implications of page 30 of bidder statement

It appears that there is an elephant in the living room and it all stems from the disclosure on page 30 of PLT’s bidder statement, that being PLT generated a net loss for the 1st quarter of $2.36m.

Simple analysis shows the following:

In its recent letter to shareholders PLT gave guidance of Truscreen sales of $3.0m for the 12 months to June 30. In the 6 months to December 31, PLT did sales of $504k. This implies sales of $2.5m in the 6 months to June 30.

At December 31, PLT had net working capital of $98k (excluding inventory). Inventory at December 31 was $2.048m. PLT generated a net loss for the 6 months to December 31 of $4.427m and had a cash outflow for the same period of $4.150m. Remember that this was on Truscreen sales of $504k.

In the current period with Truscreen sales projected to be five-fold higher than the 6 months to December the net loss of PLT should be narrowing.

It is not, it is actually increasing.

This suggests either (a) an inventory write off – unlikely as auditors usually push this as a last resort (b) a bad debt provision/charge – possible but unlikely as the accounts are still unaudited or (c) an increase in the PLT cost base. I also note that cash flow from PLT has closely tracked its net loss in the past.

Even with a cash inflow from the C-Notes in the 1st quarter of $1.336m and then the $2.25m from the SPP in the current quarter the net loss for the 3 months to March 31 of $2.36m clearly spells trouble for PLT.

With only $2.048m of inventory on hand at December 31, 2008 PLT does NOT have the ability to trade itself out of its current predicament (assuming that it could produce the hard sales) as it simply does not have the working capital.

The above analysis clearly demonstrates that PLT is out of cash in the next 4-6 weeks and I challenge anyone to rationally refute this with clear objective analysis rather than the pray, hope and promise that things have finally turned. Such that has been displayed with nelsonian blindness in the past.

Also remember that any equity raising by PLT needs to raise $2.35m over and above the immediate working capital requirements as this is the amount of secured redeembale debt due December 24th.

PLT therefore needs to raise IMO a minimum of $5m and up to $7.5m if it is ever going to have a chance at making it to profitability.

With the clearly demonstrated hard slog to raise the $2.25m via the SPP is such an outcome realistically achievable?

Another SPP is obviously not an option, the other options are (1) a deeply discounted jumbo placement or (2) a deeply discounted rights issue or (3) a combination of both.

For all of the reasons clearly stated above I hence retain my sell recommendation.

cheers