Balance sheet Ills dog internet ad firm. (Media & Technology).

Internet advertising firm L90 Inc. isn't facing a cash crunch yet, but its balance sheet shows signs of strain.

The money-losing L.A.-based company had $58 million in cash as of Sept. 30, and now that it has sold off some unprofitable technology operations, L90 is on track to break even by the middle of next year, L90 Chief Executive John Bohan said in a conference call with analysts last month.

That might not be so easy. "There's no doubt there's pressure on their business," said John Corcoran, an analyst with CIBC World Markets.

A couple of outsized line items on L90's balance sheet could suck up millions of dollars of its cash, weakening the company as it tries to survive the dot-com advertising bust.

The items in question are L90's accounts receivable and accounts payable, both of which ballooned during the second quarter ended June 30 when the dot-com bust began to shake out. Since then, both items have remained at those elevated levels. As of Sept. 30, L90's accounts receivables stood at $17.7 million and its payables at $18.2 million, up from $11.6 million and $14.6 million, respectively, a year earlier.

Because the two elevated figures essentially balance each other out, they theoretically are not cause for alarm. If everyone who owed money to L90 paid up, and the company in turn paid its bills, the resulting impact on L90's cash levels would be negligible.

But L90's quarterly statement to the Securities and Exchange Commission raises the possibility that a significant amount of money owed to L90 by Web publishers and advertisers won't get collected. Whether or not it gets paid, though, L90 will have to pay the destination sites where many of these ads were placed.

"What's their exposure? The possibility in every business -- that you get stuffed for the entire amount," said Corcoran.

Troubling trend

For L90, the check's been in the mail for some time. Accounts receivables rose 52.7 percent in the past year, while revenues fell 43 percent, to $8.4 million in the latest quarter.

Normally, accounts receivable rise when a business is growing, and fall as it contracts. But L90's collections are piling up at a time when its business has slowed down. The uncollected bills are greater than all the revenue the company has declared since March.

"It's part of the reason why this stock is trading at $1.19 (a share)," Corcoran said.

At DoubleClick Inc., L90's larger rival, revenues have fallen this year. But accounts receivable also dropped by one-third, to $80 million, as of Sept. 30. The industry norm is for billings to go out on 30-day or 60-day cycles, said Brenda Fields, DoubleClick's director of investor relations.

So the existence of receivables at least 180 days old may be a sign that L90 has sold ads to customers who can't pay their bills, or who are trying to negotiate at a lower price, Fields said.

It could also mean that L90 is selling ads to larger customers that are good for the money, but take longer to pay. (L90 executives declined comment for this story.)

One sign of how L90 perceives the creditworthiness of its customers is its allowance for doubtful accounts -- a fund that protects the company against customers who don't pay. According to L90's most recent quarterly financial report, the fund had risen to $3.9 million by the end of the third quarter, up from $1.9 million in the like year-earlier period.

"During tough times, if you think people are going to stiff you, what do you do? Reserve more," Corcoran said. "You don't want to see the reserve going up."

As its business has slowed, L90 has slowed the pace of payments it makes to others, and its cash-bum rate has dropped to about $5 million a quarter. But the unpaid bills are piling up. At some point L90 will have to pay -- and its exposure will not be limited to just commissions.

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