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AP1...Revenue estimates are in your ballpark..certainly not mine. However, remember that the CEO (in the past), CFO (in today's conference call) and Maxim have all warned that revenues could explode at any time from one vendor or one vertical. If that happens, all of today's projections would become laughable. This stock is somewhat akin to betting on a pharmaceutical waiting for a FDA drug approval. GLTY.
McS....The target is for the APDN fiscal year from my understanding, not the calendar year. Maxim does not public disclosure of its financial analysis on APDN - I haven't asked why. As for the 15% greenshoe, I would be surprised if this were not exercised by Maxim since it had a 45 day option and APDN + APDNW was well into the money by that time. Not sure if I answered your questions, but I hope this suffices. GLTY.
Just received the Maxim updated report:
The Q1 results are not in line with the financial fundamentals. Due to the stock-based compensation at year end, this is a phenomenon that was heavy-handed for this quarter only. Over the next 3 quarters, a total of $350K in stock-based compensation is expected. Moreover, $3.9M of non-cash losses for conversion of promissory notes and for changing fair value of warrant liability was unique for the Q1 period, which won't be found for Q2-4. Most importantly, operating loss actually fell to approx. $2M in Q1 vs. $3.1M 2014-Q1 adjusting for stock-based compensation. Excluding non-cash events, the loss was $0.13 per share, which is significantly less than the required GAAP reporting.
Maxim is increasing 2015 revenue projection to $5.3M and $14.0M for 2016. Loss per share estimate for 2015 is $0.90 and $0.13 for 2016.
Due to the above, Maxim is reiterating its Buy rating and increasing its target from $7 to $9.
Again, to avoid copyright infringement the foregoing three paragraphs represent my paraphrasing of the concepts Maxim presented. GLTA.
FWIW, Maxim Group is raising its 12 month price target from $7 to $9. I haven't seen the report yet, but this is the advice I received from someone at Maxim. GLTA.
AP1...Here are a few highlights.
In general the conference was upbeat. CEO drew an equivalence of ADNAS offerings to other "disruptive technologies" like the Guttenberg printing press and discovery of penicillin. Maybe a hyperbolic opinion, but nonetheless enthusiastic of what he thinks the company is presenting to the world.
ADNAS is more than 10% owned by institutions since uplisting to the Nasdaq. The company is debt-free. Stockholders have more liquidity now with greater dollar amounts of trades conducted now than in the past.
Total assets are up and liabilities down.
21% of the income comes from outside US.
$425K of income from govt. $150K from cotton.
Some of the pilots could evolve into revenues this year. Income potential from these pilots could match operating expenses.
On site DNA reader is a "game changer."
Revenues for Q2 will at least match Q1.
I was encouraged by the conference but the market is not reacting accordingly, which is not a surprise. GLTA.
As to my first point, the PR today concisely addresses this issue in the following way:
From my perspective how this stock will behave tomorrow will depend upon two factors.
First, my hope is that management clarifies and simplifies its Q1 performance. IMO, its quarterly success is camouflaged by the factors contributing to the final numbers. Yes, the revenue growth is nearly twice 2014 Q4 (92%) and also Q3 2013 Q1 (108%) - this is impressive by any standard. However, the revenue growth is more than totally devoured by Q1 SGA. An unassuming quick glance at the numbers seems to show that the improved revenues are being neutralized by ill-disciplined spending. However, this is not the case. The 10K explains that the "increase [of the SGA] is primarily attributable to an increase in stock based compensation expense" which is $1.2M greater than the same 3 month period at the end of 2013. Therefore, if $1.2M were added back into the operational expenses, there would have been a 32% improvement over the comparable 2013 quarter. We continually ask when is this company going to turn a profit? IMO ADNAS is on the right path presently but that trend is obscured by non-recurring costs in the current filing. Let's hope that management says something about this tomorrow.
Second, and more importantly, I hope that management realizes that whatever positive projections it allows itself to reveal in the webcast, actually works wonders for the stock price. Remember how disappointed everyone was when we learned in mid-December that Q4 revenues shrank to $646K? I believe management dodged a major stock decline by announcing that Q1 revenues were going to be more than $1M in the last conference call. That forecast lifted spirits and averted a sell-off IMO. I have no idea what management has up its sleeve, but sharing something that is imminent or already occurred that will be perceived to inevitably boost revenues would be very welcome news to the listeners.
When the 2Q Conference was held in August 2014, Hayward answered a question by stating off the cuff, "we are seeing a much greater diversity in project types and services, some greater in potential than even $10 million per year." Recently, Maxim Group made a similar statement in its Jan. 2015 APDN Analysis as reference was made about ongoing current pilot programs that are designed to generate revenues for ADNAS. It would have irresponsible for Maxim to be guessing, so its analyst must have heard this same dollar figure from someone in management, perhaps the CEO himself. My point is that this very tight-lipped company is starting to let the word out about the immensity of at least some of the programs in which it is involved. Moreover, due to its conservative streak, when Maxim dares to write about vertical customer chains expanding into $40M annual revenues (also a number Maxim was likely fed from ADNAS management), I start to wonder how large a revenue pile that the company is really dreaming about? Although the financial analysts are all guessing 2017 will be the year of profits, if one of the 8+ pilots materializes into its supposed potential....who knows, 2015 might be the year when the financial landscape changes from red into black.
I have no idea what will happen to the stock tomorrow. From my view this was a strong quarter and the stock should rise on the numbers alone. However, if management is in the mood to give us a promising forward look, the stock could escalate considerably higher. GLTA.
AP1....I participated in the S-1 and have a continued relationship with Maxim. When one of Maxims's analysts created it last month, it was emailed to me.
Although the three research reports emphasized different themes, they all viewed APDN as being undervalued while using different selling points to support their recommendations. I believe that I made a sincere effort to provide the key messages contained in the Maxim report in my earlier post.
As far as I know, a public link to the report doesn't exist. If I learn that one does, I will share it.
AP1....I believe you are correct. I looked up the FSG/FSC classification system and the FSC number appears to be 66. Here is the link used: http://www.dispositionservices.dla.mil/sales/Documents/Sales/h2book.pdf
AP1...Paraphrasing a quote that federal supply classes have been expanded from 33 to 132. [This was a mis-quote, since the Maxim report stated the previous FSCs were 32.]
Many of you know that I have sought answers to the fair market value for APDN in the past. Now that this stock is on the Nasdaq, can we trust that the market is finally establishing a legitimate FMV? Over the past 2 months, 3 analyst reports on valuation have come forth. FWIW here is my perspective on these reports.
The most recent Zack’s report was released on 12/16/14. When the pps was $2.93 on 12/15/14, Grant Zeng gave a $12 projected value in twelve months. Zeng is well known to this board and has been generally disregarded due to his persistent inaccurate valuations. He has been wrong time and again because his revenue projections have been consistently overly-optimistic. Perhaps, this is the year where ADNAS will evolve into Zeng’s accelerated revenue growth so that his valuation will be better received.
SeeThru Equity Report was submitted on 12/23/14. Unlike Zack’s, SeeThru offered a current valuation of $5.40 when the 12/8/14 price was $2.94. It was based upon selected peers judged according to V/Revenue and P/Revenue multiples. The recent rise in the pps nearing this valuation appears to endorse this approach.
Finally, Maxim Group submitted its research report on APDN on 1/12/15. Unless I missed it, nobody has given any details about this report on this board. When the price was $2.73, Maxim’s one year target was $7.00.
This report was not made public (as far as I know) and my guess is that this board is curious as to what it contained. Thus, I have decided to take a moment to offer some of Maxim’s key ideas. In an effort to prevent copyright infringement, I have paraphrased the actual words used in the report.
• It starts off by stating that the anti-counterfeiting market is $66B with a 14% compounded annual growth rate.
• It heralds the strong relationship to the US Government with recurring revenues of $500K/qtr and expected growth since the FSCs have increased from 32 to 132.
• 8-10 pilot programs exist validating DNA marking and could potentially drive considerably higher revenues to an exponential level. This scenario exists for pilots involving plastics, pharmaceutical, electronics, automotive, textiles and cash-in-transit.
• The March 2014 pilot program with Borealis was highlighted. Maxim believes that Borealis AG, the world’s eighth-largest plastic producer, is a potential mega-customer that could create $10M in recurring annual revenues for ADNAS. Moreover, a domino effect could occur when other companies in Borealis’ supply chain are forced to also adopt DNA marking as well. In fact Maxim dares to project that over a three year transition phase as much as $40M of recurring annual revenues could be generated by the entire Borealis supply chain.
• Maxim projects revenues of $4.8M in 2015 and because ADNAS is entering a hyper-growth phase [not unlike Grant Zeng's prediction], revenues of $12.7M are anticipated for 2016 and profitability by 2017. Moreover, due to the possibility for pilots to evolve into substantial money-making enterprises, revenue growth and profitability could come much sooner than expected.
• Regardless of potential substantially greater revenues than the estimates, a valuation of $7 is premised on 12X of the $12.7M revenue projection for 2016.
The $10-40M annual revenues from a singular supply chain might seem within the realm of possibility or ridiculous depending upon individual sentiments. Call me optimistic, or gullible, but I am in the former category and I might add so are the Maxim and Zack analysts who originally proffered the concept that ADNAS is on the verge of entering hyper revenue growth.
It is obvious that institutions are entering this stock recently, particularly over the last 2 days. IMO they have relied upon some source of encouraging outlook, very likely the Maxim report particularly since this brokerage has its circle of influence in the investment world, some of which invested in the S-1. Presuming that Maxim believes what is contained in its own report, it has likely reached out to others. These are guesses, of course, but somehow new institutional investors have been lured to this stock over the past month and I am guessing that Maxim is one of the pathways.
It has been a great relief to witness a rising stock over the past month, but now the real question is where will the price go after the earnings report? This will mainly depend upon the degree to which the financials have improved, but whatever details and projections the CEO gives for the near and more distant future during the conference call could weigh significantly on the stock trend until the next 10Q. How influential do you think it would be if the CEO gave another projection for Q2 revenues? GLTA.
abew4me...Thanks for the response. I think it is sometimes helpful to know where investors are coming from and what provided the incentive to invest.
As for the prior lawsuit, I believe it is a non-issue. GLTY.
abew4me...I am curious as to how you learned about this stock. What was your original source of information and when did you acquire your earlier shares? TIA.
McS...A very Merry Christmas to you, your family and all the rest you depicted on your very clever digital card. Even when you occasionally cross to the dark side, your persistent humor always uplifts the spirit here. Thank you.
Best to all the APDN family and well wishes as we head into the New Year.
AP1...Might be a Nasdaq effect, but I believe the PR might be very significant for ADNAS.
AATCC is a non-profit organization with a corporate membership that includes everybody that is anybody in the apparel and textile industry. See http://www.aatcc.org/members/corporate/corp_memb.cfm
When you have a company representative on an advisory board for a seemingly well-recognized organization that wants ADNAS to "add the ability to trace textile and apparel items throughout the supply chain, through its authentication methods based on its unique DNA technology," I believe this is a very definite portal to new business, particularly when the advice rendered by Mr. Hogan could "add an entirely new dimension to AATCC protocols, also enabling point of origin and sustainability tracking."
ADNAS has imposed its technology into US government safeguards. DNA tagging is ever-approaching a status where it is becoming a reflexive protective mechanism for the largest military in the world. If now appears that anti-counterfeiting DNA could become a protocol for a large textile advisory organization. Sounds pretty good to me.
GLTY & GLTA
Two SEC filings were submitted by APDN during the past 6 months giving details for the MDA contract submitted on 7/14/14 (filed 7/18/14) and the DLA 8/28/14 contract (filed on 9/8/14). Dr. H referred to these contracts during the recent 10K webcast. He stated: “together these contracts provide a predictable revenue base of approximately $500,000 per quarter which for us is a solid launching pointing to weight our continuous revenue growth.” However, I looked into these two documents to determine revenue expectations from each and it is noteworthy that both contracts have front loaded payment schedules. If I have analyzed the contracts accurately, $1.993M and $.781M (a total of $2.8M) should be paid to ADNAS by MDA and DLA, respectively, during fiscal 2015 which is 40% greater than what Dr. H has conservatively projected.
Let’s put this in perspective. First, the contractual guarantee of $2.8M exceeds the total company revenues from all revenue sources for fiscal 2014. Moreover, $2.8M is the minimal contractual arrangement – it does not limit the total amount of revenues that could potentially develop from these 2 agencies if these pilot studies somehow evolve into outside revenue producers. Dr. H emphasizes to his listening audience that the DLA agreement is “not a grant” but a “contract.” I believe he makes this differentiation because grants often try to determine whether good ideas can develop into pragmatic products while contracts are “aimed at commercialization. They are revenue amplifying contacts.” (Dr. H's description) In other words the intention for these government contracts are to amplify its useful DNA product menu and, if this is accomplished, the results will be a win-win for all parties. Dr. H reminds us that the DLA contract has given the company an “opportunity to participate in marking six new federal supply groups themselves containing 66 new federal supply classes for which DLA issues more than 100 million solicitations a year. Now the agency is implementing the program more fully in-house for its customer base, the armed services, army, navy, air force, marines and coast guard. The agency is also briefing across the DoD channel. It would also appear that inquiries coming from other non-DoD federal agencies are partially due to the DLA's approach.” This is a mind-boggling massive market exposure for DNA product marking as compared to the singular FSC 5962 that the company has tagged for the DLA in the past.
A critical question is how long will it take to create revenues from this grand opportunity? I believe Dr. H has given us some insight on a possible answer: “As Karol mentioned in her discussion a few moments ago, we currently have a number of funded pilot studies ongoing which if successful could generate revenues more in line with our current expenses. Some of these pilots could come to closure within the next 12 months…. And so pilots now are source of revenue and they are highly focused and move much faster.” When Dr. H spoke about progress for the optical DNA decoders, which is one of the goals mentioned in the MDA contract, he mentioned that one of the decoders is in the “testing” stage, one in the “evaluation” stage, and the most sophisticated decoder is in the “developmental” stage. I think this indicates significant progress is being made in this theater on several fronts and that some revenues will likely follow soon.
Less we forget, the August 2014 DLA contract should not be confused with the past and future revenue relationship that ADNAS has had with the DLA and FSC 5962 tagging. Although Dr. H did not articulate how the new payment deal will unfold after Dec. 15 other than to reveal that there will be “less revenue initially,” he did say “While solicitation will change as of yesterday, contracts already awarded must be honored. These contracts go out a year longer so the period of transition will be at least that long.” Thus, although we don’t know how much revenue the new DLA deal will pass on to ADNAS, there is no doubt that some amount of $$ will continue to flow due to the prior relationships that have been established. Also, even if revenues do contract, this does not necessarily translate into less net income, because “Centralized marking by DLA will streamline our operations, through an operation here at Applied DNA reducing redundant costs in areas of logistics, training, PUC support and even production.” Hence, more efficiency has been introduced into the process.
A recent announcement was made about ADNAS doing business with a Fourth government agency. My belief is that this verifies that the company’s products have arrived at a level of credibility and value where DNA tagging can be more easily adopted into the fiber of US government operations. There is no greater praise for anti-counterfeiting when the US government adopts and endorses your products so this makes for an easier introduction into other industries and businesses IMO.
The foregoing discussion has been centered upon government-centric business for ADNAS. However, we all know that the company has other revenue sources.
Recently, the company signed a deal with two European auto manufacturers. In reference to this project while talking to Swedish authorities, Dr. H stated: “Now initial orders could exceed $1 million per year, with the opportunity for growth in this and other markets.” Hopefully, this is a prescient remark.
From the 10K: “On March 31, 2014, we and Borealis AG, a provider of polyolefins, signed a term sheet for mutual development and cooperation regarding the supply of markers — and related additives — for polyolefin products. The cooperation between the parties will explore and test the feasibility of the project. The contract provides for initial payments to us aggregating $350,000, comprised of development and exclusivity fees. The payment of further installments is dependent on achieving specific performance goals over a defined period of less than one year.” Borealis AG, an Austrian company, had sales of nearly 5 billion euros in the first 6 months of 2014. This is a huge company that contracted with ADNAS. Since the global polyolefin market is about 140 billion kilograms per year, this is a potentially major revenue producer for ADNAS that could materialize soon as indicated by the one-year timing of the contract signed 8 months ago.
What about cotton? During the 10K webcast, Dr. H stated: “Textiles are a massive market for us in US and in Europe with rampant counterfeiting. As we just recently reported to several entities and companies, there are large American retailers who are as much as 80% of their textile product is counterfeit…. In late October, as shown on the slide, we signed an agreement with the large textile manufacture for whom we are marking a DNA mark in cotton in California today as we speak.” My guess is that the October deal is likely related to the Supima cotton deal that the company signed last December where 50 million kgs of cotton was marked. My point is that ADNAS continues to draw revenues from cotton producers.
Persistent revenues are also expected annually from Smoke Cloak DNA, cash-in-transit, copper tagging, and tuna tagging. As the CFO mentioned in the recent 10K conference, ADNAS has an international customer base and no singular customer has contributed more than 10% of the revenue stream.
Finally, both the CFO and CEO mentioned on separate occasions that there is a possibility that revenues could match expenses in the next fiscal year. Other than these loose comments, neither manager elaborated upon this possible event, but it is obvious that this is the sort of chatter that has happened at company board meetings and now it has been boldly reiterated at the 10K webcast. Is this irresponsible….or is the likelihood for this to happen high enough to share with its investors? I choose the latter. Since this company is starting with a guaranteed $2.8M in revenues from 2 government contracts plus known and expected income flows from repeat customers, I believe that it could add $millions from many of its multiple opportunities (perhaps from even a singular high-revenue ongoing pilot) that it is currently cultivating which could be enough to bridge the gap and match its expenses.
Like all of you reading and writing on this board, I have no idea what is going to happen. Most of the naysayers here will likely criticize some or all that I have written. I am simply presenting it as a point of view. I am not trying to be controversial and don't have the energy nor the time to defend these ideas other than to restate what I have already written, so don't be offended if I do not respond.
GLTA.
AG...Let me elaborate a bit more so that I am not misunderstood. During the webcast, that revenues could match operating expenses was said twice, but it wasn't stated with authority...only a possibility. I think most appreciated this perspective since in prior quarterly conferences this hinting of what might materialize was not articulated from my recall (although I appreciate that you remember this particular issue differently).
As for the need to dip into the well and find more funding in the not-too-distant future, I don't really disagree. After resolving debts and some troublesome warrants, about $3-4M is left from the S-1. If revenues don't ramp up soon, money could run out in Q2. However, if indeed revenues begin to neutralize operating expenses as was mentioned, wouldn't we all be pleasantly surprised to see re-funding efforts become something of the past? This was simply the optimistic corner from the back of my mind talking, nothing that any management officials stated.
Like you, I am unhappy about recent events - stock decline, S-1 dilution with cheapened APDN shares and now the Q4 results. The unexpected lack of Q4 revenues was perhaps the most deflating surprise. But the CFO explained that some of the scheduled revenues fell into the deferred category and will be corrected in Q1, so this softened some of my disappointment. Putting Q4 aside and looking at the overall gain of revenues and contracting losses for 2014 v. 2013, I believe ADNAS stumbled in Q4 but is still headed in the right direction.
Most of us judge managerial performance by the company's stock price. By that standard management should have been fired long ago. However, my intuitions still contend that APDN still is not reflecting an accurate value of its true worth. The insiders are the largest block of stockholders. For all the suffering we have sustained, management has sustained proportionately more. That doesn't excuse their leadership but tries to place our combined situations into a fairer perspective.
I remain hopeful that APDN will make a turnaround. We have already been told that Q1 revenues will exceed $1M. When has management ever forecasted quarterly revenues before? Moreover, is $1M/Q the new standard? Can we anticipate $4M for 2015? Can we actually expect more than $4M for 2015 due to the announcements that 2 contracts should provide $4M over the next 2 years and that in the past no singular source of revenues exceeded 10% of the total revenues? From my perspective, the future looks brighter than it has ever looked before. All of this fuels my optimism.
GLTY & GLTA.
There were many comments made during the webcast that were helpful for me in staying the course with APDN. Here are just a few:
1. Beside providing operating capital, the S-1 also cleaned up the balance sheet and removed unfavorable outstanding warrants. Currently the company has no debt.
2. 2 new contracts could provide more than $4M in revenues over the next two years. [I believe this refers to the auto manufacturers’ deal and the DLA, but the reference could have been to other contracts.]
3. Revenues could match operating costs as early as the next fiscal year. [In combination with #1 & #2, this gives more insight on the potential need for more capital and the future possibility for more dilution. With the buffer that the S-1 has provided and best-case revenue production, the era for additional funding might vanish.]
4. The company is finding ways to diminish operating costs and pathways to shorter profit times. [Another way to say this is that efficiency costs less.]
5. Management is investigating 3 different field decoders manufactured by other companies. One is inexpensive, another is moderately priced and a third is expensive. Capabilities for each decoder increase according to their costs and their applications would be suitable for different vendors where independent cost/benefit would be considered.
6. As to why Joseph Ceccoli was brought to the BOD, his operational expertise was cited. [For those critical of the manner by which the company has been managed in the past, perhaps Ceccoli’s skill set will find ways to navigate it better.]
GLTA
Shail...Yes, this is the Q that was posed and answered. I believe it is important that he did not shy away from your sentiments that many of us share. When the transcript is out and you read his full response, IMO it was more than a polite and managerial reply to a tough question. From my perspective his response was premised upon listening to his prior statements justifying how the RS and uplisting to the Nasdaq has already helped the present and future prospects of the company. The main message, however, is that he acknowledged the suffering felt by many and that he believed the company was doing something about it.
Shail...My recollection is that your question cryptically asked whether long-term investors have been abandoned...or something to that effect. Dr. H's response was first "ouch," followed by his reminder that he was also a long-term investor and that this group of investors were always of concern to management. I hope I paraphrased the Q & A fairly, but you can check it out for yourself when the transcript is released. GLTY & thanks for the Q.
Shail...Your question was the first answered.
From my point of view the webcast was upbeat. Forward looking revenue statements were made which is unusual for this company. These projections should help support the stock and hopefully neutralize the disappointing Q4. If APDNW is our canary in the coal mine, it has hit a high of $1.20 which I believe is a very positive sign. GLTA
WT...Sorry. Trying to understand the math I applied is probably not important. It was offered in an attempt to substantiate several ideas that I was promoting: (1) APDN has not been traded according to its true valuation since the S-1; (2) recent pricing for APDN cannot be isolated from the effects of the S-1 warrants; (3) at some point of time APDN will separate itself from APDNW and IMO this will happen when the current and future fundamentals for APDN become clearer.
As far as the math is concerned, let me try again. The value of a company is generally thought of as its market cap, which is the product of its outstanding shares and its current share price. For about 5 months prior to the reverse split, APDN was shrinking from about $0.12 to $0.10, which translates into about $7 to $6 post-split valuation. Taking the lower end of this valuation trend would mean that the market cap was about $83M (13.9M x $6). At $6 I would argue that most of us would say that this was undervalued, so to accept a market cap of $83.4M would be a conservative valuation. If the S-1 never occurred, we would likely be trading around $6 presently IMO.
When the S-1 arrived, as many as 3.2M common shares (including the 420K green shoe shares) priced at $3.25 were added to the outstanding share count. Mathematically, the new market cap should have been the sum of the previous market cap plus the value for the newly added shares, or $83.4M + $10.4M = $93.8M. Since the OS had expanded to 17.1M, the new valuation for APDN should have been around $5.5 (94/17).
The S-1 was simply a dilutive measure. No other alteration to the financial standing occurred. The S-1 did not change revenue expectations, operational costs, etc. – it simply added cheap shares to the mix. You might argue that the dilution was actually 6.4M shares, but none of the warrants have converted and been added to the OS since the strike price of $3.5 has been surpassed. Thus, I maintain that the OS remains 17.1M.
If humans were not playing with the new circumstances, APDN should have re-equilibrated around $5.5. At worse, if you add the total value of the S-1 warrants to the final calculation, the new market cap should be $93.8M + $11.2M (3.2M warrants x $3.5) = $105M. At this market cap the new OS = 20.3M and the expected pps would be about $5.2 (105/20.3). However, the S-1 interjected a new set of traders and a mathematically unpredictable price decline far below the $5.2 level has resulted.
The essential point to all the above is that nothing has fundamentally changed in this company and the current pps is the result of an altered human perception valuation that stands apart from any logical standard. It is a price that has been altered by fear, distress, confusion, and other negative emotions, as well as by a dose of opportunism, not by any fundamental valuation scheme.
My firm belief is that order will reclaim the pps for APDN. Management needs to rebuild confidence and it must start with the 10K. Eventually, maybe not for another 1-2 quarters, perhaps as long as 1 year, but eventually fundamentals will clarify the true value for APDN and at this time it will have shed the effects from APDNW.
GLTY & GLTA.
Here is a mathematical model that tries to demonstrate the effect of the S-1 on the pps and why it has taken the price down much further than it should have. It leads to the conclusion that the current price is illogically lower than the S-1 effect should have created on its own.
For argument's sake presume that a reasonable price for APDN pre-S-1 was $6. This of course is disputable, but for the longest time before the RS most here believed that APDN was underpriced even at 10 cents. Along came the S-1 and as many as 3.2M dilution shares priced at $3.25 entered the scene. How anybody contrived a value of $3.25 has been left unexplained, but if $6 was deemed at the low end of fair market value in the recent past, then nearly halving that price was unjustifiable. Nevertheless, that is what happened. (From my perspective, I believe management was also caught off-balance, but that is another issue that won't enter in this post.) 3.2M common S-1 shares out of a total 17.1M gave 19% of the new investors a great deal because an equal warrant was created for each common share. To this day S-1 investors are enjoying a >15% increased value in their investments when common + warrant values are added together. Not a bad investment gain in less than a month. Since the pps has never exceeded $3.5, the strike price of the warrants, we can safely presume that no warrants have been converted to common shares. Thus, they will not be included into this mathematical exercise.
If 13.9M shares believed that $6 was fair (or under) value for this stock and you add 3.2M shares that entered at $3.25, the average basis for all 17.1M shares computes out to be $5.48 - about twice what the stock is selling for currently. Therefore, when the S-1 dilution shares were added to the mix, the equilibrium price for all the shares should have settled out to a value about $0.52 lower, not $2.25-2.30 lower where this stock has been hovering for the past 3-4 days. There have been no material financial changes to this company that should have collapsed the price down to where it currently stands. On this basis I contend that the current valuation is to a great extent artificial and not premised upon any fundamental valuation scheme. Cold mathematical analysis would account for a 9% decline of $0.52 down from $6, but a 55% drop to $2.68 is as illogical as it is inexplicable. When the S-1 became effective, $3.25 should have been the floor and the price should have ascended from there back towards $5.48. Part of the APDN price contraction is attributable to warrant contamination, but even when all of the $1.05 warrant value is included into APDN pricing, the current pps is unjustifiable, IMO.
If you have gotten lost in the math, it isn't important. My point is that APDN is not being priced on its own merits and has been irrationally dragged down much further than FMV because of dynamics that have little to do with stock value. If I am correctly on track, APDN will detach itself from APDNW in the near future and its price should rise appropriate to its financial standing. In 3 days we should start this new journey when the 10K is submitted.
GLTA
AP1...If your guess in in the right ballpark (and I have great confidence that it is), that would mean that Q3-Q4 will increase 72% and Y-Y will increase 73%. By itself this should spark buying and the pps should rise. If management exposes promising numbers for the new DLA relationship at the same time, an even greater rise will happen. On the other hand, if we are left in the dark about expected future revenues from the DLA, this persistent revenue uncertainty from might turn the stock sideways or cause it to fall. A lot is at stake for APDN longs come Monday.
As always, thanks for your work. GLTY & GLTA.
8-18...The S-1 was a self-imposed devaluing phenomenon. All previous APDN investors suffered. Sentiments on this board have reflected their losses.
The current pps has been molded more by the S-1 than its fair market value IMO. I believe there will come a time in the not-too-distant future where ADNAS' stock value will align itself more accurately with the progress that has been accomplished. The first step in the process will be witnessed in 3 days when the 10K is released. On that same day ADNAS will enter a new business relationship with the DLA. Hopefully we will receive more color about this at the same time. By mid-February we will see how Q1 evolved. By then we should see some revenues from the 2 European auto manufacturers.
Only when the financial future for this company becomes clearer will its stock shed the disastrous effect caused by the S-1 and will begin reflecting true value. Like you, I remain optimistic and that is why I have continued to buy this stock recently. GLTY & GLTA.
McS..I think your cronyism appraisal is a bit harsh.
BASF is the world's largest global chemical. It purchased Engelhard Corp., which was a Fortune 500 company and "the largest refiner and fabricator of platinum metals, gold and silver, a producer of silver and silver alloys in mill forms, operator of the world's largest precious metals smelter" [Wikipedia] Ceccoli was in key management positions in both companies. He brings a diverse background that is unlike any of the other board members.
You know what they say in business - "It isn't what you know, but who you know." Ceccoli should be able to bring an immediate and credible introduction of ADNAS technology to current BASF managers who are concerned about anti-counterfeiting strategies. For example, ADNAS tags copper to discourage theft. Why not tag some/all of the precious metals that BASF refines and fabricates for product verification and to dissuade theft? If we had a list of products BASF is involved with I am sure we could easily advise hundreds or thousands of them that would benefit from DNA tagging. Perhaps, Ceccoli is the connection to a possible $10M contract that Hayward mentioned at the last 10Q conference.
GLTY & GLTA.
8-18...I don't fault those who are complaining because all of us have good cause to do so. I simply won't go there at this time because for me it would be a recognition of defeat and I refuse to give up....yet. Instead the back of my mind keeps coming up with new thoughts of optimism that seem to push away the negativism that keeps crowding in. I am not trying to justify this on a rational basis - this is simply my state of mind speaking which appears to be the loudest in the room that I have occupied for a long, long time.
What are these inner voices telling me? One says that we are just a big contract away from nearing profitability. It says that it is uncharacteristic for Hayward to let his guard down, so that his flippant comment about a $10M contract during the last 10Q conference could have been a tip-off of something that could materialize. Maybe, it has to do with the recent deal with the European auto manufacturers. Or, perhaps, this is a centerpiece for the new DLA relationship. Another voice tells me that we are reaching a critical mass for future revenues with the addition of the 4th govt agency. If the US government is willing to sanction the products we can deliver, how can any company seeking anti-counterfeiting strategies ignore us? $10M, or multiples of this amount, is easily affordable by the pharmaceutical industry. Is Dr. Hogan simply an ornament on the ADNAS Christmas tree or is he the star at the top?
There is little question in my mind that the RS-Nasdaq-S-1 strategy has not gone as planned for management. If you doubt this, look at the company ISOs and warrants. All of them are underwater. Some of them expire mid-2015. The recent chain of events has screwed all of the long stockholders but the largest block of shareholders is the Insiders. This is not meant to excuse management from a major strategic blunder, but it should remind us that we are all victims at this moment.
On the other hand, if somehow this turns around and this same injury-prone management leads us out of the wilderness because of a hidden strategy that is directly related to a world that can only happen in an uplisted setting like Nasdaq, then we will all be applauding the planning and prescience of our leadership.
Your post freed some stream-of-conscious thoughts that I usually keep to myself. You are a long-time investor. I would guess that I have been invested longer. I have been in and out of this company almost from its founding when it was first located on the West Coast. From my point of view, Dr. Hayward has been a godsend. I believe it wouldn't exist today if it weren't for his guidance and sustenance. He is not perfect and I am sure he would say the same. However, I am very grateful that he is at the helm and I have continued faith that he will take us out of this darkness to a brighter world. GLTY.
McS....The comments on this board have reflected the stock performance. Most here are living in misery. Since my investment in APDN is down substantially, I can't disagree with the sentiments, but this does not say that I have given up on the future. I welcome the new board member as someone who will likely expand the company's platform.
I was a buyer during the past two weeks to lower my basis as I decided the stock plunge was illogical and overdone. From the devil's advocate perspective, this was stupid...this was throwing good money after bad...this was not investing but gambling. If the stock sinks again, you can take your pick as to the most appropriate label.
Over the past couple of days the stock appears to be trading in the high 2's. IMO, this is good because the stock needs to find a new equilibrium after it sank to 2.08.
While most of APDN investors are still suffering greatly, the S-1 group is in a great position - I participated a few $$$ in the S-1 so I constantly review how APDNW is doing. Remember, this is at least 17% of the current investors and more likely a higher percentage depending upon the 15% greenshoe option. From my perspective, APDN is still burdened by the APDN+APDNW coalition. Hopefully when the 10K is submitted there will be separation between these two stocks. At some unpredictable time in the future APDN will be traded on its own merits and the APDNW influence will disappear.
GLTY & GLTA.
It is understandable why a new addition to the board is appraised negatively at a time when the stock is down, but I believe this is what you expect from a company that is preparing for better times in the future. GLTA.
There are at least 4 things that have strongly influenced the way APDN has been traded recently: (1) 60:1 reverse split; (2) uplisting to the Nasdaq; (3) S-1 secondary offering; (4) APDNW warrants. Separating the separate influence from each factor is difficult, but I will offer some ideas/opinions.
For the last 2 weeks prior to the 60:1 reverse split and the 2 weeks after the split, the trading volumes and the price range were approximately the same. Therefore, from my perspective the RS had very little influence on how APDN was traded. This makes sense since the same investors were still in the game – they were simply playing with re-valued chips.
However, just before the Nasdaq introduction and S-1 offering, signals were displayed indicating that the game would change. During the last 2 days prior to these two events, the trading volume expanded about 5X and the price fell from $5.42 to $3.86, a value decline of 29%.
It is difficult to separate the individual impacts of the Nasdaq listing v. S-1 offering since both occurred simultaneously. Nevertheless, it is safe to assume that the former was likely the predominant force. On November 17 APDN was diluted 20% by 2.8M common shares owned by S-1 investors who were given a 16% discount of $3.25 from the previous day’s close. On that day 971K were traded. In proportion to the pre-split history for APDN this was equivalent to 58M pre-split shares and somewhere around $160M exchanged hands (by multiplying the closing price by the volume).
November 17 was the biggest trading day in APDN’s history. Unfortunately, the stock suffered a 29% loss from its close on the previous day when it closed at $2.75. Since the S-1 investors were given a generous discount from the prior close, why didn’t $3.25 provide a solid resistance for APDN? Those who were invested in APDN pre-split would have calculated that $3.25 would have been equivalent to $0.054 which would have seemed to be a ridiculous fire-sale to new investors for a stock that should have been valued at least twice that price. From this perspective certainly $3.25 should have been rock-bottom. However, this is a myopic assessment because the S-1 warrants are ignored.
When the warrants are added to the equation for APDN valuation, everything makes more sense. Remember 2.8M warrants were awarded to S-1 investors in the same deal and that they became a value-added adjunct to the common shares. On 11/17 APDNW closed at $0.80. Therefore, when APDN was plummeting 29% from its previous close and more than 50% from where it had been three weeks prior, S-1 investors were feeling quite content on their 9% gain.
My point is that at least on the short-term APDN investors must consider the combined pricing of APDN + APDNW. At some point APDNW will become a side issue, but for now it is part of the APDN valuation.
Fortunately, it appears as if APDN is trending higher. IMO, pps > $2.75 (the close on 11/17) is a good sign. Hopefully it will continue. Next week's 10K will be a major step to show us how the future will look.
GLTA.
Go APDN....13.7% of the S-1 investors were the CEO and a BOD member. Anytime an Insider buys/sells stock in the company he/she represents, it shouldn't go unnoticed. That is the very reason why the SEC requires filing on this type of activity. In general, when Insiders increase their ownership positions, this is a vote of confidence about the current value of the stock.
None of us will ever know how the S-1 shares were allocated. You might be right that there was a lack of interest in the S-1, but ADNAS could have easily informed Maxim that $1.25M of the secondary had to be reserved to retire debt and to set aside additional shares for Insider participation. As for the OS, retiring $1M in debt should not alter the number of common shares that the S-1 creates.
Uplisting to the Nasdaq and doing the S-1 has not gone well. APDN investors are akin to crime victims from my perspective. Those that own stock can hold and hope, sell out for a painful loss, or invest more and reduce their basis. Although I hold management responsible for the losses I've suffered, I have bought more stock this past week. GLTY.
Shail...This is not the first time you have reached out to management with your own initiative. Your reports back have been very valuable to me, particularly when you extract forward looking statements like "They said that the management realizes fully well that revenue realization/ramping has to be this year." Thanks for your efforts.
AP1...This was public notice that insiders participated in the S-1. Both Hayward and Bitzer invested $250K into the secondary. Additionally, Hayward converted his recent $1M loan + interest into S-1 shares.
Shail....If the silver lining you ask about relates to more liquidity, then yes. However, I still don't believe that the FMV for APDN is being established currently because of the contamination caused by APDNW. Remember, the S-1 caused a new group of traders/investors amounting to 20-40% dependent upon whether warrant holders are included. Those who participated in the secondary are up 11% currently.
An artificial ceiling was installed for APDN at $3.25 when the S-1 was executed. How this valuation came to be is anybody's guess. Only Maxim and management know.
We need some blockbuster news to crack through that ceiling. I remain optimistic that news is forthcoming. GLTY.
For those who speculate that management has executed the S-1 because it knew how it would evolve from the time that it committed to it, and particularly to those who say that the S-1 has worked out to management's benefit, doesn't make sense. All 2 million options held by insiders are underwater at the current pps. 85% of the 764K outstanding warrants are also underwater. 100% of its pre-S-1 investors are angry and feel betrayed.
I believe management was blindsided by how the S-1 worked out. Management can be criticized for naivete, ineptitude, or even stupidity, but to say it did this for its benefit is ignoring the facts, IMO.
AP1....I agree with your sentiments.
My guess is that the uplisting combined with the S-1 did not execute as management had planned when it conjured this coupling many months ago. I think we should all keep in mind that the insiders will lose a lot more than we should they decide to sell at this time. It simply is not logical that their hearts were not in the right place when the deal was being considered. That is not an excuse for their management ability. As they say, to err is human.
Your timeline will give you enough time to recover. I remain optimistic that in 2 years those who are still here will be considerably happier. In fact my instincts tell me that APDN will turn around a lot sooner than that. GLTY.
Reality check....
Yesterday the S-1 went off at 3.25 for $9.1M invested. That means that 2.8M common shares and 2.8M warrants were created. The immediate dilution caused by the common shares was 20%, but the warrants also began trading, so the effective dilution was 40%. At the end of the trading day anybody participating in the S-1 profited 9%.
I think the answer why APDN crashed on a record volume is simple. A very large new investing (trading) community entered this stock and a substantial number cashed out part or all of its profits.
Where this will go from here is anybody's guess. Maxim can still green shoe another 15% which will continue to add volatility. When looking at the APDN pricing, I believe one must also consider the APDNW pricing since 40% of the new investors are constantly appraising the sum of the two stocks. My instincts tell me that APDN will remain unstable until the 10K which should be out in about a month.
GLTA.
Go APDN...From the information you posted, I think the critique is legitimate since the Zeng report seemingly ignored the S-1. However, who amongst us wouldn't welcome a $8.4-10 valuation for APDN?
Go APDN…We share the same instincts about the Series B Warrants.
I am no expert on options trading. I simply used the Black-Scholes calculator and came up with a possible warrant price which could be far off the price where it will be traded. I am not confident about my projection, but it was determined thoughtfully. Witnessing the APDNW theater will be an interesting side-show juxtaposed to the APDN stage.
I think the burn rate is about half of what you stated. Nevertheless, unless management saves most of the S-1 raise for working capital, I agree that another secondary will be seen soon. However, if the retirement for the Series B Warrants are ignored, the recent funding could last for 7-8 months without any change in the financial status. In fact I still believe there is a scenario where no future funding would be necessary. First, the company will have to turn a corner and cut down its burn rate. We have no evidence for this but as I have written before, management is mute when it comes to projections. There could be something major that management is well aware but mum about that could change the financial picture for ADNAS substantially and immediately. For example, none of us has any information about future revenues from the European car deals. It is possible that it could be very big when details become known. Second, money might start to flow from the S-1 warrants. If the stock price rises substantially above current pricing, $11.3 - $12.9M could be deposited into the company’s coffers if warrants are exercised. Either or both of these events buys time for the company which can delay or prevent another financing activity.
I don’t share your impression about how the S-1 has gone. Indeed, less money was raised, but I don’t think there is any evidence that this was necessarily due to a lack of interest. If the company needs less than the $12M originally requested, asking for $9M was the most prudent course. This should be applauded not criticized. On the other hand, I agree that the real story could be closer to as you have suggested. GLTY.