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Microcap & Penny Stocks : Tokyo Joe's Cafe / Societe Anonyme/No Pennies -- Ignore unavailable to you. Want to Upgrade?

To: reikjavic who wrote (69215)	4/16/1999 12:32:00 AM
From: FawnVu	Respond to of 119973

Interesting article about DCLK, CNET and others with heavy debts...Compared to these nets, MMPT and TURF are in much better shape...They should trade in the 100s range in some days...Have fun to read.....FV Beware of Tech Companies Issuing Debt (DCLK) Wednesday, April 14, 1999 A March 17, 1999 column in the Wall Street Journal raises concerns about Internet companies diluting their stock by issuing convertible bonds. But turnaround investor George Putnam sees a bigger problem if the bonds do not convert to equity. Putnam points out that debt has two major drawbacks: "1. you must pay interest periodically and 2. you must repay the principal at maturity." Companies financed by debt that do not generate enough profits often end up in bankruptcy, according to Putnam. While IPOs and new bond issues give these companies plenty of cash today, interest payments can come back to haunt them down the road if sales and earnings do not keep up. Also, every dollar spent servicing a debt is a dollar that could have been spent on research and development, critical for high tech firms that need to stay on the cutting edge. Putnam lists six Internet companies that recently issued convertible debt and notes that annual interest payments alone are a significant portion of sales. For instance, DoubleClick (DCLK) carries $200 million of debt vs. $80 million in 1998 revenues, yielding a debt-to-sales ratio of 2.49. The firm also spends 11.8% of its revenues on interest payments. Another is CNET (CNET), who carries $173 million of debt vs. $56 million of sales in 1998 (3.07 debt-to- equity) and pays 15.3% of its revenues as interest to creditors. "If the companies don't grow very rapidly, the debt burden could be very onerous indeed," he says. "If you were inclined to short any of these stocks, we'd suggest starting with the stocks with the heaviest debt burdens." For more on George Putnam's recommendation see "Beware of High Tech Companies Issuing Debt," April 1999, The Turnaround Letter. George Putnam focuses on out-of-favor companies ripe for a turnaround while trading at a discount to their true value.