Taylor Stuart Financial Initiates Coverage on Syquest (Nasdaq: SYQT) with an Immediate Avoid Recommendation
PR Newswire, Monday, October 26, 1998 at 17:01
LONG ISLAND, N.Y., Oct. 26 /PRNewswire/ -- The following is being issued
by Taylor Stuart Financial, a member of the National Association of Securities
Dealers, CRD number 39025:
Taylor Stuart Financial today released its research report on Syquest with
an immediate SELL recommendation in a page research report entitled
"Fundamentals do not support current valuation; buyers beware."
Industry: Computer Storage Devices CAPITALIZATION: June 30, 1998
Long Term Debt $2.3 million
NASDAQ:SYQT SERIES CV Pref: 36,309* shares
COMMON STOCK: 230,800,000
shares**
Recommendation: Immediate Avoid *Preferred share dilution
Fundamentals do not support current indeterminable as price of
evaluation. common stock to be issued
increased as price of common
stock declines.
** Fully diluted at present.
Risk Rating: Extremely Speculative PRICE: 15/16 Per share
52 WEEK RANGE: 4 15/16 to 1/8
Nine Months ending June 30, 1998
Net Sales $123.8 million
Net Loss $110.8 million
SUMMARY AND CONCLUSION:
Syquest technology is out of cash, overextended on credit and suffering
severe losses that may preclude its ability to survive as a corporate entity.
The continuous issuance of equity capital and warrants to fund operations over
the past two years has ballooned its capitaization and may have impaired its
ability to raise new monies. More important increased competition, price
cutting and an over estimation of the growth of markets served by management
appears to have severely limited a return to profitability near term if at
all. The company has indicated that without immediate funding they cannot
support operations. A layoff of 43% of its 2,200 employees and the closure of
its Fremont, California manufacturing plant this past August has provided no
remedy to date. Under certain circumstances, the shares should be sold as
near term prospects appear exceedingly dim. With a current market
capitalization of approximately $200 million, based on a recent stock price
and 230,000 shares outstanding. Fully diluted we believe Syquest is grossly
overvalued, based on the following investment considerations and rate the
stock an avoid.
NEGATIVE OBSERVATIONS:
1) Company has indicated that continuing losses for the three months
ending September 30, 1998, has substantially reduced its cash balances,
working capital and net worth as compared to the previous June quarter.
Inventories increased $19 million. Total year end results have not been
reported.
For the nine months ending 6/30/98, net losses totaled over 110 million,
despite a rise in volume to 123.8 million. Sales were unprofitable as a gross
of $20 million was incurred versus $1.3 million the year before. Selling,
general and administrative expenses more than double to $67.7 million and
inventories jumped to $46.6 million compared with $19.5 million in the June
1997 quarter. The worst of both worlds exemplified by sharply larger losses
with expenses out of control.
2) Management has been unable to deal with adverse market conditions such
as significant oversupply and severe pricing pressures. The company has
revised sharply downward its assumptions of market size; growth rates and
competitive pricing for its SparQ and SyJet product lines.
3) Negative cash flow for the September quarter may not have satisfied
the financial convenants of its credit lines which could result in default.
Negotiations to secure an additional $13 million in credit is impeded by the
lender's request that $8 million of the credit be guaranteed, Syquest has gone
to its Series 7 preferred shareholders to provide such guaranties in the form
of yet another preferred issue, with 2 million shares of common stock to be
issued in consideration. Under prevailing circumstances such as an
arrangement would be difficult to achieve. The company burned over
$220 million in capital raised in the past two years. Moreover, with the
stock below $1 per share and out of Nasdaq compliance on minimum net tangible
assets, a delisting from the National Nasdaq Market could be imminent and
impair its ability to raise capital. Even if it were to raise the $13 million
it would only fund the December quarter and only delay the inevitable, the
ultimate failure of the business. Market acceptance of products and access to
capital, the necessary ingredients to ensure a successful turnaround are not
indicated at present.
4) The company just registered for selling shareholders almost 71 million
shares of common stock. Moreover, it does not have enough authorized shares
for preferred conversions with Series 7 issue convertible into increasing
numbers of shares as the price of the stock declines. The preferred
shareholders are also able to short the stock. A reverse split of either
1 for 5 or 1 for 10 is presumed to be under consideration, but would only be
successful if profitability was restored. That does not appear likely at
present.
5) Uncertainty regarding lawsuits on patent infringements with Iomega,
its principal competitor, and class action suits by former shareholders also
could cloud their outlook. Meanwhile, legal fees have been a growing expense.
6) Finally, with computer prices selling below $1,000 for desk tops,
which possess increased capacity compared to earlier models, the expenditure
of $249 for the new SparQ product does not seem encouraging. Furthermore
competition is ferocious according to market observers of company products
from Iomega on market share and the newer forms of low-end storage and the
growing capacity of fixed storage.
All investments involve risk. The risk inherent in a particular security
may not be appropriate for you. Please consult with your Taylor Stuart
financial executive to obtain assistance in selecting appropriate investments.
This report is published for informational purposes only and is not to be
construed as an offer, nor the solicitation of an offer to sell or buy the
security. The information contained herein is based on sources that we
believe to be reliable, but we make no guarantee or representation about
the completeness of the statements or summaries of available data
contained herein. This information is provided as of the date of this report
and is subject to change without notice. Furthermore, the information in
this report should be considered outdated 90 days after publication, or such
earlier date as circumstances may require, and should not be relied upon
thereafter to develop investment strategies. Taylor Stuart does not make a
market in the securities of Syquest.
SOURCE Taylor Stuart Financial
-0- 10/26/98
/CONTACT: Taylor Stuart Financial, 800-259-0372/
Companies or Securities discussed in this article:
Symbol Name
NASDAQ:SYQT Syquest Technology Inc
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