I've been trying to resist posting to this forum about how I would just love a pair of new SPD sunglasses for some of my new convertibles, but now I have some useful information to add to the discussion.
Ailorous, LTD
I can find two reference to Ailouros online. Primarily I am interested in determining whether Ailouros is the type of fund that traditionally takes long term positions in equities, as has been assumed by this thread without support, or whether they typically make convertible investments in money losing companies.
First let me discuss convertible investments in losing companies. Basically, it is possible for an investor to profit from buying a stock, under the appropriate terms, even if that stock subsequently goes down. There are a bag of tricks for doing this. I will not reveal their strategies here, but suffice it to say that they can profit without shorting the stock. In some cases they play the volatility of the stock, in other cases terms of the deal actually allow them an instant "comission".
In my opinion, the REFR deal is designed to work as a limit sell order for REFR to market new stock with a comission of 8%. REFR will specify the sell limit price (the floor), and if the fund can sell the stock at or above that price, they will do so and return to REFR 92% of the proceeds. I do not know this for a fact and do not GUARANTEE it, please do your own DD. I am not making a statement on how this will affect the stock price of REFR. Whether the proceeds of the stock sold are invested profitably is another matter. This view would bring into questions REFR's intentions to use the proceeds to buyback stock, however. It is not logical to me to sell stock at an 8% comission, and then use the proceeds to buy stock. Why? If as Dixson suggests, the management is playing some sort of game of trying to trick Ailorous, I personally would think that to be a waste of management's time and would rather seem them focus on the core business. However, as we shall see below, Ailorous can be trouble in court, so trying to trick them doesn't sound like such a good idea.
The question in my mind is whether or not Ailouros has a history of engaging in such "investment" activities. In my experience, situations in which the fund did not have a history of such activities (a family trust fund for example) were not too terribly bad for the stock (although never good), but when the fund had a history of such deals, the consequences were not pretty. Of course a funds intentions could change I guess, I am only using inductive logic and not making a character judgement.
The two companies I found so far that Ailouros has invested in are JOES and HCVF. Try searching on altavista with the following string "host:www.virtualir.com +ailouros" and you will get the following links:
www.virtualir.com/Edgar/HVSF/0001019687-98-000029.txt
www.virtualir.com/Edgar/JOES/0000939802-98-000030.txt
In the HCVF case, it appears that Ailouros participated in a convertible deal with them because:
(d) On June 12, 1997, the Company reached a mutual settlement with Ailouros Ltd. Converting $125,000 of the 7% Debenture into 450,000 shares of common stock.
also, from the edgar filing on 4/21/97:
2b. Ailouros Ltd. v. Harvard Scientific Corp., Case No. CV-N-97-00089 ECR, United States District Court for the District of Nevada, filed February 13, 1997. In this action Ailouros claimed that the Company had breached the Debenture agreement which is the subject of the action brought by the Company against Ailouros referred to above. Ailouros claimed it is entitled to 263,225 shares of the Registrant's common stock and/or is entitled to damages in the amount of $2,000,000. Ailouros sought to have its suit against the Company and the Company's suit against Ailouros consolidated. The Company does not oppose such consolidation. This litigation remains pending.
And then from the 10K on 7/29/97:
During 1997, the Company became a defendant in a U.S. District Court action initiated by Ailouros Ltd., a 7% debenture holder. Ailouros claims it is entitled to convert its debentures into 263,225 shares of common stock and/or damages in the amount of $2,000,000. The Company had previously initiated a lawsuit in the Nevada courts respecting the same claim and both matters were removed to Federal court. The Company is asking that any shares issued toAilouros be issued pursuant to the requirements of the SEC's Regulation S. It is too early to estimate the monetary outcome of this litigation.
and finally, during the course of the action (8/14/97):
On or about June 16, 1997, Ailouros and the Company agreed in principle to settle all litigation between the parties. As of July 28, 1997, the settlement agreement still is being drafted, although it will require the parties to maintain confidentiality regarding the settlement terms. In anticipation of such agreement, 450,000 shares of the Company's common stock have been issued to Ailouros.
Harvard Scientific had 5 other lawsuits going on at the same time and the stock price fell from over 14 to a current price of 3 5/8 last I checked.
Onto to JOES later, unless someone else want to take a look - Casino's, Race tracks, unpatentable mining technology, failing theme restaurants. Both a 50-1 and a 4-1 reverse stock split in 1997, high of near $5/share. Now trading at 13/16. Originally called "Conceptualistics". Another convertible deal, Ailouros shows 47,710 shares as of August 1998. Don't know the extend of their involvement.
I've seen enough. Bottom line:
2 strike against Ailouros being a savy long term investor buying stock in REFR because it's a good deal.
1 case of Ailouros getting fresh stock out of a company whether they liked it our not - unlikely Ailouros is being fooled.
But - this deal is not the same as the other "death-spiral" convertible deals to HCVF and JOES. My opinion? It's too risky for Ailouros in a down market. They don't want to tie up capital in REFR for 60 - 90 days while the world markets head for a possible recession. Safer to just act as a high-priced broker for now. I would agree that this is a better deal for REFR as well, but let's look at it as what it is - a way to sell stock without a secondary IPO.
BTW, REFR has another way to sell stock - issuing loans to the officers and then allowing the officers to pay those loans back in equivalent stock. See the filings, currently 1.4M in such loans appear to be outstanding to the officers.
Good luck to all, I am assuming no responsibility for the accuracy of any facts contained here-in and do not guarantee anything about long or short positions in this stock.
Jon |
