Razor, if you plan to short this puppy, be careful, I would say that a "good" shorting range is $7.5 to $8 with a close stop at $8.625, cover where CC would cover if they were short and not intent of getting into spiral mode, around $6.
Frankly, VLNC reminds me a lot of two other puppies, GATE and AKSEF. Both had dreams bigger than their financial ability to execute them. Smith really wanted to become a major player in the expanding ASIC business with a unique new technology, but after selling all the non ASIC assets of the company, Murphy had the better part of it, and the program was not ready for launch, but money run out. There we had Idanta finally coming to the rescue (after a nasty dilution due to its own floorless), but even Idanta's injection was not sufficient.
Arakis, you know the story, after their own floorless caused massive dilution, they vowed to avoid floorless financing again, and finally sold out for less than book value. Yet, in both cases you had some pretty good runs worthy of the Multihorn table with multiple baggers (3 for AKSEF and 5 for GATE).
Here the financial story is clear and the Altman analysis is indeed correct, but, if you are to believe some of the bulls on this thread, "shipments" are imminent. Now, typically for a company in VLNC's financial straits, "shipments are imminent" would not be a panacea (like crude in the ground was not for Arakis), but once they ship $4 MM (by hook or by crook), few "standby" financial resources become available, including another $7.5 MM from Baccharat Electronics and $39 MM from IDB (over a period ending Oct 2001). This IDB money is not funny, it is real good money, it is grant money (if VLNC keeps certain employment levels in Ireland for 4 years after the end of the grant period, otherwise it becomes debt to the US company). I believe this is one of the reasons the stock is holding well and one of the reasons the floorless bandits agreed to change the terms on the first tranche of $7.5 preferred to non floorless.
All these "warnings" Razor, are just to let you know that unless you hold a chunk of that preferred yourself, shorting this puppy is not riskless.
Now to the rewards in case you are not trapped in a sudden updrift. Originally, VLNC was supposed to have a "material" order by Jan 27 of this year or the Preferred A would have become floorless. Well, they did not get that material order. The rumors on this thread were that a material order will materialize by the end of March (next week), that would have also coincided with their "running out of cash" window. I thought last week that the stock's perking might have been an indication that such a PO might be just in the mail and enough well informed people were doing the initial buying. Friday's action proves to me that this assumption was erroneous, and thus the likelihood of an order here and now, seems remote to me. Here comes the possible killer for you as a short. If indeed no material order is in house, now, a good nine month after efforts to obtain such an order started (I say nine months since everyone here with their pipelines open to the company expected such a PO not just by January 27th, but late last year, and you can bet that initial discussions with OEM's would have taken at least three months just to get to first base, including an NDA), the likelihood of one materializing before July 27th (the next floorless deadline) is diminishing.
Last time CC was generous and voided the floorless feature, will they be that generous this time? They did not in the case of Osicom, they may be patient, but there are many other opportunities for them to deploy $15 MM. Furthermore, by reading the balance sheet, it is quite evident that they had only $7.8 MM on hand by the end of December, and their burn rate in the last quarter (not counting capital expenditures or build up of inventories of raw materials the thread was discussing last month) was $7.9 MM. Even if you assume that the holders of the accrued liabilities ($6.2 MM) and the holders of the accounts payable ($2.4 MM, possibly this inventory buildup?)are patient, they still need to have from somewhere a good $8 MM (probably closer to $12 MM since I would guess that the receivable owners as well as some of the accrued liabilities owners are becoming impatient) to run till July 27th. Without shipment, the IDB window is closed, maybe Baccharat (owned by a major shareholder of VLNC) will advance the last $7.5 MM of its line of credit, but I would not count on it. So, Razor, if you short, and they fail to get some shipments out, and find no new reasonable financing, you might end up on the side of the floorless bandits for a change.
Of course, there are a lot of if's on both sides, that what makes this situation so volatile and interesting. Since I personally do not have a taste for shorting, I am waiting to see the same conditions we saw at GATE and Arakis for a possible double bagger, I thought it was going that way when it started to breach $6 on the way down last week, but nothing happened. I'll wait a little longer, and maybe this company, which is currently with its back to the wall, will come and roar back, and on the other hand, it might go the way of EXSO and CAFE and few other dreamers as well.
Zeev |
