Random header image... Refresh for more!

Pain in the Piggery

by Subtrader

Tell me where it hurts……..

Pain in the Piggery

On2 Technologies, Inc. Announces Restatement of Financial Statements

There’s no way to dress up this pig today. Nothing but depressing news for a Whole Hog investor.

  • Fraud revealed via Audit “two sales accounts for which revenue had been recognized in the third quarter of 2007, had been falsified”, most of the revenue concerns being flushed rather than moved to a different quarter.
  • An embarrassing slap across the face of the CEO “In addition, management has identified a material weakness in the Company’s control environment, specifically relating to Company’s tone at the top, as evidenced by the control tone and control consciousness of the Company’s chief executive officer”
  • Revenues were down significantly from last quarter, from over 6 mil last quarter to just 4.5 in Q1.
  • The most painful line item for me was the heavy loss for Q1.
Three months ended
March 31, 2008
(unaudited)
Revenue $ 4,515,000
Loss from operations $(4,461,000)
Net loss $(4,676,000)
Net loss attributable to common shareholders $(4,676,000)
Basic and diluted net loss attributable to
common shareholders per common share		 $ (0.03)

The loss for all of 2007 was only $6,837,000. Ouch. Really want more details on that one.

Quite a feast eh!

Bottom line: Am I squealing now? Ready to push that sell button?

Nope. The Whole Hog call was made based on future revenue potential. I still see royalties from embedded chip applications as the real fuel for stock price appreciation. Its clear that we should not expect to see the real impact of those until later this year at the very earliest. The recent JAVA news was huge. That combined with the Silverlight/Move partnership means that ON2 truly has the potential to be Every Video, Everywhere.

Could things be very wrong at ON2? Yes. The accounting snafus really don’t reflect well on leadership.

Is Whole Hog investing a very stupid thing to do? Yes.

Did today’s ugliness materially change the reason for being so stupid? No.

It’s very easy to become deluded when you are in a Whole Hog position, however –

I will remain in the pigsty. Some times there are risks you just have to take.

-- Filed May 27, 2008 at 5:25 pm