RXSF DD in a nutshell, and it's HUGE!
If we are going to speculate let’s have some fun with words, especially when it comes to funding. There are 2 schools of thought here, those that believe a Wall Street Blue Chip Investment Banking firm commitments mean something versus the typical run of the mill, OTC scam type company traders that don’t.
Seems that some posters focus on the “wording” to mean it’s “not definite”, or it’s just a pipe dream or a promise. Others seem to understand what words mean in context as it relates to funding this company and the bankers commitment’s. So let’s explore.
Some have focused on the term “up to” as if it indicates indefiniteness. It could be that, OR it could mean many other things. You have to read the wording in the Q with the CEO shareholder letter to see the bigger picture that puts these words into context.
In the first agreement, the company will get “up to” $1 million in funding. OK. The CEO has now indicated that funding is coming in a non-dilutive form. So reasonable business people would first look at the word “up to” to mean the exact amount hasn’t be established yet, but the company will get up to (and maybe even more than ) $1 million in short term non-dilutive funding. We know the CEO has said that the money is being used to retire ALL debt of the company and to provide it with operating capital until a larger raise is done. That could take some time to determine how much short-term money the company will need. That’s fairly simple. It’s not a PIPE as some have speculated, because that would be dilutive, and that’s not what the CEO said. Its non-dilutive and that means its NOT equity based or convertible into equity. Scratch that argument off the table for now.
Then there’s the “up to” $15 million for acquisitions. That's been further defined by the company now as a credit facility that’s “in place” from the bankers, to use to acquire growing companies. That means its definitely there for the company. The “up to” in plain language tells me that neither the bankers nor the company know exactly how much they will need, so the banker has already established a credit facility RXSF can use to acquire other companies. Acquisition funding comes in the form of loans to the company by bankers. There may be some stock involved but usually an acquisition transaction is cleaner when it’s paid for in cash and much easier to book to the balance sheet. To me, that seems the only logical explanation if this company is looking to up-list.
So in phase 1 and 2 RXSF can have up to $16 million in funding in non-dilutive long term debentures (as is with most every acquisition funding offered by bankers to NASDAQ and NYSE companies), meaning there will be $16 million in debt on the company’s books and no shareholder dilution. That is until phase 3.
Now, a Confidential Memorandum Public Offering, by definition, is underwritten and sponsored by a banker. In addition, the company said it will be underwritten by the banker. That’s as plain language as you can get. Again, we have “up to” language. So what does that mean? Is it indefinite, I'd say no. Up to now the banker doesn’t know exactly how much will be set aside or needed until the offering documents are prepared. A CMPO is pre-sold by the underwriter, filled, subscribed, and then released the day the company is trading on a national exchange! But how you wonder?!? Now see if investors can follow me because this is where the the price per share and current trading volume is irrelevant, and I mean totally!
A CMPO is valued on an “enterprise” basis, not based on trading history, because there are plenty of OTC companies with ZERO revenues for 15 years, yet have market valuations based on stock trading over $20 million. Makes no sense to me either, but that’s what you get on the OTC. Just like the CEO said, it will be based on a new consolidated enterprise value. Not upon stock painting, bashing and pumping on the OTC.
So the CMPO is valued based on the newly expanded enterprise and is given a value by the bankers (not by daytraders, investors, etc) based on revenues, EBITDA, products, IP, industry assessments, etc, NOT price per share!!! The bankers then underwrite the CMPO and then pass it around to their NASDAQ and NYSE broker friends to fill it. The price is set by the banker, not the market! So those trying to find anything wrong with this deal already lost. Can’t point to price per share or trading volume as any indication if this is good or bad, no one knows about this stock, not yet anyway.
The banker then files a listing application for the newly expanded RXSF enterprise, underwrites the deal, writes the check to the company, and it starts trading the day after NASDAQ approval on a national exchange. This is usually done through a S3 filing. A S3 filing only takes about 3-5 days to approve by the SEC once filed so the process will happen at lightening speed when it does.
My conclusion:
Personally, I think it’s a brilliant. The company is not subject to OTC trading value setting its price per share, it gets long-term debt to clean up its books and acquire companies, then it gets a boatload of cash via the offering and pays off the long term debt leaving it with about $24 million in cash to go play with the big boys, besides the positive generating EBITDA revenue from the acquisitions.
It prevents unnecessary shareholder dilution from the $16 million since its non-dilutive and it doesn’t rely on any previous stock price. The acquisitions provide consolidated revenues, positive ($10’s of millions) in shareholder equity, and a bunch of new shareholders who are NASDAQ/NYSE quality investors from the CMPO.
Let’s include a few other little tidbits. Wellington Shields has over $2 BILLION under management in house. As a NYSE banker, it takes huge positions in NASDAQ and NYSE companies. It has highly regarded research analysts and has almost a 100 year history as a NYSE banker. It’s a very conservative, blue chip firm and only does a handful of these types of deals every couple of years.
So why RXSF? I think Wellington Shields just proved mine, Cheeky’s, and others DD was spot on.
I am sure some will point to any minimal market reaction as being a failure. I see it as being exactly what the bankers want, not to be bothered with the OTC, I can't blame them. It’s a hard pill to swallow in the OTC cesspool where everything lives or dies by price per share and trading volume.
See you on a higher exchange, with multiple acquired profitable companies here, a load of cash, no debt and a huge following of high class investors.
RXSF & 2016, a year to remember.
