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

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To: Yamakita who wrote (1679)	8/23/1998 11:19:00 PM
From: Pluvia	Read Replies (2) of 2506

Several interesting things happening with SRCM: 1. Class action suit filed vs. SRCM Fri. after the close biz.yahoo.com 2. Outstanding warrants that have been registered and are available to convert. There are many different warrants at different exercise prices. Two warrants of significant interest are; the 477,000 warrants exercisable at one penny for one share of common - issued to the preferred unit buyers in Oct. '97; and, the 2.8 million warrants issued to the Tranche note buyers in April '97, exercisable to common at $6. Both can convert at any time due in part to s-3 registration filed 7/28/98. It would also appear that the majority are still outstanding and not yet converted, (looking at increase in issued & outstanding and line in financials which shows income from conversion of warrants). Bottom line, now that things suddenly look terminal, could be a bunch of stock still available to pound the market. 3. SRCM has not yet admitted they cooked the books or committed fraud - by suggesting business was fine and dandy when they were losing customers representing significant amounts of revenue. I am intimate with the details of these customer losses, and am 100% confident SRCM will need to restate their last 2 Q's and also financials in '97 along with their '97K. These admissions by SRCM will help to kill them and they have no way of avoiding them. This brings into question if their auditor will stick with them or bail at the sign of fraud. Over the past 6 months Ernst & Young has been bailing regularly in these type situations, in some cases pulling their opinion on the problem years - causing the stock to be halted. I think the possibility of this occurring is this case is very real. 4. The new class action suit accuses SRCM of failing to disclose the loss of customers while insiders - directors of the company - sold over $20 million of stock. I have seen the hard evidence, I believe it to be 100% true. Expect some significant shake-ups in management as a result of these problems - expect suits filed personally vs. directors. Management will have their hands full for a while sorting this out. 5. SRCM is losing more customers each Q in the only business that produces revenue, this will continue to accelerate the burn of their working capital which by June 30 was down to 16ish mill. Expect the belly-up clock to begin ticking faster now with legal problems that may tie their hands as they try to sweet talk more investors into giving them money. IMO short this company and keep as a staple in your portfolio till it's down to zip. The 120 million of outstanding debt, lack of any product to produce significant revenue, and new legal problems give them zero chance of recovery IMO. Makes a nice play in any market. Much more good info on SRCM thread. Good luck investing - Steve

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