purething and HCM, I have called Mike Irwin to get his point of view. He said a number of time that it would be irrational for the company to draw on the floorless line if the stock is at the current level, and irrational would be the right term. But then we started to discuss the actual cash outlays expected. Well, their burn rate is indeed $350,000 per month, without payments of $100,000 and then few payments of $200,000 per month to B/EA. I asked if these payments will be made, and the answer was not direct, but my feeling is that they will (otherwise the BE/A floorless kicks in, and they really do not want to hurt present share holders.) However, the reality is that within 3 to 4 months they will be forced to draw on the line, I am guessing that at the end of this month they are probably at a cash position of about let say $1,700,000 (they just got an infusion of $2 MM recently if everyone remembers and probably spent about $300,000 of this since as of the last S-3 they had only some $400,000 which were probably used last month). Well, over the next three months they have to dish out a total of $1,500,000, about a million to cover burn rate and the balance to B/EA. That means they will have less than a month of burn rate in three month. Waiting until the last minute to line up the cash is the most dangerous game in town, you can therefore bet your bottom bucks, that within the next six weeks they will have to find a way to bring the stock back up (for a good period) or suffer the consequences of additional dilution.
If somehow, they manage to get the stock back up, I would be a seller (but I am not buying even here, so this is irrelevant) because you know that the million or two of new shares will have to hit the market soon thereafter.
This is not a bashing exercise, it is simple accounting looking at the options available to the company. Mike tried very hard to tell me why this should not happen, and how they will do their damnest to limit the effect, but it is truly no longer in their hands. When I faced him with his own numbers, he really did not have a satisfactory response.
I for one think that after a DCB, the stock will head to new lows, below 1. Since the company does not have net tangible assets meeting with the NAZ requirement, the next step will be to get these assets in fast (draw on the $2 to $6 line of equity) and possibly do a reverse split to avoid dropping under $1/share for too long. Not a pretty story, but certainly one of which I warned before.
Zeev |
