Hi FallGuy,Generally, I'm not. Earlier this year, FLO was...

Hi FallGuy,

Generally, I'm not. Earlier this year, FLO was experiencing cashflow difficulties which prevented it from paying its bills on time including to some of its major equipment suppliers. Subsequently, these bills were paid on delayed terms, etc. The crunch point, however, came with the London Partners placement.

London Partners delayed paying the placement several times (much to the frustration of Ed Goodwin and his team) pending resolution of difficulties with FLO etc (DD, etc). Once resolved, however, the LP raising brought in $2.0m in new working capital.

At about the same time, the Froggy ISP saga was also causing Ed Goodwin and his team numerous headaches.

The Delgrave announcement will have the following effect:
1)
assigning Alcatel's $14.3m in secured debt to Delgrave;
2)
Delgrave converting that debt into equity;
3)
Delgrave subscribing for additional shares through a $1.0m working capital placement; and
4)
Delgrave emerging with a 45% equity interest in FLO (subject to completion of DD, etc).

Where this leaves London Partners, however, I do not know.

What I do know though is that:
1)
FLO has spent heavily on CAPEX;
2)
revenue streams have been slow to develop from this;
3)
it takes time to build a business;
4)
FY02 revenues were $24m, including $4.0m from the Transaction Network Services sale;
5)
FY02 losses were $12.0m;
6)
cash at end June was <$500k;
7)
CA were $6.1m (previously, $8.5m);
8)
CL were $24.0m (previously, $23.0m);
9)
equity was $12.5m (after allowing for network assets of $31.0m, previously $33.0m); and
10)
as a result of all this, control of FLO will now pass to Delgrave.

With FLO, I am more disappointed with the way in which control will now pass by stealth to Delgrave.

Even allowing for the $11.5m in converted equity (vs $14.3m in Alcatel debt), the figures suggest that FLO went a further $1.5m into debt with Alcatel during August.

Going forward, FLO will need to demonstrate that it has its cost structures properly under control, and that it has sufficient working capital reserves available with which to transition the business to recovery /profit.

On my current reading of the figures, it does not, and I expect either:
1)
the terms of the delgrave deal to be varied at the end of the DD period;
2)
an increased working capital component to be provided ($1.0m in new WK is simply not sufficient for an emerging business such as FLO); or
3)
a further dilutionary capital raising to be undertaken.

As a said last night, yesterday's announcment was a "step in the right direction", but it "requires more. Provided, therefore, management take heed of this warning, and the Delgrave team brings new management experience to Flowcom, then they should survive".

I am not pessimistic about FLO's chances. Just about its financing arrangements.