Garry, in looking at your earnings release, it appears to me that your shareholders equity will go negative in a couple of quarters, and this will have implications for your National Market listing. This conclusion is based on the following analysis. Please do correct me if I am mistaken here:
At the end of your 3/31 quarter:
shareholders equity $11,547,000
net loss $8,379,000
Since your 10k says "The Company expects that it will continue to
incur net losses as it continues to expend substantial resources on sales, marketing and administration, build its infrastructure, develop new service offerings and improve its management information systems. There can be no assurance that the Company will achieve or sustain profitability or positive cash flow from its operations," I would assume that the sequential net loss will remain significant and will deplete the shareholders equity significantly. If the quarterly loss were to remain constant, that would put shareholders equity at about $3 M at the end of the June quarter, and about ($5 M) at the end of September.
Your balance sheet does not appear to show any significant intangible assets, so I assume your shareholders equity is essentially the same as your net tangible assets. Considering that the NASDAQ National Market requires a minimum $4 M of NTA to retain a listing (as detailed in their web site at nasdaq.com), it would seem that you might be at risk of losing your listing this year unless you either reverse your losses or sell substantial equity and dilute the existing shareholders. Since this seems to be quite material to me, and the 10 k is the place to disclose everything material, I am curious why there was no mention of this in your 3/31/97 10k filing.
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Also, can you share with us how comfortable you feel with your liquidity stuation? In the 10k you filed on Mar. 31, you said "The Company believes that available cash will be sufficient to meet the Company's operating expenses and capital requirements for at least the next 12 months." I was wondering how I should reconcile this statement with your recent news release, showing that you had negative working capital at the end of the March quarter. Could you clarify this please?
Best wishes for your business, and thanks for your participation here. |
