bigpike, if SMTX uses the extra $4M to pay down the current maturity portion of LTD (Sr. Secured) and has enough cash flow for the rest of the year to eliminate the remaining $2.5M of the current portion, the Company will still be faced with a heavy burden in 2007 and 2008.
If SMTX's operating earnings can remain at $2.6M per quarter (to Wade's point, this assumes that revenue growth or SG&A cuts will offset anticipated margin declines), the Company will have post-interest, pretax cash flow of approximately $1.5M per quarter (depreciation is approximately the same as CapEx, changes in working capital assumed to be flat).
Moving on, let's assume that the Company is able to keep the NOL's that it desperately needs so it doesn't have to pay taxes. As I am sure you are aware, there was significant disclosure that SMTX may not qualify under IRS Code Section 382 to maintain these tax benefits, but for this summary, let's assume NO taxes.
With $1.5M per quarter, SMTX could accumulate $6M in cash in 2007 (assumes no growth, but also no taxes). At the end of 2007, Subordinated Tranche A is due for $15M. At the end of 2008, the other $8M+ of the Subordinated Debt (Tranche B) is due, which is also currently PIK'ing. I am pretty sure that Wachovia, as the Secured lenders, will not be happy to watch cash leave the business and go to subordinated debt when they are the ones that are secured, especially when full payments likely cannot be made anyway. Therefore, I think a refinancing/recapitalization of SMTX is absolutely necessary in the near-term, which will likely result in equity dilution.
Anyway, you may agree or disagree, but this is why I have avoided SMTX and would caution others to recognize SMTX as a high-risk/high-reward proposition.
AI
