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Technology Stocks : The New QLogic (ANCR)

QLGC 16.07

0.0%

Aug 24 5:00 PM EST

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To: w2j2 who wrote (24944)	11/22/1999 10:48:00 PM
From: George Dawson	Read Replies (1) of 29386

Walter, I think you need to consider benefit to Sun and benefit to Ancor shareholders as separate issues. If you look at it as straight non-cash financing from Ancor's perspective, the only cost is dilution. Looking at a usual balance sheet metric of basic earnings per share versus diluted (assuming conversion of all warrants, options, and convertible shares) earnings per share is a good way to look at it. When I run the numbers just looking at the 1.5M additional shares, I get a 6% reduction in earnings per share to all shareholders. I would not see that as a significant deterrent to buying the stock if you believe the data on projected increases in sales for FC switch companies or even potential total sales to Sun. The unknown here is the Black-Scholes method described for the accounting issues. Greg posted the relevant sections of the 8-K: techstocks.com I have seen that this will be counted as a non sales discount - but have not been able to find that specific term anywhere. The only Black-Scholes information I can find is on options pricing. I would also appreciate the opinion of someone who understands how a non sales discount per the Black Scholes method impacts on a balance sheet. The opinion of the non experts I have read is that it does not seem significant, but as you can see from the example in the 8-K, the price fluctuates by this pricing method and negative margins are possible. At no point would it make sense for Sun to buy the stock and throw away the switches, they would be losing substantial equipment assets. I don't think that the stock price is relevant to shareholder equity, since the dilution is the critical factor. George D.

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