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To: eWhartHog who wrote (152)	5/23/1999 10:16:00 AM
From: Anaxagoras	Read Replies (2) \| Respond to of 1931

Hi eWhartHog- mucho thanks for the reply. <<...I can't see it as a great buy based on the balance sheet alone. Please advise me if I've missed something.>> No, I'm probably the one who is missing something. I confess to being "balance sheet" challenged, so please be slow and gentle with me here because I'm not getting the point: <<...you may have overlooked the preferred equity of $15.26 million at 3/31/99. This exceeds the cash and short term investments, and even total shareholders' equity of $4.68 million. Thus common shareholders' equity was negative, in excess of $2 per share.>> Here's the filing for convenience: edgar-online.com Now, I don't get it. Under Stockholder's Equity on the balance sheet it shows a huge accumulated deficit of about $119M. Most of that is of course burn from R&D (which tells me something about the value of the company- unless one thinks they've completely just pissed away $80+ M in research, then it's hard for me to see why this has a market cap of only $5M). So now, rounding things, we have listed an accumulated deficit of $119M, preferred stock at $15M, and common listed at $108M. The sum of that preferred and common totals $123M, and taking out the accumulated deficit leaves $4M shareholder's equity, just as it stands on the balance sheet. So why would you want to take out $15M of preferred again and claim <<Thus common shareholders' equity was negative, in excess of $2 per share.>> That's what I'm not getting. Help! You also wrote: <<The class E preferred appears to be a floorless convertible.>> As far as I understand things, they've issued different series of convertible preferred in the past, usually to big pharma corporate partners like Warner Lambert, for example; this is pretty typical for biotechs, and I don't think it's a particular concern. Now, as I also understand it, they did in fact do a toxic convertible last summer for $8 M. However, the bulk of that has either converted already or has very recently been bought back by the company leaving less than $2M of the convertible preferred outstanding. Having a toxic convertible at all is a bad, bad, awful, awful thing, but it's now at the point where it should be manageable- they have agreements in place with the holder controlling conversion of the rest. So, as I understand it, that's the only problematic preferred still out there. <<The company lost $0.82/share in the March quarter, and warns it will require further financing to continue to operate. >> As far as the quarterly loss and need for financing go, that's probably true of about 90% of the 300 or so publicly traded biotechs, so that doesn't bother me particularly- except that when your MC gets this tiny it's even more difficult to get the $. They supposedly are in advanced stages of discussion for their epilepsy compound, so a partnership there should help matters greatly- they've also reduced cash burn and they have several quarters worth right now. Thanks for your thoughts! Anaxagoras