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Biotech / Medical : GUMM - Eliminate the Common Cold -- Ignore unavailable to you. Want to Upgrade?

To: Mark Marcellus who wrote (2736)	10/23/2000 8:10:18 AM
From: Mike M	Respond to of 5582

That's because they swapped debt for equity. Thing is, if the stock is truly undervalued, debt is a better deal for shareholders as long as they are not going to continue burning cash for the foreseeable future. Your point is well taken. They tried debt with their Citadel deal and, as you mentioned, later converted to equity. Much safer for a company launching a new product(restrictive loan covenants, etc). Conversion to equity has been judicious. Over the past three years they have increased number of shares from 6M to 9M while sales have grown three fold (5 to $15M) and they haven't even started to ship jv products. What is missed here is that during that time they have significantly increased gum manufacturing capacity which has absorbed capital spending dollars without concomitant cash flow. This, by the way, is where the debate should center. Success of Zicam launch...Where does the gum business go? Dental gum manufacture for a corporate partner, nicotine jv products etc... Not whether the company will be out of money next year. As operational cash flow allows, debt may be used. I say may because we have already seen how the SWMAY jv set up and it has allowed them a 49% ownership without cost of capital (SWMAY kicked in $10M)....That shows how management thinks. The company has been prudent with very meager dollars thus far, IMO, and I have no reason to expect differently.