Robert,Actually, if you look at that 10Q you will find that my post was not only conservative and not inflated, it was "generous.
The $433,000 you are quoting for IRS debt is as of August, not the end of the quarter, thus the money paid to the IRS had to be financed from somewhere, probably more draw down on the convertible (and thus the second registration statement for 41 MM shares, on top of the 50.3 MM shares registered in May. Thus, even if you assume that conversion will continue at the prices assumed then, your share count for debt incurred until June 30 is around 190 MM shares.
The way to look at a company is not so much through the P&L statement, but through the balance sheet and the cash flow statement. If you look at the latter, you will see that in the quarter ending June 30, the company's cash used in operation was $3,076,703, not the losses of about $1.5 MM nor the operational expenses of $1.7 MM. If you want to estimate what the cash burn rate will be in the current quarter, you'd better look at this $3 MM as a possible indication. You yourself reported that they now have 40 employees, and they subcontract their marketing efforts. I would guess that part of the difference between the "losses" and actual cash burn is what they have to prepay for marketing the cards (I believe they call this prepayment an "asset", but the value of this asset will be nil by this time next year, and thus will have to show sooner or later as expense. In any event, if they are to survive they surely will need to continue and pay for such marketing services, and thus my estimate that they will require a lot of cash before they are positive cash flow.)
It is also important to note that their short term liabilities (including IRS) are at $2.831 MM, this money (maybe not all of it at once) will have to be paid soon, thus additional requirement for financing.
I for one would like also to know what are the "Other receivable" of close to $500,000, they surely did not sell product for that amount, could they have been printing additional shares and that is the money "to be received" for these shares?
To summarize, the number of shares once the floorless to June 30 is converted will probably reach 190,000,000, and you will have to add to that at least another form of financing for at least $1.5 MM in losses this quarter plus another good $1.5 to repay accts payable (note, I am not taking the $3 MM actual cash burn in Q2 and not all the payable). Add to that another $670,000 owed to "shareholders" and that comes to $3,670,000. Be generous and assume it all goes at $.05/share, and you get another 73 MM shares or total share count of 263 MM. Plus the 11 MM shares from the settlement and you are pretty close to 275 MM, and the next thing you know, share holders will have to approve another increase in authorized shares. Mind you, I did not even take into account any financing yet required for Q2 not the additional $1.3 MM in accounts payable not paid in Q3).
Robert, don't let Gordon use you, which is what I truly believe he does. Look at the numbers yourself and ask for justification for each one and how these various cash outlays are going to be paid for.
Good luck to you.
Zeev |
