Look at today's earnings release at Yahoo. .... LOCK has a lot further to go on the upside from here.
What's up with the unabashed cheerleading and the ignoring of reality? Is this Yahoo?
Lets assume a best case scenario where the House passes the gun lock law.
A careful review of the 10Q reveals:
The Company ended the first quarter of 1999 with a cash balance of $44,430 and
accounts receivable of $82,106 against accounts payable of $243,951, leaving it
in a low cash position, similar to that which resulted in the going concern
qualification expressed by the independent auditors in the 1998 year end 10KSB
filing on April 15, 1999.
Going concern is code word for immediate financial distress (i.e. likely bankruptcy). It is VERY likely that LOCK will either run out of cash and close business or dramatically dilute stock in order to obtain death spiral financing long before the president signs the bill.
Revenues, which consist of sales, interest and royalty
income, and other miscellaneous income, totaled $58,722 for the first quarter of
1999 as compared to of $277,436 for the first quarter of 1998. Sales for the
first quarter of 1999 were almost entirely from shipments to law enforcement
agencies.
LOCK has had NO success selling to consumers and they're sales to law enforcement are beyond anemic. Why you ask?
Because they are extremely expensive:
Saf T Lok's success is predicated on two things: an explosive market for gunlocks and
the market's acceptance of its product. Neither seems likely, since a surge in demand
most likely would come only if gunlocks were mandated by law. Even then, Saf T Lok
would be competing against products selling for a fraction of its $80 to $90 price tag.
financialweb.com
Let's assume they can fix the price problem....its too bad that LOCK has laid off the majority of its workers. From the 10K:
The majority of the
workforce, both hourly and salaried, was reduced and all officers resumed
deferring salaries at the end of October 1998. Wages for the remainder of the
salaried employees were deferred beginning January 1999. Other expenses were
curtailed maintaining only those activities necessary to keep the Company in
operation.
How is a company that is just trying to keep its doors open going to market a product that is too expensive? However, since we're ignoring reality on this board, we'll assume that LOCK can overcome the fact that they essentially have no one to market and manufacture the product. But the 10K says that the auditors say this is a DREAM that won't happen:
The Company ended 1998 with cash balances of approximately $434,000, not enough
to sustain it as a going concern for 1999 unless it could substantially and
rapidly increase sales to convert inventory into cash and sustain sufficient
cash inflow to support operating expenses. Because of the long lead times
associated with sales to governmental agencies, this would be an unreasonable
expectation.
The auditors think LOCK is going under, but lets assume that they are just being overly pessimistic and that LOCK will indeed succeed. In order to raise cash to survive, LOCK's going to have to massively dilute shareholder equity:
The Company is in the midst of several capital raising negotiations and expects
to raise sufficient operating capital within the second and third quarters of
1999 to meet its projected needs for the next year.
So, the shareholders will be hosed even if the impossible happens, but wait, it gets worse:
The
Order revealed that members of the SEC's staff have reported information to the
Commission that, in the staff's view, tend to show that during the period from
at least January 1, 1996 and continuing thereafter, the Company, its present or
former officers, directors or employees or others may have violated Federal
Securities Laws.
If LOCK is above .25 cents after all this, it will be a miracle. If you bought today on hype, get out now before market reality kicks in.
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