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Technology Stocks : Spyglass -- Ignore unavailable to you. Want to Upgrade?

To: 2MAR$ who wrote (1115)	10/20/1999 8:50:00 AM
From: Art Bechhoefer	Read Replies (2) \| Respond to of 1412

The latest financial report looks very good, but I wonder whether the success in turning around the company's fortunes is due to proprietary software more than to capable and available software consultants. Put another way, what worries me about SPYG is that it is too oriented to consulting services, which can easily dry up once the essential services have been provided. Consultants basically work themselves out of a job. Whereas companies with proprietary products continue to draw revenues from licensing, royalties, copyright fees, etc. It seems to me that SPYGLASS, in order to deal with a precarious financial situation, has chosen to take one-time fees for licensing and/or sale of proprietary products (like the filter for school access to the Internet), in favor of a continuing stream of fees that other software providers generally get. There is also another area that perhaps someone would comment on - the use of accrual accounting methods to record consulting fees. SPYG uses the accrual system, but what that really means is that consulting fees may show up on the financial statements BEFORE the money is actually received. This, if my analysis is correct, tends to front load the financial statement and make it look better in the short run than in the long run. Any comments?

To: 2MAR$ who wrote (1115)	10/20/1999 8:50:00 AM
From: Lane Hall-Witt	Respond to of 1412

Here's a link to that earnings report (tables formatted and easier to read): biz.yahoo.com Quick points: (1) SPYG met consensus estimate and whisper number with EPS at $0.02. Projected FY2000 EPS is $0.27. earningswhispers.com biz.yahoo.com (2) SPYG showed strong revenue growth throughout FY1999 as it completed its transition into the information-appliance business. After two years of shutting down its PC browser business and moving into the non-PC market, SPYG again looks like the growth company that it in fact is. 1Q1999: $4.523M 2Q1999: $6.299M (39.3% quarter-over-quarter growth) 3Q1999: $7.232M (14.8%) 4Q1999: $9.187M (27.0%) FY1998: $21.169M FY1999: $29.610M (40.0% year-over-year growth) (3) Software licensing contributed a surprisingly high 53.8 percent of total revenues. This is an extremely high-margin business: $4.943M in licensing revenues, with just a $0.050M cost of revenue (99% gross margin). (4) The balance sheet is strong, and will get considerably stronger once the SurfWatch sale is complete. That sale is expected to add $27M pre-tax in cash and investment assets. The deal also adds an essentially cost-free $2M to SPYG's financial results, going forward, because JSB will pay an ongoing fee to license SPYG's patented filtering technology. biz.yahoo.com (5) One area of potential concern is accounts receivable, which grew from $4.704M in 1998 to $8.731M in 1999. The forthcoming conference call and 10K may help explain this. All in all, this looks like a very solid quarter. It reinforces my belief that SPYG is quite undervalued: this company is already profitable despite the fact that its market space (information appliances) is just beginning to emerge. SPYG seems well positioned to benefit from the explosive growth we'll see in this space going forward. SPYG FY99 Revenues: $29.610M FY99 Income: ($ 1.897M) FY2000 EPS: $0.24 estimated Market Cap: $170.0 million Yahoo! Profile: biz.yahoo.com PHCM FY99 Revenues: $13.4M FY99 Income: ($20.8M) FY2000 EPS: ($0.95) estimated Market Cap: $6.619 billion Yahoo! Profile: biz.yahoo.com LBRT 1Q2000 Revenues: $5.3M 1Q2000 Income: ($12.5M) FY2000 EPS: ($1.25) estimated Market Cap: $1.974 billion Yahoo! Profile: biz.yahoo.com