Ok so why are we here at such a shit valuation? Because the...

Ok so why are we here at such a shit valuation? Because the business is not yet generating free cash flow (ie the cash balance is not yet rising). So i'm trying to estimate at what point this inflects? What EBITDA numbers do we need to see to inflect? The 12 month Cash Flow statement is where i turn to work this out.

Last year we spent about $900K on capital expenditure for the IT platform. But lets round it up to $1M
on interest expense, we incurred $406k, lets round that up to $500k annually.
taxes, we spent ~$1.12M (probably GST type taxes).

So add all those expenses up and we are talking ~$2.6M per annum of ITDA. So we need to be doing EBITDA of $2.6M per annum to break even on a free cash-flow basis. Per quarter that is $650k. Given we did $400k in December quarter, not there yet.

But lets add in the new contract and for once lets assume they sign this contract on reasonable margins (big assumption i know). This contract is for ~$600k / month of revenue. It SHOULD have a gross margin of 20% if done right, so that's $125k per month incremental EBITDA, or $375k per quarter.

So $400k last quarter, plus $375k from new contract and that should get us to run rate EBITDA of $775k per quarter. We then should be doing free cash flow of $125k, not much but its better than the present negative. And potentially an improvement in Colsubsidio margins to come.

That's my theory, lets see how it plays out after this contract is implemented. Turn the business into the free cash flow zone and its a strong buy, fail to do that and its more of the same (sadly)....