To all : the following are exerpts from the 10-Q filed October 27, 1997
Listen please, the company is talking to you.
Free ! : my own comments and much more! :))))
(Mike : I know I'm not a marketing dude :)
1st : Financing issues
2nd : Increased fab capacity (directly related to 1st)
3rd : Distribution agreements
I. Re : question relating to 10-Q addendum A
The Company has a line of credit facility with a commercial bank under which it can borrow up to $10 million at the bank's prime rate. This line of credit facility expires in July 1998. As of September 30, 1997, the Company had $7.2 million committed under the line of credit facility for standby letters of credit. The Agreement contains covenants that require the Company to maintain certain financial ratios and levels of net worth, and prohibits the payment of cash dividends to stockholders. At September 30, 1997, the Company was not in compliance with the quick ratio covenant due to the increase in deferred revenue. Following the end of the quarter, the financial covenant was retroactively amended by the bank and the Company is currently in compliance with all financial covenants as amended.
II. Remarks regarding increase of foundry capacity :
Investing activities for the third quarter of 1997 included a $40.2 investment in the USIC foundry joint venture and $5.8 million of capital equipment purchases, which were partially offset by net proceeds from investment activity of $13.0 million. The Company paid the entire balance due on its investment in the USIC foundry joint venture during the third quarter of 1997, in advance of its original due date of April 1, 1998.
Depending on the demand for the Company's products, the Company may decide to make investments, which could be substantial, in assembly and test manufacturing equipment to support its business in the future.
>>We thus do know what they have in mind when proceeding to a rights offering! This was clear for quite some time, wasn't it - see our SanDisk write-up on front page of SI at techstocks.com <<
Though, the 10-Q states :
Management believes the existing cash and cash equivalents, short term investments and available line of credit will be sufficient to meet the Company's currently anticipated working capital and capital expenditure requirements for the next twelve months.
>>The explanation is :
(i) either their lawyers were not aware of plans and let this standard provision or were aware of plans but forgot to change the wording ;
(ii) or the company wanted to play it undercover ala CIA ®secret financing plans¯...
Anyway, we don't care since the company will be able to produce more, increase yields and drive prices down thus increasing the size of the market and thereby reaping high profits.
As I mentionned several times, dilution will be minimal.
III. Important remarks relating to recent distribution agreements :
As W. Franck taught us, SanDisk is preparing for Xmas and for the demands of the digital age mobile workers : retail sales channel was increased in July when striking a deal with Ingram Micro, today...2000 more stores including CompUSA, Circuit City, Office Depot, Staples, Computer City, Best Buy, Micro Center and Fry's.
We should have anticipated this, here's why (from 10-Q) ; this piece of 10Q also informs us on how sales thru these channels impact financial statements :
The Company anticipates that a greater proportion of its sales to the consumer electronics market will be made through distributors and to retailers than is the case with the industrial/communications market. This will be particularly true if the level of after-market sales of flash memory products increases. The Company is currently expending significant resources developing a retail sales channel. The expenditures associated with this development are likely to precede the realization of significant sales through this channel. Moreover, the Company has no prior experience in the development or management of the retail channel or sales through such channel. In addition, a significant portion of retail sales for consumer applications will be made to distributors and retail chains, which typically maintain rights to return unsold inventory. As a result, the Company does not expect to recognize revenues on sales to this channel until after the products have been sold to end users. If the Company's retail customers are not successful in this market, there could be substantial product returns to the Company. The inability to successfully develop and effectively manage the retail sales channel could have a material adverse effect on the Company's business, financial condition and results of operations.
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