all THEIR FRIENDS AND NEIGHBORS with American DeForest common, at prices ranging from $8 to $15 per share. During the time the stock was being sold at these prices the same stock was quoted on the curb in New York at from 60 to 80 cents per share, and it is claimed that many of the wireless agents, instead of disposing of treasury stock for the liberal commission of 50 per cent or thereabouts of whatever they could get, would pick up the stock on the curb in New York and dispose of it at the high rates prevailing in Syracuse at the time. In any event, the Syracuse manufacturer who disposed of so much of this stock got into trouble, and in many instances returned the money he had taken from his friends.
    There was one interesting incident in the Syracuse episode. A poor baggage man, employed by the New York Central Railroad, had bought 10 shares of common stock at $8 or $9 per share, and was so disgusted that he told his troubles to the New York Central local attorneys, with the result that they decided to sue for the recovery of the money. In the trial of this case I was the expert on market values, and testified as to the quotations on the stock which had been made each week. The trial occupied the entire day, and in one of the heated arguments between the attorneys the lawyer for the defense claimed that the certificate of 10 shares was easily worth $25, whereupon the attorney for the complaining baggage man promptly threw the certificate on the table, and succeeded in making the attorney for the defense pay the $25 in court in the presence of the judge and jury, and received permission of the court to amend his complaint by giving credit for the $25 received. The case went to the jury, and it took them about THREE MINUTES TO RENDER their verdict, which was for about $5 more than the plaintiff claimed. The decision was not appealed from; the judgment was paid, and numerous other private settlements followed, although in the great majority of cases purchasers of the stock were ashamed to let anyone know that they had paid from $8 to $15 per share for stock which was selling on the curb at 60 to 80 cents per share.
    The stock jobbing possibilities of the DeForest companies had been pretty thoroughly exhausted, so in November, 1906, the United Wireless Telegraph Co. was incorporated with the announced purpose of merging the DeForest and Marconi companies. This was simply another device of the DeForest promoters. The Marconi people promptly repudiated the announcement, and notified all their stockholders to have nothing to do with the project. The United Wireless Co. was capitalized at $20,000,000 equally divided between common and preferred.
    The statement of the United Company, as of January 1, 1909, is one of the most ludicrous financial statements ever issued. The company claims to have no debts, and a surplus of over $5,000,000. Disregarding patents, treasury stock and other stocks in the treasury, the company gives the following items and assets:
Factory material on hand$9,285.55
Factories and equipment25,996.98
Land stations and real estate215,442.50
Boat stations287,500.00
Office furniture and fixtures3,975.38
Cash in treasury and treasy checks109,400.70
Bills and accounts receivable176,498.04

    As there is outstanding $5,700,000 of preferred stock of a par value of $10 per share, these assets would indicate a POSSIBLE INTRINSIC VALUE of $1.45 per share. This, however, appears somewhat inadequate in view of the company's bold assertion that none of the preferred treasury stock is for sale at less than $20 per share, or 200 per cent of its par value. Twenty dollars a share for a stock of an intrinsic value of $1.45, might fairly be regarded as somewhat extravagant, but this contention is modest in the extreme when the common stock is considered.
    As has been stated, there is only $828,000 of possible assets to take care of the $5,700,000 of preferred stock, but after that there is an authorized issue of $10,000,000 of common stock, of which about $9,000,000 is outstanding, with $1,000,000 in the treasury. This common stock in the treasury the officials of the company actually have the effrontery to say that they will not dispose of at less than $22.50 per share, or 225 per cent of its par value; and more than that, it is claimed that they keep selling some of the stock at these figures.
    It would seem almost incredible, yet this is probably one of the cases where nothing is impossible to the irresponsible promoter. Think of it! A few days ago there was a sale of gelt-edged Chicago & Northwestern preferred at 214, but if you want any United Wireless common from the treasury, which has no intrinsic value at all, you have to pay 225 for it.
    In the machinations of the wireless promoters they have evolved some new financial terms. While the United Wireless stock certificates are all exactly alike, duly issued and signed by the officials, the company's managers have arbitrarily put in force some strange discriminations. There is stamped stock, unstamped stock, free stock, promotion stock and treasury stock. It seems they have a record of the certificate numbers of the big blocks of stock which were secured by the various promoters who have at different times been dropped out of THE SELECT COTERIE who now run the game. Hence, this stock is promotion stock, and is not recognized at all.
    At some stage in the proceedings exchanges were made with shareholders in other companies, and these certificates were stamped non-transferable for a period of from two to four years. Then there was some stock issued which ought to have been stamped and was not, and as this will be recognized by the company if it is stamped non-transferable for a certain time, this has led to the distinction of unstamped stock.
    Of course, the officers will tell you that the only real stock is the treasury stock, which they are willing to dispose of at exorbitant prices for new good dollars. After the unfortunate victim has bought some of this stock, he is the possessor of what is termed free stock, and can transfer it if the officers feel so disposed, but if some of these certificates get into the hands of wicked brokers, then the character of the certificate changes, and it is known as brokers' stock, and the officers are inclined to ignore it.
    This situation is unparalleled in the records of stock manipulation, and at the present time no broker undertakes to sell stock with a guarantee that it can he transferred. He simply shows the customer the stock certificate, and sells it to him as it is, without recourse. It is understood that before long the company's officials will have to explain THEIR INDEFENSIBLE TACTICS in court.
    The United Company issues an attractive monthly magazine, called the "Aerogram," which carries some advertising, and is understood to be a source of some revenue. That this is probably true, is evidenced by the fact that the Marconi Company is going to follow their example, and has already got out the first number of the "Atlantic Daily News," which is to be printed on board steamships equipped with Marconi apparatus. Liberal rates are charged for advertising space, so it may be possible for the wireless companies to get some dollars of profit from the publishing business which they have not been able to secure as yet through the transmission of messages without wires.
    The future of the wireless companies, so far as stockholders are concerned, appears to be gloomy, indeed. A bill has been introduced in Congress which will give the government absolute control of all wireless companies, and then the government will rent permission to these companies, giving them a specified "wave length," which they must use, and which will not interfere with messages sent by the government or any other company.
    The steamship companies are all anxiously awaiting this result. At the present time it is very inconvenient, because the Marconi and United companies will not exchange messages, and of course, to realize all the possibilities of wireless, it is necessary that the wireless stations of all companies and of the government be intercommunicative.
    At the present time the wireless companies CAN MAKE NO MONEY out of the government, and they are making but little money out of the boats. Should the time ever come when there are any considerable profits from the operation of wireless stations on the boats, there is, of course, nothing to prevent steamship companies from doing the same as the government has in putting together their own wireless equipment, taking the best features of every device now in use. If they did not do this they would be sure to make the wireless companies pay a rental or percentage of receipts, which would make it impossible for the wireless companies to, in any event, pay more than a moderate return on the replacement value of their equipment. Hence, the situation clearly designates those many millons in valuations of patents to be as visionary as they have always been regarded by the scientific and commercial world.
    It would seem that these enthusiastic wireless investors would have given some consideration to the fact that none of the established cable, telephone and telegraph companies has ever given any consideration to the development of wireless. They all probably understand the reason now because it is very obvious that if wireless should ever develop commercial possibilities worthy of consideration, the established companies using wires would, of course, promptly install plants of their own, and there would be nothing to hinder them in this, any more than there has been in the case of the United States government.
    Wireless stockholders, therefore, are deserving of commiseration because their stock certificates evidently represent nothing but the tremendous overcapitalization of a phantom hope.