TAVA is honored with its addition to the DOOM INDEX (tm)
TAVA peeked its head above 10 a share today with a pablum news release...making it eligible for inclusion into the DOOM INDEX!!! Congratulations!
TAVA is weak, money-losing consulting firm which has discovered the wonders of stock promotion via the Y2K hoax. TAVA's angle is that they attack Y2K problems in "embedded systems", i.e. microcontrollers for plant floor tools and computer-regulated sytems. Y2K hypesters like to believe that microchips will go crazy on 1/1/2000. Vault doors will refuse to unlock, power-plants will shut down, and general panic will ensue.
Nothing could be further from the truth. Just like the general Y2K problem, the embedded system Y2K problem has been blown all out of proportion.
TAVA uses similar techniques as other Y2K consulting firms to get a foot in the door. They have obtained some Y2K "assesment" work and the fans hope this will lead to "remediation" work...and billions will start rolling in. Of course, no one needs to wait for any actual earnings these days when they buy stocks, so TAVA has been bid up through the roof.
TAVA also uses similar stock promotion gimmicks. TAVA issues news releases of "contracts" without any details of scope or amounts. This brings up fond memories of the Y2K fraud Zitel. however, a quick read through the last 10-Q shows that TAVA's backlogs are negligible. Here is a rousing management report from the 10-Q:
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<<Much of the backlog at March 31, 1998 represented orders for the Company's inventory and assessment services, which constitute "Phase I" of the total four phase Y2kOne service and product offering. Management believes that a substantial portion of these orders will develop into subsequent follow-on orders for conversion plannning. Based upon these circumstances, management currently expects to receive between $6,000,000 to $8,000,000 of Y2k orders in May 1998. These new orders will not all be converted into revenue during the
current fiscal year.>>
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Here is another highlight form the last 10-Q:
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<<<LONG-TERM DEBT:
9% convertible debentures with an investment fund. Outstanding borrowings bear interest at 9.0% per annum, interest payable monthly. If the debentures are not sooner redeemed or converted, a mandatory principal redemption is due beginning March 1, 1999 in the amount of 1% of the then remaining principal amount outstanding. The debentures are convertible into the Company's common stock at the rate of one share for each $1.50 of principal. The loan is collateralized by all the assets of Topro, Advanced Control, Management Design and All Control . During July and August, 1997, the debenture holders converted $2,685,000 of principal into 1,790,032 shares of common stock.
Promissory note payable to an investment company net of a discount of $315,000. Interest at the rate of 11.5% per annum is payable quarterly. Principal is due January 31, 2001. The loan is secured by substantially all assets of the Company and its subsidiaries.>>>
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The total long term debt for these two items as of 3/31/98 totals approximately $5,700,000.
Combined with their *real* business prospects (not the enormous pie-in the sky the fans love to talk about, the lousy income statement and balance sheet are enough to make this an excellent short. However, when we think about what is being described in those two paragraphs - we have a lock-on slam-dunk short! Basically the company has put up all its assets for a lousy 6 million bucks while the market capitalization stands at roughly $240 million!!!
Most of this debt is in the form of convertible debentures. This gives the lender the right to convert debt into stock at amazing discounts.
The 10-Q goes on:
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<<NOTE 5. LONG-TERM DEBT AND STOCKHOLDERS' EQUITY.
During the nine months ended March 31, 1998, holders of a portion of the Company's 9% convertible debentures exercised their rights thereunder and converted $2,685,000 of debenture principal into 1,790,032 shares of common stock. During the nine months ended March 31, 1998, holders of 4,893,208 stock options and stock purchase warrants exercised their rights thereunder and received an equal number of shares of the Company's common stock. The Company received proceeds, net of expenses of $70,400, in the amount of $8,731,000. During November 1997, the Company sold 955,000 shares of its common stock in a private placement and received proceeds in the amount of $5,252,500. Expenses incurred in connection with this offering were $426,500.>>
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With all this conversion and follow-on offerings, total shares outstanding have risen 80% from 13.8 million in the quarter ending 3/31/97 to 23.2 million in the quarter ending 3/31/98. In the meantime, revenues remained flat at $11 million and net income decreased from $500,000 to $300,000. For the trailing 9 months, the company reproted a net loss of a nickel a share.
There is no doubt in my mind that TAVA is grossly overvalued and will trade significantly lower with a target in the low single digits. Short at any price over 5. |
