After further investigating I have some new input:
First, the current ratio is technically 1:1. However, that included about $20 mil from the Chempower deal which comes due February 28, 1998. Although that is technicially considered a current liability, it has always been understood that that amount will be re-financed as soon as possible. The company expect to refinance that sum.
Therefore, I re-calculate the current ratio as follows:
Current assets $ 83 mil
Current liabilities of $76mless the temporary current liabs of $20mil: $56mil
Current ratio (83/56): 1:5
The company has borrowed about $ 18 mil in the first Q of 1998 ($ 15 mil and $ 3 mil). These were debentures yielding 9.5% and convertible by early 2007.
These debentures can convert into stock at 85% of the five day wighted average closing price immediately prior to conversion.
THEY CAN CONVERT AT ANY TIME AFTER JULY 28, 1997.
The company, obviously hopes this does not happen. The company has the right to redeam these debentures (give them the money back with interest, without giving them any stock), with a 24 hour notice.
If the company obtains the financing to pay back the debenture holders, that would be very good news for the company. On the other hand, if they don't redeam the debentures, then the company will be forced to issue many more shares when/if the debentures are converted.
If the ECGOF sells for an average of $ 8 per share for the five days preceding a stock converstion, then the debenture holders would be able to buy a share of ECGOF for $ 6.80 per share ($8 less 15%). If they then sold these shares, the stock price would be under significant pressure.
It is also significant to note, that no matter how low ECGOF should go, the debenture holders would still get 15% off of the five day price preceeding conversion.
At a five-day price of $ 8, 2.6 million shares would be issued.
At a five day price of $ 7, 3.0 million shares would be issued, etc.
To help give the debenture holders incentive not to convert the debentures, the company has issued them warrants:
300,000 warrants, good for 5 yrs, convert @ $ 8.00
1.4 mil warrants, good for 5 yrs, convert @ $ 9.56.
Fully diluted shares:
The CFO was seemed rushed at this point. He said if all convertibles converted 1.5 to 2.0 mil more shares would be added to today's 14.5 mil shares. To me that number seemed to small. I'm not sure if he excluded the debentures for some reason. My guess is that he is assuming they won't convert.
Book value:
The CFO placed the book value at $ 4.00 per share. I assume this was based on fully diluted shares, which according to him was about 16.5 mil shares.
I like the fact that the dilution that I expected may not take place because the company is trying to redeam the debentures before they decide to convert (any time after July 28, 1997, they can convert).
I also like the fact that the company appears to have a respectable current ratio of 1.5 if you back out the $ 20 on temp financing fromt he Chem Power deal. They expect to get long-term financing by Feb 28, 1998, when the notes come due (could be warrants issued with that).
At this time, it looks like the stock price will be under pressure until the debentures are redeamed. |
