The only thought that occurs to me after reading about the dilutive financing is that CHCI must truly hate its shareholders. They take unreasonably high management compensation relative to income they send to shareholders. The dilutive financing puts a cap on growth of the share price and dilutes out the existing shareholders in favor of insiders.
It almost feels like they really don't want a good result for anyone except management.
I don't see how this is very dilutive really. I agree it's wrong that they didn't offer existing shareholders a chance to get in on this deal via some sort of rights offering, but it's not really that dilutive and surely doesn't put a cap on the share price whatsoever, unless you think this is the last deal they will do with CHCI ever (which is highly doubtful). The only true dilutive aspect is that they are issuing 250K warrants, which is tiny relative to the share count. In reality, all the company did was sell interests in an LLC and gave the LLC partners a guaranteed 20% return. Shareholders of CHCI will get any remaining return above that. I am sure the return on this project will be greater than 20%, so shareholders will get something without putting up any money. The problem with CHCI is that they have zero capital as a company, so they are forced to do financings like this until the capital base gets stronger. It is clear they are probably working on other deals like this as the market in DC is quite good. So it's not like this is the last deal ever for CHCI. In reality, this is a tiny deal of $7 million. To make it clear, I do not agree with the ethics of financing, as insiders should not partake in a deal like this without allowing shareholders to participate, but if you invest in tiny public companies like CHCI, that is par for the course. These companies are like private companies and are treated as such.
This is in reply to imadtcdger below (Yahoo won't let me reply directly). Your calculation of the warrants is IMHO incorrect. The company specifically states in the SEC filing that the: "The Warrants represent the right to purchase an aggregate amount of up to 224,000 shares of Class A Common Stock." So a total of 224,000 warrants will be issued and that's it. The reason for the small amount of warrants is simply because officers, directors etc. bought almost the entire offering and they are not entitled to warrants.
Once again, I agree that the way this financing was done was 100% wrong, but it's still not terrible and given that the directors have pledged personal assets to stave off bankruptcy of CHCI during the downturn, I do not think they are completely oblivious to minority shareholders. They saved the company and did not let it go bankrupt like so many other small time homebuilders. They had no reason to do that and given that they didn't it seems clear they want to equity to rise over time, even if they sometimes pursue actions that are 100% wrong.
fiberbull, the way I read it each warrant represents 224,000 shares which means the total shares possible assuming the officers invested nothing would be 7,000,000 shares. In that the officers bought some or a lot of these preferred or what ever they are and are exempt from the warrants means the number is less but still significant. Over the last two years management has given itself over 10% of the company's shares in compensation so I guess they aren't really missing out at the trough. If this company proves to be successful with their business and the value of the company and it's stock takes off the warrants will prove to be dilutive.
So the officers need 20% interest to convince themselves to invest in a company that they keep telling us has great promise, are things that bad, or is it they are just that greedy. They have control of this mess, what is their incentive to buy back these securities, my guess is only if they think they will come out better than 20% on their shares if they do.
When did the information came out on Wednesday, if it was filed and released after the close it sure looks to me like there was some inside trading going on at the close.
Someone must have put in a market order Thursday morning and got their head chopped off from the MM at .45, wish I could have caught some of that.
I like the market this company is in and I think there is a lot of potential, but attention and diligence certainly needs to be paid to the foxes that are guarding the hen house.
What is the legal mumbo jumbo language say about the 20% "After six months, the Company has the right to repurchase the Interests of the Purchasers, provided that (i) all of the Purchasers' Interests are acquired, (ii) the purchase is made in cash and (iii) the purchase price equals the Purchasers' capital account plus an amount necessary to cause the preferred return to equal a cumulative cash on cash return equal to 20% per annum"
Can I sell my shares and put my investment in this scam? I'm not a happy shareholder at all. this is BS. Something is telling me that they know earning are going to be good on Monday and the stock is going to get a bump. I'll be selling and moving my $$ to the big boys. I'm sick of holding on to this P OS while they are blasting off.
I think it's way too early to sell here. The big boys have a much easier time getting financing. CHCI is a tiny player and so it's recovery will come later than the big boys. I am sure CHCI's deal flow is getting stronger and they will start making alot of deals which were draw interest to the stock. The financing spigot is starting to open for the smaller guys like CHCI. This deal is $7 million. That's miniscule. They obviously want to get the stock go up, because then they can do bigger deals. They didn't try their hardest to keep CHCI afloat during the housing downturn just to keep the stock at $1 when the housing market started turning around.