Carl, Carl, you always force me to do harder work than I really want to do.
I have not seen any wite off of inventory in their statement, unless it is hidden in the COGS. Usually, in a quarterly report, you would report write off of doubtfull accounts (or at least show the size of the reserve) and take this as a non recurring expense. Their statement shows all these as recurring expenses, so I really do not know how to analyze these.
I agree with your $33 MM as a potential break even, If they can bring their COGS to 50% of sales. In practice, they cannot do that without cutting down sharply on their fixed manufacturing expenses (a feat that will require closing some facilities and consolidation).
What worries me much more is the fact that their receivables and inventories are grossly inflated and will require sizeable write downs. They may try to delay that until the top line can absorb such write downs, but that will delay their return to profitability and thus leave the stock in the dust for longer.
In any event they will need more money to cover the negative cash flow of the next two quarters. Under my most optimistic scenario, they will need an additional infusion of $10 MM over the next two quarters.
Now, if they had a CFO worth its salt, they could generate all this cash by collecting their receivables, and converting their inventories to sales, but I do not know, and have no idea, what percentage of these bloated values are worth their face value. if it is 100%, then they have a fighting chance by increasing sales and cutting their overhead fast.
Zeev |
