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Technology Stocks : Sigma Designs- Up 50% per Month- Why?
SIGM 0.280-0.2%Aug 17 5:00 PM EST
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To: Daniel Simon who wrote (567)11/23/1998 10:32:00 PM
From: Alex Dubrovsky  Read Replies (1) of 849
 
This is not really a loss, what happened is series B were allowed convert at a price of an average of the lowest 6 days during the past 20 days. Thus some shares were converted at the price below market value on the day when they were converted. According to accounting regulations company has to declare it a some kind of dividend which resulted in a loss on a balance sheet. In reality this loss did not decrease the amount of net assets. If you look at the balance sheet from Q2 and compare it with Q3 you'll see that net assets are down approximately 150K. Why? Because company redeemed about $200K of convertibles A in august plus it reported $49,000 profit (after taxes) in Q3. So everything adds up without any losses to the assets.

So what is the physical meaning of this dividend? Since convertibles were allowed to convert at below market value on the day when they were converted company issued more stock than it would've if conversion occured at the market value. Thus this dividend represents a little bit of extra dilution which would not have occured if series B were converted at market value. This is neither a cash charge nor an inventory writedown. This dividend does not affect assets at all.
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