Just like the stock popped when a Director bought in the high $12s, it is being puked out with the CEO and CMO insider sales. The reality is that the company is in a blackout period with the quarter almost over and restricted from voluntary transactions among officers. The CEO's selling is forced to call a margin call because he borrowed to heavily against his stock, which while stupid is actually a sign he believes in a much higher share price. The CMO just sold under a 10b5-1 program, which is automatic regardless of where the stock price is to cover taxes on the vesting of his restricted shares.
I don't know if there is something more fundamentally wrong with the quarter, but the stock is certainly overeacting to insider sales. Half the company's value is in cash at this point.
This is all a bit circular where margin pressure is causing the CEO to sell and the shorts are capitalizing. With half the value of the company in cash, this has it's limits. Also, at some point the board makes a loan to Morrison guaranteed by the shares to take off the selling pressure, whether that pressure comes from internal policy or brokerage margin requirements. Otherwise interests with shareholders are not aligned. However, he will not be allowed to repeat the mistake.
On thing is for sure.... he is incented to get the stock price up!!!!!!
The 38,234,493 shares you calculated for the round 3 investors from repricing their existing shares never happens. They keep the 4.7M they currently have with no change. That's the biggest difference. Basically there's 25M shares outstanding and that will go up around 4X times the number of warrants (1.7M) for around 32M shares.
The agreement should never have been made public until the trading period was over. This is how you get a viscous cycle. These guys are truly idiots.
I believe the warrant conversion is in lieu of another reset of the common shares in the offering. That is how out of the money warrants become freely tradeable common shares. The end result becomes about one half of the shares you just calculated.
Those part or the original purchase agreement have a much lower cost basis than anybody involved before Monday. They do not look at it as they paid $1.00 and now it's 10 cents.. they have actually been recouping 40% of their investment by dumping. They are dumping primarily because they want out before this goes to zero, but indeed are actually incented to do so because a lower stock price indeed means a lower cost basis for them because by formula they get more shares. Mgmt is stupid.
The exchange offer was agreed to in part because of the stupidity of the original purchase agreement coupled with disappointing performance to date. The sell-off is due to the stupidity and disclosure of the exchange offer in both communication and valuation coupled with the fact that the Company has said it only has funds through October. Grant it, they can slow their burn rate and last through the year but trying to raise a few million dollars from a position of distress and a 10 cent stock price ($3M market cap) is tough. A new investor would not only have to lead the round but replace senior management in order to get comfortable new investment won't be mismanaged. The company is a start-up with great prospects but not well managed and a cash burn rate associated with a much larger company. That said, in a worst case somebody would buy the assets outright including the intellectual property for more than it is trading for but not by much. If this still had a $10M+ market cap that would not be the case but it is only $3M.
On the selling, it is clear that the lead investors in the round wanted out. Upon disclosure of the 8-K the offer they had been negotiating became public knowledge and they could sell... and they likely just dumped the common shares that they held. When they get their warrants converted to stock, they will likely do the same so as someone else on the board has suggested the selling pressure is not over (though will likely take a breather). If the company gets an equity line, that would probably give them another few months to get a real financing done. I would think they could do a preferred financing. Pre Series A (angel) financings are getting done at higher valuations with this on vapor.
This is not a scam, rather a mismanaged company. The early investors will likely remove management and replace them with those who can execute if not sell the company.
They will issue roughly 4.2M common shares in exchange for the outstanding warrants as part of the repricing. In other words, the 45 cent figure below is accurate based on adding the 4.2M new shares to the 5.2M that have already been issued or 9.4M shares for the $4.2M raised. The new share count rises from 25.5M to 29.7M based on this action which works out to $5M in mkt cap off 17 cents. Is it a steal? In theory it as since the company has invested over $20M to date in developing the product. I've actually met with them and seen the product, which is impressive. The equipment costs about $15 to $20 to manufacture since it does not require a screen or battery the same way a normal glucose meter might because it just plugs into a phone. So, they can make money simply by replacing existing meters and selling test strips where they are reimbursed by healthcare for multiples of what it costs to make the strip. The data tracking abilities make this a better product for consumers and the aggregated analytics makes it a big data play for pharma companies. The catch is that the company has $2M in cash and likely needs several million more to roll-out. Raising that money at $0.17 or $0.45 or $1.00 makes all the difference in the world from a dilution perspective. Raising $5M at the current stock price would mean giving half the company away. However, with this behind them the company is free to raise a preferred round at a much higher price where valuation would be traded for seniority in the capital structure protected by the value of the intellectual property. Aside from everything else, DRIO has a patent for all diagnotistic testing on smartphones done through the headphone jack as opposed to the data port. The headphone jack is universal across smartphones whereas the data port is not. I suspect the company is in a position to raise $2M-$3M via preferred at $1.00 per share with some warrant coverage. Plenty of upside from there and less dilution to existing holders.
The number of warrants get converted into 2.5X as many common shares per the calculation. The number of fully diluted shares goes up by 2.5M for roughly 10% dilution.
I picked up some at 17 cents. The technology and market opportunity are great. The execution by the mgmt team on product roll-out as well as financing acumen is abysmal. Today's transaction is probably about 10% dilutive and not 70% but symptomatic of a company that can't get out of its own way. The company should be in the hands of a large pharma company for the customer data, which is the real value here. Right now it is trading where start-up deals are getting done at in silicon valley for this type of thing.
She has no $$$ and the board is overexposed. Would look for a release on how many shares the company has bought back if looking for conviction.
For a guy with no axe to grind other than a woefully low $3 price target, do you have anything constructive to say? A cogent argument would be helpful.
The tax reporting did them in on both the y/y comparison and relative to expectations. Admittedly, the call did not help nor did it hurt. They have to do the right thing on the business development side and they need to show growing demand. There was way too much talk of potential competiton without really explaining that competition has gotten very little actual demand. Ultimately, it will be a bigger pie and FHCO as the market leader will get the lion's share of incremental growth... but we need a tender announcement to show us that. On the stock price, it needs to find its way without the dividend and without the tax benefit tied to the deferred tax asset. That said, cash taxes are limited. Based on the quarter, the company is generating about $8.5M of free cash flow with the company now trading at a 7.7% free cash flow yield. In this market it should trade at more like 6% and possibly lower... implying a $5.00 stock price. I think we will eventually gravitate to that level and the company will use some of that to buy back stock... but it ain't going to happen over night.
Having held this for many years through the ups and downs, the past month has provided a unique opportunity for me to sell. We have seen periods of strong and subdued revenue growth with promise of profits to come that never materialized. Underlying leverage in the business has never resulted in much earnings and with the promise made yet again on the conference call, I'm not going to hang around to find out. Why not? The stock simply reflects it, IMO. I'm not sure how we went from $3 to $5+ so quickly and momentum investors can speculate as they wish, but I thank them and the company for allowing me to exit after all this time at 100X EPS and 50X EBITDA. I would advise more balanced investors to do the same here as a lower re-entry point will surely present itself in due course.
Yeah, it's been authorized but rarely actually used. Even the 35K shares bought was a rarity. With the dividend gone, however, this will be the only way to return capital to shareholders and will be used to support the stock. I'm sure they have a 48 hour black-out period after this morning's release if not having to wait til they actually report since they only pre-released the sales number. But I believe they will buy a bit under $5.
Admittedly, I had been valuing this off yield as opposed to fundamental measures too long. The company has been way, way too slow in diversifying away from a single product company and that has wreaked havoc on the past few quarters of performance. That said, the company will probably do 10 cents for the June quarter and as large wins eventually come they will do a couple quarters in the 15 cent - plus range. Once that occurs, people will ascribe value to the distribution power of the company and the likelihood of it either acquiring or selling new products. As income oriented exit the stock, it is a no brainer to purchase at $5. I suspect that they will announce a stock buy-back program along with earnings results.
Can you smell it? I smell it! Smells like a Seeking Alpha pump. I'm going to guess people are rasising the price in advance of a bullish article being published. Then it goes on SA Pro which gets released early... and people buy more. And then it gets released widely and people buy even more. IT SMELLS WONDERFUL! Ride this coming rally over the next few days.. but I'm out at $13. Well, it's either that or basically other inside information. One or the other.. what's the difference anyway?