Marconi,
I wonder how close ZITL may be to delisting
IMHO, Zitel is not near delisting. Also IMHO, ZITL stock is even farther away from officially becoming "substantially worthless".
From memory (too lazy to look it up! ;-), they need to maintain a minimum bid price of $1 per share, and $4M "Net Tangible Assets". I understand that NASDAQ is pretty simplistic about computing "NTA", they just take shareholder equity and subtract goodwill. They do not (as I understand it) make any value judgements.
From my point of view, FWIW, delisting is a psycholgically significant milestone, but doesn't add real value to a short position. It's only good for bragging rights.
Zitel's most recent 10-Q (for 31 Mar 99) shows shareholder equity of $7.1M, and goodwill of (I'm guesstimating here -- they lumped goodwill in with other "Other Assets", and didn't break out accumulated depreciation on a per-item basis) about $2M. So they were (barely) above the delisting threshold.
Zitel loses $2-4M per quarter (and cash burn is similar to the GAAP earnings), so call it $1M per month because I'm lazy, it's such a nice round number, and the exact amount doesn't really matter too much anyway.
Keep in mind that one balance sheet liability is the convertible debenture, which we all know is not going to be paid off with cash but rather converted. The balance sheet effect of the conversion is for this amount ($4.8M) to be added to shareholder equity, however some of the various commissions, amounts for beneficial conversion, accrued interest, etc that are presently classified under "Other Assets", perhaps about $1.5M or so, will be charged against it. Net, the conversion will add $3.3M to shareholder equity.
On a pro-forma basis (that's my word for the month ;-), Zitel's NTA as of 31 Mar 99 (shareholder equity minus goodwill) would have been $8.4M, had the debentures been fully converted into shares.
This puts them $4.4M away from delisting, so figure 4-6 months, assuming they don't make any more private placements of equity. However we know that Zitel will continue to sell stock as long as it can. Their present market cap is $35M+, so they really ought to have a decent chance of raising 10%-20% of that, $3.5-$7.5M. Which of course would extend them for another quarter or two.
All told, I think that Zitel will easily last another one or two years from here. For long term shorts who wish to defer paying tax on their gains that is a blessing, not a curse. Think of a Zitel short as the gift that not only keeps on giving, but keeps on deferring too ;-)
Zitel's pro-forma 31 Mar 99 book value per share would have been about 30 to 35 cents per share. Personally I estimate the realizable value to be less than that, and I also think that the figure will shrink over time as Zitel continues to destroy shareholder value. So if you're short Zitel with any reasonable cost basis, it would not make sense to cover.
You also wrote,
Last year some of the assets claimed did not strike me as assets. I don't remember if Zitel management finally came clean and wrote them down or not.
To give Zitel management credit where credit is due, I believe that they have been reasonably clean and conservative with their reporting for at least the past year. They've written down questionable assets more than once, and have fully reserved (i.e., carry at zero value) their investment in Matridigm an also their tax loss carryforwards. I think their business stinks and I think the stock price is (still!) overvalued, however I don't suspect any fraud or substantial misstatement in their financials.
Compare Zitel's reported losses versus their cash burn. As much as they burn through cash, they have been reporting even higher accounting losses. So they're accounting for their losses in conservative, straightforward manner ;-)
- Daniel
|
