Hi Stock Doctor,Going by their latest figures, ATC's remaining...

Hi Stock Doctor,

Going by their latest figures, ATC's remaining cash reserves are dwindling (ie: net cash outflow, not cashflow positive).

As I have argued below, ATC currently has cash on hand of ~ /<$1.0m (down from $4.6m at end FY02), at end Q1, and at end October, probably lower than this.

My interpretation of the situation is as follows:

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At year end (30 June 2002), ATC had Quick Assets (cash, plus receivables) of $6.4m. Cash comprised $4.6m, and receivables comprised $1.8m.

At the same time, ATC had current payables of $3.0m, and current interest bearing debt (ie: falling due <12m) of $1.8m.

That made for "cash or equivalent" of $6.4m, and "payables or equivalent" of $4.8m.

In FY02, ATC derived revenue of ~$6.5m, including between $2.3m and $2.65m in relation to the disposal of its mining interests (ie: in relation to Pelican Resources).

On the mining side of the equation, it also had costs of $3.95m.

All things considered, however, ATC had the following major heads of expenditure during FY02:
1)
transmission costs of $5.6m (mainly crammed into H2);
2)
salaries of $2.9m;
3)
borrowing costs of $700k;
4)
consulting fees of $3.2m;
5)
legal costs of $500k;
6)
travel and accommodation costs of $500k; and
7)
other expenses of $4.2m.

If we look at transmission costs, these are significant and rising. If flat-flined for 12 months, they approximate $467k per month. In FY01, they were $900k.

Assuming that the FY01 annual figure equates to H1 results, plus 50% (ie: $1.35m), then the H2 figures would approximate $4.25m, or ~$700k per month.

This, in my view, represents the best case scenario.

H1 results for ATC approximated this figure, @$1.319m.

Other H1 costs were:
1)
salaries = $1.15m;
2)
travel & accommodation = $200,000;
3)
consultancy and legal fees = $200,000;
4)
borrowing costs = $300,000;
5)
software licence and maintenance fees = $800,000;
6)
telecommunication costs = $1.319m;
7)
other expenses = $1.0m.

Assuming FY02 transmission costs included items 5) and 6), that would make for $2.1m in H1, and $3.5m in H2, extrapolating to an ongoing minimum monthly charge of $600,000 in FY03.

Assuming FY02 salary costs have been adjusted for disposal of the mining interests, that would make for $1.15m in H1, and $1.85m in H2. Discounting these figures 20% on account of any redundancy payments, still makes for $1.5m (minimum) in H2 salaried costs, or $250,000 per month in FY03.

Assuming FY02 travel and accommodation costs have continued into FY03, that would make for H1 costs of $200,000, and H2 costs of $500k, leading to an ongoing FY03 monthly cost of $60 -75,000.

Assuming FY03 continuing treatment of consultancy costs, that would make for H1 costs of $200,000 (no separation out of costs), and H2 costs of $3.7m (including $500k in legals and $3.2m in consultancy fees). Treating the legal fees as a one-off occurrence, still leaves a $3.0m+ increase in H2 consultancy fees (ie: $500k per month). Even if we peg this back by 25% going forward, that would still leave for a $375,000 ongoing monthly cost.

As for borrowing expenses, a straight forward extrapolation is inappropriate as year end interest bearing liabilities were $1.8m. Assuming a 5.75% interest rate, this would translate to a $10,000 per month interest charge.

Assuming also that this debt is to be reduced to nil by 30 June 2003, the required monthly repayment would approximate ~$150,000.

Then, we have other expenses of $4.2m which, during H1 totalled $1.0m, and in H2 totalled $3.2m. Given that these expenses cannot be explained away by reference to any of the usual suspects (ie: as above), or by reference to depreciation, amortisation, writedown in carrying values of assets etc, it can only be assumed that these costs are business related and likely to be repetitive in nature going into FY03. That being the case, the H2 costs approximated $540,000 per month. Even discounting this by 25% still brings us to an approximate figure of $400,000.

So, there you have it.

In FY03, ATC's likely monthly expenditure commitments will comprise:
1)
transmission costs = $600,000;
2)
salaries = $250,000;
3)
travel and accommodation = $75,000;
4)
consultancy fees = $375,000 - $500,000;
5)
interest charges = $10,000 (but repayment costs, including P&I of $150,000);
6)
other expenses = $400,000 -$540,000.

That makes for a monthly expenditure range of:
1)
minimum = $1.8m;
2)
maximum = $1.977m;
3)
plus any debt repayment obligations.

These figures are based on assumptions and extrapolations of ATC's existing financial position.

They are also based upon the level of business being generated by ATC towards the end of FY02. In other words, any FY03 increase in business revenues is likely to increase these costs further.

In June 2002, ATC generated USD655,000 in revenue (~$1.24m AUD @53c). Adjusted to today's higher USD conversion rate (~55.5), the June revenue result equated to AUD equivalent revenue of $1.18m.

In Q1, FY03, ATC genrated revenue of USD 2.3m (or $4.14m AUD equivalent @.555 conversion).

In October, ATC generated USD 1.0m during the first 24 trading days (including USD 52,000 on 24/10/02).

A linear extrapolation of these figures would result in an October revenue result of USD 1.3m (or $2.33m, at conversion).

Using the 24/10/02 figures alone (and applying linear extrapolation), the results become $2.9m AUD in revenue for Q1.

The more likely results, however, are likely to approximate $2.5m AUD.

So, assuming:
1)
the validity and stability of the October revenue figures;
2)
no increase in the cost base (ie: steady at $2.0m per month),
this would suggest that:
3)
ATC should generate positive cashflow of $500,000 in October.

With the rate of increase in expenditure commitments /OPEX, however, the likely cashflow figure will be well below this figure (circa $100 -200,000).

Factoring in for the ongoing debt repayment obligations, therefore, suggests a balanced cashflow result for October.

With Q1 revenue results of $4.14m vs a likely minimum expenditure commitment of $5.93m (ie: $1.977m *3), and a debt repayment obligation of $450,000, then this would equate to the following cashflow position at 30 September 2002:
1)
cash at 30 June = $4.6m;
2)
receivables conversion @100% = $1.8m;
3)
receivables at end Q1 = nil (ie: assuming 100% collection of Q1 revenues within the quarter);
4)
payables conversion @100% = $3.0m;
5)
payables at end Q1 = nil (ie: assuming 100% payment of Q1 expenses within the quarter);
6)
Q1 revenue = $4.14m;
7)
Q1 expenditure = $5.93m; and
8)
debt repayment = $450,000,
then the following results become apparent:
9)
cash on hand, or collected in = $10.54m;
10)
expenses paid out, debts paid out = $9.4m;
11)
(best case scenario) cash on hand @30 September 2002 = $1.14m;
12)
(worse case scenario) cash on hand @ 30 September 2002 = (50% revenue outstanding at end Q1, and 1/3 expnditure outstanding at end Q1):
a)
cash in/on hand = $8.47m;
b)
cash out /paid = $6.95m, plus debt repayment = $450,000 (total = $7.4m); and
c)
Q1 end cash balance = $1.07m.

As best as I can get it, ATC currently has cash on hand of ~ /<$1.0m (down from $4.6m at end FY02).

Any further increases in OPEX during Q1, however, will have placed even further strain on these figures.

So, as at 31/10/02, ATC's cash balance is likely to be <$1.0m (perhaps, as low as $500,000).

Could this be why ATC prefers releasing revenue figures, but not expenditure /cashflow figures?