My take
The magnitude of the increase does look alarming, but a few points to consider.
1. Can't run a business with A/S maxed out. I was hoping they would buyback some stock to address the issue, but they clearly need more money for something, most likely one or more deals. I was thinking they'd increase it to 3-4bn, but I'm in the dark as to the rest of the plan that Mark alludes to.
2. Had to address the convert and default provision that they put on the balance sheet on the last 10-Q. That provision was due to having insufficient shares. Remember the following from the last 10-Q:
Additionally, at July 31, 2018, the Company was in default with respect to certain convertible notes as a result of not having sufficient shares of common stock available for issuance upon the conversion of such notes and certain cross-default provisions. The default provisions include 1) default interest rates ranging from 18% to 24% per annum, 2) daily fixed dollar penalties, and 3) an increase in the total amount due calculated by multiplying the aggregate of the then outstanding principal amount of the note, together with accrued and unpaid interest thereon, plus default interest and fixed dollar penalties by 200%. As of July 31, 2018, the principal amount of the notes together with interest accrued thereon and penalties totaled $855,398, consisting of $793,327 of default principal and $62,071 of default interest.
They also have the Monaco note coming due at the end of this month. So, to address all of that and reverse the provision of ~$800k they booked in the last 10-Q, they had to increase authorized shares so auditors would sign off.
3. M&A. Clearly, equity is their vehicle to do deals. Need shares for that. A central question will be how much of the backlog they can unlock now with some flexibility on the equity front. In addition, how much additional revenue can they book now? Anshu has made it clear in PRs that he wants to maximize growth. Unfortunately, that's entailed dilution at awful prices, and it curbs the upside, but there's still a lot of upside potential.
4. They need to PR the reasons for the increase much like Mark indicated in his emails. That needs to be broadly disseminated by Anshu to boost confidence.
I'm not arguing that the stock won't be down on Monday, particularly at the open and in the absence of an explanatory PR. Don't ping me with obvious statements in that regard. I'm trying to make sense of what transpired in that filing.
