TheJudge,This company burned $2.02M cash in January and can...

TheJudge,
This company burned $2.02M cash in January and can burned as fast as $3.15M per month (Oct 05) with practically no sales receipt. Even if they manage to sell every grams of the API they produce at the 20T name plate capacity (almost impossible sale based on past performance??) at the highly questionable price of $1M/T and ASSUMING the sale actually brings in sale receipts (not very encouraging when a FULL CONTAINER load delivered last year and supposedly NOT financed by CMQ has yet to reflect any meaningful sale receipt). At the BEST EVER POSSIBLE scenario of nameplate capacity ($20M sale receipts per annum) the company is FAR from breaking even if the cash-burn is $36M per annum. This does not even consider that cash burn rate will increase as CMQ embarks on ambitious expansion plan for which CMQ had announced plan for CAPITAL raising at the last AGM.

A CMQ spruiker (I assume he may have inside information) posted on ss “The $1.4m sales order to IAHS will be paid on June 30. This was confirmed by IAHS”.

Try to work this one: The smallest shipping container is a 20Ft container measuring 6.05M x 2.59M x 2.44M has an average cargo capacity of 21.6T. At 5% API concentration a full container load delivers approximately 1T of API(~$1M if you believe the $1M price tag). What is the sale receipt since the container load was delivered? IF the CMQ spruikers’ information is correct that payment will only be paid on 30 Jun, it implies a credit sale term of 8 months for a container dispatched sometime in Oct/Nov 05 (unconditional and NOT financed by CMQ??).

How will CMQ satisfy the Stark covenanted income by 30 June? Where is it going to come from? Is “normal credit term” more than 6 months? How many container loads need to be dispatched by now to bring in to satisfy the Stark covenant? This is why the sales receipt in Appendix 4C each month is so important to investors with some common sense.

Consider the following additional risks:

1) CMQ has only $39.6M cash at the end of Jan 06 with $60M of convertible bonds that can be redeemed if it defaults on the covenants in June 06. Plants and equipments are worth scrap metal unless it can produce profit for shareholders!

2) The cash burn rate will increase dramatically if and when CMQ embarks on any expansion plan. David Williams announced in the last AGM the company intends to raise capital for expansion. At its current form where will CMQ raise more capital from? Another highly diluting financial deal from ‘death spiral financiers’?

3) Is management credibility at an all-time low? ASIC is prosecuting CMQ in the Federal court for failing corporate governance on 7 occasions. What will the legal bill be?

4) Has corporate governance improve since ASIC launched the prosecution? Are you as an investor or potential investor happy with the manner the company provided information to shareholders?

5) Some CMQ spruikers are speculating Stark will convert their bonds soon. It is an impossibility base on current information available to the market on CMQ’s perfomance. Why would Stark convert when they are getting 8.5% interest and stand to be in TOTAL control if CMQ defaults on any of the convenants.

6) How is CMQ going to satisfy the income covenant and the minimum cash balance covenant by 30 June?

When you consider all the above, you will understand the risks associated with CMQ.