Basic questions on micro-cap IPOs, stocks, and why go public in the first place?

Here are the balance sheet and income statement for UFood, which is a micro-cap company that operates a handful of specialty fast food restaurants.
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1. This company has $2.71M in current assets on Dec. '09. However, they have been losing $(3.957M), $(9.875M), and ($5.451M), respectively in '09, '08, and '07. At that rate, their current assets would be depleted before this calendar year is up assuming these conditions.
What could the company do to remain viable, besides declaring bankruptcy?
2. This company has always operated with HORRIBLE NET PROFIT MARGINS. In their first year, their net profit margins was around -110%. Regarding this, why and how did the company go public anyways?
3. For this IPO, which raised about $41.98M (I'm basing this on their volume of 33,055,000 X $1.27 share price on that day), I'm sure that the senior managers and other key players (i-bankers) all earned about $4M-$8M, I would guess.
This absolutely makes no sense to me why people would make a killing off of a money-losing venture like this. Please clarify.
4. What did the i-bankers and investors in this company have to gain when investing in this financially distressed company? My guess is that the C-level executives, seed investors, angel investors, and venture capitalists had an end-goal of going public, because they knew that they would make $4M-$8M in the IPO. At this point, their duties are fulfilled, and so was their compensation, and now, they don't really care what happens to the fortunes of the company since they're already wealthy.
Reply to
2.7182818284590...
2.7182818284590... wrote
Raise more capital. There are various ways of doing that.
That makes it easier to raise capital.
Thats unlikely.
You havent established that anyone made a killing.
The potential for capital gain.
Or they hoped it would have done better than it did.
now, they don't
You havent established that any of them are.
Reply to
Rod Speed
Rod,
You make a good point in pointing out my assumption of a $4M-$8M payout to senior managers is probably an overstatement. I base my assertion on this: Companies that go public always seem to enrichen the senior managers and stakeholders by ~20% of the market cap of the company. I knew of a guy who started a company, and the company got acquired for $40M. This guy's payday was around $4M.
In your opinion, how much do you think the senior managers made off of this transaction?
This seems like "riskless" money. People will invest in your failed business model, it seems. Why save $300K for a hamburger franchise, when all you have to do is sell something on a stock exchange?
One of my friends is having great difficulty in raising $40K for a liquor store from a bank even though he's not a credit-risk, and HIS money is at risk. On the other hand, this UFood company has easily raised ~$40M for a failed business model. I simply don't understand this.
Could my friend who wanted to start that liquor store somehow make something public?
Reply to
2.7182818284590...
2.7182818284590... wrote
Not all of them do anything like that.
It isnt possible to say, some of them make nothing in an IPO.
The main reason for that is that it isnt always a failed model and some believe that they can turn it around even when its losing.
Al 'chainsaw' Dunlap has made a hell of a lot of money turning around operations that appear to be failed business models which arent.
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Trouble is that doing that isnt a trivial thing to do.
Its basically because it isnt black and white what is a failed business model.
You need to be a lot bigger than just one liquour store to make that viable.
Its gotta be a chain or a franchise operation to make it viable.
Reply to
Rod Speed

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