Your reply has had a sobering effect on my enthusiasm to say the least and I am grateful for that. I haven’t been looking hard enough at the risk. It is difficult to know how high it is but I see that you think it is significant. I did take a large position in the company recently (approx 8%). Perhaps that was a mistake.
Hi Cleverbear, Please don’t misunderstand me. I didn’t do any kind of in-depth analysis of the company. All I did was read your post and the two articles you linked me to. You yourself wrote The company is perched precariously between bankruptcy and strong growth. and both articles echoed that sentiment. It’s like the company has been in an uncontrolled nose dive, and the question is whether the pilot can pull it out before it crashes into the sea. He may succeed and it may pull up again into the sky, but I wouldn’t want to risk 8% of my capital on a risk like that.
Cleverbear, look at this. This is from their last quarter report:
Revenue for the fourth quarter of fiscal year 2014 was $17.9 million, compared with $22.2 million in the third quarter and $28.3 million a year ago.
Revenue down a bunch, sequentially and year over year!
Net loss … was $11.6 million or ($0.20) per share. This compares to a net loss of $5.5 million or ($0.12) per share in the third quarter and a net loss of $27.2 million or ($0.71) per share a year ago. .
They are cutting their Net Loss by cutting expenses, but the losses are still enormous. This is a loss of roughly $12 million on $18 million of revenue. To make it clear what that implies, it means they took in 18 and spent 30!
They say they expect revenue up 50% next quarter over the March quarter. That means their revenue would be $9 million more. You might think that $9 million more revenue would get them out of danger. However: Gross margin …was 14.5%, compared with 11.1% in the third quarter of this fiscal year and 5.3% a year ago.
Gross margin is subtracting cost of goods sold. If they keep a Gross Margin of 14.5% they will keep about $1.35 million out of that $9 million increased revenue, and “only” lose about $10.2 million instead of $11.6. If they get Gross Margins up to 20% on increased volume, they will keep $1.8 million out of the $9 million increased revenue — and lose “only” $9.8 million instead of $11.6 million.
And this is assuming that they will have 50% more revenue with NO increase in operating expenses (no increase in salesmen, secretaries, telephones, etc. Any increase in operating expenses to cover the increase in revenues will increase their losses.
And this is a company that had only $19 million in cash. Losing “only” $10 million a quarter, not a year.
Revenue for the full fiscal year 2014 was $90.0 million, compared with $123.9 million for the prior fiscal year. Net loss for the full fiscal year 2014 was $34.2 million or ($0.83) per share, compared with a net loss of $54.7 million or ($1.46) per basic and diluted share in the prior fiscal year.
My goodness, there are more attractive opportunities around!