To: Jim Patterson who wrote (737 ) 3/20/1998 11:22:00 AM From: Scott D. Hakala Respond to of 900
Jim, When a Company is under attack it is hard to get the facts out and the market can be mercilessly unforgiving, especially with the amount of short activity in this stock. The small cap and micro cap markets can often be quite myopic on these issues. The current price for the stock is more a product of negative hype and momentum than anything. As for the supposedly positive hype, I have never gotten the sense that the Company did not sincerely believe what it is saying. Indeed, the Company has not always noted all of the initiatives and possibilities it was exploring. I have spoken with some brokers that had performed substantial research and they believed the information as well. I know for a fact that the management felt that the Company was fundamentally undervalued at even $15 per share in August. I agree with you about the Company not always being effective in defending itself. I have often expressed frustration with this issue to the management. Also, the changes in accounting have been unexpected and poorly timed. The new CFO is supposed to be doing well in addresing these issues and the Company hopes and expects to show substantial real growth in sales and and earnings in the coming fiscal year. That being said, the Company has always been fundamentally profitable and shown good growth in sales and earnings historically. BodyBilt alone is worth at least twice the current value of the stock by even the most conservative valuation. The CTSS acquisition is reportedly producing profits in the fourth fiscal quarter and the Cheetah acquisition should also produce earnings in the coming fiscal year. Realize that the Company made two strategic acquisitions, one being effectively a start-up, in the second half of the year. As you know, start-up companies and acquisitions can produce some initial development expenses and acqusition and consolidation expenses and charges. The Company should have done a better job of isolating and explaining those expenses. Also, the Company has had a competitor attack it publicly in a way that I feel is entirely inappropriate. Give it some time. My belief and experience is that these issues will ultimately be resolved. My investment horizon is long-term and fundamental in nature. I don't have the time to play with the daily technicals. I have seen companies get pounded before and as long as they continued to keep up their sales and gross margins, they eventually came back to their fundamental values. I'm buying and not selling. My sense is that to sell now would be a mistake.