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No. of Recommendations: 3
I don't have the same confidence, but wish I did. Not long ago - I did. I accumulated MFNX about two years ago, so on paper, I'm not far behind, even now. I certainly want it to succeed, mainly because of my investment, but partly 'cos it's good to see a good idea bear fruit.

This board has been really useful with people trying to dig deep and putting the picture together. It still is and we should be pleased with what we've all done. Here are my reservations (deep breath and read on. If you get to the end, have another look, cup of coffee, and post back)

1) If you use Fool criteria for Analysis, MFNX fails badly. If you look at analysis, only one contrarian analyst and one other is positive. Seven others are unimpressed. But I hate analysts, anyway.

2) The company has a lot of debt. In fact, we investors collectively value the company at less than the debt it carries. (Thank you, Linda). The market cap is 2.8bn, cash 1.5bn, liabilities 3.8bn.
You gotta be pretty brave to buy into that.

3) Now, I swear that on the MFFN website, I recently saw a page with projected revenue increasing quarter by quarter, and net loss getting less at the same time. Solvency expected in 2003.
Great news if true. I can't find that page now, but probably that's just me getting lost.
But when we look, for example, at last quarter 2000, we find Revenue 61m (or 0.061bn) but the cost of sales was 55.5m (or 0.0555bn). Capital spending in 1999 was 4.7bn but this fell to 1.7bn in 2000. We hear capital spending will not be increased 2001, so it's pegged at 1.7bn. Where does the money come from? Well, if we crudely take income (0.061-0.555)*4 for four quarters, we get 0.22bn. Even allowing for an increase, still a long way off 1.7bn.
But there is that famous 1.5bn in the bank.
How long will that last? Exactly one year according to this calculation.

It looks to me as if MFFN will need to try to borrow again. What chance will it have? Or maybe sell something.

4) What first worried me about my company was that last year, up to its ears in debt, it was still throwing money around (by contrast, Macromedia bought Allaire, an up-and-running company for several million, can't remember exactly, but about 3m). MFFN estimated a modest privately-owned facility at 1.35bn in MFFN shares. The 1.35bn has turned out to be about 0.7bn in the end (thank you, Luap) but it's still questionable whether it adds another 25% to the value of the company - certainly more than a drop in the ocean. I'm not saying buying Sitesmith (for some price) is a bad idea, but it shows how profligate management is with cash it hasn't got.

5) Just before this deal went through, our COO and his family sold several million shares. The price dropped like a stone after the deal was announced.
Today, he's sold a few million more. Funny time to be doing it. I was told by Invest Relations that it was long-planned and he wouldn't be selling any more.
We mustn't get sentimental about our company - they aren't sentimental about us.

And BTW, explain the Bechtel Smell in Fredricksburg in detail.

So in conclusion, we have a company with a great vision, a real Rule Breaker. Except for management, which is the MOST important thing. I simply find their projected revenue hard to believe, and even if true, if revenues only release about 8% in free cash, we still have a problem.

What will happen? The COO will exit and live happily ever after, there cannot be another round of borrowing, so bits will get sold off.

Believe it or not, I started this mail hoping I'd end up with some optimism. It's just tracked through like this. Tell me I'm wrong, but explain why.

This is a good board.

Bonnes Pacques a tout.
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