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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis

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To: Q. who wrote (1427)	7/18/1998 6:55:00 PM
From: drakes353	Read Replies (1) of 2506

John: Small Cap initial listings require $4 M net tangible assets and various other things they appear to satisfy. Looks like they are just barely there at the moment. Check this out, all as of 3/31: Shareholder's equity: 7.664 million - Goodwill 1.176 million - Portion of "other assets" related to AOL transaction* 1.500 million ------------- Net tangible assets 4.931 million * The capitalized their initial payment (expenses) to AOL (of $1.5 million) and are going to ammortize it over one year. Don't know if Naz will give them credit for that. In the second quarter they paid AOL an additional $2.5 million so everything else being equal it's quite possible that the have an NTA south of $2.5 million at the moment. I'm guessing but the fact that there was no mention of qualifying for relisting on Naz (main or SC) in the 10Q suggests to me that they do not qualify at the moment. Could be wrong about that but doing a filing after the close on a summer Friday suggests that they might have something to hide. If you back out the $4.0 gain on sale they lost a little money in the first quarter. The squishy number allowing them to show such a small operating loss was a big drop in "deferred acquisitions costs" from 1.6 million to 400 thousand. I think this is where the monkeying around is done with insurance accounting. Since this is a "Q" filing management can say that number is whatever they want it to be, no auditor looking over their shoulder until the next 10K. Couple of transitions going on....Swiss Re dropped them as a reinsurance client around the turn of the year. Payments to whomever they lined up (they don't say who it is) have been slow in coming. The HPS outsourcing transition has created some cash flow problems as well. The combination of those two things help explain the $4 million in negative cash flow for the quarter. So, they are reporting $2.7 in income while showing negative cash flow of $4.0 million, not the sign of a healthy company. We'll have to see where this pup trades on Monday. One of the things that concerns me with this outfit is how many investment bankers are involved as shareholders, consultants, etc. .......Broadcast.com weighs heavily on my mind. The consultant agreement (in the 10K), with all those warrants attached to specific milestones, is of interest to anyone with a position in this stock as well. drakes353

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