NMS is a good business with a promising future .
The auditors are Ernst & Young - this is one of the largest firms of auditors who have learnt many times that to compromise independence is the road to ruin (a la Arthur Anderson & Enron).This is not a lower tier firm of auditors who will bend to the whims of their client .
The auditors have not actually qualified their audit report .To qualify is very serious as it infers the accounts do not reflect reality . They are "drawing attention" to the fact that , on the one hand ,NMS in FY 10 actually lost money from operations ($2.5 million if you look at the cashflow statement) and on the other hand is dependent on the bank continuing to lend to them money. That's a fair call . The auditors are doing what they are supposed to do .
The real issue here is that NMS should have seen this coming a long way off and sought refinance from the bank before their 30th June audit so that its borrowing was classified as long term . I strongly suspect that this is what lies behind the departure of the CFO . This was clearly his area of responsibility .
In my opinion , in reality , NMS is a viable business . Yes , it is going through a difficult period ...as are many other businesses .Yes , it had a bad FY 10 in an exceptionally bad environment (US revenue reduced by 60% +). It is a testament to the viability of NMS that deficit cash from operations was only $ 2.5 mill in such difficult times .NMS is a young business and difficulties are to be expected , but I think they are led by a capable team ...although , on the face of it , the departed CFO seems to have been sleeping at the wheel .
NMS has $20 mill in the bank , although it does have $ 40 million of interest bearing loans due within one year . I believe that NMS can easily carry such a debt burden as future result will be far more positive than FY 10.
I predict that H1 will show positive cash from operations and H2 will be an improvement on H1 . I predict that the NAB will have few qualms about continuing to support the business ...not least because of the $20 mill in the bank and the hardware on which charges can be placed .
I will be very surprised and disappointed if this is not the low point and we look back in a year or so and regret not having bought a pile of stock .
DYOR
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NMS is a good business with a promising future .The auditors are...
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