Summary of the recent offerings
I am not a fan of the way the company has raised capital in the last two offerings, but I understand the necessity. The first offering (ie. the one in early January) was intended to cure the Nasdaq minimum equity requirement in my opinion. In fact, pro forma for that offering, the equity balance was over $4mm (needs to be over $2.5mm) and the cash balance was over $7mm (that's prior to the Redpath payment of $1.3mm at the end of December). In my opinion, and I'm attempting to verify this but the company sent me over to Redchip Investor relations to get my questions answered (still waiting to hear back), they wanted to cure both the stock price and shareholders' equity issues close to simultaneously. That said, I thought it was amateurish to halt the stock minutes before the end of trading when they could have allowed the stock to rise some after the BCBS news and probably sold stock in the double digits. I'm sure Maxim Group gave them bad advice that they had to give institutions a huge concession to buy the stock. I would have told them (I have over 20 years experience in the capital markets as an investment banker and securities analyst) to use an ATM with a set number of shares to be issued. Use the volatility to your advantage. In my opinion, the institutions that buy in these offerings are merely one step above day traders, but I hope I'm wrong in this case.
The second offering was clearly to address the severance liability. While I don't like them doing an offering on the same day that positive news is released (can they give the stock a chance to reflect the information!), the rationale behind the offering is actually quite sound. They took care of an overhanging liability for only 35% of carrying value. If you're familiar with basic accounting, this means that they can book a gain on on the extinguishment of the liability. Now the book equity should be over $8mm even assuming some losses in Q4.
What they should have done, assuming they knew that the Israeli deal was close to signing, was let the stock price reflect the BCBS and Best Med deals. In my opinion, the stock would have settled in the mid teens (went to almost $20, split adjusted, after the Aetna deal) and then raised equity in the low double digits. Moreover, shops like Maxim always seem to make companies offer warrants in these deals. Presumably it's to increase institutional ownership further, but they should have just done an ATM offering in my opinion. Take advantage of the volatility of the stock price to capture the capital required at less dilution.
That all being said, we're still talking about a company with less than 4mm shares outstanding and now likely over $8mm in cash. Moreover, they shouldn't have to raise more equity for quite a while (can even cover the next RedPath payment in early April).
I think and intend to communicate via RedChip that they should put out a press release stating the current cash position (that doesn't require closing the books) and perhaps an outlook given recent developments. At the very least, tell the market that they have sufficient cash to cover obligations for the next few months (which they do).
If you really care, I would send IR an email and call RedChip Investor relations. Jack Stover is also on LinkedIn...
