Jay: Thanks for providing background on the Yahoo BNGO thread I requested. I have been trying to get a handle on Falstaff5's gripes about BNGO management as described in his post which you were kind enough to reprint here.
Falstaff5 has apparently lost faith in BNGO management for 3 (at least) reasons. To quote from his post:
What's the deal with the convertible preferred stock financing, issuing warrants with only a $5 option price, and issuing additional shares constantly? Surely there are better sources of capital than these.
With regard to the convertible preferred stock, the most recent 10Q states: In August of 1997, the Company successfully completed a private equity financing with Plazacorp Investments Ltd., raising $2.0 million for acquisition and working capital purposes. The Company issued 2,000 Preferred Series A Shares, $.01 par value, at the price of $1,000 per share. After commissions, legal and accounting fees, the Company netted $1.83 million from this financing. The Preferred Shares bear interest at 7% per year and are convertible into Common Shares under a variable, discounted pricing formula between $4.00 and $5.50 per share. Under this formula, the Company expects to issue a minimum of 363,636 Common Shares and a maximum of 500,000 Common Shares. The Preferred Shares are convertible in four blocks, vesting from August, 1997 through April, 1998.
With regard to Falstaff5's comment about "...issuing additional shares constantly", the most recent 10Q states: The Company has issued approximately 1,707,000 shares of its Common Shares during the first nine months of 1997. I note that 972,000 of these shares are subject to a "...Company sales restriction over three years". Another 300,000 shares are subject to a "two-year company sales restriction".
Falstaff5 believes BNGO management to be, at best, "stupid" or, at worst, "underhanded", particularly with regard to the Preferred Stock situation. None of these actions seem particularly "stupid" or underhanded to me. However, I know I am limited as a financial analyst and maybe I have the moon in my eyes. I would greatly appreciate those on this thread with more knowledge than I to comment on the following questions:
1. Is the Preferred Stock arrangement such a lousy source of capital?
2. Is there anything particularly unusual about "issuing warrants with only a $5 option price"?
3. Does anyone know exactly what the "sales restrictions" are on these newly issued shares?
4. Is there anything hugely detrimental about acquisitions being largely financed with sales-restricted shares?
Is Falstaff5 just another investor upset at the recent price decline or does he have some valid points here?
Looking forward to responses.
TKA |
