Finding cash to stay afloat can't be fun at the moment. We look at three companies whose funds are running low.
In a credit crisis, cash is king. This is not the time to be looking for new loan facilities, especially if there is significant risk attached to the business, and with the equity markets depressed it's not an ideal time to place stock either.
Flat panel loudspeaker pioneer NXT
(LSE: NTX)
is typical of companies with cool technology, and the challenge of getting it to market before the cash runs out. In the six months to the end of December, the net cash outflow was £1.6m, leaving £1.95m in the kitty.
Since then, the company has cut headcount and costs, but disappointing trading still meant it had to go shopping for money. In July, customers stumped up two-thirds of a convertible loan of £500k to keep the show on the road; the loan pays 10% interest, and is secured on some of NXT's intellectual property.
NXT has struck some interesting deals, including the recent inclusion of its speakers in Hallmark's audio cards, but investors have little visibility on future cash requirements.
Similar problems are common among biotech companies. Proteome Sciences
(LSE: PRM)
is a case in point -- while I have no opinions on the market for 'high sensitivity proteomics', or on Proteome's competitive position within that market, I'll accept for the sake of argument that it's developing some useful ... stuff.
But again, the problem is cash. To quote from the annual results published at the end of June, "there can be no certainty regarding the availability of funding for the next 12 months".
To put it in numbers, the company's operations burned £4.5m in cash last year, leaving a balance of £300k at the end of December. The CEO increased his loan to the company from £4m to £6m (repayable immediately should he cease to be an executive director!). Unless trading has improved, I'd expect Proteome to be looking for more funding.
Thistle Mining
(LSE: TMG)
rose 57% to 11p on Wednesday, bringing its market capitalisation over £50m. The reason: reports that it's in discussions to sell its only operational mine, a money pit in South Africa that has failed to meet targets.
The company has been kept afloat from month to month by two creditors who, as a result of this failure to meet targets, may at any time declare their debts of over $50m immediately payable. These two creditors already own 70% of the shares, following a debt write off in 2005 in which the original investors were diluted 19:1.
The movement in the share price is nothing unusual -- it's been jumping around violently between 5p and 25p for a couple of years, as investors try to pin a value on it. I'd give this a very wide berth.
Thistle Mining also demonstrates how dangerous it can be to short sell. The slightest news-flow or speculation can change the price dramatically, and if a troubled company does manage to sort out its problems the returns can be huge, but it's a very risky game.
