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Strategies & Market Trends : Stock Attack -- A Complete Analysis

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To: Robert Graham who wrote (7435)	3/27/1998 5:18:00 PM
From: Robert Graham	Read Replies (1) of 42787

A quick look at the news and fundamentals of this company indicates a small cap high tech still in the process of establishing their revenue base. They are very agressive in the management of their financials. The large increase in revenues reported this last quarter is not difficult for a company in this revenue range. Still it was significant, but their one-time writeoff to liscense technology and topay for their aquasition of another software company took care of that increase. They need to work on their A/R since cahs flow is king for a company like this. The A/R $18M which is significant for a company like this. Their current liabilities is a large $35M, except half of this is "deferred revenue", and A/P is only about $2M. They do have over $100M in cash which is very good, but this came from a recent infusion of paid in capital which did not come from the sale of stock but instead from a $140M long term loan, the first on the books. Still this leaves a $40M difference which must of went to support other costs incurred durng the quarter such as the aquasition. Since the bottom line financially for this company is cash flow and maintaining it, I will look at their cash flow statements when I get a chance. They do seem to be establishing themselves with customers that are the heavy hitters in the tech industry such as with their CSCO deal which is the type of company that would use their embedded products. This being a "promising" small cap high-tech company that is cash rich would prove to be attractive to the speculator in the marketplace. This is despite the large one-time writeoff. The rationale here would be the large increase in revenue and income for this quarter and the writeoff being over costs used to generate more market share that will show up as future revenue. Also embedded systems is something many including those in the computer industry do not understand which can actually help to this company's "mystique" to the speculator. However, I see this company as essentially a company still in its startup phase. This company is extremely dependant on its funding through loans or ownership equity. Their ability to sell stock will be limited until they can prove themselves and long term debt can add up quickly. Still, selling stock may not prove to be that difficult in this speculative market. But then the company would of done this if they could instead of assuming LT debt. Just my opinions. Bob Graham

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