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Technology Stocks : XYBR - Xybernaut
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To: Jason Flora who wrote (2491)4/15/1999 7:36:00 PM
From: Bill Fischofer  Read Replies (2) of 6847
 
The good, the bad, and the ugly

Here are some initial impressions. The bad news is obvious. The good news is that it seems that Price Waterhouse has forced XYBR management into conformity with prudent and conservative accounting practice which will serve the company well going forward. Obviously this was the dispute which caused the delay in the 4Q98 report. XYBR wanted to book a lot of unpaid-for shipments to resellers as 4Q revenue and the accountants said no. While these sort of retractions are never welcome, it is better to do so earlier rather than later. This avoids having to deal with the very unpleasant possibility of earnings restatements down the road.

It is also good to see the company publically eat a bit of crow in today's earnings PR by explaining what happened.

The ugly part is the damage that has been done to XYBR management's credibility. The public explanation is the first step in restoring that credibility. It must now be followed swiftly with concrete demonstrations of actions and results. I never expected much from the 4Q98 report given the limited availability of the MA IV during that quarter. The 1Q99 report will give a much clearer picture of initial sales and the 2Q99 report must confirm accelerating revenue. It is good to see the company confirm the $40 million 1999 revenue projection. If they track to this projection then within a few months this incident will be long forgotten.

With regard to the audit qualification, while it is unfortunate that this could not be removed for the 1998 report (due to lack of immediate sales) this is an albatross that XYBR has lived with since its inception. It is the reason why this remains a speculative stock.
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