I also took a look at the company's most recent From 10-Q. As of May 1, 1999, there were 22,027,997 shares outstanding. The company has current assets of $1,121,853, total liabilities of $9,881,157 and a negative net worth of $5,022,104. It has $8,790,340 of long term debt, of which approximately $7.0 MM is due in November. $5.0 MM of the debt is owed to six rice extruders and $3,774,365 is owed to one or more shareholders. Even if their technology is good and the company is successful, the current shareholders are going to have to be severely diluted if the company is successful in raising additional funds. As the last sentence of the Liquidity and Capital Resources section states, "Any additional equity financing may involve substantial dilution to the Company's shareholders."
sec.gov
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company has been substantially dependent on private placements of its equity securities and debt financing to fund its cash requirements due to the preliminary nature of its operations, substantial ongoing investment in research and development efforts, and building an infrastructure sooner than the Company had realized its expected growth potential.
The Company relied heavily on proceeds from the sale of common stock and from the issuance of long-term debt to fund its activities in 1998. In March 1999, the Company borrowed $250,000 from a shareholder. This loan is without collateral, non-interest bearing and due June 1999. The funds are intended as a short-term bridge loan for working capital needs while the Company seeks additional equity financing. Cash balances at March 31, 1999 decreased by $202,000 to $321,000 from $523,000 at March 31, 1998.
During the quarter ended March 31, 1999, the Company used significant portions of its cash reserves to retire the FoodEx Montana debt of $1,289,000 and pay deferred compensation and severance payments totaling $321,000 to four executives that terminated employment with the Company in December 1998. The cash requirement for the remainder of 1999 is projected to be significantly reduced by the termination of these four executives in December 1998, as well as the efforts of management to reduce projected fixed overheads more than 50%, and budgeted 1999 sales revenues improving over last year's performance. However, there can be no assurance that such reduction or such increase in revenue will occur or remain in effect.
The Company is taking additional steps to address the approximate $7,000,000 debt that matures in November 1999. The Company will need new debt financing or additional capital to repay the Monsanto and Dominion liabilities or the ability to restructure the notes to extend payment terms consistent with the Company's anticipated ability to repay the Lenders from the cash generated from operations in the future. There can be no assurance that such arrangement will be successful, or at all.
For 1999, the Company expects to incur additional costs for research and development, including clinical studies, and professional and legal fees for patent and trademark applications. It also expects to expand its sales and marketing efforts. These efforts could significantly increase demand for the Company's products beyond the Company's current production capacity. While the Company believes it can increase its production capacity to meet sales demand, significant additional capital could be required to meet such expansion requirements.
The Company is taking steps to raise equity capital. However, there can be no assurance that any new capital would be available to the Company or that adequate funds for the Company's operations, whether from the Company's revenues, financial markets, collaborative or other arrangements with corporate partners or from other sources, will be available when needed or on terms satisfactory to the Company.
The failure of the Company to obtain adequate additional financing may require the Company to delay, curtail or scale back some or all of its research and development programs, sales and marketing efforts, manufacturing operations, clinical studies and regulatory activities and, potentially, to cease its operations. Any additional equity financing may involve substantial dilution to the Company's shareholders. |
