• What I want to see: All things considered, what I realistically want to see from the company is for them to hold the line.

I don’t want to hear of any further deterioration in the business, fundamentals, or other customer losses, and it certainly wouldn’t hurt to get some good news out of the quarter, however doubtful that might be.

• What we need to see: At the minimum, what we need to see for our investing thesis to still hold and an investment in this company to be prudent is for AuthenTec to follow through with its promises of finding new customers to fill the gap left by the customer loss and to at least be break-even on an earnings and cash flow basis to restore a little confidence in the management team and AuthenTec’s business fundamentals, at least in the short term.

• What we’ll probably see: I honestly don’t know.

If I did, I would be buying options on AuthenTec right before the earnings announcement.

I suspect that things will be about the same in terms of management’s outlook (lowered to grim), we’ll get an update on the current potential litigations (AuthenTec will say that all claims are frivolous and baseless), and some better visibility into the next few quarters.

• Bottom Line: The last time I posted an update on AuthenTec before their earnings, I stated that: “It would take an utter shift in business trends at AuthenTec to shake my confidence in the company, the story and management.”

Well, much to my surprise, that’s exactly what happened.

We’ve had an utter and severe shift in business trends, the company, the story, and management.

Suffice it to say, my confidence in the company is shaken, and I no longer believe in management’s ability to see things through, and come out on the other side of things intact.

I think at this point, AuthenTec is a dead man walking, and it’s only a matter of time before the business deteriorates and things head downhill.

However, with that being said, I still feel that in the interim, AuthenTec represents a compelling case for bottom fishers, and for those that see AuthenTec as a classic take-out target.

At about $2.00 per share, with the intellectual assets alone, AuthenTec is worth at least double, considering they are sitting on about $2.14 per share in cash.

At this point in the game, that’s my exit strategy, and one that I will be watching for closely in the coming months to play out.

If things start to decelerate quickly and it’s apparent that AuthenTec will start burning through its cash hoard, I will not hesitate to dump the shares, take my large loss like a man, and move on to bigger and better things.

This earnings release will allow us to look a little deeper inside that window, and make a more informed decision as to how things will play out.

*As of 10-24-08. Except share price, all values in millions.

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