Raymond,
As I read the number of shares issue.
Currently:
Insiders Own 11,570,000, Veritas Tech owns 400,000, Other outstanding 5,034,614 (11/14/96 10-Q shows 16,604,614. This number less insiders gives us the 5,034,614. The Veritas Tech shares were not issued until 12/5/96 so those don't come out of the 16 million number)
Don't know what has happened since then, but would assume that nothing has happened since the amendment to the bond issue put off all further bond conversions till Mar 13, 1997
Now with that as background, we cannot accurately calculate the number of potential shares outstanding. What I mean is this:
1. Assuming the stock price is above the $3.50 mark when the conversion dates approach. If this is the case, then the shares will convert at $3.50 per share. $7.81 million bonds outstanding (that we know of) would equal 2,231,428 shares upon conversion.
2. This leaves us with the warrant issue. The bond issue was for $13 million. Attached to those bonds was the right to purchase shares equal to the face of the bond at $5.50 per share. The amended bond agreement changed the price to $5.22 per share. What this means is that if the stock price is above $5.50, then the warrants may be exercised. The warrant holder would pay to SYCR $5.50 per share or $5.22 per share and receive shares back. The total number of shares possible under warrant conversion is: 943,636 shares for the $13 mill less the $7.81 mill under the new terms and 1,496,168 shares for the amended $7.81 million of bonds.
3. This all assumes a stock price higher than $5.50 per share. If that is the case, not many of us would complain too much, however, that would be a total of 21,275,846 shares outstanding. IF the stock price supports it, Bryan is correct on the 22 million number.provided the company doesn't issue more shares.
4. The amended terms of the bond issue, in my opinion, make this REG S issue less of a concern than other REG S issues. By this I mean that I read into the amended terms that there are "investors" in the bond issue and not just "pirates." It will be harder to create the usual tricks of a REG S conversion when the conversion is over a period of several months. Therefore the investors may not partake of the normal REG S activities to kill the company. Further, the warrants are a plus. The exercise price of the warrants means that the stock must be above $5.22 for any warrant holder to make money. Further, upon exercise of the warrants, the company will get $13,000,000 on exercise of the warrants.
5. The trouble with Bryan's statement that only 22 million shares would be outstanding is what if the "pirates" play their game. All they have to do is sell shares short. This will depress the stock price. Then they convert under the 85% of the average of the previous five days stock price and cover their short and still have more shares to sell in the open market. There would be no short covering stock bounce as the pirates would cover with newly issued shares and not shares they have to buy on the open market. An average stock price of less than $1.44 will render more shares on the market than the 22 million. Will this happen? I don't know, Bryan doesn't know. However, it was not that long ago when this stock traded below $1.44.
When calculating potential earnings and stock prices I certainly would base all calculations off of at least 22 million shares. Further, if the insiders decide they would like to take some money off of that table and they do it at the same time the conversions are taking place, no one can tell me that the stock price will not be affected. This is regardless of product sales and profits. Think of it this way. Currently the outstanding float is approximately 5 million shares. If bond conversions and insiders decide to sell some shares, say even one half of that amount, 2.5 million shares, what do you think will happen to the per share price? The other item of interest is to go back and look at volume and price history of this stock. Between 4/30/96 and 5/22/96 a total of 147,090,000 shares traded. The 3/31/96 shares outstanding number was 13,821,011. Insiders still own their 11 million shares. During that period of time the stock price went from $3.5 to $6 7/16. On May 22, 1996 the convertible bond issue was signed. That is all quite interesting, is it not?
Incidentally, there is a postive side to conversion. The company does not have to pay the interest on the bonds. I don't remember the interest rate, but I would assume the total interest each year would amount to around 1 million dollars.
The above analysis is somewhat incomplete in that if there is outstanding interest at the date of conversion, then the bondholder may convert the outstanding interest into shares as well. I have no idea whether or not the company has been making periodic interest payments. If not, the number of shares would increase by this as well.
I expect to be flamed for this analysis as it appears to be somewhat negative. I am positive overall on this company, however, we need to know the facts and we need to be careful with our invested dollars.
Best of luck to all of you.
Scott |
