Glanced at the finacial results Revenues increased from $16 to 20 million. In early quarters it was stagnant. It increased by $4 million from last quarter or 27 % increase but it is very deceptive because it is $12 million lower than Feb 2020 quarter.
The gross margin has collapsed to $21.9 % from 59.08 % in Feb 2020. The drop in revenues and margins from 2020 confirm that the 2019 business model has drastically deteriorated. It is not the same company anymore.
They are in the process of transforming and there is some hope because of marginal improvement. This transformation is going to take a long time. It could take years. They will continue to incur losses and burn cash for the remaining year. Unless a miracle happens.
They lost money and are burning cash. The burn rate is not that alarming as LPS. The matter of concern is that the gross margin of 21.9 % is low and not good. They need to double the margin to break even at the current $20 m revenue or multiply their revenues. Even after the big write-off of last quarter, the margins are still very low. It appears that because of the higher manufacturing cost and or big markup by the outlets and other costs this is becoming a low margin business.
I think that FAF has a gross margin of about 30 % and they are burning cash with that. Though totally different business. Not sure about the markup of other government distributors. I think manufacturers even pay the shipping cost, marketing and accept returns for up to 6 months. All sales are not final and there could be returns and dead inventory
They are getting government assistance of $1.8 m which means if this money was not a grant then the loss would have been even higher by that amount. Share-based compensation of $1.2m per Q was paid in addition to salaries.
When they have cash on hand of $49m why are they borrowing money a $9m term loan that is in violation of covenants and is being classified as a current asset? Should pay it off and save on interest. (Lenders committed to secured debt financing at interest rates based on prime plus a margin that ranges between 2.0% and 2.5% per annum depending on certain financial covenants)