"The way to look at a business is, "Is this going
Post# of 7769
Posted On: 03/13/2014 10:37:14 PM
"The way to look at a business is, "Is this going to keep producing more, and more, and more money over time?" And if the answer to that is yes, you don't need to ask any more questions."
Warren Buffet
Is Scrips going to keep producing more, and more, and more money over time? My answer is "yes".
I realize that as a large shareholder who is very passionate about my investment in SCRC, my opinions may sometimes appear a bit rosy, against which some people take a different viewpoint. At this point, the pps clearly favors those with differing opinions. Though over the past couple days, it appears the momentum is shifting in the right direction as the toxic inventory dries up. Indeed, in my opinion, we have a broken stock, not a broken company. In fact, I strongly believe we have a vastly improved company that will make more and more money over time. And as Celts and others here said, the pps WILL catch up. In the meantime, however, I do want to acknowledge a few good points made by others on the issue of having a general lack of information from the company about certain revenue streams. I am confident that management has important legal, strategic, competition and other reasons for not disclosing every fact about specific revenue streams. Consequently, it is tough to determine accurate FY14 Q1 revenue estimates. But for the record, I did add the following disclaimer in big bold letters:
Admittedly, one large potential flaw with this revenue estimate is we do not know how much of the CP revenues actually flow to Scrips. And I am clearly open to attack here for being too liberal.
Remember also that I gave a big ZERO for PIMD revenues, which I am certain exist and are likely growing. I also made a reasonable estimate of the WholesaleRx gross profits that would flow to Scrips. Regardless, I will revise my Q1 revenue estimates to give what I strongly believe to be an ultra-conservative viewpoint. Though I acknowledge the lack of key information on the CP revenues makes it difficult to form a reliable opinion on the CP revenues, information is available to form reasonably-reliable and educated opinions of this revenue stream as well as certain elements of the company's financial health.
First, when I read the announcement on 2/19/14 that Scrips stopped writing toxic notes since 10/22/13 and it intended to prepay all of the remaining toxic notes, at that moment I became confident the company was on the verge of becoming cash flow positive. My confidence was further bolstered by this week's announcement that the company decided to prepay another toxic note. And in conclusion, Bob said, "Now that we are entering a period of significant revenue growth, it is critical to remove any potential for stock dilution that could undermine the corresponding increase in our share price necessary to move to a higher exchange in the future." Virtually every cash-strapped microcap deciding whether to spend their limited cash on operating expenses and inventory versus paying down debt will choose the former. I believe Scrips is no different, which is why I am confident the toxic note prepayments sent a clear signal that profitability is just around the corner. Incidentally, in the Q&A the company stated it had $956K in toxic convertible debt that was in unfriendly hands. So in terms of additional financial health improvements since 12/2, Scrips will soon erase nearly $1M in toxic notes from its balance sheet. And over the next several weeks there will be significantly less toxic shares in the float than there otherwise would have been. I am still shocked the market has yet to pick up on these very important developments, but I guess I am just naive to believe the CEO's statement that Scrips is "entering a period of significant revenue growth."
Next, I want to turn to the $110K cash burn expressed in the Q&A. Per the Q&A, we knew about three productive revenue streams that existed on 12/2/13: the contract packager, WRx (20% of gross profits to SCRC), and PIMD (90% to SCRC). Based on the FY13 Q3 report, Scrips received $19K monthly from the contract packager and $16,625 in August and September from WRx. I will assume no increase in the contract packager revenues. But we did learn that WRx's November revenues increased to $116,987. And with a little math we learned from the Q3 report that WRx's profit margin on the August-September revenues was 70% (e.g., reported gross profit of $132,993 / reported sales of $188,232). Also, Scrips started receiving 20% of WRx's gross profit instead of 12.5%. With this information, I estimated that Scrips received $16,378 from WR's November revenues. And though we knew by the end of October that PIMD received its first order (per the 10/23 PR), I have no clue about the PIMD revenues. So again, I have to allocate a big goose egg to this revenue stream. But we can determine that Scrips was receiving at least $35,378 from 2 of its 3 revenue streams at the time its monthly cash burn was $110K. So to get to cash flow positive at the time, the company needed about $145K in monthly revenues.
Today, we have 5 productive revenue streams (WRx, PIMD, contract packager, RapiMeds Hong Kong), 4 if we do not consider RapiMeds Hong Kong (HK). Considering just the 4 non-HK revenue streams, one ultra-conservative monthly revenue estimate is $83,633. This would reduce the current monthly cash burn to $61,745 ($83,633 - $35,378 = $48,255 - $110,000 = $61,745).
For those of you who are interested in how I arrived at $83,633, please read this paragraph. I assumed the contract packager monthly revenues remained flat since FY13 Q3 ($19K). I also assumed the WRx January revenues of $268,696, the same 70% profit margin, and 20% of gross profits to Scrips to calculate $37,617 in monthly revenues that would flow from WRx to SCRC. For the CP revenue stream I assumed merely $27,016 in monthly revenues would flow to Scrips. I started with the low end of my $308,750 to $412K CP monthly revenue range, assumed a 70% profit margin, and a 12.5% commission. To answer an iHack poster's question about my initial revenue range, Scrips first started receiving revenues on Friday, 2/14 and issued the PR at 8:30am on Thursday, 2/20. And considering it takes Scrips no less than 10 days to report monthly revenues from WRx after the close of each month, I assumed the CP revenues of $57K included 3 to 4 days of operations. For this lowball estimate I will conservatively assume 4 days ($57K / 4 days * 5 days for a five-day week * 52 weeks / 12 months = $308,750). It is possible the CP operation is open seven days per week, which would result in a higher monthly estimate -- higher still if the $57K in revenues were generated in only 3 days. Further, based on independent research into the CP industry, I learned that CP profit margins are typically over 100%. But I used the lower 70% WRx profit margins.
If anyone wants to take issue with my lowball assumptions, go for it. I am confident the actual numbers will be higher. Clearly, a 136% increase in revenues from 12/2 to today demonstrates Scrips has entered "a period of significant revenue growth." But considering the company needed about $145K to become cash flow positive on 12/2, I am confident that today's revenues are higher than $83K. In my strong opinion, the company would NOT unnecessarily prepay debt if it was still burning through cash. In addition, PIMD is a going concern that has likely ramped up its revenues since October. And it is reasonable to assume the CP revenues have increased since the announcement of that new revenue stream. Indeed, the WRx revenues doubled during the first two months of its initial ramp up period. I expect the same or similar success with the CP business. To that end, I believe the current revenues are very close to or above $145K, probably even higher as the new revenue streams have likely increased the company's overhead, thus requiring more revenues to break even. There are just too many signs pointing in the right direction.
Best of luck to all the patient investors who have failed to give up on this little gem, as well as to all the folks waiting on the sidelines for their buy signal. If Warren Buffet invested in penny stocks, I have no question that he would rate SCRC a buy.
BSAV
By the way, Team BSAV is up to at least 13.5M reported shares of SCRC, probably closer to $15M.
Warren Buffet
Is Scrips going to keep producing more, and more, and more money over time? My answer is "yes".
I realize that as a large shareholder who is very passionate about my investment in SCRC, my opinions may sometimes appear a bit rosy, against which some people take a different viewpoint. At this point, the pps clearly favors those with differing opinions. Though over the past couple days, it appears the momentum is shifting in the right direction as the toxic inventory dries up. Indeed, in my opinion, we have a broken stock, not a broken company. In fact, I strongly believe we have a vastly improved company that will make more and more money over time. And as Celts and others here said, the pps WILL catch up. In the meantime, however, I do want to acknowledge a few good points made by others on the issue of having a general lack of information from the company about certain revenue streams. I am confident that management has important legal, strategic, competition and other reasons for not disclosing every fact about specific revenue streams. Consequently, it is tough to determine accurate FY14 Q1 revenue estimates. But for the record, I did add the following disclaimer in big bold letters:
Admittedly, one large potential flaw with this revenue estimate is we do not know how much of the CP revenues actually flow to Scrips. And I am clearly open to attack here for being too liberal.
Remember also that I gave a big ZERO for PIMD revenues, which I am certain exist and are likely growing. I also made a reasonable estimate of the WholesaleRx gross profits that would flow to Scrips. Regardless, I will revise my Q1 revenue estimates to give what I strongly believe to be an ultra-conservative viewpoint. Though I acknowledge the lack of key information on the CP revenues makes it difficult to form a reliable opinion on the CP revenues, information is available to form reasonably-reliable and educated opinions of this revenue stream as well as certain elements of the company's financial health.
First, when I read the announcement on 2/19/14 that Scrips stopped writing toxic notes since 10/22/13 and it intended to prepay all of the remaining toxic notes, at that moment I became confident the company was on the verge of becoming cash flow positive. My confidence was further bolstered by this week's announcement that the company decided to prepay another toxic note. And in conclusion, Bob said, "Now that we are entering a period of significant revenue growth, it is critical to remove any potential for stock dilution that could undermine the corresponding increase in our share price necessary to move to a higher exchange in the future." Virtually every cash-strapped microcap deciding whether to spend their limited cash on operating expenses and inventory versus paying down debt will choose the former. I believe Scrips is no different, which is why I am confident the toxic note prepayments sent a clear signal that profitability is just around the corner. Incidentally, in the Q&A the company stated it had $956K in toxic convertible debt that was in unfriendly hands. So in terms of additional financial health improvements since 12/2, Scrips will soon erase nearly $1M in toxic notes from its balance sheet. And over the next several weeks there will be significantly less toxic shares in the float than there otherwise would have been. I am still shocked the market has yet to pick up on these very important developments, but I guess I am just naive to believe the CEO's statement that Scrips is "entering a period of significant revenue growth."
Next, I want to turn to the $110K cash burn expressed in the Q&A. Per the Q&A, we knew about three productive revenue streams that existed on 12/2/13: the contract packager, WRx (20% of gross profits to SCRC), and PIMD (90% to SCRC). Based on the FY13 Q3 report, Scrips received $19K monthly from the contract packager and $16,625 in August and September from WRx. I will assume no increase in the contract packager revenues. But we did learn that WRx's November revenues increased to $116,987. And with a little math we learned from the Q3 report that WRx's profit margin on the August-September revenues was 70% (e.g., reported gross profit of $132,993 / reported sales of $188,232). Also, Scrips started receiving 20% of WRx's gross profit instead of 12.5%. With this information, I estimated that Scrips received $16,378 from WR's November revenues. And though we knew by the end of October that PIMD received its first order (per the 10/23 PR), I have no clue about the PIMD revenues. So again, I have to allocate a big goose egg to this revenue stream. But we can determine that Scrips was receiving at least $35,378 from 2 of its 3 revenue streams at the time its monthly cash burn was $110K. So to get to cash flow positive at the time, the company needed about $145K in monthly revenues.
Today, we have 5 productive revenue streams (WRx, PIMD, contract packager, RapiMeds Hong Kong), 4 if we do not consider RapiMeds Hong Kong (HK). Considering just the 4 non-HK revenue streams, one ultra-conservative monthly revenue estimate is $83,633. This would reduce the current monthly cash burn to $61,745 ($83,633 - $35,378 = $48,255 - $110,000 = $61,745).
For those of you who are interested in how I arrived at $83,633, please read this paragraph. I assumed the contract packager monthly revenues remained flat since FY13 Q3 ($19K). I also assumed the WRx January revenues of $268,696, the same 70% profit margin, and 20% of gross profits to Scrips to calculate $37,617 in monthly revenues that would flow from WRx to SCRC. For the CP revenue stream I assumed merely $27,016 in monthly revenues would flow to Scrips. I started with the low end of my $308,750 to $412K CP monthly revenue range, assumed a 70% profit margin, and a 12.5% commission. To answer an iHack poster's question about my initial revenue range, Scrips first started receiving revenues on Friday, 2/14 and issued the PR at 8:30am on Thursday, 2/20. And considering it takes Scrips no less than 10 days to report monthly revenues from WRx after the close of each month, I assumed the CP revenues of $57K included 3 to 4 days of operations. For this lowball estimate I will conservatively assume 4 days ($57K / 4 days * 5 days for a five-day week * 52 weeks / 12 months = $308,750). It is possible the CP operation is open seven days per week, which would result in a higher monthly estimate -- higher still if the $57K in revenues were generated in only 3 days. Further, based on independent research into the CP industry, I learned that CP profit margins are typically over 100%. But I used the lower 70% WRx profit margins.
If anyone wants to take issue with my lowball assumptions, go for it. I am confident the actual numbers will be higher. Clearly, a 136% increase in revenues from 12/2 to today demonstrates Scrips has entered "a period of significant revenue growth." But considering the company needed about $145K to become cash flow positive on 12/2, I am confident that today's revenues are higher than $83K. In my strong opinion, the company would NOT unnecessarily prepay debt if it was still burning through cash. In addition, PIMD is a going concern that has likely ramped up its revenues since October. And it is reasonable to assume the CP revenues have increased since the announcement of that new revenue stream. Indeed, the WRx revenues doubled during the first two months of its initial ramp up period. I expect the same or similar success with the CP business. To that end, I believe the current revenues are very close to or above $145K, probably even higher as the new revenue streams have likely increased the company's overhead, thus requiring more revenues to break even. There are just too many signs pointing in the right direction.
Best of luck to all the patient investors who have failed to give up on this little gem, as well as to all the folks waiting on the sidelines for their buy signal. If Warren Buffet invested in penny stocks, I have no question that he would rate SCRC a buy.
BSAV
By the way, Team BSAV is up to at least 13.5M reported shares of SCRC, probably closer to $15M.
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