CBB finally getting the message

Remember our old friend Cygenics (CYN)? They changed their name to Cordlife and ASX code to CBB. Whilst I don't own any CBB stock I feel it would be remiss of me not to keep updated on the off chance management wake up to the fact that they need to make money - and it seems they may have.

CBB announced 10 days ago that their 'Cytomatrix' technologies have not turned out as expected and will cost a lot more money to bring to commercialization. Thus they intend to bring in outside funding and water down their interest to less than 20%. That will mean writing down the value of their patents to a yet undetermined value. They also plan to close their subsidiary Cytovations Inc which will result in a further writedown of $1.0m.

What does all this mean? Firstly it means that there is a big question mark over management competency after letting these ventures bleed the company of cash for so long. From a financial standpoint annual expenses will be reduced by $3.1m - a definite positive. $1.2m of those are non cash in the form of patent amortisation, the other $1.9m are cash expenses, $0.8m of which is related to the closure of Cytovations Inc. The company lost $6m last year so a reduction in expenses and cash outflow will be welcome however it doesn't get them out of the woods yet.

From the chart below it can be seen that the company is still bleeding cash every quarter. Obviously management realize they can't continue to plow money into businesses and technologies that produce negative returns indefinitely.


FY07 accounts will be a mess riddled with writedowns so it will be impossible to get a clear picture of the more streamlined operation until FY08. Incidentally in 2 years worth of announcements this is the first one I've seen that addressed the issue of profitability, Chris Fullerton, Chairman of Cordlife said:

"This strategy places Cordlife on a firm footing towards profitability and the maximization of shareholder value."

This is a step in the right direction however management still need to demonstrate they can run a profitable business. The mess they made of Cytomatrix and and Cytovations doesn't instill enough confidence for this little black duck to stick his toe in the water just yet