Auric, I do the same kind of analysis you do, what I come up with is excessive risk. Even if they double their current quarterly sales rate and thus go to positive gross margins, let say 10% (from current negative gross margins), they still come up short of positive cash flow, with interest charges (which will go up), and lose $5 MM. Since they do not expect to break into positive margins for another two quarters, their are serious questions (even after the recent injection of $8 MM from Wisconsin Retirement fund) if they'll have enough cash. They have only $80 MM on hand, but to go to quarterly sales rate of $300 MM, they will need to double their working capital (inventories and receivable), or need another $100 MM, but they have only $80 MM in cash.
You have to assume that the current quarter will be bring not only profits but positive cash flow as well. They will probably lose another $20 MM (I am generous, the consesus for Sep/00 is -.50 and for all next year -.38)
If they lose any money between here and there, they are cooked. They really cannot borrow much more (they already have some $450 MM debt on their balance sheet). Somebody will have to come in and pump some $150 MM in, and that will dilute current holders by 50%. All this for what? The chance that they turn a minor profit in one of the next four quarters? What after that? There are already whispers of a recession next year, with their overload of debt, they may not survive, IMHO.
Zeev |
