looked at 10q again. Oaktree now has rights to 68% of the common through the preferred conversion right. In addition, the company is proposing offering shares to Cv note holders instead of cash. IF so, that is further dilution and Oaktree is protected from such dilution as they get 68% no matter how many shares outstanding. The real debt is $132million with $110MM owed to Oaktree and $22MM to cv holders. Oaktree also owns an additional $22MM preferred that is convertible. Interest is growing at a 12% compound rate as PIK interest accrues. The value of the company at 6.5 times adjuted EBITDA is $105MM. That is less than the debt, let alone the preferred--making the common completely worthless except as an option.
The good news is cash flow is neutral to slightly positive last quarter. If Ralph can keep things going in the right direction while continuing the remarkable job on costs, they could muddle through. However, Oaktree and the convert holders (current CV holders are being offered new debt and stock to forebear) could own as much as 80% of the company plus all the debt that is now over $132MM. At todays price of $3.80, and with the Oaktree pref. converted into shares, the market value is $150mm plus $150MM in debt. The company would have to have $46MM in EBITDA just to equal todays stock price. EBITDA today is $16MM. To get there, sales would have to be 225% higher than today.
The warrant model for the common says it is worth $.45 using a 4 year term and 50% std. deviation. You really own a warrant.
I am sure PULS is praying the stock will stay put until the Cv is exchanged. Then it is watch out below. The cv holders will be in line to sell and will demand registration rights.
Make a case for upside. As long as I can borrow stock I will continue to be short. Please lend me yours and I will pay you back in 4 years.
By the way, one other thing. The EBITDA today does not include necessary capex so last quarter they used cash. THye used $9 MM in 6 months. Cash balance is down to $23MM from $32MM at year end. They need most of that for redeeming the CV. Also the cv holders may get stock at some huge discount price --like $2 in which case, the new price is $2.
I've been reading this board for a few weeks now, and it seems that people expect the management team to turn PULS around overnight. These things usually take some time, and at this point I'm not too bothered with Ralph's progress. Keep in mind, they could of easily flipped the company over and got rid of all their debt, but decided to move forward using the same incorporation. I agree their debt ratio is extremely high, but they should start bringing it down in 2014. With sales of $300M, and if they can maintain their current gross margins of 20-25%, and keep overhead down to 15%, they should be able to bring down their debt in Q1 2014.
As for comments such as "slimey release headlines", keep in mind their primary goal as CEO, COO, directors is to promote the company and try to put the best face on their news releases. If you actually look at the data, you (the investor) can determine how well or bad the company is doing yourself. At least now, PULS does not have an operating loss (which was not the case a couple of quarters ago). Now, their challenge will be to increase the operating profit and start using that to pay off their interest charges and debt. At this point, Oaktree is allowing PULS to float their interest payments, which means they don't have to start paying the interest on the debt until they correct some of the corporate fundamentals and get their cash flow in order (And yes, that means their debt keeps increasing).
Puls should start recovering in 2014, but then their challenge will be to invest some of their operating profits into R&D. The only critism I have of the current management team is that they keep saying that their market is still soft. In my opinion, the market is not that soft, but rather PULS made some poor decisions in the past with regards to R&D, and didn't get into the right vertical markets. For example, I used to be a heavy user of magnetic products, but now I just go and buy DC-DC supplies from their competitors.