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Technology Stocks : TAVA Technologies (TAVA-NASDAQ)

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To: Captain Jack who wrote (1676)	8/14/1997 6:39:00 PM
From: Patrick Keeler	of 31646

TPRO has a market cap of around $120 MM. TPRO recently doubled the number of shares outstanding from 11 MM to 22 MM or so. If they still had 11 MM outstanding the stock price would be just over $10/share. The equity replaces outstanding debt accumulated while growing the company so rapidly over the past 9-12 months. So, the 100% dilution is immediate and the benefits are not. Topro had a very large interest expense in its last reported quarter. The interest expense was $402K or almost as much as the Net Income of $493K. In their recent press release they say they will significantly reduce this expense. If you figure significant reduction is 50% then they would increase net income by 40-50%. Increasing shares by 100% to get back 40-50% in net income looks kind of dumb. ;-0 However, the benefits go beyond one quarter. Further, this frees up cash to be used to hire additional engineers and fund plant outfitting. Basically, allow TPRO to grow more. I think TPRO is fairly valued around $9 with 22 million shares outstanding and annual revenues running around $50 MM. However, watching the ticker is not very fruitful as the market is having a hard time swallowing the extra liquidity. Lower volume just means the market will take longer to swallow up the additional shares. I think TPRO at $4.5 is extremely attractive. I think everything under $9 is attractive since it values the future Y2K sales at zero. The stock should rally when liquidity is swallowed and the story is more widely known and earnings approach. Since the debt retirement and increase in outstanding shares happened after the FY ended, the next earnings report will almost be old news as its reported. The actual EPS number will be sort of worthless. What will be important is Revenue and Gross Margin. All should grow nicely. I would like to see Revenue near $15 MM and gross margin near 40%. FWIW, EPS would be around $0.06 if last quarters trends continue. Like I said, EPS doesn't matter much for this company until the March 98 report. I would say this about earnings. If TPRO's regular business can come up with $75 MM in Sales over the next 12 months, and its Y2K business can come up with another $15 MM in sales, then I believe TPRO could report $0.30-$0.40 over that time period. That would put TPRO's forward 12 month PE at 16 and its trailing growth rate at about 135%. FWIW, I have met TokyoMex and eaten at his restaurant. ;-) Keep your eyes on the calendar not the clock... Patrick

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