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Non-Tech : Bill Wexler's Dog Pound -- Ignore unavailable to you. Want to Upgrade?

To: CMason who wrote (1780)	7/8/1999 10:29:00 PM
From: DanZ	Respond to of 10293

CMason, Several people have written about GUMM on SI the past few days and your post is one of the most reasonable that I have read. I have researched GumTech extensively and only disagree with two statements that you made about the Citadel financing. Contrary to what one can read on various threads around the Internet, GumTech management takes their fiduciary responsibility to shareholders very seriously, and much more seriously than many other public companies. They turned down several financing deals because the lenders would have had an incentive to short the stock as a hedge against their loan. The loan with Citadel is structured so that they have an incentive for the stock to go up, rather than down. Further, the financing is structured so Citadel can not dump large amounts of stock on the market if loan payments are made with stock rather than cash. For example, GumTech can only give Citadel an amount of stock equal to twice the average daily volume for the previous 20 day period, and Citadel can only sell 5% of the stock on any one day. I have read the 8K, the S3, and spoken to GumTech management about the financing, and came to the conclusion that it is a very good deal for shareholders and Citadel, and that GumTech management put a lot of thought into protecting the stock. Last, I assume that you are referring to ENML with regard to offshore lenders, as Citadel is a Chicago based firm. With regard to whether GumTech will pay the loan off in cash or stock, you may be right that they won't have sufficient cash flow to make the payments entirely in cash. However, I think this could work to the advantage of shareholders if the stock price increases due to one of several positive occurrences, including successful clinical studies on Zicam, rapidly increasing revenues due to Zicam, nicotine gum, other gum products, media PR for Zicam, publication of the first Zicam clinical in the New England Journal of Medicine, or other things that have the propensity to move GUMM much higher over the next few months. My guess is that GumTech intends to pay off the loan with stock, but they do have the option to pay it off in cash if it is available. Depending on where the stock is trading, it might be more advantageous to use stock even if they have enough cash. I take issue with characterizing Zicam as a "quack medicine" simply because it is homeopathic, and I disagree with writing unsubstantiated one liners such as "bad financing, bad science". People are certainly entitled to their opinion, but one should back up their claims with something more concrete. Those who sell GUMM short are betting that Zicam will not be successful or that they won't have a deal for nicotine gum. GumTech is currently conducting clinical studies to determine if Zicam is effective as a prevention for the cold and if it is effective on allergies. The company is also conducting a second clinical study to determine the efficacy of Zicam on treating the cold. If the results of the second clinical study are consistent with the first study, then GumTech can make claims with regard to efficacy on the product's packaging. If the results of these three clinical studies are favorable, I believe that shorts will be cooked. If the New England Journal of Medicine or another reputable medical journal publishes the first clinical on Zicam, I believe shorts will be cooked. If GumTech announces a partnership for nicotine gum overseas, I believe shorts will be cooked. GumTech is also pursuing a New Drug Application (NDA) with the FDA for nicotine gum that can be sold in the US. If this NDA is approved, I believe shorts will be cooked. What it really comes down to is whether one has faith in Zicam, faith in the clinical studies, and faith in nicotine gum. Based on my extensive research into these issues, I conclude that shorting GUMM is an extremely risky bet. I would be long or I'd be out, but I wouldn't be short. Best of luck to everyone, and thanks again for your sharing your opinions on GUMM in such a well thought out manner. Dan