After selling off most of its assets, troubled vendor CoSine is now touting its intellectual property

June 17, 2005

3 Min Read
CoSine: 'Come & Get Us'

Despite a failed merger and stock market delisting, CoSine Communications Inc. (OTC: COSN.PK) still has much to offer, according to CEO Terry Gibson.

”People who like what CoSine was doing or see pieces of its technology that they can use in their products should give us a call,” he tells NDCF. “They don’t necessarily have to buy the company.”

Gibson says CoSine remains committed to supporting its existing customers, and he clearly hopes the failure of a merger agreement with Tut Systems Inc. won't put off other suitors, nor that delisting by Nasdaq will discourage interest in the firm's intellectual property (see CoSine Terminates Merger Agreement and CoSine Announces Delisting Notification).

How the mighty have fallen! Not long ago, CoSine was a rising star in the telecom space. Its switch and routing technologies, designed to allow service providers to roll out advanced services like virtual private networks (VPNs), were attracting lots of positive attention.

But troubles accumulated. CoSine has undergone a turbulent 12 months since announcing poor second-quarter results last year, followed by layoffs and the termination of the lease on its Redwood City, Calif., headquarters (see CoSine Losses Grow in Q2, CoSine Cuts to the Bone, and CoSine Posts Q3).

Earlier this year, telecom equipment manufacturer Tut Systems offered $24.1 million for CoSine (see Tut Takes On CoSine). But in May, CoSine broke off the deal, saying it was unlikely to gain shareholder approval (see Tut Responds to CoSine ).

Gibson says the deal’s value to CoSine shareholders had dropped to around $18 million, which prompted the decision. “We did the math to see whether it made sense for CoSine shareholders or not,” he says. “It didn’t.”

Tut was unavailable for comment for this article.

Nonetheless, Gibson says the firm’s intellectual property is still attracting interest. "There have been discussions that have been ongoing.”

How did CoSine get to this sorry pass? Analysts say the firm is a victim of shortcomings in its product strategy, citing reliance on a narrowly focused edge router and limited need for network-based IPSec and VPN combos (see CoSine: The Big Sell-Off?).

But Gibson blames the competition, such as Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Corp. (NYSE/Toronto: NT). “The challenge was competing against the giants in the industry that had customer scale, penetration, and breadth that we couldn’t overcome,” he says.

The CEO adds that, despite the firm’s recent travails, CoSine had around $23 million in cash when it filed its last 10-Q form in March. Intriguingly, the exec would not rule out the possibility of spending this to acquire pieces of other businesses. “It’s the early stages of considering this approach, and there’s nothing specific."

But with CoSine now a shell of its former self, Nasdaq has delisted the company in accordance with its marketplace rules 4300 and 4330(a)(3). Gibson says there are no plans to rejoin Nasdaq, and the stock is now being traded on the OTC marketplace under the ticker symbol COSN.PK.

This is all a far cry from September 2000, when CoSine shares tripled early in the company’s first day on Wall Street. By market close, CoSine shares had risen in value from $23 to $63.06, following an initial public offering of 10 million shares (see CoSine Soars On Debut).

In trading today, CoSine’s stock dropped 1 cent (0.43 percent) to $2.29.

— James Rogers, Site Editor, Next-Gen Data Center Forum

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