Re: NETA, the SEC letter, and the CFO
Truly there is no reason for NETA's CFO to resign - he and the company have done nothing wrong. Companies to be worried about are ones that cook revenue or cash flow numbers, since these affect people's perceptions of viability and growth. NETA has done none of this, nor has it been accused of doing so. The SEC letter it has received merely expresses concerns about how the company wrote off certain expenses associated with companies it acquired over the last year or two.
The SEC issue is: can these expenses be treated as a one-time charge, or should they be rolled into NETA's ordinary everyday expenses. Note that this is nothing to do with revenues or cash flow. It is also nothing to do with taxes. Whichever way these expenses are categorized, the company's cash position, revenue position, and tax position remain the same. The only thing that changes is the way that earnings per share are reported.
NETA originally categorized these expenses as one-time extraordinary charges (not unreasonable, and standard practice in the industry), and wrote them all off in the quarter they were acquired. Thus it tried to take the accounting hit for the charges all in one quarter rather than cluttering up future quarters' numbers with charges from previous (pre-acquisition) quarters. The SEC has since recategorized these charges as capital items that must be written off bit by bit over the next several years. Let's make sure there's absolutely no doubt here: regardless of which way the accounting is done, the exact same amount of cash remains in the company, the exact same amount of revenue will come in, the company is exactly as good or bad, viable or non-viable. Nothing about the way the company runs changes here.
What does change is that if the SEC succeeds in recategorizing the charges, NETA will have to account for the charges for the next several years, resulting in a reduction in *reported* earnings (not in actual earnings or in cash or in revenues) of about $0.12 per year, or about 5% in 1999, 4% in 2000, and even less in future years. This is all that changes!
As for Prabhat Goyal (NETA's CFO)? He's actually a very conservative guy. He tells Bill what can and what can't be done on financial issues, and believe me - Bill listens. The last thing he wants is anything contraversial dragging the stock down. If you go back to basics, and simply examine the company's income, operating expenses, and cash flow (all available from the 10Q's), you can determine for yourself that the company is having no trouble at all growing new revenue. If you look at the reserves for renewals, you'll see that the company's forward-looking revenue stream is among the most predictable in the industry (when a sale is made, not all of the revenue can be counted in that quarter - some must be deferred until future quarters since the software NETA sells is sold on a 2 year subscription basis - this deferred revenue is guaranteed to come in in the future, because the sale has already been made). Clearly the company has no trouble growing revenue or remaining profitable.
Please please please go take a look for yourselves at the numbers that affect how the company grows and performs: revenue, cash generation, operating expenses. Once you've convinced yourselves that the company is very strong and getting stronger (look for yourself - don't take my word for it), now put the SEC letter in perspective. All it changes is the funny set of numbers we call accounting. It affects the business not at all.
Sorry for the long drawn out post, but the disinformation coming from others on this thread has reached biblical proportion!
Elephant
>Joanna writes:
>Hmmm??? Not comfortable yet. Spokespersons are not always very >reliable...
>Any of you NETA guys on the thread care to check Mr. Goyal office >out to see whether his stuff is still in the office??? (You know who >you are...) Please send me a PM to let me know what you find... |
