Enablence Technologies management warns of insolvency

Management at optical component and subsystems vendor Enablence Technologies Inc. (TSX VENTURE:ENA) warned yesterday as they reported results for the company’s fiscal third quarter that the company’s cash reserves are almost gone. Should a last-minute source of funds not present itself, the company faces insolvency.

The company’s fiscal woes cost CEO and board member Tim Thorsteinson his job, as his contract was not renewed. Board members John Roland and Peter Dey will manage an executive committee that will include four management employees that will run the company until a successor is found.

However, the company may not be solvent by that time. "We are working diligently to secure additional financing and pursue other strategic alternatives. However with the current levels of operating losses and resulting cash outflows, it has proven much more challenging than we had hoped," said Dey, who is chair of the board of directors. "While we continue to work with potential investors, there is no assurance that our efforts will be successful, and that we will be able to renegotiate our existing obligations. If we are not successful, we will be forced to pursue formal insolvency proceedings."

Enablence has stopped making payments on its $3.0 million convertible debenture, and is in violation of bank covenants for a $2.8 million secured note payable.

The cash shortfall comes despite the company’s plan to sell off its systems businesses and return to its roots as a component and subsystems company (see "Enablence leaving FTTH systems market"). Enablence sold its PON equipment business to Aurora Networks (see “Aurora Networks buys Trident7 PON line from Enablence Technologies”) and completed the sale of its Teledata Networks Ltd. to Godan Ventures LP, established by Taldan Capital Partners LLP, during the just concluded quarter. However, management described proceeds from this second sale as “nominal,” although Enablence reported a $13.4 million gain on the deal because of the excess of liabilities over assets at the time of the transaction.

For the quarter, Enablence reported revenues declined $5.5 million (66%) year-on-year. Management says a downturn in demand for arrayed waveguide grating and multiplexer and demultiplexer (VMUX) optical components was to blame. Pricing pressures continue to increase as well, management says.

Nevertheless, management forecasted that sales for the quarter that will end June 30 should increase sequentially.