Frankly Winston, I don't see any grounds for a lawsuit. Because of the way the fincials are presented, it is tough to tell exactly which expenses on the financials are one-time, and which are recurring. Nevertheless, the results aren't too surprising. By purchasing Electrotech at a time of an industry-wide downturn, PMAT took a gamble, which has been well discussed here. One of the possible results of such a purchase would be to saddle the new company with duplicate staffs and extra world-wide administration expense, combined with interest payments rather than interest income at a time when cash is likely to be scarce. The other possibilty is that PMAT may be able to sustain sufficient sales through the downturn to survive, and then emerge at the other side of the downturn as a leaner, stronger, competitor with a broader product line and a worldwide sales staff. This quarter's results does nothing to prove which will be the ultimate result, but it does highlight the fact that the former alternative is indeed possible.
I attempted to figure out what the current financials on a recurring basis might look like. I tried to back out the PMAT numbers, take the remainder and divide by 6 weeks, then multiply by 13 to get a full quarter for Electrotech. If anyone else has projections that differ, please post them:
Rev 24,000
CGS 13,000
R&D 8,000
SGA 7,200
Int Ex 1,500
Net Loss 3.7, or $.25/share.
Frankly, the number in here that looks like the most likely place to trim is R&D, and one of my fears all along was that by buying Electrotech they would weaken themselves to the point where they would have to reduce R&D. My guess is that breakeven will be about $30m or a little more, and that if will be the latter half of 1997 before breakeven is achieved. But there is nothing here that is really surprising. I do note that PMAT sales for the quarter were only $5.8m, so PMAT sales were down by about 50% from Q2, and the financials wouldn't look that good even without the purchase.
The jury is still out on whether PMAT will survive this in a weakened state, and whether or not the purchase was a good idea at the time of an industry downturn, but at least it should be clear to all by now that there is some question as to whether or not it was a good idea.
I see no grounds for a lawsuit from the financials. You buy stock in a company, you always take the chance that results will be less than you expect. These risks were not unforseeable, nor even unforseen.
Now, as to the recent press release, if there were large insider sales after the release of the press release and before the reporting of the financial results, there you might have grounds for a lawsuit.
Good luck,
Carl |
