Mike,
"...but he has in inherent conflict of interest..." Not quite sure what you mean by that--I am long BCMD like many others here--and probably a lot more at risk than most. The PP has NOT been registered yet--and only those that have already held more than 1 year can file a 144 and sell--and I am not one of those. If you mean, as a "long", I don't want to see BCMD's price fall--you're right--and I'm sure this conflict is shared by all other longs.
I have been on the short end of the stick twice on the TYPICAL Reg S financing and they can be brutal if you sell while the stock is declining.
I've written 2 paragraphs and then deleted them trying to explain Reg S or D financing. It's complicated and hard to explain, and all interpretations I've read on SI or Yahoo tonight are flawed.
The usual Reg S is a "debt" incurred whereby the company receives money, and agrees in 40 days to start issuing equity (shares) at a price determined by a percentage discount to the average closing price for the previous 5 days. Typically, it is 15-20% less than the average price. Example: A company gets $10,000,000 and the current stock price is $5.00 In 40 days, the "foreign investors" cash in, say, a $1,000,000 "chit". If the price is still 5.00, they get $1,000,000 / ($5.00 X .80) or 250,000 shares which they immediately sell--(probably already shorted at $5.00 and use these shares to cover) = net $250,000 profit. Say this drives the price down to $4.25 Then they submit another "chit" for $1,000,000 and get 1MM/(4.25X.80) or 294,000 shares. These are sold, netting them their guaranteed 20% profit, and the scenerio is repeated 8 more times and the stock price is then around $1.00--but they always get their 20% profit and don't give a damn how low they drive the price or how bad the dilution is. When the price is $1, they are getting 5 times as many shares issued per 1,000,000 as they did when it all started. Theoretically, can be almost an infinite dilution.
There is a HUGE DIFFERENCE in how this BCMD Reg S is structured. The shares are priced at 30 cents--regardless of stock price when they become tradeable. They have NO incentive to sell and kill the stock price--they will not drive the price below 30 cents and lose money. The dilution is known--it is 4.5 million shares---no more.
The only difference between this and the last PP is that the holding period is 40 days vs 1 year, and this Reg S paid three times as much as the PP per share. Also the last PP was a 200% dilution, whereas this is a 10% dilution--not terribly significant.
As far as Reg S's go, this isn't too bad--even though NO Reg S deals are good from a current investors viewpoint.
I would like to point out a few more things: Companies almost ALWAYS take the maximum time allowed before filing. BCMD filed 3 days after the last tranch was received--pretty unusual to let investors know that quickly--they usually let the current investors be blindsided as the typical Reg S with its % discount want time to get their shorts placed. Since November 1996, companies have to file notice of Reg S or D financing within 30 days of closure--prior to then, there was no notification requirement--investors saw their stock price evaporate and never knew what hit them.
Note the filing refers to amending the JV. What was the amendment to get Sterling to agree to this? Was there a quid pro quo? Obviously this dilution affects them as they are BCMD's largest shareholder in addition to the JV. Note also the announcement of the last Sterling payment was several weeks late when compared to earlier announcements.
I THINK that within 4 months this Reg S COULD be viewed as a benefit to current longterm shareholders--no questions entertained on this thought. Like the rest of you, I have not talked to anyone at BCMD since the SEC filing--but hope to get some answers before Monday.
Regards,
Gary |
