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Microcap & Penny Stocks : The Henley Group, Inc. (HNLY) undervalued growth company -- Ignore unavailable to you. Want to Upgrade?

To: Psycho Killer who wrote (718)	3/4/1998 2:28:00 PM
From: Steve	Read Replies (2) \| Respond to of 2232

Jim, "1997 calendar year last quarter: Sales 804,719 Gross Profit 281,587 Gross Margin 34.99% Expenses 340,725 Expenses as % of Sales 43.15%" Expenses were higher because of new staffing and additional professional fees. This is not unusual when a firm is growing. The real comparison that tells the story is comparing 4th quarter CY 1996 with 4th quarter CY 1997. There you see expenses growing at a much slower rate than revenues. Gross Margin declined because of gearing up for new marketing pushes outside of Canada into the US, Europe, Central America, South America and the Caribbean and the new hires to handle the anticipated increase in business. As to tangible assets of a software concern these will almost always be reflected in an increasing cash position not in plant and equipment, who really cares about physical plant with a software company, I don't. If this was a manufacturer I would be suspicious of almost no physical assets but Magra is an intellectual capital company, tough to value software/hardware systems integrators. The current shareholder's deficit should be erased completely when 1st quarter results are released for both Magra and Henley. The cash position is rumored to be improved by as much as 500,000 CD$. The problem with AR and AP has been completely solved, according to John Ward. And also he says that expenses are definitely under control. Intangibles like goodwill are simply additional assets to reflect the true market value of the company if the owners chose to sell and move on to new ventures. It is my understanding that Henley through MAP did not pay a premium for Magra as its principals chose to take their chances with the future growth of Magra and Henley. Your point about declining gross margins is well taken but when it is placed in the larger context of business expansion the decline is better understood. I think the first quarter 1998 numbers will tell the tale here. I am confident that the numbers will be going in the right direction with an increasing cash position and retained earnings. I understand your concerns about the current numbers and one could come to your conclusion that the firm is hemhoraging expenses but only if you ignore reasons noted before of business expansion. I am with you in your desire: I want Henley in the first quarter 1998 to "SHOW ME THE MONEY!"

To: Psycho Killer who wrote (718)	3/4/1998 2:30:00 PM
From: ChrisJP	Respond to of 2232

James, Thanks for the analysis. I do not buy the "book value' part of HNLY's story. Never did. You forgot to mention one other way Magra can be profitable -- increased sales. When you are building a business, you have a lot of costs no matter whether you sell a lot or nothing. When sales are low, they are disproportionately high percentage of revenues. These can be thought of as overhead. As an example, internet access costs are the same whether your office has 1 person or 20. A T1 is a T1. Your accountant costs the same (more or less) whether you make $2M or $4M. These are just some examples. As sales increase, this percentage decreases. I did not like the impression they gave that their recent increased costs were due to one time expenses. People costs are recurring. But the outlay for their PCs, a server, SOFTWARE, a phone system, furniture, for example, costs a lot up front, but does not need to be replaced for a few years. These costs could easily amount to $200,000 or more. Look what they last report would have looked like if you subtract $200,000 from their expenses !! Magra appears to be still "ramping up". The real question we need to know: is are they mostly through ramping up ? And will sales increase enough so that the overhead part of the equation becomes a smaller percentage of their revenues ? BTW this is why HNLY is so cheap -- They aren't profitable yet. We are buying on the hopes that they will be. HNLY's management's story is that this is the case. They anticipate much higher sales. With their sales margins, and many one-time expenses behind them they should begin to turn a profit (we hope) ! Regards, Chris