A closer look at the numbers illustrates this point more clearly.
Even aside from the fraud allegations, the most recent quarter was a disaster, as was the quarter before. In Q1 2011, the company made a gross profit of only $660,000 (that's about $7,000 per day). It has lost money at the bottom line in all but one of the past five quarters. In its only profitable quarter, it made $520,000. At the current price of $4.49, SHZ has a market cap of $138 million compared to a market cap of approximately $20 million in 2H 2010. This is in spite of the fact that the company's losses have been accelerating. Last year, the company could at least keep its losses below $1 million per quarter.
Given its inability to generate profits and its lack of cash and weak balance sheet, it is not surprising in the least that SHZ received a "going concern" letter from its auditors for fiscal 2010. However, that obviously does not account for the fact that the company raised $20 million from U.S. investors in Q1 2011. Unfortunately, that cash has disappeared very quickly and within less than 90 days, the $20 million turned into less than $8 million. The company's current ratio ranges between 0.50 and 0.75. Anything below 1 is typically considered problematic.
So how long can SHZ hold out with $7.7 million in cash? Management has made the statement that the $20 million raised in Q1 would provide it with adequate liquidity going forward. However, the cash flow statement tells a very different story. In Q1 alone, SHZ burned over $10 million in cash from operations and from investing activities. Financing activities provided the company with a net change in cash of only $6 million. Previous quarters weren't much better, with financing activities really being the only thing keeping the company afloat. It seems logical to expect that even with a substantial increase in fluorite prices that, at this rate, SHZ will be completely out of cash before Q3.