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Hi shark - I don't see how they can avoid more dilution. At the same time I did pick up some shares at the $2 mark given the outside possibility that it was at least close to a bottom. I'm glad I've waited before buying shares as the selling over the last couple of weeks was as ferocious as I've ever seen. GLTA
Hi pots - How do you reckon there won't be any more dilution for the next 12 months? That's pretty optimistic!
Hey AG - A poster on the Yahoo forum has predicted that the BOD will re-price the previously issued options downward to bring them more in line with the devalued sp. I've seen this happen before and wouldn't be surprised if it were to occur also in this case.
I gather that APDN makes a high profit on authenticating in the lab samples sent to them by its customers. If that model is not feasible and instead requires some type of reader that can be used out in the field, what are the implications for the company's bottom line on a go-forward basis? Just how many markers, for which they charge just fractions of a penny, would they have to sell to make any type of significant profit?
Is this a case where another larger company could simply fold apdn (once a workable field reader is commercialized) into its own operations and then offer the markers basically for free as more of a added-value service to help generate customer loyalty and enhance its own brand awareness?
I guess the question I'm asking is whether APDN's business model is doomed by its own success at being able to mass produce virtually costless markers, which can then be verified by customers out in the field? Where will the large revenue streams come from? The markers? The field testing chips/devices? And it's not as if there aren't other cost effective alternatives out in the market and perhaps emerging. I think the rationale for APDN's business model is coming under increasing scrutiny by investors.
AG - CONCUR 100%
When I first saw the notice seeking board approval for 500mm authorized shares I thought it was a misprint. It was one of the chief reasons I've sat on the sidelines. It's an unholy number of shares to put in reserve compared to the split adjusted outstanding amount.
Hi ag - I'd just add one thing. It was a reverse split combined with a dilutive secondary offering, that on top of it all had to be pared back due probably to lack of outside investor interest. If they had simply conducted a r/s combined with positive news on the business front I don't think you would have seen the carnage taking place. Rather, investors could've been focusing on the uplisting and gathering speed in the fundamentals rather than dilution and a questionable business model. GLTA
Hi ckur - I think their participation in the secondary was a positive in that they're showing confidence in the business and its prospects. Of course it also seems to reinforce the notion that they failed to drum up the level of outside investor interest they believed would be forthcoming. It looks like they're at a critical juncture here and mgt/bod is willing to pony up funds as much to keep the business afloat and retain employees as it is to signal confidence.
The market cap has dropped to around $44 million or so based on the outstanding share count (17.220 million shares, incl. over-allotment x $2.58) which at least makes investing at this point a better risk-adjusted play imo than when it was over $100 million. (You mention that Hayward converted $1mm of the prom note into shares, so maybe that increases the outstanding to more than 17.22 mm, I'm not sure.) However, the sp still appears rich in the absence of a significant increase in revenues. Until there's better news on the business front I don't see how the sp can escape this rut.
I believe this next year will be a true test of apdn's resiliency and their mgt skills as they continue to pursue commercial success while making ends meet financially.
Hi mrbig - Regarding profitability, they're legally constrained from providing forward guidance, except in a pr/cc framework + sec filing. As for assurances to shareholders in at higher prices, imo they're only going to be able to offer a non-specific generic reply and the same goes for imminent contracts, which if material would require a pr + sec filing.
The reason I ask about the $4mm option to purchase warrants is because I can't think of any regulatory/legal restrictions that would prevent them from adding more color on that puzzling (at least for me) transaction in the context of a simple q&a with a shareholder.
Hi shail - Could you get clarification on why they're seeking to buy up to $4mm worth of outstanding warrants? TIA
Hi dog turd -
"It is a shame that honesty is rarely able to override ego. Isn't it?"
It's commendable that you've personally actualized to the point of no longer being weighed down by an ego. lol
While you're probably right that posters would not have been swayed by a contrary opinion, your appearing after the fact and acting like you knew this all along, and profited by it, speaks to an ego of the sort I'll leave up to you and others to classify.
I personally feel it's more credible when the contributions to the board consist of forward looking analyses than rear-view mirror "I told you so!" rub-ins.
Poster AG to his credit has been a consistently insightful poster who clearly attempts to frame his comments and viewpoints in an informed and even-handed way.
As for me, I've been and remain cautious on APDN for reasons I've previously shared. GLTA
Hey ag - Thanks for your informative posts! I might add just one thing. Once the volume simmers down there could be some head fakes to the upside. Until APDN gets its finances in order and there's more visibility on its funding needs and the availability of access to reasonably priced capital it might be advisable to add only on dips such as the one today. I can see a situation where the sp goes on periodic runs causing anxious investors to go chasing. GLTY
Hi ckur - I kind of think the fact that he can't get the share count straight just might bring into question his ability to forecast revenues and profit 6 years out for an emerging company in an as yet nascent industry. lol GLTU
Hi ckur - Here's a comment from the Yahoo forum by poster Shanghaishark regarding Zeng's price target.
"Does anyone else have a problem with the fact that the Zacks model doesn't even factor in the most recent share offering?
Apparently, the Mr. Zeng couldn't even be bothered to adjust the share count to include the most recent secondary. He can Boldly make rev/profit projections out to 2020 and then Dubiously discount them back 6 years, but can't factor in to his model an estimate for the number of new shares to be issued?
He calls for a target price of $12, which he states implies a "reasonable" market cap of $168mm...but if that's so, he's only assuming there to be 14,000,000 shares outstanding when in fact that will not be the case once the secondary executes...??!!??
Assuming next week the o/s share count rises to 16,250,000 or so ... then his $12/share target drops to $10/share...and that's assuming no more dilution!
and what happens if over time that share count jumps to 20mm outstanding...the pps tumbles to $8.4
well, he does offer a brief footnote that cash burn Could lead to dilution which Would lead to a reduction in per share value..but who reads the fine print? haha"
Hi ckur - Thanks. Another great post by you! Isn't the option to purchase $4mm in warrants a head scratcher? I think I'll email IR and see if they're willing to clarify the deal. I'm not hopeful though of receiving anything more than a stock response, something to the effect of "We believe it will be in the long-term best interests of our shareholders. Thank you for your concern and if you have any more questions please don't hesitate...."
As for the how the warrants will be priced by the market, I think there'll be extremely limited trading in them causing 1-the price to fluctuate in a wide range and 2-for there to be an outsized bid-ask spread due to illiquid trading volume.
From what I recall the company is on track to burn through cash at $1.6 million per month. Based on this alone in combination with the fewer proceeds they're going to receive from the pared back secondary I think another equity raise is just around the corner. Maybe management could kick the can down the road a bit by once again pumping in cash out of their own pockets as they did last June.
Like some others I have the distinct impression that this secondary didn't come off as planned and so now APDN and Maxim are in something of a damage control mode. In the absence of new contracts for investors to sink their teeth into it's hard to see how the sp can get out of this funk.
I think the chief risk for shareholders at this point is just how much more capital the company might need, when they might require it and at what pricing.
The amount set aside and window for buying back warrants appear to be really ill-timed and I'd be interested in knowing what the real back-story is on this disproportional use of proceeds. Maybe I'm just missing something that's obvious?
Maybe I'm slow on this issue, but I'm still not exactly clear on why APDN feels compelled to purchase up to $4million in outstanding warrants. Has the company issued a statement explaining what the rationale is behind this option they've taken out? I know that some posters have speculated about what the reason is, but I'd prefer to hear a definitive response from the horse's mouth. Thanks!
Hi mrbig - I think the miscellaneous shares are not actual trades but rather administrative loose ends being tied up by the mm's.
Hi mscshark - Over on the Yahoo mb a reference was made to investors in the secondary intentionally pushing the sp down in order to acquire more shares for their investment. I've seen this explanation offered previously in similar cases and by some fairly credible posters and it's not your typical stock excuse of "mm manipulation!". From what I've gathered it's standard operating procedure in these PIPE financings for the larger investors coming in to the secondary to deploy various strategies to maximize their current and future profits by conducting totally legal maneuvers, including shorting, which benefit them but undercut existing shareholders.
Hi ckur - From the sounds of it APDN was unable to raise their targeted amount and rather than saying that they're spinning it as though it was by choice rather than forced upon them by the market. I don't buy in that all of a sudden mgt realizes the company doesn't need the extra few million dollars. If that's really the case, then it brings into question their capacity to properly plan and manage the company's finances. Anyway, it looks like the secondary isn't quite rolling out as planned and now mgt and Maxim are conducting damage control.
Hi mcshark - I'm really impressed by your son's service AND appreciative. I can't imagine the high stakes situations that he's found himself in. It puts this stuff in a more proper perspective.
BTW they used to tell the same joke in Boston, only it was God who thought he was Bobby Orr. And as an aside, from everything I've read Orr sounds like he's shown himself to be an even more amazing individual off the ice selflessly giving his time to others and charity while deliberately staying off the news media radar screen.
I think APDN is in the midst of growing pains but will see it's way through. How long it takes is anyone's guess. GLTY
Hi wishful - I don't know if it's manipulation as opposed to rational positioning, but I tend to agree that this is going to need months - but imo perhaps the year to stabilize. It's probably going to take at least that long for the revenue picture to become clearer. In the meantime I continue to believe that another offering will be on its way which will keep the sp in more or less of a trading range. Other people have said it many times before that patience is a necessary virtue with this stock. Dr. Hayward is in this to make much more money than just his salary and now of course considerably degraded stock options. Hopefully, he and the board refrain from repricing the options at the expense of shareholders if the sp remains in the $4 range.
BTW - the gallow's humor is particulary funny today, between jumping out windows and 401k's turning into 201k's. I heard a saying that goes, "if you can't laugh at your problems, you'll have nothing to laugh about when you get old." GLTA
Pasta's idea of selling a portion of current shares to buy into the offering is probably a really smart one. If you believe Maxim will be offering a deal that's priced better than where the current sp is than it's a simple but effective way to arbitrage the difference. Kudos to pasta! GLTA
Hi pasta - That's probably true about Hayward. However, it's also sop for the book runner to call current shareholders to see if they'd like to participate. So the rep is telling the truth without completely telling the truth. lol Anyway it sounds like an interesting deal. GLTY
Hi ckur - I think we're all groping around in the dark here looking for enough data to support a confident decision about buying in at this price point or participating in the secondary. Since there just might not be enough publicly available information to accomplish that I think we'll end up in an "every man for himself" scenario where the number of shares everyone buys depends on their risk tolerance and how deep their pockets are! GLTY
Hi mcshark - It's hard not to be abstract at this point since there are so many unknown variables out there. Consequently I have to rely on my own experience and admittedly less than expert knowledge about how financings like this one play out. But as I said even if they do another share offering it could coincide with or be preceded by an announcement of a significant business opportunity(ies). In that case the market would probably overlook the incremental dilution and bid the shares up. I'm not as familiar with APDN as you and some of the others are so perhaps that's why I'm having trouble being as decisive about whether or not to jump in for more shares. GLTY
Hi ckur - You're reasoning appears to make sense. However, my gut tells me that the first offering is aimed at "cleaning house", better capitalizing the balance sheet and gaining greater exposure to the capital markets. I'd speculate that mgt has been working with Maxim on scoping out more than this one secondary and another has already been boiler plated. It'd be the exception that a company at APDN's stage of development could so quickly generate the cash flow necessary not to need other sources of capital, and bank loans, bonds or other credit facilities won't be available until they're deemed credit worthy - which means collateral and/or a reasonable history stable free cash flow (usually both).
The other factor, which has been emotionally bandied about on the Yahoo forum, is the company's decision to have 500mm authorized shares on hand for future stock/warrant/option issuances. In so doing, it would appear that management is being fairly open about the need to lean on equity financing for the time being.
As for dilution, I don't think management is particularly concerned as new investors (i.e., the ones they're most interested in at this juncture) will be able to assess the value of the stock and warrants on a post dilution basis. In contrast, current shareholders will need to purchase more shares if they want to maintain their present ownership interest in the company.
As Donald Rumsfeld might have framed it, at the end of the day I'm not really sure how to properly integrate all the available data into an actionable investing decision. lol GLTA
Hope you're right!
BTW - Does anyone know for certain why management is purchasing some/all of the warrants? I know you're speculating it has to do with ownership issues, but has there been a statement by management made to clarify the reason for the transaction? GL
Hey ckur - Thanks for your posts. They're very detailed and informative.
Here are my thoughts in more detail.
From what I can tell if the company issues the full $13.8 million which includes the green shoe option the net proceeds after deducting Maxim’s fee of $1.6 million would be $12.2 million. Then if APDN goes ahead and buys back $4 million worth of warrants they’ll have $8.2 million to deploy for operations: working capital, salaries, production, r&d, etc. The $1.8 million loan to Dr. Hayward will require another $2 million for repayment when you include accrued interest (assuming the note isn't converted into shares). However, I think the promissory note is not due for a year more or less. Therefore just based on cash in from the offering and cash out for fees, warrant buy back and loan repayment the net amount available from the capital raise for operations will be about $6.2 million ($8.2 if the prom note is converted.)
Like you, what I did not include in the above is the prospect for exercise of the newly issued warrants. If APDN’s share price goes on another run it’s possible that warrant holders will exercise their right to convert which could bring in to the company up to another $15.25 million ($17.25 – 2 fee).
However, if the share price doesn't rise sufficiently over the next year or two to motivate holders to exercise the warrants, then the management could be looking at doing another fund raise before long to cover overhead and operating needs. It's also possible that another secondary could be preceded by APDN announcing significant new business opportunities in which case the market could overlook the implied incremental dilution.
I guess this is what makes investing in an emerging micro-cap fun. GLTA
Hi mcshark - I'm remaining cautious. While this is a great opportunity for APDN it could have a neutral to somewhat negative effect on the sp for the time being. As dysfunctional as the Yahoo forum is some good points are being raised about whether another secondary will be needed sooner rather than later. Of the $13.8 million that are being raised only $8 million will put to use for the business. The rest will go to paying Maxim's fees and APDN's plan to buy back some outstanding warrants. In addition, Dr. Hayward's loan for $1.8 million plus interest will need to be repaid - which is not included in the $8 million figure. When you factor in the company's monthly funding deficits it's hard not to foresee another secondary fairly soon down the line. In addition, the way things go with these types of transactions where an investment bank assists the micro-cap get uplisted and recapatilized there's usually a follow-up offering. I think the first one tends to be used for business purposes but also to clear out debt and other obligations. And then the follow-on offering can be more fully invested in directly supporting the company's operations.
It might be worthwhile to inquire of the Maxim representative about the probability, amount and timing of any other equity offerings.
Anyway as I said I'm confident the company is taking the right steps to maximize its chances of reaching it potential. I have bought shares at $5 but am holding back until there's more visibility on the pricing of the secondary and how the company's business is holding up. GLTA
Had two good laughs this eve. First the Pee Wee reference and then your link. lol Hey don't drag me into your lover's quarrel!
Until APDN begins to announce some contracts for which a revenue number can be calculated the going might be somewhat rough going forward. Hopefully something is in the works. GL
That's pretty funny about Rambo/PeeWee. lol As for my calculations, heck I don't even trust them! But I take heart that just recently Goldman Sachs made a $100 million slip-up on the Vista/Tibco merger involving the number for outstanding shares of Tibco. So, you see, we're in good company.
http://dealbook.nytimes.com/2014/10/17/an-oops-for-goldman-sachs-in-its-advice-on-vista-tibco-merger/?_r=0
I'm actually surprised it's doing this much volume!
However, as the converted shares show up in accounts, the company uplists and the new shares are issued the trading volume is going to pick up significantly. I'd speculate that it will be doing 50k plus in a month or two (assuming uplist and secondary take place) which would be 3x its most recent average volume as an OTCBB penny stock. I don't feel as confident conjecturing where the sp will be in that time frame. GLTA
I calculate the incremental dilution on current shares outstanding as:
*2.3mm/13.9mm (assuming $6/share > $13.8mm/$6/sh = 2.3mm new shares)
= 17%
on a "fully diluted" basis (and $6/share)
4.6mm/18mm = 26% (where 18mm = 13.9 o/s shs + 4.1mm o/s warr'/options)
If the new shares are priced at $5 then the dilution increases.
2.78mm/13.9mm = 20% incremental "basic"
5.76/18mm = 32% incremental "fully diluted"
I think the calcs are relatively accurate despite some rounding out of the common/warrants/options totals.
However, I've been know to make mistakes - LOTS of mistakes - so you may want someone else to proofread the above for good measure! lol
Sorry - I didn't re-read the my last post and should have edited the following paragraph to read:
"The 13.9 figure refers only to the number of shares outstanding, meaning it doesn't account for outstanding but non-exercised warrants and options. Remember, it's also up to the investors to be aware of all APDN filings with the SEC. An "outstanding" reference to the the number of common shares on a particular date by definition would exclude non-exercised warrants, options, convertible debt, etc.
Hi ck - The 13.9 figure refers only to the number of shares outstanding, meaning it doesn't not account for outstanding but non-exercised warrants and options. Remember, it's also up to the investors to be aware of all APDN filings with the SEC. An "outstanding" reference by definition would exclude non-exercised warrants, options, convertible debt, etc.
From the S1, p.5 - "The total number of shares of our common stock outstanding after this offering is based on 13,935,954 shares outstanding as of October 17, 2014."
from the same page,
"On October 29, 2014, we effected a one-for-60 reverse split on our issued and outstanding shares of common stock. All warrant, option, share and per share information in this prospectus gives retroactive effect to the one-for-60 reverse split."
What they're saying here is that the outstanding BUT non-exercised warrants and options have been factored down by the 1for60 split.
Maybe someone else on the board could weigh in on this topic, but I'm fairly certain that the 13.9mm outstanding stat doesn't include the outstanding warrants and options, because again the term "outstanding" when referenced with the company's shares has to exclude any non-exercised equity instruments.
I'll see about emailing the company, but to tell you the truth I'm pretty comfortable with my conclusion in the absence of any other data to the contrary. How's that for lazy? lol GL
Yes. I saw that too. I don't know why that 814 figure is labeled "basic and diluted".
From the last 10-K "As of December 16, 2013, we had 805,350,028 shares of common stock issued and outstanding and outstanding options and warrants to purchase 231,874,090 shares of common stock."
And from the last 10-Q 827,332,292 (non-weighted) common shares are listed as of June 30, 2014. And from that same filing I calculate there to be a total of 251,288,850 outstanding warrants (56,558,878) and options (194,729,972) which I drew from a couple of accompanying tables.
Therefore, I'm thinking as of June 30, 2014 there were a total of 827,332,292 common shares outstanding + 251,288,850 outstanding warrants and options which add up to 1,078,621,142 fully diluted shares.
so 827,332,292/60 = 13,788,872
and 1,078,621,142/60 = 17,977,019
if so then incremental basic dilution would be..
2.3mm/13.8mm = 16.7%
and incremental dilution on a "fully diluted" basis would be...
4.6/17.98 = 25.6%
What do you think?
Hi ckuratz - If you include new warrants in the numerator to calculate incremental dilution, I believe you'd also have to include the current outstanding non-exercised warrants and options in the denominator to be consistent. If so, the incremental dilution based on all outstanding common shares plus non-exercised warrants and options would be less than 33%.
So the numerator would still be 4.6mm (i.e., incremental common/warrants) but the denominator would increase by the number of currently outstanding by non-exercised warrants and options.
Using your numbers, one calc for incremental dilution would be:
2.3/13.9 = 17%
Another calc would be for an incremental "fully diluted" scenario:
4.6/? (don't have the energy to look up the numbers but it'd certainly be larger than 13.9) = X%
Did I twist this all up or does it make sense? lol
I think it's customary for the warrants to price 25% above the common. So does this mean if the common is offered at say $6 the warrants will be priced at $7.5 and then the number of respective shares for each are just determined by backing the two prices into the $13.8 and $17.25? 2.3million common shares and the same for the warrants? This is all pretty new to me. TIA
I don't think the uplist is in jeopardy. To fail to do so would be hugely embarrassing for Maxim. I'm sure they'll be doing everything legally possible to make certain APDN gets listed to one of the big boards.
I think you're right. It sounds like you have a better handle on it that I do!
Does the $17,250,000 refer to the proceeds that would go to apdn if/when the warrants were exercised? The $13,800,000 is immediate dilution while I'd think the warrants represent potential future dilution if they're exercised. Not sure.