Can someone check my math. I looked more at the S1 offering and I'm a little more concerned now than I was before. Actually, a lot more concerned.
So here are some basic stats using the current share count and $0.17 for the price per share. I'm using 0.17 because it's around where the price has been hovering lately.
Current Shares Current Price
854,410,000 $0.1700
Split Ratio 1:X 10 20 30 40 50 100
New Total Shares 85,441,000 42,720,500 28,480,333 21,360,250 17,088,200 8,544,100
I realize that a reverse-split itself does not affect the value of my holdings. If I have 100 shares at 0.17, I have $17. If it splits 10:1, I have 10 shares at $1.70, so I still have $17. This is not my concern, so please don't start a debate about that.
My concern is what happens after the offering sale of shares, and the amount of dilution that it will cause. Let's just use the listed offering amount of $10 million at an offering price of $5.25 (the middle of the $4.25 to $6.25 range they are suggesting).
After Offering Sale at $10 Million of Shares Sold at $5.25 (1.905 million shares)
% Share Dilution 2.23% 4.46% 6.69% 8.92% 11.15% 22.29%
New Total Shares 87,345,762 44,625,262 30,385,095 23,265,012 18,992,962 10,448,862
You can see here that when using a 40:1 r/s, there will be 8.92% of share dilution. This is what I have been modeling my future holdings on. So if I have $50,000 worth of KBLB now with 854 million shares (21.36 million post-split), after adding 1.9 million shares, my $50,000 is now worth roughly $45,540. For those saying "no, your $50K worth of shares is still worth $50K", that's not true because the market cap doesn't change because of the r/s, but the number of shares that it's divided between increases by 9% after the new shares from the offering are added, thus decreasing my percentage of the new total number of shares by 9%. This is why the stock price usually drops after a new share offering completes (or sometimes as soon as it's announced).
Ok, so now to my point. I've been modeling a 9% drop in my holdings value after a 40:1 split and a sale of $10 million of shares at $5.25. But since the potential ratio was increased from "Between 10:1 and 40:1" to "Between 10:1 and 100:1", now I have to model 50:1, 75:1, or even 100:1 r/s as a possibility. With a 50:1 r/s, after adding 1.9 million new shares, my $50,000 would then be worth $44,425. But with a 100:1 r/s, after adding 1.9 million new shares, my $50,000 would then only be worth $38,855. That's an immediate drop of 22%!
That's not my only concern. What if the offering price is $4.25 per share? Then they're adding 2.35 million new shares instead of 1.9 million new shares. That increases the dilution even further. At a 40:1 split, my $50K is worth $44,490. At a 100:1 split, my $50K would then only be worth $36,230. That's an immediate drop of 28%!
It gets even worse. The S1 says that they could potentially sell 15% more than the $10 million of shares due to allowed overages. So if they sell $11.5 million of shares at $4.25 each, after a 100:1 r/s, my $50K is now worth only $34,165, or a drop of 32% overnight! These are worst-case numbers, I think.
I know that no one knows what the offering price or the r/s ratio will be, but now I'm looking at potentially losing up to 32% of my holding's value as soon as the r/s & offering are done? Can someone verify or dispute my calculations? If they are accurate, why would I not just sell everything I have now, wait for the stock to drop 10-30% after the offering, and buy the shares back later at a lower price. Or buy more shares back for the same $50K value I had pre-offering?
