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To: Wolff who wrote (789)	8/8/2000 1:28:41 PM
From: Brasco One	Read Replies (1) \| Respond to of 903

sitting on their island laughing at the scon longs.

To: Wolff who wrote (789)	9/26/2000 3:40:03 PM
From: StockDung	Respond to of 903

SEC Scrutinizes Companies Issuing Securities to Big Customers Washington, Sept. 26 (Bloomberg) -- The Securities and Exchange Commission, which has been pushing efforts to ensure the accuracy of revenue reported to investors, is giving attention to the impact of stock fledgling companies award to big customers. ``It's absolutely coming under stronger and stronger scrutiny,'' said Kirk Walden, national director of venture capital research at PricewaterhouseCoopers. The SEC's efforts ``are particularly notable in private companies that perhaps don't have any profits, and therefore revenue is the key variable.'' Companies gearing up for initial public offerings sometimes issue stock or warrants to businesses that provide them with big orders. Revenue from these orders lend credibility to companies seeking to persuade investors to buy their shares. In fact, investors often use revenue growth as a primary measure for valuing stock offered by start-ups that have yet to produce any profits. The SEC essentially is seeking to make sure start-ups that issue valuable securities to customers properly account for those costs and don't artificially inflate revenue to get a richer valuation on Wall Street, industry experts said. CoSine Communications Inc. of Redwood City, California, revised the revenue reported in financial statements for its initial public offerings after discussions with the SEC, the Wall Street Journal reported today. CoSine started trading today, rising 40 to 63 in late trading. The newspaper report also said Tellium Inc., an Oceanport, New Jersey, manufacturer of fiber- optic Internet switching gear, reported revenue in a manner similar to the revised method used by CoSine. SEC spokesman John Heine confirmed information in the news story, cautioning the agency doesn't have statistics on whether this revenue-related issue is cropping up frequently. CoSine, a telecommunications equipment manufacturer that raised $230 million through its IPO, noted in a filing for the stock sale that it had issued warrants to customers such as Qwest Communications Corp. and BroadBand Office Inc. Qwest, for example, got warrants to buy 1.22 million Series C preferred shares at 81 cents each, well below the IPO price of $23 a share. ``These warrants were issued upon receipt of substantial purchase orders which were preceded by a period of cooperation with us in the marketing, development and refinement of our products,'' CoSine said in the registration statement for its IPO. Company officials couldn't be reached immediately for comment. The company in early filings with the SEC had in fact reported the expense of issuing such warrants on its income statement -- below cost of sales. In September filings, CoSine began deducting some of this expense from its top line, reporting both ``revenue'' and ``revenue net of non-cash charges related to equity issuances.'' Revenue prior to the warrant expenses totaled $11.3 million for the first six months of this year. Once such expenses were deducted, though, revenue totaled $7.6 million. Attorneys said the SEC's focus isn't solely on orders to purchase manufactured items. Biotechnology companies that report revenue through collaborations or licenses to larger drug manufacturers also have come under scrutiny when filing for IPOs, according to John Cheney, a securities lawyer in Boston at Mintz, Levin, Cohn, Ferris, Glovsky & Popeo PC. The SEC last December issued guidelines companies should follow for recognizing revenue. And Arthur Levitt, chairman of the SEC, has criticized companies that sought to boost earnings by recognizing revenue too soon, perhaps before a product is delivered. SEC spokesman Heine, though, said the issue of deducting stock and warrant costs from reported revenue isn't technically a matter of revenue recognition. Sep/26/2000 15:17 ET For more stories from Bloomberg News, click here. (C) Copyright 2000 Bloomberg L.P.