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Technology Stocks : Research Frontiers (REFR) -- Ignore unavailable to you. Want to Upgrade?

To: N. Dixon who wrote (1129)	10/14/1998 4:59:00 PM
From: Zeev Hed	Read Replies (2) \| Respond to of 50170

ND you keep asking Jonathan for the "scenario". Here is the "fear", and you have to decide on your own if it is a rational or irrational fear. The "equity line" is such that in principle the conversion price to shares is fixed according to the prevailing market conditions. Currently, REFR has ample cash on their hand (probably more then two years at their current burn rate). The fear is that things may notr work as planned. Royalties income may not be coming in for another three years and cash is gone. The fear is that because of the perception that revenues are not coming in, the stock goes further down, and just when REFR needs the money the most, because they have gone through the cache, then they are forced to access the "line of credit". If that happens at much lower prices, the dilution is much greater. One can, in principle visualize a situation where the price goes down so badly that the dilution becomes too great. Having reviewed the financials of REFR, I think that that fear is somewhat overblown (not an impossibility), because, in REFR shoes, I would use the next bump up in the price of the stock (and such bumping up will probably occur as news of progress at the various licensees becomes known) to issue stock to cover another year of burn rate (I think that the current burn rate i $3.2 MM year). Even if they do it at very un favorable prices, such as at $4/share, they can raise more then another year of burn rate without the massive dilution typically present in floorless situations. The slow increase in shares outstanding over the last few years of no profitability, should be an indication that they know quite well how to issue equity at advantageous prices. I hope they are not buying too many shares at current prices so that they indeed keep the two years of burn rate going forward and until they generate royalties revenues. Lawrence, as far as shorting this stock, I think that there are much better floorless around to short than this one, in any event, I am not short this or any other issue. Technically, this stock does have a floorless instrument, but their financial condition seems to mitigate, at least for now, any of the usually destructive features of the normal floorless. Zeev