This is a well-written article. Exceptional, as a matter of fact. He captures it really well here:
"There is a very real possibility that uWink will go out of business before they ever make enough money to justify more debt financing to continue their operations.
It basically boils down to these two scenarios:
uWink is unsuccessful or marginally successful with their current restaurants, but cannot sign up enough software and licensing deals to make up for their burn rate and overhead, can’t get financing, and go out of business.
uWink is unsuccessful or marginally successful with their current restaurants, and signs enough software and licensing deals to make up for their burn rate and overhead, are able to get additional financing at reasonable terms, and stay in business
In either scenario, the success of uWink’s restaurants is NOT material to their future success.
As such, you have to understand the business and what you are getting yourself into before purchasing shares in uWink.
I caution you to allocate funds for uWink that you can afford to lose completely, and reiterate that uWink is the absolute most risky investment that you’ll ever partake in, at least one that’s legal and isn’t found at the craps tables."
I only take exception to one thing he is saying. He states repeatedly that uWink can survive for 12 months in terms of cash flow. He is wrong. It is worse than that. He is taking their statements at face value and not looking beyond them.
I would like to take the time for a detailed analysis on a proforma basis, maybe I will, but from what I know:
- they have Working Capital of 2.2 M.
- they have to spend a further 600k to get MV up and running.
(2.2-.6 = 1.6)
- they burned through 1.6 M or something this qtr.
So they may burn through 1.3 M this next qtr.. and be left with 500k - 1M in cash or Working Capital.
Rather, they need immediate changes. Under these circumstances the CFO sometimes resigns. It is his responsibility to ensure some kind of cost control is in place, even if no on wants it. Usually he is the fall guy if there is a problem. Could happen before next qtr.
Bottom line is they are running out of time quickly.
Financial trouble is the worst thing for a stock. This thing could go ower than anybody can possibly imagine. Cost cutting will have same effect.
However, if you are a bottom feeder, you could really profit if they make it.
My prediction: this will become a .10 - .20 stock before the year is out.
