My thoughts following vast amounts of turkey consumption, which are worth what you pay for them:
1. My sense is that most of the selling is not by DMRJ. The selling pressure we are seeing is most likely from people who bought DMRJ’s shares two weeks ago and now realize the price isn’t going to $2.
2. A buyout at this juncture is looks pretty unlikely. I can’t imagine any acquirer purchasing Implant without also dealing with the debt structure. But, as a practical matter, in order for DMRJ to enter into negotiations with an acquirer they would have to refrain from trading Implant stock, as they would be in possession of material nonpublic information. Kind of tricky, because why would they agree to do that unless a huge premium was involved, which would drain out gains for common stockholders (and management).
3. I don’t see a new lender replacing DMRJ, because I believe, at this juncture, the company needs to keep the payment flexibility that they provide (they aren’t foreclosing if interest isn’t paid on time). I would hope when the debt comes due in March, Implant is able to negotiate a lower interest rate and perhaps an agreement that DMRJ will not convert more than 5% of outstanding during any quarter while interest payments are being paid on time. That would be a win to me.
Look at it this way: this is a difficult financial forecast for a conventional lender to swallow: Q1 resulted in sales of $1.8 million, gross margin of $600,000, and expenses of $7.0 million (SG&A $2.7 million, R&D $1.3 million and debt service $2.0 million), for a loss of ($5.3) million. I am not sure of the effect of the “contest” of the award, but assuming they started producing B220’s at a 200 unit per month rate at the time of the contract award, Q2 could result in sales of $12 million, gross margin of $4.2 million and if expenses remain unchanged for Q1, a loss of ($2.8) million. Assuming they’re pumping out B220’s, Q3 could result in sales of $24.0 million, gross margin of $8.4 million, expenses of $7.5 million (I added $500k in additional interest on the debt and increased SG&A), for a profit of $900k. Assuming there are follow-on orders by the TSA for full 1,170 units in its FY15, Q4 would be similar to Q3. If there aren’t such follow on orders, or if they are delayed, Implant would be back to a loss position.
AI
