Can MathStar Inc. sell their FPOA technology or will they disappear?

For all you 52-week low bargain shoppers, here's a stock you may have recalled flashing across your screen, the ticker is MATH, and the company is called MathStar Inc.. With a ticker that may represent one of your least favorite subjects in your high school days, it's hard not to notice MATH hitting a new 52-week low on a weekly basis when the stock trades around $2.50 a share. So who are they? What do they do? Do they sell times tables or slide rulers?

MathStar, headquartered in Hillsboro, Oregon has been developing an advanced type of programmable microchip for years, and has only just begun to sell its newest product to customers with the hopes of taking it mainstream. They are banking everything on a magical Field Programmable Object Array™ (FPOA) chips that operate at speeds up to 1 GHz and can be programmed to "serve a number of useful functions". They have shelled millions into developing these bad boys and are hoping their FPOA products can compete and win the Field Programmable Gate Array (FPGA) industry. They claim that FPOA's are very different from the FPGA's already widely available on the electronics market. MathStar says its chips have much higher data processing capability needed for data-heavy applications such as medical imaging and radar processing, at a lower price than other high-capacity programmable chips now on the market. This all sounds great and nerdy, but what do we care about? And what happens if you power a FPOA processor using Mr. Fusion at 1.21 gigawatts, can you break the time barrier?

Here's the real questions - Can MathStar actually sell their products? Will their famed FPOA technology be accepted? When will they start making some money? And how much potential revenue are we talking about?

For starters, MathStar is not a healthy looking company, last month they reported revenue of $53,000 for 2006, down from $134,000 in 2005. But the staggering figures are the losses; they lost $22.5M for the year, compared to a loss of $18.9M in 2005. They are only in the infant stages America, a Research & Development company working on what they think is the next big thing, so all they do is spend money, spend more money, and of course - spend money.

MathStar was selling an earlier version of its programmable chip last year in low volumes. The company began selling its newer chip, intended for high-volume manufacture, in 2006 - but not until last November. The company said that it expects revenue of $4M to $6M this year, half from contracts it has already signed for its newer products, and half from companies that it is currently talking to, but which have not yet signed contracts or agreements. So what about the future, when will they start making money, enough of the "maybe's"? Right about now Biff Tannen would be getting pretty antsy and pissed about turning his investment in MathStar into some real dollars. If he could only get McFly to travel back into time and get his money back. You can bet he'd tell Marty "make like a tree and get out of here".

So back to the guidance, MathStar said that it expects to exit 2008 with revenue equivalent to an annual run rate of $30M to $35M. You thinking what I'm thinking?
I was hoping for more McFly.

Besides burning cash and not making any money, MathStar hit strike three on March 16th when filed to offer up to $40M in stock or warrants to purchase shares. The result put MathStar shares at another 52-week low and with 20.93 million shares outstanding, why not add another few million, what can it hurt?

Look, they aren't working on the Flux Capacitor that is going to power De Loreans and allow us to travel back in time. It's a fancy chip that is apparently "better" than the existing chips out there for it's market place but the question is - will it sell? I realize I am not an expert in FPOA or FPGA technology and I am not going to pretend that I am "in the know" about what's going on at MathStar. I know as much as you do and other investors looking for a bargain buy, hoping that the FPOA is better than anything Doc Brown could ever invent. But it's not all doom and gloom here. Yesterday MathStar Inc. announced a partnership agreement with Arrow Electronics, Inc. to distribute their Arrix(TM) FPO semiconductor devices, evaluation boards, design software and IP cores. But the analysts and Wall Street have yet to understand or care to examine what MathStar is up to and is their stock worth buying. So, they leave it to us useless bloggers to write same lame write-up because nobody else wants to do it.

Everything that has been written on MathStar comes down to this - last month an Independent auditor expressed "substantial doubt" about the company's ability to meet its obligations over the next 12 months. They have invested millions into the FPOA technology and so have other major investors but is it worth the bet? Maybe you should ask MathStar's CEO Douglas M. Pihl if he thinks his company stock has a chance of success. I'll bet he'd reply just like Marty McFly would and say: "If you put your mind to it, you can accomplish anything." But what he's really thinking and sweating is can his company pay the bills long enough to even give FPOA a decent shot. He must have bad dreams at night, like that one where, Darth Vader came down from planet Vulcan and told him that if he didn't take Lorraine out to the dance that he'd melt his brain. Ah those McFly's, always traveling back in time and saying funny things. I bet if Douglas Pihl could go back in time, he'd scrap the FPOA stuff and stick with the Flux Capacitor business.

Article written by: Frank Lara Jr.
Article posted on: April 13th, 2007

Disclaimer: The Author does not own any shares or hold any short/long positions in the securities mentioned in this publication.