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Strategies & Market Trends : Floorless Preferred Stock/Debenture -- Ignore unavailable to you. Want to Upgrade?

To: Neil Stewart who wrote (82)	9/30/1998 3:46:00 PM
From: Mama Bear	Read Replies (2) \| Respond to of 1438

"Since management expects to finalize product distribution deals in the coming weeks and expects to generate significant revenues from product sales early in 1999, they are reluctant to do a straight equity deal at today's stock price. " This is like saying a car buyer is reluctant to take a loan from his credit union at 7%, and prefers to get financing from the local loan shark at 3 points per week. This type of financing is done by company's who have little prospect for success. If there were a significant prospect for success, they would have the ability to get the money on much better terms. But, like the fellow who's credit is so bad he must visit the loan shark, companies that do floorless financing do it because it is the only way to get the money to keep the company operating for a few more months. They are done in the interest of management, not the shareholders. "In the interim, IDBEF is cash flow negative and thus unable to access the conventional debt market." There are legitimate venture capital firms that understand this. If there were a convincing argument to be made for the future of a company, it would be able to access these sources of capital. "This leaves equity or converts as the only logical sources of finance. You have made no convincing argument why selling equity is less desirable than doing a toxic convertible. I have yet to see one of these deals that does not result in massive dilution to the shareholders. I submit that if there was a legitimate possibility to do a secondary offering the company would choose to do that. "This investor has much more to gain from an increase in IDBEF's share price than it would from a decline. " This is doubtful. To date, every one of these deals I have seen is structured so that the 'investor' has a specific profit locked in, with the potential to make more only if the price falls. To be fair, I could not find the terms of this deal on Edgar. But I have heard these same arguments over and over from hopeful longs, only to see their dreams dashed on the rocks by the reality of the death spiral. Barb