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  • stock_abby stock_abby Oct 28, 2006 12:19 PM Flag

    The Problem Here

    Please read the detail on ZOMX below because in my view it directly relates to the QFAB opportunity. My point is made at the end.

    I have experience with another small cap company called Zomax, which has a sterling balance but is faced with shrinking revenues and a tough environment overall. They are in the business of manufacturing/service outsourcing.

    In short, they did a good job downsizing the business in response to the tough environment. They kept cash flow about break even and managed to protect the substantial cash reserve on the balance sheet, even though revenues dropped at a fast pace (40-50%)over a two-year period.

    The investment proposition for ZOMX was very similar to QFAB - strong balance sheet, declining revenues, tough industry and macroeconomic factors. However, with proper management, one could say the future would likely be brigher some day. I thought they could to ride out the storm with the strong balance sheet, and my plan was hold onto the investment for the long-term. This type of investment obviously has high risk overall, but a great expected return - very similar to QFAB.

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