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Technology Stocks : TAVA Technologies (TAVA-NASDAQ)
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To: Lee Reed who wrote (22453)8/20/1998 2:18:00 AM
From: Mark L.  Read Replies (1) of 31646
 
"To All: I am attempting to weigh the pro's and con's of TAVA as a potential investment. To this end, I appreciate both the bullish and bearish view."

I'll try to give you both sides.

Pro's:

1) The company has a good product in a legitimate area without any current competition and none on the horizon that I'm aware of. Without question, revenues are soaring, and profits should be substantial.

2) I do not agree with others who say that management is subpar. The current management has taken a disparate array of businesses and consolidated them into a new company and is capitalizing on the Y2K problem. Management will be posting much better numbers than a year ago. I don't really see how you can criticize a management that will be showing a big improvement over its predecessor.

3) In terms of post-Y2K, the company had an existing non-tool business, and they are leveraging the Y2K-One product so that it will help in that business. This should work in two ways: companies that have never heard of them are now aware of them (I have seen this firsthand) and they are gathering data about factory floor operations from the companies with whom they have current contracts that should allow them to make customized proposals after 2000.

4) I gather that there are technical and momentum reasons for investing in the company, but this is not my area of expertise.

Cons:

1)The company has a valuation which assumes a multiple should be applied to Y2K earnings. In other words, the current market cap is saying that the Y2K earnings are not an isolated phenomenon and that TAVA can continue to make substantially more money than they made prior to Y2K. This is by no means a certainty.

2) Management does have at least one weakness. They have had significant difficulty controlling SG&A expenses in the past, and they have made a pledge to keep their current staff on board after 2000. So, if they don't get the revenues, the picture post-2000 will be very ugly.

3) The company's cash flow picture to date has not been great. There is an overhang of unamortized software development costs that will have to be applied against the expected revenues over the next few quarters.

4) The company has been strapped for cash in the past and has had to resort to non-standard financing. This is very significant for some people but means nothing to me--except insofar as it indicates how challenging the core business is without the Y2K phenomenon.

Just for the record (so you can judge my prejudices), I have a substantial short position in the stock.

Best of luck in whatever decision you make. For whatever it's worth, there are both longs and shorts who have made good money on this stock.
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