Mike,
re. R&D,
R&D expenditures are miniscule. They spent only $209 k in all of 1997.
If the R&D is the reason you own the stock, why are you willing
to pay $34 M market cap for $0.2 M of R&D?
Given the numbers, I just think it is mistaken to think of this co.
as a development stage R&D co.
See the text below from the 10k:
Research and Development. Research and Development expenditures were
$209,783 for the year ended December 31, 1997 compared to $364,728 for the same
period in 1996. The majority of these costs were related to the formulation of
the following: a Ginseng gum, which helps maintain overall good health; High
Gear, an energy gum; an Antacid/Calcium gum, which prevents, helps and treats
osteoporosis and prevents upset stomachs; a newly reformulated Love Gum; and
other various private label projects. These private label products consisted of
dental gums, OTC antacid and analgesic gums, diet gums, multi-vitamin gums,
ginseng gum, nicotine and non-nicotine smoking cessation gums and body-building
cube gums.
re. cash flow.
Contrary to what you said,
they burned cash in 1997. The only reason cash didn't go down was
because of cash in from financings (which of course dilute the
stock). Restatement of previous statements has nothing to do with
this. They simply sell very little product, producing far less cash
in operations than they spend in operations.
I'm not writing this to be nasty, or for any purpose at all, except
to share what I found in my DD. I have no bias in the matter, as I
have no position, and I am unlikely to take one.
Below I paste the cash flow statements from the 10k for the FY ending
12/31/97. Note the bolded text.
6 GUM TECH INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Cash Flows From Operating Activities:
Net income (loss) $(5,398,634) $(3,388,407)
Adjustments to reconcile net income (loss) to net cash
(used) by operating activities:
Depreciation 551,404 454,654
Amortization 47,710 --
Provision for bad debts 94,500 20,111
Loss on disposal of assets 10,633 11,036
Interest expense from beneficial conversion
feature of notes payable 665,790 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (648,527) 161,348
(Increase) in employee receivables (61,054) --
(Increase) decrease in inventories 333,562 (468,279)
(Increase) decrease in income tax receivable 234,440 (234,440)
(Increase) in prepaid expenses and other (55,106) (73,660)
(Increase) in interest receivable (60,164) --
(Increase) decrease in deposits and other 128,602 (80,401)
Increase (decrease) in accounts payable and
accrued expenses 470,600 (133,330)
Increase (decrease) in customer deposits (50,500) 28,541
----------- -----------
Net Cash (Used) By Operating Activities (3,736,744) (3,702,827)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (134,083) (572,602)
Proceeds from disposal of equipment 6,363 --
Increase in notes receivable -- (216,000)
Receipt of principal on notes receivable 177,653 --
Deposits on purchase of equipment and other -- (248,407)
Increase in deposits and other (10,598) --
----------- -----------
Net Cash (Used) By Investing Activities 39,335 (1,037,009)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowing 2,530,000 706,397
Principal payments on notes payable (204,871) (2,589,330)
Issuance of common stock 4,311,768 8,514,000
Offering costs incurred (188,678) (1,277,807)
Debt issuance costs incurred (259,648) --
----------- -----------
Net Cash Provided By Financing Activities 6,188,571 5,353,260
----------- -----------
Net Increase in Cash and Cash Equivalents 2,491,162 613,424
Cash and Cash Equivalents at Beginning of Year 1,116,751 503,327
----------- -----------
Cash and Cash Equivalents at End of Year $ 3,607,913 $ 1,116,751
=========== =========== |
