Observations from the 10K filed 3/30/98:
1. Virtually all warnings were cast in terms of "may." Okay, so that is just a warning of what might happen. However, one warning explicitly used the term "will":
"Although the Company has experienced significant revenue growth in recent periods, such growth rates are not sustainable and will decrease in the future."
2. Two separate comments, read together, are of great significance to me. First, the company states that it has enough cash for 12 months:
"The Company believes that current cash and cash equivalent balances and short-term investments will be sufficient to meet its anticipated cash needs for at least 12 months."
Then, the company states that losses will continue beyond 12 months into the "foreseeable future":
"[T]he Company believes that it will continue to incur substantial operating losses for the foreseeable future and that the rate at which such losses will be incurred may increase significantly from current levels."
Then, the company states that the remedy could well be dilution:
"If cash generated from operations is insufficient to satisfy the Company's liquidity requirements, the Company may seek to sell additional equity . . . ."
Furthermore, a $75,000,000 loan taken out on December 23, 1997, if not promptly repaid in installments over 3 years (which seems quite unlikely given the company's losses), will automatically result in dilution totalling 750,000 shares over 3 years, or over 3% of shares outstanding.
In sum, it seems that there is considerable likelihood for share dilution to occur by 1999.
Gary Korn |
