Although most of us would like for Zitel to go to absolute zero, I doubt if at all that will happen. Reading the agreement Zitel signed on the private placement, it is clear that Zitel must do their absolute best to keep the stock listed on a major exchange (sounds like one of those "or else" clauses). I don't know about you, but with $25 million to invest, one would.. shall we say- insure against the possibility of the funds ill-performing. I think Mr. King still have an exit available, and that is to spin off the solutions division, focusing on selling products that are at the moment, profitable. Yes, the shares price will drop- but at least Zitel can still exist as an entity.
It'll be interesting to see if Zitel's investment in MatriDigm has increased it's value over the last quarter/year. MatriDigm's value, according to Zitel's filings increased by 56% over Nov '95 to Mar '97, which isn't a bad return (compounded to about 20-25% a year).
As well, if Zitel has to dip into the line of credit (about $3 million's worth and "required to maintain certain specified financial ratios and profitable operations on a quarterly basis. The bank has waived non-compliance with the profitability covenant..") it will seriously indicate irreversible trouble with the company.
As an aside: with the company implementing "addition of sales, marketing and administration personnel", "increase in business promotion" and finally "increase in travel and entertainment", Zitel has manage to spend close to $30 million this year in acquisitions and expenses, of which $25 million were funded by investors who definitely want more than mutual-fund returns on their investments. This can be seen as a very bullish signal for Zitel investors but when you think about the common practice of using private placements in penny stocks and the parallels between the two, one can say Zitel is quite a speculative play and a lot of people will get burn because of that. :( |
