The announcement is out! This confirms the deal, MKD will be 60% owner of a soon-to-be CD manufacturing plant.
The guts of the deal are:
60% joint venture for 750,000 escrowed shares of the company payable after $450,000 in after tax income
4% royalty payable on gross sales
$500,000 bond offering by CDI paying 12% and convertible to shares of MKD. Price unknown
$500,000 equipment lease from a Los Angeles firm. $695,000 lease payments tied to production.
$345,000 debenture convertible at $.30 for 1 post-consolidated share and warrant, plus 20% fees
500,000 employee and directors share purchase options at a post-consolidated price of $0.30
2 for 1 consolidation
Like you, I grimaced at the consolidation. Despite being what I thought was close to this deal, it came as a surprise. At first I fumed, but after thinking about it and hearing the reasons, I think I accept it.
1. The company could not be financed. « million in speculative capital without a good discount just isn't out there today. The minimum value of placements is $.15 per share, but it only just broke through that level. The company needed financing and they needed it quickly before CDI went to another company.
2. The share price is now at a more promotable level. It may not seem too different to some of you, but to the big players a stock at $.50 is lot different than a stock at $.25 Plus they need to get over the stigma of trading at .06
3. The number of free trading shares is cut in half. OK, I figure about 6 million fully diluted. It loses in liquidity, but which short seller is going to touch this now? This is now so tight, that it will move up in price a lot more easily.
4. The cash flow per share is now larger. This will garner increased interest from institutions.
5. It will reach a share price that can be margined much quicker. Once the earning and cash flow numbers are public, a $3-4 share price will be justified. The ability to margin may propel the stock price up to industry standard multiples of 20-30X.
These are my first thoughts, and I am sure they will change. Now let's see what happens.
Ted |
