TS03 Inc Trust Units TSTIF

RE:Breakeven or Cash Crunch in 2019?

[Drrwong]

@Sunny:  thank you for trying to model things out, but your math descriptions are a little difficult to follow.  But here are some of my inputs:

Consumables:  selling price is $25-30 (not $20), and gross margins are higher than 75% on those.  I have no issues with your 4 cycles/d assumptions.

VP4s:  the gross margins on the remaining 205 Getinge inventory is 100%.  All the $33k Getinge costs are paid already, so every dime we get on a VP4 sale is positive cashflow for the company for the remainder of these Getinge inventory.  Obviously the gross margin will revert back to 30% ish once we need to manufacture our own machines again, but that will mean we will have a 307 installed base then.

The most important issue is what we mean by breakeven.  In the investment world, it means the cross-over date when the company becomes cashflow or earnings positive.  It is not looking back in that year to see if the company is profitable.  For example:  TSO3 achieved a 300 unit installed base in Nov 2019 and becomes profitable, that is the break-even date, even though the company would have lost money in 2019 as a whole.  It is a useful date because the cash levels should stop dwindling after breakeven, which allows investors to evaluate if there is another need for future financing. 

Like you said, we have 66 installed at YE18.  When we get to 300 installed base (our projected breakeven point), this means another 234 VP4s would have been installed.  Using your $75k per VP4 assumption, but using 100% gross margins (as we paid in full for these Getinge inventory already), just the machine sales would give us $17.5mm of cash--already enough to cover our operating expenses for the entire 2019.  This does not even include any recurring revenue (consumable and service) coming in on top of that, which will be the more important drivers past breakeven.

I am sure you will ask the 100% gross margins on VP4s is not sustainable.  Yes, but only after having an installed base of 307.  The profits coming from consumables and service revenue of 307 machines will pay a big chunk of our bills.  We still need to have some level of  VP4s sale per month in our assumptions, but we are a continuing business, right?