NOPT - a bagel in the making
I would like to thank my friend Kirk for writing this incredibly detailed analysis. He is also a member of the POSALERT Club.
NEON Communications Inc. (NOPT) owns and operates a fiber-optic network in 11 Northeastern and Mid-Atlantic states. The Company currently has a continuous fiber link from Portland, Maine, to Boston and on to New York City.
This morning Fiber Optek, a vendor, issued a press release stating that :
"Due to NEON's recent filing with the U.S. Securities and Exchange Commission on Form S-3 dated April 12, 2001, which stated, ``We have experienced, and are currently experiencing, cash flow problems. We may be required to seek protection from our creditors under the federal bankruptcy laws,'' Fiber Optek, a leader in the development and installation of fiber optic communications networks, Thursday reported that it has taken steps to confirm its position as a secured creditor of NEON Optics Inc., a subsidiary of NEON Communications Inc. "
and that Fiber Optek had filed mechanics liens in White plains against parts of NEON's fiber network and underlying real estate.
biz.yahoo.com
NOPT promptly tanked. It closed yesterday at 6.15, reached a low of 3.40, rebounded to close at 5.42. I shorted at 5.31.
At 1:37 p.m. NEON retaliated with PR that declared that the Fiber Optek PR was "materially misleading"; that "the liens have been filed in an attempt to bring pressure on NEON to resolve several routine contractual disputes with a contractor that NEON has recently terminated for breach of contract": that the liens totalled 1.18M on a network with book value of $192M; and that NEON was going to sue Fiber Optek over this stunt. NEON continued by stating that ``NEON is NOT seeking protection from its creditors under federal bankruptcy laws'' and that it had recently announced $28 million in new financing.
biz.yahoo.com
At 3:17 p.m. NEON continued with a PR that declared that "it was not seeking bankruptcy protection after the issue was raised by a supplier"; that this was a maneuver by Fiber Optek to apply pressure to resolve certain contract disputes; and that NEON was going to sue Fiber Optek for breach of contract.
NEON said that it had recently obtained $28 million in additional financing. It pointed out that the language cited appeared in an April 12 SEC filing for a shelf registration of up to $25 million in stock, securitiesd, and warrants.
biz.yahoo.com
Now this gets interesting. Because the $28 million was announced on April 3, BEFORE NEON made the SEC filing containing the warning, and came of additional financing by two utility company shareholders of NEON, totalling $28 million, "in the form of subordinated notes convertible to common stock. The parties expect to close the new financing shortly."
biz.yahoo.com
Financial data here come from NEON's 10-Q filed May 15, 2001, and the Yahoo! profile.
Here's the link for the 10-Q if you want to follow along:
sec.gov. txt
The Yahoo profile:
biz.yahoo.com
The Motley Fool Snapshot Financials break out total revenue & per-share losses by quarter since the company came public in 1998:
quote.fool.com
The following are numbers for FY ended 12/31/00:
revenue 13.2M up from year-earlier 5.7M
net loss before accounting change 41.8M + 42%
For Q1 ended 3/31/01, and year-ago Q1 3/31/00:
revenue 5.395M, YE 2.11M
loss (14.437M), YE (8.8M)
interest expense (5.2M), (5.38M)
net cash flow (9.5M), including (13.84M) cash burned in operations + (13.82M) purchase of property equipment, offset by 4.45M increase in intangible & others + 11.1M from cashing out investments.
At least margins are improving. (tee hee)
Assets & liabilities as of 3/31/00:
Current assets 48M consisting of 11.1M cash & equivalents, 24.2M short-term restricted investments, accounts receivable 5M, prepaid expenses & other 6.3M.
Non-current assets 227.4M including 171.5M property & equipment and 56.2M intangibles & other (i.e. goodwill which is worthless).
Current liabilities 49.53M including 38.8M accounts & fees payable, 9.9M accrued expenses (wages, withholding tax, etc.), 1.09M deferred revenue.
Long-term debt 180M + long-term accounts payable 13.65M = 193.65M
Shareholders' equity 35M
Debt:equity 5:1
Remember that you always have to look at net cash & assets vs. current liabilities & service of long-term debt, not just at gross cash, to determine when the company runs out of money.
This may be Yahoo gives them $0 cash, although Yahoo doesn't usually get this right.
Conclusion: On March NEON did not have enough cash & current assets to cover current liabilities + $5.2M interest on debt for THIS QUARTER. Without that $28M announced April 3, NEON Communications is out of money NOW, TODAY.
The sheet of terms was announced April 3. I haven't seen anything about the closing.
Even IF the $28M goes through, NEON is out f funds by about October 1. And after the Winstar bankruptcy filing on April 17, the two utilities would have to be insane to go through with it. It would be a gross violation of fiduciary duty and I, for one class action lawyer, would go looking for plaintiffs. (For the record, I have only represented defendants.)
What a balance sheet!
Unfortunately as of 3:50 p.m. neither CSFB nor E*Trade had shares available to borrow. I got mine at 3:00 and, when I asked for more at 3:50, CSFB seemed to think THAT had been a mistake, but I've got execution confirmations.
NEON has NOT closed the financing. The term sheets were signed in March and the 10-Q filed in May 15 said NEON expected closing in Q2, i.e., about now.
The subordinated convertible notes are: $13M at 19.5% to Exelon Enterprises and $15M at 18% to Northeast Utilities.
God, they're financing this mess with credit cards!
traderpulse.com
Michail |
