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My thoughts following vast amounts of turkey consumption, which are worth what you pay for them:
1. My sense is that most of the selling is not by DMRJ. The selling pressure we are seeing is most likely from people who bought DMRJ’s shares two weeks ago and now realize the price isn’t going to $2.
2. A buyout at this juncture is looks pretty unlikely. I can’t imagine any acquirer purchasing Implant without also dealing with the debt structure. But, as a practical matter, in order for DMRJ to enter into negotiations with an acquirer they would have to refrain from trading Implant stock, as they would be in possession of material nonpublic information. Kind of tricky, because why would they agree to do that unless a huge premium was involved, which would drain out gains for common stockholders (and management).
3. I don’t see a new lender replacing DMRJ, because I believe, at this juncture, the company needs to keep the payment flexibility that they provide (they aren’t foreclosing if interest isn’t paid on time). I would hope when the debt comes due in March, Implant is able to negotiate a lower interest rate and perhaps an agreement that DMRJ will not convert more than 5% of outstanding during any quarter while interest payments are being paid on time. That would be a win to me.
Look at it this way: this is a difficult financial forecast for a conventional lender to swallow: Q1 resulted in sales of $1.8 million, gross margin of $600,000, and expenses of $7.0 million (SG&A $2.7 million, R&D $1.3 million and debt service $2.0 million), for a loss of ($5.3) million. I am not sure of the effect of the “contest” of the award, but assuming they started producing B220’s at a 200 unit per month rate at the time of the contract award, Q2 could result in sales of $12 million, gross margin of $4.2 million and if expenses remain unchanged for Q1, a loss of ($2.8) million. Assuming they’re pumping out B220’s, Q3 could result in sales of $24.0 million, gross margin of $8.4 million, expenses of $7.5 million (I added $500k in additional interest on the debt and increased SG&A), for a profit of $900k. Assuming there are follow-on orders by the TSA for full 1,170 units in its FY15, Q4 would be similar to Q3. If there aren’t such follow on orders, or if they are delayed, Implant would be back to a loss position.
Hi there, I'm a former TTNP investor (as far back as when it was TTP) who is thinking about getting back in (I sold back in '13 after the FDA screwed them over on probuphine).
I apologize if this has been gone over before, but if Braeburn was to go for a pain indication for probuphine, where in the process would they start at? I assume no Phase I or Phase II required, but would it require a full round of Phase III trials?
Thanks in advance for any guidance.
I'm not saying they won't be able to refinance; continuing on "as is" with DMRJ and BAM is technically a refinancing after all. I'm just saying that, in my experience, in order to get a reduction to a more reasonable interest rate, Implant will need to demonstrate backlog (signed contracts) showing the capacity to pay the debt service for the term of the loan. Maybe I'm wrong.
You're right: a refi could be in the cards that will make me look like an idiot. At least I'll be a happy one! I'm just speculating, and part of that speculation is that they have paid BAM their money on time, but not paid DMRJ their money on time. BAM and other lenders have to be able to see that, and make assumptions on Implant's ability to cover debt service based upon signed contracts.
I think the most likely scenario is that they stay the course with DMRJ and BAM, but with the interest rate negotiated lower. They would then go to the stockholders for the approval of increasing their authorized shares from 200 million to 300 or 400 million. Over the course of 2015, try to keep volume at levels allowing DMRJ to continue converting.
Despite carping about a new refinancing earlier, I believe that unless another huge order comes in prior to the refinancing date (3-31), Implant won’t be able to prove to a more conventional lender that they could make the interest payments on debt. It’s not intrinsically good or bad, just a dollars and cents thing.
A buyout seems more attractive to me, but management probably has a much different perspective. I realize $3.00 may be pushing the envelope, but I think most would be satisfied with something in the $2’s. But that is a single for Bolduc and McGann, and I believe they are in this for a strikeout or home run, nothing less.
A strategic partner is a possibility, but if I were such a partner my first priority would be to purchase the Eight Cent Note from DMRJ rather than invest in the company. I’m sure DMRJ would sell the $5.5 note for $50 million to get all their money at once, and in return the strategic partner could convert into 65 million shares immediately.
In any event, I think the rubber is going to meet the road on this one sooner rather than later. The fully diluted number I came up with (187.5 million) is getting dangerously close to the 200 million shares authorized. In fact, some of DMRJ's conversion activity may be in recognition of the fact that there is very little room left in the authorized share count allow for additional convertible debt to be incurred. $1.0 million more of interest on the 8 cent note (it's currently accruing about $825,000 a year in interest) would mean 12.5 million more convertible shares...taking the fully diluted number to 199.5 (without taking into account the other convertible debt). Simply put, Implant won't have the enough shares authorized to issue in the event of a conversion, and DMRJ doesn't want to be hanging in the wind holding convertible debt for which there are not shares available for issuance.
Implant can't increase that number without going to the stockholders for approval. Something they haven't done in quite some time, and which may not be approved. If you knew that was coming up, wouldn't you have filed a proxy statement by now? They haven't, and perhaps because they've come to the conclusion that it won't be necessary.
Buzz,
I'm no expert, but once upon a time I worked on an SBA loan application (which was never turned in!) and I seem to recall that SBA loans are limited in amount to $5 to $10 million. And I also remember that the SBA doesn't loan any money directly: the issue guarantees to SBA authorized lenders. So, I'm not seeing the SBA thing turn out.
I would love for Mr. Bolduc to pull a rabbit out of his hat and refinance the debt on favorable terms. From my vantage point, however, I don't see how Implant can pay the interest, at least this year. And if you want to delay interest payments, the universe of possible lenders decreases dramatically. You are left with, well, DMRJ.
So, I have to eat crow and admit I was wrong in stating that all roads forward lead through a refinancing. There is another road...the best one in my opinion...which involves selling the company and letting DMRJ convert the whole enchilada.
That would require DMRJ to file a Schedule 13D as an owner of over 5% of the stock. They may have some legal or internal prohibition of doing so, which could conceivably allow for a 3-31-15 closing date on a buyout where all DMRJ's debt is repaid by the acquirer. Pretty unlikely, but a guy can dream...
Nice announcement today. The sale to the military of a NATO member bodes well for the introduction of the new and improved B-150 early next year.
Just a note: I hope no one takes my last post as a “knock” on the company. I believe in Implant’s technology and engineers, and nothing would make me happier than the company meeting some of the share price predictions I have seen on other boards…$8, $10, $14 or $35 just to name a few. But I believe a hard dose of reality is required.
In my example, I assumed $50 million in sales. I concede that if sales were $100 million or $150 million, Implant would have no issue with making its debt service payments. And another sale of the magnitude of the TSA order would prove my thesis incorrect, although there are some inherent limitations on how many machines they can make in the short-term (manufacturing 200 units a month, Implant could make 2,400 B220’s a year, for total sales of $84 to $90 million).
At this point in time, I don’t believe Implant can grow fast enough to keep up with the combined rate of interest on its debt and resulting dilution with respect to debt that is convertible. That’s not a knock on the company, it’s just a thesis which may be correct or incorrect.
If it does come to a buyout, expectations will need to be managed. Perhaps not so much for those lucky and astute investors who purchased below $0.50 a share, but speaking of myself, who bought at $1 or more with dreams of selling at $5 plus, finding out I am not as smart as I thought never gets any more pleasant no matter how many times it happens.
Under some valuation methodologies, you could say the company is fairly valued now. I disagree. I believe that purchasing Implant assures the acquirer the ability to dominate the ETD market for the next 10 years, as well as use ETD sales to garner larger EDS sales. The portal is an unknown, but there is value in that as well. Perhaps overly optimistically, I believe the company is worth $600 million.
From that price, an acquirer would subtract from that amount $20 million for the BAM note, and $14.5 million for the Change of Control Plan, leaving $565.5 million
They would then add back into the purchase price the amount of money received through warrant exercises (I have assumed $2 million, which would equal about $0.50 per exercised share) and option exercises (I have assume $18 million, which would equal about $1.00 per exercised share).
So the “pool” to be distributed among stockholders would be $585.5 million
I’m assuming DMRJ would convert another 5 million shares before the deal, so my fully diluted shares outstanding number = 75 million outstanding, 65 million from the 8 Cent conversion note, 25 million from the other two $12 million convertible notes, 4 million warrant shares and 18 million option shares.
$585.5 million divided by 187 million shares=$3.13 per share.
Mr. Bolduc's Challenge
Assume $50 million in sales at a 40% margin, that would leave $20 million in gross margin. SG&A and R&D at 2014 levels were $16.2 million, which would leave $3.8 million for debt service. $60 million in debt with interest at 15% ($9 million), which, if they apply the $3.8 million to debt, leaves $5.2 million in unpaid interest. Even if they were to refinance at a 10% rate, they would still fall short.
So, any refinancing package needs allow them to defer some interest payments for at least one year. That's a tough deal to find. At this point, a buyout around $2.50 to $3.00 (fully diluted) seems to be the most logical choice in my mind.
Well, I'm not really due any respect, because like others I am just speculating as to possibilities. After all, if I knew anything other than publicly available information, I'd be legally prohibited from posting on a public message board.
As for my nonsensical paragraph, what I was attempting to convey was that a DMRJ dump of their shares is a legal possibility. An unknown, or wildcard.
You write: "they own the majority of this company, would you run a sell side process and invite all the major strategic investors for a buyout or would you try to dump your 60-70mm shares in the market for pennies."
Where do I start?
-DMRJ doesn't own much of Implant, certainly less than 4.9%. To own more than that amount would require the filing of a Schedule 13D which is not, as some suggest, merely a reporting requirement. It would subject them to liability under Section 16 of the Securities Act, which prohibits any purchase and sale of a security by a control person within 6 months of each other. In other words, their ability to convert debt into stock (the "purchase") and then sell it on the market (the "sale") would be subject to a 6 month holding period.
-DMRJ isn't going to talk to any "strategic investors" about a buyout. From a legal liability perspective, they are going to avoid all actions which would tend to imply that the exert any control over IMSC. And, quite frankly, I think Mr. Bolduc would have a thing or two to say about DMRJ conducting negotiations with third parties over the strategic direction of the company.
-I have no idea whether DMRJ would dump all 66 million of their convertible shares prior to a refinancing.Neither does anyone else here. I have acknowledged that they would tarnish their reputation by doing so, but vulture funds market to the desperate and the damned, i.e., those without any other alternatives save bankruptcy, so how much harm would really be done? We all have are own ways of evaluating an investment, but for me, denying that such a sale is a possibility is illogical.
They'll convert a bunch more of the .08 Cent Note , we can be sure of that.
But I can see a scenario where they are satisfied with a less than full conversion. Maybe I'm a hopeless optimist, but this isn't the last deal DMRJ will ever do. If they milk this completely dry, then what do they say to the next potential client? Borrow from us, work your ass off for five years, and we'll take 90% of the value out of your business...sound good? Wouldn't a success story be worth a lot more to them in the long-run?
They probably have converted 40-50 million shares and sold them anywhere from $0.40 cents to $1.80. In all likelihood, they've made back everything they've lent to Implant on conversion sales. So getting paid back in full at this point, and making another 20 million or so on conversions, and being able to point to Implant as a "success story" for future financings...again, maybe I'm just a dope but it seems possible.
Well, who knows. But I've already factored in the entire amount of DMRJ's dilution into my valuation of Implant, and I still think its a good buy at these levels even if they fully convert.
So if the price goes to $0.16, I might have to sell my blood or something but I'm buying!
I do own shares, but my holdings pale in comparison to a lot of posters. I bought my first batch right after the cargo qualification, and have gradually added over time. I have held longer than anticipated, but hopefully I'm learning a thing or two on this investment that will pay off with investments in the future. Like patience!
Sorry, my terminology was confusing. DMRJ has no options. What I should have written is it only converts at DMRJ's election. In other words, they have to give notice to Implant, who then has three days to deliver the shares.
When I wrote "nothing is guaranteed," I meant that if DMRJ does not elect to convert, then the debt does not automatically convert into common stock.
No clue on whether a deal is the works, but I assume some sort of restructuring is ahead of us. At the very least, Implant has earned the right to pay less than 15% interest on their borrowed money.
Wow, that is a good thought, but L3 would be more to my taste. A pretty savvy move when you think about it...buy 1/3 of Implant for $80 million. If someone else tries to buy them out, you just say "no" and don't sell your shares. If you own anything less than 80% of a company, you cannot consolidate revenues on a financial statement, and no one is going to buy IMSC and not be able to report the revenues...a very smart move. They would have a "right of refusal" on any buyout by a competitor, and a leg-up on buying IMSC themselves.
If they had the money, they could pay-down $3.5 million of the $5.5 million today (eliminating 43.75 million shares of dilution). $2.0 million can only be paid off on March 31st.
While any remaining loan balance is outstanding, the conversion into common only happens at DMRJ's option. Nothing automatic or guaranteed.
Are you talking about the 4.9% conversion limitation, or is there something else? They can't convert everything in one day, but assuming they wanted to play hardball and dump 4.9% of the outstanding (which would be over 3 million shares on current numbers) on a daily basis, things could get real ugly real quick.
By the way, I realize Implant was hardly in a position to negotiate, but I love that if DMRJ owns over 4.9%, then Implant has breached the loan. I mean, how the hell does Implant know how much DMRJ has sold? Also love that they declared a default, and then renegotiated for a lower conversion rate. Truly, a "great bunch of guys."
Your guess is as good as mine, but it will be fun to watch.
I have to assume Mr. Bolduc is exploring his alternatives. He may not be Mr. Charisma at a press event, but he knows how to sharpen a pencil. One sign that this is occurring is that no refinancing with DMRJ has been announced. By this time last year (November 2013), they had already renewed the facility even though it didn't expire until March 2014.
Conceivably, if BAM is comfortable with IMSC, it could increase its loans (but at a lower interest rate) to provide the funding to repay the DMRJ debt.
It's a far fetched dream, but I would approach funds out of China. They are dripping with money, hungry for technology and looking for investment vehicles. What are the rights to Implant's products in China worth over the next ten years? Add those rights and 20 million shares in equity, and I think you have a good deal for both parties. Implant still has the rest of the world outside of China to sell to, and the cash to pay off (not just refinance) its debt.
The wildcard will be DMRJ's reaction if they are being taken out. What do they do about the .08 cent convertible note? A share sold at $0.16 doubles their money vs. cash pay-off, so we may see some crazy prices come March.
All roads forward lead through a refinancing.
BAM and DMRJ have both lent Implant money. They have an intercreditor agreement between them under which BAM’s claims against Implant’s assets (including IP) are senior to DMRJ’s claims. But once BAM is paid off, DMRJ is next in line. So they both have a “secured interest” in Implant’s assets.
BAM’s debt pays interest in cash alone. Implant has kept current with interest payments, so the total outstanding debt is around $20.2 million. All $20.2 million is due and payable on March 31, 2015.
As we all know, part of DMRJ’s debt is convertible into equity. DMRJ is happy with the conversion rates, so they haven’t pressed Implant to pay the interest on time. And Implant has let the interest payments slide. The biggest concern is a promissory note for around $5.5 million that converts at $0.08 per share…around 66 to 68 million shares. They have $24.0 million in other convertible debt that would convert into about 25 million shares. Plus, they have about $7.0 million in other debt, including a line of credit, that is not convertible. All of DMRJ’s debt is due and payable on March 31, 2015. $2.0 million of the Eight Cent Conversion note cannot be paid until the due date.
So, any acquisition prior to the due date would have to involve negotiations with DMRJ. Why? Implant can’t prepay $2.0 million of the Eight Cent Conversion Note. No buyer is going to purchase Implant with that note outstanding…to do so would subject them to DMRJ converting after the acquisition, and all of sudden the buyer finding itself with a new, unwanted partner.
Implant doesn’t want any potential buyer talking to DMRJ. Why? They are vulture financiers. They will suck every last penny of value out of the company that they can. I mean, get real. Why do they sell at $1.40? Because if they price was $3.00 a share, Implant could probably issue 40 million at a $2.00 haircut and take their scrounging a#% out. They want Implant viable enough to incur more debt, but not strong enough to pay it off. That’s how they make their money.
So, Implant’s best chance to move the stock price upward is the find someone willing to risk around $80 million. It won’t be a blue chip bank, but it won’t be a vulture fund either. It will cost higher than market interest on the debt and some equity (warrants/convertible debt), but if it reduces the interest rate by 5% and cuts DMRJ’s dilution in half, it will be well worth it.
Remember, no refinancing=no buyout.
I don’t think anyone has any trade confirmations proving it was DMRJ selling into the volume. But as Sherlock Holmes was fond of stating, “when you have eliminated the impossible, whatever remains, however improbable, must be the truth.”
Now, we may not know what DMRJ is doing, but we do know what they are not doing. They are not filing Schedule 13D or Schedule 13G ownership reports, which they would be required to do if they owned 5% or more of the outstanding shares of Implant.
As reported in the securities filings, over the past two years, the number of shares of stock outstanding has increased by 26 million, from 43 million in November 2012 to 69 million today.
10/31/14 69,088,120
10/23/14 68,938,120
9/23/14 66,507,625
5/5/14 63,310,726
2/7/14 61,860,726
11/5/13 59,301,082
9/23/13 57,651,049
5/16/13 55,036,965
2/12/13 54,097,761
11/5/12 43,881,661
There have not been any significant warrant conversions (4 million warrants issued) or management stock options (18 million issued) exercises reported during that period, and Implant has not done any private placements.
To me, the only reasonable explanation is conversion of the debt. And because DMRJ has not filed a Schedule 13D or 13G, we know they have sold enough at least to keep below the 5% ownership threshold.
But there is logic to it…supply and demand. The number of shares available from DMRJ exceeds the demand for such shares from the relatively small universe of retail stockholders willing to invest in a promising, but heavily leveraged OTC stock that has an indeterminate amount of future dilution ahead of it. Maybe we are all geniuses or maybe fools, but most investors don’t have the degree of risk tolerance to purchase Implant right now.
Let’s be honest, the problem is one promissory note where the debt converts at a rate of eight cents for one share of Implant stock. It was originally for $5.6 million in principal amount, and is now $3.185 million in principal amount. The $2.415 million difference was converted into shares…around 30 million of them. That’s not so bad, and got Implant the time to mature to where it is now.
Currently, the 8 Cent Note has about $5.2 million owing on it in principal and interest, and could be converted into 66 million shares. To sell all of those shares before March 31st (the date the note is due, and the only date it can be repaid in full), DMRJ would have to dump about 702,000 per day. I just don’t think the volume is there to allow that many sales, and while they may not win any humanitarian awards, I don’t think they will sell to the point that the PPS is pennies (kind of bad for future business to destroy the company you “saved”).
Let’s say they dump an average of 200,000 shares a day until March 31st. That would be about 18.8 million shares, and reduce the interest owed on the note by $1.5 million. Not great, but if a refinancing takes out that note...for around $3.7 million…then (a) the dumping stops on April 1st, and (b) we are spared 46.25 million shares worth of dilution.
I am long and strong based on the technology. But if they merely renew the DMRJ facility rather than refinance on better terms, it’s a pretty clear indication that the company is being run for its lenders and its management, but not its stockholders.
What opportunity was missed at the press event yesterday? Perhaps the chance to get a little short-term sizzle and beef up the trading volume for a day or two? Which is to say, the chance for DMRJ to unload a bunch more shares. Personally, one of the lessons I took from last week was that IMSC won’t trade higher than $1.50 until DMRJ’s debt is repaid via a refinancing or DMRJ simply runs out of shares to convert.
I wouldn’t cast Mr. Bolduc in a B-220 informercial, but he’s a numbers guy who has been around the block and was able to keep this company funded under circumstances where the continued viability of the enterprise was doubtful. With the DMRJ facility set to expire in March, I would rather have a numbers guy at the tiller than a rah-rah cheerleader
I believe in time the sales and financial results will speak for themselves. I hope Mr. Bolduc dedicates his time to putting stockholders in the best possible position to capitalize on those results when they come. That means (a) cleaning up the financial situation and providing clarity as to the fully diluted ownership structure of Implant, and (b) getting rid of the “going concern” qualification in their financial statements. You can forget any institutional interest in Implant, whether or not we are listed on a national exchange, until those events occur.
My only quibble with the Friday call was his characterization of DMRJ as an “investor.” They’re not, and I hope he understands that and does not suffer from some misguided sense of loyalty because “they were there when no one else was.” They’ve taken risk, and they’ve been rewarded for that already. He’s under no moral obligation to “stick with them.” Its just business…if the roles were reversed, they’d do it to Implant in a heartbeat.
Buzz, agreed that paying it off would be best. But realistically, I don't think that can begin for some time. The margin your talking about is gross margin, which doesn't reflect SG&A, R&D, professional fees and a number of other expenses. All the while, Implant is paying 15% interest on the debt it will be trying to pay off. Think of it this way: for each quarter Implant doesn't pay DMRJ it's interest, DMRJ gains 1,850,00 in additional convertible shares. Sure, it was necessary four years ago, but the bleeding has to stop. Refinance in 2015 before DMRJ can convert all their shares, and start paying off debt in 2016.
P.S. They can pay off the entire 8 cent conversion note at maturity in March (they just can't prepay it). Mr. bolduc seemed a little unconcerned about the dilution on the call, but something tells me he sees the opportunity before him.
What a difference a week makes! I mean, look where we were a week ago…wondering if a TSA order would be received before the company ran out of money or wondering if Smiths/Morpho had convinced the TSA it was too risky to go with Implant. A week later, and the share price is up 17% and we know Implant will be around for years to come based on a $162 million IDIQ, with other countries security services and the cargo market much more likely to purchase from Implant now that they have the TSA seal of approval.
With respect to a refinancing, this should be interesting to watch what happens. My random ramblings:
1. I noticed from the 10-Q that only $200,000 in interest was owing on the $20 million BAM Note. BAM came in late in the game, without any equity conversion feature, so I assume part of their deal was their interest payments need to be current before DMRJ gets paid anything.
2. As of June 30th, Implant owed DMRJ:
• $2.2 million on the line of credit, plus a $1.0 million promissory note (not convertible)
• $3.184 million of principal plus $2.175 million of accrued interest on the senior secured promissory note ($0.08 conversion),
• $12 million of principal and $3.3 million of accrued interest on the first senior convertible promissory note ($1.09 conversion), and
• $12 million of principal and $1.87 of accrued interest on the second senior convertible promissory note ($1.18 conversion).
3. Taking it forward to September 30th, the line of credit is up to $6 million and change. They lump all the interest due and owing into one $9.6 million category in the 10-Q (they don’t want us to do the dilution math), but my guesstimate of the breakdown at the current interest rates is:
• $2.1 in interest on the $.08 convertible note (another $210,000 in interest accrued, less $280,000 in shares converted), making the total obligation $5,285,000 convertible into 66 million shares
• $3.75 million of accrued interest on the first senior convertible note, making the total obligation $15.75 million, convertible into 14.5 million shares
• $2.32 million of accrued interest on the second convertible note, making the total obligation $14.32 million, convertible into 12.1 million shares.
• Remainder of interest on the LOC.
4. So, to pay off the LOC, $1 million note, two $12 million senior convertible notes and all but $2.0 million of the $3.185 million convertible note ($2 million of it cannot be prepaid), Implant needs around $42.9 million. If you add BAM into that, call it $63 million. Plus a new line of credit for say $15 million to meet working capital needs…so let’s call it an even $80 million refinancing.
5. Is that doable? I don’t know. Providing $80 million in financing at let’s say 10% interest with a first priority lien on the patent rights, TSA contract and the rest of the business, with warrants to purchase 40 million shares at a buck and change? If I’m a VC I’d take that deal. DMRJ loaned when it was really risky, and you would be coming in at close to a sure thing.
Hoping some lender out there thinks the same way I do.
Face value about $35 million, except Implant has agreed not to prepay $2.0 million in principal of the note that converts at $0.08 per share.
Still, for a substantial premium, I think DMRJ would agree to be bought out rather that the uncertainty of waiting to sell shares.
From the 10-K:
As of June 30, 2014, the outstanding balance due under the senior secured convertible promissory notes issued to DMRJ and accrued and unpaid interest was $34,552,000, of which a $3,184,000 senior secured promissory and $2,175,288 of accrued and unpaid interest are convertible into shares of our common stock at $0.08 per share; a $12,000,000 senior convertible promissory note and $3,320,000 of accrued and unpaid interest is convertible into shares of Series H Convertible Preferred Stock, which preferred stock is convertible into shares of our common stock at $1.09 per share; and a $12,000,000 senior secured promissory note and $1,873,000 of accrued and unpaid interest is convertible into shares of Series I Convertible Preferred Stock, which preferred stock is convertible into shares of our common stock at $1.18 per share.
Buzz- I believe their current facility expires in March of 2015, so they will mostly likely address refinancing/cap structure before July.
I can't explain the low volume, but perhaps it works to the advantage of longer term investors. Platinum wants to convert and sell quickly...but they have over 60 million shares to unload. If the volume doesn't support them converting and selling that many shares, it gives Implant the time to arrange for a financing to hopefully take them out and prevent further dilution.
Time will tell.
I agree the financing is what it is, but it will be interesting to see if management can do anything to improve the situation. Glenn is the "financial" guy, so I hope he has a plan.
They owe $3.185 million in principal and $2.0 million in interest on the $5.6 million Senior Secured Promissory Note (with the infamous $0.08 conversion feature). They've agreed that they can only prepay $3.6 million on that note, so, if they had the funds, they could pay off the interest and another $1.185 million in principal. That would equal $3.185 million, or about 39 million shares if converted. Eliminating that overhang starts to really change to profile of this investment.
It was interesting in reviewing the history of this note. In April 2011, the conversion price was amended from $0.18 per share to $0.08 per share. They didn't point that out in the press release, but its in the loan documents. Since we were trading in the 0.40-0.50 range at that time, it looks as though Platinum seriously played hardball..i.e., agree to this or no extension and we are shutting you down.
I must admit I've got a little psychological whiplash going on, and I don't think I'm alone. Euphoria yesterday at a $162 million IDIQ which was far in excess of my expectations...and then...yechh. I wasn't expecting $5 a share, but I wasn't expecting this either. It looks like Platinum is going to flood the market with shares any time there is significant volume. And they've got in excess of 60 million shares to use up.
Buzz, I would love it if you are correct, but isn't it a possibility that the "short" activity reported is that of market makers providing liquidity rather than investors actually taking a short position?
DMRJ doesn't need to short. They can convert and sell into the market. And selling a share converted at $0.08 for $1.38 makes a lot of sense.
Look at the reported shares outstanding. In its September 29th 10-K filing, Implant reported 66,507,625 shares outstanding (which included 2.65 million of shares DMRJ converted in September). On October 23rd, they filed a 10-KA and reported 68,938,120 shares of outstanding. Because no Form 4’s reporting option exercises have been filed, the only explanation is DMRJ.
No proof, but in the 10-K they disclosed DMRJ converted 2.6 million shares in September, and they aren't exactly long-term investors.
Now that the IDIQ has been signed up, I think Implant will be a much more attractive buyout candidate. I’ve seen a lot a stuff posted about $5 or $10 stock prices, and that seems a little overly optimistic to me. I'm happy to be wrong on this one, so I’m curious to hear what people believe would be a fair price.
My ballpark figure for a purchase price would be around $500 million for the enterprise, which I figure would lead to a per share price of around $2.60 per share. I got there by dividing A by B, where:
“A” equals $500 million minus $20 million BAM Note and $14 million Management Change of Control Plan =$466 million; and
“B” equals 69 million shares outstanding, plus 67 million shares issuable on conversion of $3.184 million principal and $2.175 million accrued interest on Sr. Convertible Note ($0.08 per share conversion) plus 11 million shares issuable from $12 million Senior Secured Note (convertible to Series H preferred stock which converts to common at $1.09 a share); plus 10 million shares issuable from $12 million Senior Secured Note (convertible to Series I preferred stock which converts to common at $1.18 per share); plus 18 million convertible employee stock options plus 4 million convertible warrants=179 million shares.
I wish we were lucky enough to have shorts taking a substantial position here, but I kinda think they've all covered. Isn't the most likely seller at these levels DMRJ?
THEY DELIVERED!!!! Feeling very grateful for the hard work of management on this one!!!!
One encouraging nugget for the weekend...on page 2 of that "inventory report", the footnote states that, as of 2013, there was over $20 million in ETD inventory of to be disposed of.
I had the same thought. In the shipping specifications of the TEDs solicitation, they mention that ETD must be handled per federal hazardous waste regulations.
I don’t believe there will be an RFQ for disposal of retired ETD equipment. Disposal appears to be outsourced to a contractor already (the same one that runs the TSA EDS/EDT “warehouse”)
http://www.oig.dhs.gov/assets/Mgmt/2013/OIG_13-82_Apr13.pdf
My read of the TEDS solicitation was that the contractor was responsible for shipping (from the TSA warehouse), uncrating and installing equipment, but not for actually purchasing. I didn't see any hard deadlines about period of performance, but I think the meaning of H4 in the solicitation is that it would begin 60 days after contract award (to allow contractor personnel to have drug testing)
Thanks, yes I saw that and found it interesting. I think they made the same comment the prior year, and yet no money spent! Why the TSA has been sitting on this "slush fund" for 7 years is a mystery, but if its available for an Implant ETD purchase then I have no complaints. Pretty clear from some of the congressional record that Congress is exasperated with some of the TSA's actions.
Buzz, Looking for some help: from what I've been able to determine, there were no funds allocated for ETD purchases in FY 2014, and in FY 2015 the TSA has requested the funds to purchase 250 ETD units.
http://thomas.loc.gov/cgi-bin/cpquery/?&dbname=cp113&sid=cp113MUDEN&refer=&r_n=sr198.113&item=&&&sel=TOC_234747&
I realize a lot of internal TSA publications discussed a late FY 2014 purchase of ETDs, but I've yet to see any appropriation for that funding in the FY 2014 budget. Can the TSA buy ETD's without congressional approval? Or are they limited to the number of ETD's that congress approves? In other words, how much discretion does the TSA actually have, and wwho defines the market, Congress or the TSA?
If it is Congress, then who cares what some TSA bureaucrat whispers into Implant's ear about a possible FY 2014 ETD purchase: if it ain't in the budget, it ain't gonna happen. Given management's expectation of an ETD order in late FY 2014, it makes me think either the TSA actually has more purchasing discretion, or someone at Implant is seriously deluded. When Glenn Bolduc stated that "funds carried over" into FY 2015, what funds was he talking about?
FWIW, I think this was published on 9/26/14. No deadlines given, but this is the government after all. At least it shows detection equipment is still on TSA's radar.
http://www.dhs.gov/process-initiatives
I'm no expert, but the wording of the Morpho release was a little suspicious. For instance, they never use the word "sale" or "sold." Also, apparently its being used to screen airport personnel and materials delivered to sensitive airport areas, not for checkpoint passenger and baggage screening. So maybe it doesn't have to meet the ECAC CEP standards that Implant recently received certification under.