Dale and all,
RE: My take on the return.
I must say that I'm impressed with the cost-cutting measures, but less than impressed with the revenue and other numbers. Here's my take:
Income Statement
- Revenues of $31.7 million. This is pitiful. Sure, compared to $16.8 or $29.4, it looks okay. But those were the WORST two quarters in the past year. The other two quarters were $44.8 and $48.3. Comparing to the AVERAGE of the last four quarters of $34.9, they missed the mark by 10%.
- Cost of Revenue of $30.8 million. This is CONSIDERABLY better, but still not good. They're only getting a 3% gross margin at this level, which is pitiful for anything other than a supermarket. It's much better than previous quarters, but still nowhere near where it should be. A hardware company should get closer to 20%. Intel gets something like 60%.
- SG & A of $6.9 million. This is a GREAT reduction over previous levels, and much more than I would have expected. Good job.
- R & D of $3.7 million. This is a considerable reduction, but the wrong place to cut. This cuts into future revenues.
- Net Loss of $10.7 million. This is much better than I expected, due to the cost cutting measures and improved gross margins.
- Shares Outstanding of 44 million. Don't forget that they've still accounted for nearly their entire 120 million shares, whether they're outstanding yet or not. Also, this 44 million is an average over the quarter. We DO know that they have at least 58 million outstanding, because that's what was filed to be sold in the S-8.
Balance Sheet
- Cash of $7.5 million. This is dangerously low for a company that "only" lost $10 million this quarter.
- AR of $24 million. This gives a DSO of 69, which is aweful. It could also be reflective of stuffing sales at the end of the quarter.
- AP of $13.9 million. This is low, which is reflective that they are still on a COD basis with many vendors.
- Current Ratio of 1.04. This is low, but better than the last two quarters (due to the debt to equity conversions). It's not dangerously low, but another quarter like this and it will be.
- Long term debt of $8.1 million. This is down, which appears to be good. The bearish view is that they're having a hard time finding people who would be willing to loan them money.
- Equity of $13.5 million. This is enough to keep them from being delisted. It gives them a book value (fully diluted at 120 milliion shares) of 11 cents.
- Computation of the loss per share. TALK ABOUT CONFUSING! In their defense, at least it is a conservative calculation.
In Summary
Positives: Revenues better than last quarter, Gross margins improving, SG&A down considerably, current ratio better than last few quarters, not much LT debt, equity is high enough not to be delisted this quarter, and net loss was surprising low.
Negatives: Revenues still declining based on 12 month average, Gross Margins still not acceptable, reduced R&D spending may cannibalize future sales, high DSO, low AP, low current ratio, low cash, considerable dilution past and future, potential delisting in the near future, and Iomega lawsuit lingering over their heads.
I think people were expecting much more. I expect to see the stock price drop back to around 2 1/2 tomorrow.
- Michael Coley
- i1.net |
