Doug:
I just came back from vacation and have a mix feeling on the earning report.
The tricky part of the report is the following:
"In November, the Company together with the other defendants reached verbal agreement with the plaintiffs to settle the major
class action lawsuits in New York. There is still a class action lawsuit in California which is continuing. The Company agreed to
contribute US$10 million to the total settlement fund of about US$70 million. The Company is investigating whether it will be
able to raise the required cash."
If I am optimistic, I would say: Ok, the company is trying to pay as little as possible for settling the lawsuits in NY. Maybe they could settle the lawsuits for $8 million or even $5 million. Note that the market value of this company is about $8.6 million ($15/32 x 18.33 million). Every one million dollor saving means a lot for this stock. In addition, they still have to settle another lawsuit in CA. The company might want to settle all the lawsuits together since they are similar.
On the other hand, I would say: Oh, if the company could not raise enough cash, it might be bankruptcy. I am going to lose all money I have invested. At least, the possibility of bankruptcy is higher now than two month ago.
Hence, I believe that it is critical for this company during next two months. The company has to decide what to do to satisfy the list requirment of NASDAQ and what to do for the lawsuits (the trial of the lawsuit is set in January of 1998).
It is very interesting to see in the report
"The Company bought back from the market about US$4 million of its convertible debentures in December. The price paid
was about .50 and it was financed by a loan facility granted by Hong Kong Bank of Canada."
It makes me remember the news on Feb 11, 1997
"GrandeTel also announced that it has purchased for cancellation US$10 million of its 8% senior convertible subordinated debentures in a series of open market transactions for a total price of US$3.7 million. As a result, GrandeTel will record a one-time gain of US$6.3 million, which will be included in its financial results for the year ended January 31, 1997. The purchases by GrandeTel were financed by existing bank credit arrangements. The cancellation of the debentures is expected to result in net annual interest savings for GrandeTel of US$600,000 per year."
It means
(1) The company paid about 0.5 recently for the debentures while about 0.37 one year ago. The debenture's price is up about 32% in one year. Why does the company want to pay higher price for the debentures?
(2) The company has bought back most of the debentures (US$18 million out of US$20 million). Why is the company hurry to do that instead of buying back the stock?
(3) In the fourth quarter, the company will record a one-time gain of US$4 million (CND$6.4) or CND$0.35 a share.
(4) Similarly, the cancellation of the debentures is expected to result in net annual interest savings for GrandeTel per year (my guess is about US$400,000).
(5) Do you think that the company is going out of business while it is still buying all its debt back? Or do you think that the Bank believes the company is going to be dead in the lawsuits while still like to loan money to it? I am not 100% sure about it.
As for the earning, it is not good. But it is not critical right now.
As for the closing some business in China, it might not be a bad idea. It could make the company more competitive, especially Asian economy is not strong.
As long as the company is not bankruptcy in the lawsuits, we are ok. If it does, we shareholders have to do something to protect ourselves.
It is very interesting to see the trading volume today is big (about 150k) while the stock price is unchange. I understand that the sellers are for tax purperse or don't like the earning report. How about the buyers?
Happy New Year
Albert |
