I agree that neither ENML nor GUMM had much of a choice of financing sources, but the presence of offshore lenders is always a warning sign, I think, especially when coupled with low sales, a history of losses, and poor cash flow.
I have not done pro forma P&L's on GUMM, but my topline belief is that the statement that they can pay off the convertibles in cash is just a smokescreen by the management, as I don't think they'll generate enough cash to meet the fairly onerous cash payment terms. To your point above, if they had a high probability of generating that kind of cash flow, they could go to more conventional funding sources.
The Zicam cold product of which GUMM is part owner is a big question mark. They are marketing it as a "homeopathic remedy", which is a special class of drugs as far as FDA is concerned. Basically, that allows them to sell the product and make claims without having much proof that the product actually works. The big question for Zicam, as it was for ENML, is whether they can launch a product nationally with the money they have available to spend. I'd say they're going up against formidable odds, but I'm not completely convinced it will fail, at least short-term. Accordingly, I am like you neither long nor short GUMM at this time.
Regards,
CMason |
