Sarin analysis by donmihaihai

i hv taken the liberty of reproducing a part of donmihaihai\'s writeup on his blog. it was published in May 09, and Sarin has seen a jump in Q2 revenue. donmihaihai\'s writeup is still insightful: Can Sarin earn US$15 million this year? Would anyone ask this question before Sarin 1Q2009 results? Revenues for FY2007 and FY2008 were US$37 million and US$33 million respectively but Revenues for 4Q2008 and 1Q2009 were US$2.5 million andUS$1 million respectively. What happened? Because there is no demand and it doesn’t matter if the quarter consists of 90 days or 60 days, if customers are not buying, sale won’t be coming in. For Sarin products, demand can be effectively zero in any given period. So Sarin was burning cash in an uneasy fast speed. And the management is cutting expenses fast and in sizeable amount. In AR2008, projected expenses for FY2009 is US$9 million so it is actually reasonable to say Sarin need US$15 million to break even. Any amount lesser than US$15 million, cash on B/S will be burning. And if US$1 million sales per quarter continue for another few quarters, I will bet that R&D expenses will cut away and Sarin will be in surviving mode. Expect Cash call from shareholder or even selling of shares to other. At this moment Sarin is still in the mode of waiting, cutting expenses and positioning for recovery. While revenues of US$2.5 million or US$1 million is unsustainable and unlikely to last for a long period, road to recovery can be a long and sub-profitable if the actual demand for diamond is way lower than before recession. This is why R&D is important. Which is why I think there are probabilities while Sarin will become an even more wonderful business after this, current shareholders may not able to ripe the full benefits.