SOS Lives Up to Name

This company is in such need of a capital infusion that even its stock symbol (SOS) calls out in distress. Yet, like other information technology vendors that have seen much better days, Storage Computer (NYSE: SOS) is rushing to put a smiling face on some ho-hum news.

Storage Computer put out a press release Friday, calling itself "a leading worldwide provider of media delivery storage systems," and boasting of "estimated" third quarter revenue of $2.3 million compared with $951,000 in the second quarter. The casual observer, while perhaps wondering how any leading worldwide business could generate so little money, might still be amazed by the sequential 142 percent gain at a time when most storage companies are facing sequential shortfalls.

Likewise, the press release forecasts a net loss of $3.7 million to $3.9 million, compared with a $4 million loss in the second quarter. Even sequential shrinking losses look impressive nowadays.

But peel away the thin veil of public relations and a different story emerges. The release neglects to recall that during an investor conference call just six weeks ago, company officials blamed an abysmal second quarter on a large product backlog for a single customer, which would be booked as revenue for the third quarter.

Furthermore, the numbers in the release may be very preliminary. Although its quarter ended Sept. 30, Storage Computer has yet to announce an earnings date. For its second quarter, the company reported earnings six weeks after the quarters end. If history repeats itself, the announcement is still a month away.To its credit, however, Storage Computer may have a shot at putting up decent numbers in its fourth quarter as well. In the August conference call, chief operating officer John Thonet said he expected to generate at least $1.35 million in the fourth quarter from the sale of a database product to Crimson Media, an online video acquisition portal. The company also planned to introduce a network attached storage product with failover capabilities and the ability to address multiple networks.

Nonetheless, the future remains a wild card. The company notes in a September filing with the Securities and Exchange Commission that it has enough money to continue operating through June 30, 2002. It warns: "Our longterm continued operations depend upon cash flows from operations, if any, and the availability of additional equity or debt financing."

- Tom Davey, special to Light Reading, http://www.lightreading.com