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Technology Stocks : Command Systems, Inc. (CMND) -- Ignore unavailable to you. Want to Upgrade?

To: P. Ramamoorthy who wrote (1665)	10/31/1998 9:44:00 PM
From: JEFF BERRY	Read Replies (1) \| Respond to of 1956

Dear Ram, My observations of Q3: I was not completely surprised by the Q3 earnings announcement. Based on the SGA expenses from last Qtr.and observing the hiring patterns during the 3rd Qtr. I expected SGA expenses to remain high....somewhat in line with the 2nd Qtr. My uncertainty for the Qtr. related to revenue recognition relative to new project work that had commenced during Q2 and Q3. The 2nd Qtr 10Q stated: "The loss from operations for the three months ended June 30,1998 was primarily due to increased selling, general and administrative costs associated primarily with the company's increase in sales and projected management personnel which were not accompanied by expected growth in complete projects and solutions business" The key to revenue recognition for project work that is associated with the increase in SGA expenses is the word complete. Under Command's prior business model (Q1 1998 and before) Command was able to record revenues closely following expenses that were related to the generation of revenues...However, the transition to higher margin project business which began in Q2 creates a short term revenue timing dilemma, since revenues for some project work cannot be recognized on the income statement until the project is complete....This could be months after the SGA expenses relating to the project work has already been recorded against income. The fact that CMND did not pre-announce an earnings shortfall as they had in Q2 was reason for optimism that perhaps enough project revenue was recognized to put CMND at least somewhere close to the .04 earnings estimate for Q3. The fact that they did not pre-announce and then missed by 150% was admittedly disappointing! Why did they not pre-announce as they had done for Q2? a)Perhaps they wanted to change the precedent that they had started the previous Qtr of pre-announcing earnings shortfall. b)Perhaps due to the complexity of GAAP standards for revenue recognition on projects in process, they had not yet determined with their outside accounting firm how much project revenue could conservatively be recorded until they were so close to the 10/27 release date that a pre-announcement would not be meaningful. c)? The income statement released with the Q3 earnings announcement was predictable with high SGA numbers. The real key to the earnings shortfall for the Qtr is the absence of any real increase in revenues. Real Comparative revenue increase for Q3,98 over Q3,97 was a paltry 10.5%. To be continued......JAB