Edwarda, I need some explanation for this statement:
As I noted above, the company burned cash in the second quarter and expects that the current quarter will be cash flow positive.
If, as I surmised, sales into the channel were bogus (because there was no requirement for the purchaser to pay for the goods prior to sale to the end purchaser), and if the company ceased making those "sales" into the channel, then the final sell-through (from the channel to the final user) should result in an influx of cash and a reduction in accounts receivable. So how does the company explain away the negative operational cash flow?
Second, Larson claimed (about a year ago as I recall) that sales to European customers would result in a longer receivables period -- around 90 days. But this should have stabilized by now unless sales were growing -which they don't seem to be judging my management's pronouncements. That's why I reject the argument that longer lead times to ink a deal (which certainly should not impact DSO) and increased European collection periods are the culprit.
Finally, I believe that the Y2K "lockdown" is a convenient excuse -- although I cannot substantiate this.
The hypothesis that seems to fit is that NAI booked bogus revenues in anticipation of those deals, and when they did not materialize, or materialized more slowly than anticipated they looked around for a plausible excuse, and what better excuse is there than Y2K? This also leads me to question the accuracy of the audits by the CPA firm.
One of the problems with employee stock options is that it creates a tremendous incentive for management to inflate the price of the stock. After all, their compensation is based on the difference between exercise price and the price of the stock. This creates an incentive to inflate earnings, and the easiest way to do this is by stuffing the channels.
TTFN,
CTC |
