Excluding as many of the one-time items as possible and leaving out non-cash charges like depreciation and amortization...trying to tinker with what is needed for a "cash flow" break even I come up with Q4 Gross sales of $13.2 and 59% gross margin (without depr. & amort.). SGA at around $19 excluding non-cash charges. Thus, if full year SGA is around $76, with a 60% gross cash margin...that would run about $125mm plus in sales needed to get to a CASH FLOW break even by my reckoning. That means that they would have to be doing around $32mm in Q4 in sales. What makes this even more ambitious than it seems is that ONLY $5.7mm in sales in Q4 was from software, with the rest being "service and maintenance" (one assumes most of that is a function of historical sales!!). Now, the margin in software could come in much higher, so given that the bulk of the increase has to be from software (and not from legacy sales and services which are much steadier!)...the gross number could be closer to $27-$28 in gross sales...but that still means software might have to grow from $5.7 to around $20mm Q4 2007 to Q4 2008!! VERY VERY Ambitious IN MY HUMBLE OPINION. Also, they could burn $15=$20mm in cash by Q4 next year....further decreasing the confidence of prospective clients.
IMHO, your analysis is flawed for two simple reasons.
First, you cannot use the current cost of sales margin percentages and apply them against higher revenue streams since ALL cost of sales components ARE NOT variable. There is a portion of 'cost of sales' that remain fixed. Therefore, gross margins should improve with increases in sales volumes.
Second, we will see annual cost reductions of $7M-$12M in 2007 due to the restructuring. Also, I would expect general & admin costs to be much lower in 2007 as well.
I built a spreadsheet and ran some quick assumptions.
My rough estimate is that MRGE needs to pull in about 17-18M per Q in revenue (post restructuring) to be cash flow equal. And quarterly revenues of $18.5M - $20.0M to be required to breakeven from a NI perspective.
Looking at the last few quarters of service/maintenance revenues and the mix of software in Q4...What levels of software sales do you feel is needed to reach CF break even....around $11-$12/quarter? That would be over 100% increase from Q4 level?