July 31, 2003

N2H2 (censorware co) finally stops losing money

Given the coverage I've devoted to censorware company N2H2's finances, e.g. "dead company walking", "another step" "bankruptcy-watch", it seems only fair that I note today they have finally, at last, stopped losing money.

See, the difference between them and me, is that I'll admit a fact in their favor (even if grudgingly), while they pretend to the Copyright Office that I haven't circumvented their censorware's encryption.

Anyway, N2H2 announced:

Revenue was $3.098 million for the [quarter] ...
Operating expenses were $3.064 million ...
The company achieved a quarterly net profit for the first quarter in its history at $48,000.

48/3098 = margin of 1.55% of revenue. But it must be granted that it's positive, even if tiny.

Note this profit came from cutting expenses ("29%"), NOT from any significant increase in revenue ("4%"). I had thought they'd front-load that revenue figure somehow.

They still have a company deficit of nearly two million dollars ($1,836,000). I have no idea what makes a negative-value company worth acquisition via "an all-stock transaction valued at approximately $19.9 million". I suspect there's an Other People's Money aspect at work here.

By Seth Finkelstein | posted in censorware | on July 31, 2003 11:14 PM (Infothought permalink) | Followups
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Book Value v. Market Value

A company may carry a different value on it's books than it would on a sale. Most publically traded companies have a higher market capitalization then GAAP Equity. Accounting does not capture the value of intangibles which might contribute to future profitability until a company is sold and the aquiring company puts up an asset called 'goodwill' which represents the future value the purchaser placed on the company by virtue of the fact that they paid more than book value for the company.

My company could hold a valuable patent, but its books won't record the value of the future income from that patent, only the cost of aquiring it. My company might also not produce a profit because I have a high expense ratio. Another company might value my company as the presevt value of the patent fees assuming they could fire all my employees and administer the patent using their existing staff. Their value for the company is markedly different from the book value.

Posted by: Roy Murphy at August 1, 2003 11:25 AM

Roy, I do understand that, as a theoretical proposition, a company with negative book value may have assets worth buying. But in this specific situation, the reasoning escapes me. N2H2 doesn't have any valuable patents or special expertise, nothing worth terribly much. The marketing might be worth something - but nearly TWENTY MILLION DOLLARS??? Where is the value here?

Posted by: Seth Finkelstein at August 1, 2003 12:55 PM