Current Thoughts
1) Burn Rate
How fast is too fast???
From the last 10Q:
<<In general, since the implementation of operations at the Refinery in the last week of the first quarter of 1998, the Refinery has been running at less than 10% capacity. In July and August 1998, when that capacity reached approximately 12%, the Refinery averaged positive cash flows of approximately $130,000 in each of these periods, even though testing was still in progress.
The Company expects to operate the Refinery at a minimum of 25% capacity during 1999. At these levels of capacity and with existing feedstock and other costs in place, the Company expects positive operating margins. These margins would be sufficient in nature to adequately fund all of the Company's cash requirements for its Refinery operations, including General and Administrative expenses for the Refinery and the Parent corporation.
However, should the Company be unable to run the Refinery at higher capacity levels than in 1998, even though margins should still improve, they most likely would be insufficient to provide the Company with all of its required funding. In such an event, the Company would require additional financing to satisfy these requirements.>>
And from the last 8K:
<<History of Losses. We have incurred losses since 1992. We incurred a net loss of approximately $17,954,000 (on revenues of $828,000) for the fiscal year ended December 31, 1997 and a net loss of approximately $4,652,000 (on revenues of $4,003,000) for the fiscal year ended December 31, 1996. We incurred a net loss of approximately $3,518,000 (on revenues of approximately $9,228,000) for the nine months ended September 30, 1998, as compared to a net loss of approximately $12,707,000 (on revenues of approximately $453,000) for the nine months ended September 30, 1997. As a result of continuing losses, we had an accumulated deficit of approximately $3,518,000 at September 30, 1998. We will continue to incur operating losses unless we are successful in our efforts to develop our refinery operations in Lake Charles, Louisiana and/or our oil and gas exploration and development activities in Kazakstan and Russia.
Going Concern Opinion. In connection with the audit of our financial statements as of December 31, 1997, Hein + Associates, LLP, our certified public accountants, issued a report which included an explanatory paragraph relating to our ability to continue as a "going concern".
Need For Additional Financing. During 1999, we may require additional financing to supplement anticipated cash flows from our refinery operations in Lake Charles, Louisiana in order to meet operating and certain other funding obligations. In the event we are unable to obtain the necessary financing to meet these obligations, our ability to continue operations at current levels will be materially and adversely effected. In addition, our oil and gas license in Kazakhstan could be revoked. We may need to raise additional funds through public or private financings, including equity financings, with may be dilutive to stockholders. There can be no assurance that we will be able to raise additional funds if our capital resources are exhausted, or that funds will be available on terms attractive to us or at all.>>
Nuff said.
2) "Traditional debt"...
I suspect this financing was asset-based from somebody like the CIT Group, with advances made based upon percentages of the company's assets. For example, accounts receivables (with an 80% advance rate) and inventory (with a 50% advance rate)...
From the aforementioned 8K:
<<It also expects to obtain additional financing by the end of November 1998, utilizing its accounts receivable as collateral, although there is no assurance at this time that the Company will be successful in obtaining such financing. The amount of such financing is dependent upon the aggregate value of the Company's receivables, but is expected to approach approximately 85% of such amount.>>
I think 85% is too aggressive; I predict it'll be closer to 80%. Plus I think they've got something for their inventory, too, since that is usually one of the most valuable assets in a petroleum refinery.
I am fairly certain that the terms, once disclosed, will give the financier a duly perfected, first security lien in all the Company's assets. Hence, if the company goes into bankruptcy or liquidation, the financier can still get out whole to the detriment of other subordinated secured lenders, unsecured creditors (e.g., trade vendors), and shareholders.
3) The $1 Bottom...
Isn't that the minimum bid price required to stay listed???
From the 8K:
<<Continued Listing Requirements for Nasdaq Securities. Our securities are traded on the Nasdaq National Market System ("Nasdaq-NMS"). Continued listing on Nasdaq-NMS requires, among other criteria, a company to have tangible assets of at least $4,000,000 and that the listed security(s) (other than those owned by directors, officers, and other beneficial owners of more than 10% of such securities) have a market value of at least $5,000,000 and a minimum bid price of $1.00. Although we currently satisfy these criteria, we cannot give you any assurance that we will continue to do so. If in the future we are unable to satisfy the criteria for continued listing of our securities for Nasdaq-NMS, they may be delisted. In that event, we would seek to have our securities listed on The Nasdaq SmallCap Market or other securities exchange, subject to our ability to satisfy the eligibility criteria for listing. If we were unable to obtain any such listing, trading, if any, in our securities would thereafter have to be conducted in the OTC "Bulletin Board." As a result, an investor might find it more difficult to dispose of the common stock due to our reduced visibility on the market.>>
Does this paint a clear enough picture for you, or do I need to call in a specialist from AOL to help us "connect the dots"? <vbg>
Razor |
