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Strategies & Market Trends : Steve's Channelling Thread -- Ignore unavailable to you. Want to Upgrade?

To: Larry Brubaker who wrote (7686)	11/11/2000 1:52:57 PM
From: Zeev Hed	Respond to of 30051

Larry, I think that the acquisition of Telecordia IP may change the dynamics of the holy one quite a lot. Lev even mentioned that long range, VLNC may do a QCOM and keep the Ireland facility almost as a "demo site". At one point he even said they may not manufacture (and once more brought QCOM as an example). If that will be the case, their cash thirst will decline quite rapidly. Short term, sure they need some cash, but they still have some $30 MM coming in over the next two three years (if memory serves) and $12 MM committed by Berg (this one is a "friendly floorless" equity line, I say friendly, since I have seen no evidence that Berg sold any shares and actually, his last buy of 140,000 shares was around $15 or so in mid April, did he buy in the open market or from the company against that $12 MM line of credit?). Last year we had a lot of discussions about yields, and this quarter shows the enormity of the problem. Lev mentioned that they had to throw a whole batch of batteries, I presume finished batteries. The fact that their cost of goods sold was $6.7 MM for $2.1 MM of sales, while in the last quarter it was $5.6 MM on $2 MM indicates to me that yields in the last quarter actually went down dramatically. It might have been that single incident of a discarded batch, but that is a million bucks worth of batteries thrown out, not chicken feed. I calculate that in the last six months they have spent $5.8 MM on Cap ex (their cap increased by $.6 but they had $5.2 in depreciation charges), increased their inventories by $2.7 MM and their receivable by $.7 MM, thus these three items account for $9.2 MM in additional cash burn. For the same six months, their real operational cash burn is "only" $12.7 (taking out depreciation from operation and plugging back into cap ex) thus we burned some $21.9 MM in the last two quarters. The cash decrease is only $15.7 MM, thus I would assume that $6 MM came from somewhere (probably increase in shares outstanding at the end of march and now, we'll have to wait for the 10Q to find out). My main worry is that in the next two quarters they will probably need to burn even more cash (more inventories, receivable and of course additional equipment in the pipeline), maybe as high as $25 MM and if the market really becomes sour, Lev will not be able to wait for "better prices" for the stock, he'll have to go first to Berg and then other people for money. The holy one has cash for barely one quarter of operations, and you do not wait until all the cash is gone to go to the well. if you do, you are in real deep shit. I think that some financing will have to occur before the end of the year, the IDB money is coming in at around $2 MM per quarter, not enough. Zeev