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Strategies & Market Trends : Low Price/Cash Ratio Value Stocks -- Ignore unavailable to you. Want to Upgrade?

To: Anaxagoras who wrote (153)	5/23/1999 1:09:00 PM
From: eWhartHog	Respond to of 1931

Anaxagoras, Common shareholders are subordinate to preferred shareholders, so to calculate common shareholders' equity, preferred shareholders' equity should be deducted from total shareholders' equity. Common shareholders own what's left after both creditors and preferred shareholders have been paid in full. COCN had on 3/31/99 total shareholders' equity of $4.68 million, which represents both preferred and common equity. Since preferred equity is senior to common equity, it should be deducted from total equity to determine common equity. Deducting preferred equity of $15.26 million leaves common equity at a deficit of $10.58 million. Per common share outstanding on 3/31/99, this is $2.48/share. That COCN was forced to issue floorless convertible preferred suggests they are in trouble. See Auric Goldfinger's comments at #subject-22494. COCN's partners must have refused to provide more financing, and they are best able to evaluate the research. On the other hand, the tax loss carryforward should be valuable. Again I point out that I'm not familiar with the company, other than having quickly reviewed the 10-Q. But that was sufficient to conclude that COCN is not a good buy based on the balance sheet alone. Regards, John

To: Anaxagoras who wrote (153)	5/30/1999 7:48:00 AM
From: Q.	Read Replies (1) \| Respond to of 1931

Anax, eWhartHog was correct: you should subtract the preferred stock from the total shareholders equity to get the portion of the shareholders equity that is attributable to the common stock. This is a tricky part of looking at balance sheets. You always have to look for preferred, and subtract it out by hand in figuring out what the common is worth. To illustrate, in this case they have $11.6 M assets and $7.0 M liabilities, leaving $4.6 M total shareholders equity. The liquidation value of the preferred is $15 M, leaving the common stock holders ($10.4 M) in the hole. If it makes you feel any better, I've made the same mistake myself several times. I didn't check into the question of whether the preferred is convertible and at what conversion price, but I think that the above issue of negative shareholders equity for common stock holders should be enough to disqualify this stock as a long candidate. I wouldn't buy it, Anaxagoras. Moreover, I should point out that sometimes when stocks sell below cash, it is because they are burning cash and the market can price the stock at a forward value of the cash. We've seen a couple of examples of that on this thread. Since this stock is a biotech, they are burning cash. Quite a lot, it appears. This stock has so many red flags waving that I shake in my boots thinking about buying it. Here are some of the risk factors: recent reverse split, history of toxic convertibles, huge negative retained earnings, negative shareholders equity for common stock holders, threat of delisting, .... Anyway, this one doesn't look like a value stock to me. Not unless you know a lot about the value of their technology, which is something that doesn't appear on the balance sheet.