Value Microcaps Motherboard

[SkepticalOptimist]

SSKILLZ, YPNT, I like this stock as well, but I would forewarn that although changes in G&A look favorable, you can expect that upcoming changes in Sales & Marketing will not be. The Company essentially capitalizes Sales & Marketing over 12 months, so in order to see what the Income Statement looks like on a cash basis, you need to add in change in deferred acquisition costs as marketing expense.

In 2Q06, Sales & Marketing was $2.1M and capitalized Sales & Marketing was $1.1M for a total of $3.2M. In 3Q06, Sales & Marketing was $2.5M and capitalized Sales & Marketing was $600K for a total of $3.1M. This gives you an idea of their quarterly marketing budget.

If they continue to spend $3.1M to $3.2M per quarter, the Company's expense will catch up to their cash spend, which in 3Q06, would have reduced pre-tax EPS by about $.014, or $009 post-tax. Another way to look at this is that the gross margin for approximately the next 12,900 customers will not be accretive to earnings because of increased amortization of Sales & Marketing, although you will see more net income turning into real cash on the balance sheet.