The skeletal system of technology companies is just like the old song: The revenue bone is connected to the profit bone, and the profit bone is connected to the stock bone.
But, it turns out, both the profit bone and the stock bone are connected to the lawsuit bone.
The latest company to learn that anatomy lesson is Condor Technology Solutions Inc. of Annapolis, which warned in early June that an unexpected slowdown in new contracts would mean a loss of 3 cents to 5 cents a share rather than the profit investors were expecting.
It took one day for Condor's stock to drop from around $10 a share to under $5, and only about three weeks for the lawsuit to drop in Condor's lap. The New York firm that filed it is Wolf Haldenstein Adler Freeman and Herz, a specialist in suing companies whose stocks are hit by earnings surprises. It currently has pending cases on similar grounds against First Union Corp., Lockheed Martin Corp. and a batch of other companies.
The legal action, filed in U.S. District Court in Maryland, accuses Condor and its top executives of making false statements about the company's financial condition and business prospects.
Condor called the case "without merit" and President Daniel J. Roche said it "will not have any adverse impact on how Condor does business."
Maybe the suit won't, but the company's financials are. The company is cutting about 5 percent of its work force, consolidating some offices and cutting back on its computer hardware "resale" business, in which it's a middleman in getting brand-name equipment to federal agencies. That business brought in $42 million of revenue last year.
Reselling computer equipment--particularly to the government--is becoming one of the least desirable lines of work for Washington information technology companies. The profit margins are minimal, and while investors are willing to reward Internet companies for selling large volumes of things without making money, they don't like investing in information technology firms that do the same thing.
Condor's unexpected loss is the result of another industry-wide phenomenon: a falloff in business because clients are preoccupied with solving the Y2K computer problem and are putting off other system upgrades.
Next year, when the millennium bug is behind us, business should pick up, Condor officials say. In the meantime, the company's stock has drifted below $4 (it closed at $3.75 yesterday, up 12 1/2 cents) while investors wait for Condor to issue its quarterly financial report next Wednesday.
CAPTION: Condor Technology (This chart was not available)