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Technology Stocks : FORE Inc.
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To: jad who wrote (10430)2/18/1999 11:00:00 AM
From: Bungee  Read Replies (3) of 12559
 
Letter from FORE

I asked the company for information regarding the recent stock price action. FORE answered quite fast and the answer sounds not that bad.

B.

FORE stock fluctuated wildly yesterday morning based upon
our receipt of a letter from the SEC regarding the write-off of in-process R & D in our September, 1998 financials. The SEC has issued over 150 letters to other companies in our industry and others regarding this in-process R & D issue. So we are not alone in battling this issue with the SEC and the fact that our stock rebounded later yesterday in a down market indicates that the investment community should either minimize or ignore any impact that any adjustment related to the SEC review may have on our financials.

FORE received a valuation appraisal from an independent third party that was used as the basis for the write-off of the in-process R & D. We strongly believe that the computation of the in-process R & D contained in that appraisal is correct. We will defend that valuation in our discussions with the SEC.

FORE is required to respond to the SEC within the next two weeks. The SEC will probably take some period of time to digest our responses to their questions. Thus, it is difficult to say at this time when we will have a final resolution of this matter.

Any adjustment to the in-process R & D write-off as required by the SEC will require us to restate earnings for the second and third quarters. Any adjustment will reduce the amount of the in-process R & D written off in the second quarter and will require us to capitalize any adjustment as goodwill, which will be amortized over some period of time. The amortization expense, if any, will have the effect of reducing earnings during the amortization period.

However, as many companies are going through this issue, most analysts and investors agree that any increase in goodwill(and hence increase in amortization expense) does not have a cash impact on the company and does not impact the "economic" operations of the company. As such, most analysts will ignore the amortization expense so that any reduction in EPS resulting from it will be ignored. If an adjustment is required, FORE will state its earnings in its Press Release both "with" and "without" the goodwill amortization expense so that the analysts can see through this non-economic charge.

We will gain market share and report more good news in the near future. I am confident that this will lead to a higher valuation of FORE.

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