Friday, June 06, 2008 1:18:13 PM
More on S-3 vs. S-3/A
I’ve spent some time trying to understand the difference between the S-3 and S-3/A “funds-needed” estimates. As Robert mentioned this as a possible SHM question, I’m going ahead and posting it. I should probably spend more time double checking the figures and trying to make it clearer, but it’s Friday and I’ve been working on it too long already.
SUMMARY
First of all, I see now that funds-needed estimates have appeared in each 10Q and 10K. These are helpful in putting the current estimates in context.
Secondly, my analysis in post #165620 was completely wrong because 1) It did not include cash-on-hand, and 2) It did not focus as it should have on the change in period covered by the estimates (January – December 2008 in the S-3 vs. June 2008 – May 2009 in the S-3/A). The change in date range is the primary cause of the change in numbers, as Jan-May 2008 falls off the date range and the same period in 2009 comes into range. There also appears to be about a $2 million change in near-term expectations.
DETAILS S-3 vs. S-3/A
The S-3, filed 4/18/08, was based on the 2007 10K, filed 3/17/08. This is the 10K information:
Cash-on-hand at 12/31: $3.714
Counting net proceeds from the PP in late February ($3.3 million), they estimated to have sufficient funds into June 2008.
Total Funds Needed for January – December 2008
Cash + PP + Estimated Additional Funds:
3.7 + 12.7 = 16.4
The S-3/A, filed 5/30/08, was based on the Q1 10Q filed 5/12/08. This is the Q1 2008 10Q information:
Cash-on-hand at 3/31: $1.476
Still estimated to have sufficient funds into June 2008
Total Funds Needed for April 2008 – March 2009
Cash + Estimated Additional Funds:
1.5 + 8.1 = 9.6
The S-3/A changed the date range that was used in the 10Q from April 2008 – March 2009 to June 2008 – May 2009, but the numbers are based on the 10Q numbers. This is the 5/30/08 S-3/A information:
Cash-on hand: Not provided, but we can assume it is the $1.6 raised on May 23rd
Estimated to have sufficient funds into July 2008
Total Funds Needed for June 2008 – May 2009
Cash + Estimated Additional Funds:
1.6 + 6.5 = 8.1
(Note this is the 8.1 of the 10Q without the – now used-up – cash on hand at 3/31.)
PREVIOUS FUNDS-NEEDED ESTIMATES
To put these estimates in context, I went back to look at some previous funds-needed estimates. The estimates cover the 12-month period following quarter-end, except for the S-3/A, which, as said above, covers June 2008 – May 2009.
Notice how the estimates started to come down with the Q2 2007 10Q. This report was filed last summer, when Dell had just introduced the Seagate FDE’s. It looks like Wave was expecting a slow, but strong ramp of FDE sales. They were estimating they could get through Q1 2008 with funds-on-hand ($12.5 million).
In the Q3 2007 10Q they were still feeling positive and still estimating they could get through Q1 with funds on hand ($7.8 million). This outlook seems to align pretty well with what SKS was saying in the Q3 CC.
Then in the 2007 10K for Q4, filed on 3/17/08, (and repeated in the S-3 filed on 4/18) the estimate bounced back up to $16.4 million. This presumably was due to the disappointing Q4 calling into question the pace of the FDE ramp, plus the anticipation of increasing expenses.
Then in the Q1 2008 10Q, with Q1 behind them, the estimate was reduced considerably, from 16.4 to 9.6. That would make sense as they look into 2009. (This was reflected in the S-3/A.)
QUARTERLY CASH USAGE BASED ON YEAR-LONG FUNDS-NEEDED ESTIMATES
Below I’ve broken down the year-long funds-needed estimates into possible quarterly scenarios. This may be overkill, and difficult to follow, but FWIW.
* Some of the details make this a bit difficult. For example, the 2007 10K said they could get into June with $7.0 million, and the Q1 08 10Q continued this, saying they could get into June with the $1.5 million cash left on hand at 3/31. Neither of those projections seem realistic. Maybe there was an expectation of some warrant exercises. Anyway, I went ahead and used those estimates because otherwise the subsequent quarters would not reflect what they were saying about the full year.
When they raised $1.6 million in the May PP, they said that 1.6 would add about a month to the length of time their cash would last. That implies a $4.8 million shortfall for Q2, which seems closer to reality.
I’ve spent some time trying to understand the difference between the S-3 and S-3/A “funds-needed” estimates. As Robert mentioned this as a possible SHM question, I’m going ahead and posting it. I should probably spend more time double checking the figures and trying to make it clearer, but it’s Friday and I’ve been working on it too long already.
SUMMARY
First of all, I see now that funds-needed estimates have appeared in each 10Q and 10K. These are helpful in putting the current estimates in context.
Secondly, my analysis in post #165620 was completely wrong because 1) It did not include cash-on-hand, and 2) It did not focus as it should have on the change in period covered by the estimates (January – December 2008 in the S-3 vs. June 2008 – May 2009 in the S-3/A). The change in date range is the primary cause of the change in numbers, as Jan-May 2008 falls off the date range and the same period in 2009 comes into range. There also appears to be about a $2 million change in near-term expectations.
DETAILS S-3 vs. S-3/A
The S-3, filed 4/18/08, was based on the 2007 10K, filed 3/17/08. This is the 10K information:
Cash-on-hand at 12/31: $3.714
Counting net proceeds from the PP in late February ($3.3 million), they estimated to have sufficient funds into June 2008.
Total Funds Needed for January – December 2008
Cash + PP + Estimated Additional Funds:
3.7 + 12.7 = 16.4
The S-3/A, filed 5/30/08, was based on the Q1 10Q filed 5/12/08. This is the Q1 2008 10Q information:
Cash-on-hand at 3/31: $1.476
Still estimated to have sufficient funds into June 2008
Total Funds Needed for April 2008 – March 2009
Cash + Estimated Additional Funds:
1.5 + 8.1 = 9.6
The S-3/A changed the date range that was used in the 10Q from April 2008 – March 2009 to June 2008 – May 2009, but the numbers are based on the 10Q numbers. This is the 5/30/08 S-3/A information:
Cash-on hand: Not provided, but we can assume it is the $1.6 raised on May 23rd
Estimated to have sufficient funds into July 2008
Total Funds Needed for June 2008 – May 2009
Cash + Estimated Additional Funds:
1.6 + 6.5 = 8.1
(Note this is the 8.1 of the 10Q without the – now used-up – cash on hand at 3/31.)
PREVIOUS FUNDS-NEEDED ESTIMATES
To put these estimates in context, I went back to look at some previous funds-needed estimates. The estimates cover the 12-month period following quarter-end, except for the S-3/A, which, as said above, covers June 2008 – May 2009.
Quarter Cash PP Additional Total
Q2 2006: 1.9 + 4.4 + 10.6 = 16.9
Q3 2006: 3.1 + 9.1 + 5.6 = 17.8
Q4 2006: 8.0 + 11.5 = 19.5
Q1 2007: 2.6 + 15.6 = 18.2
Q2 2007: 12.5 + 2.7 = 15.2
Q3 2007: 7.8 + 4.7 = 12.5
Q4 2007: 3.7 + 3.3 + 9.4 = 16.4
Q1 2008: 1.5 + 8.1 = 9.6
S-3/A: 1.6 + 6.5 = 8.1
Notice how the estimates started to come down with the Q2 2007 10Q. This report was filed last summer, when Dell had just introduced the Seagate FDE’s. It looks like Wave was expecting a slow, but strong ramp of FDE sales. They were estimating they could get through Q1 2008 with funds-on-hand ($12.5 million).
In the Q3 2007 10Q they were still feeling positive and still estimating they could get through Q1 with funds on hand ($7.8 million). This outlook seems to align pretty well with what SKS was saying in the Q3 CC.
Then in the 2007 10K for Q4, filed on 3/17/08, (and repeated in the S-3 filed on 4/18) the estimate bounced back up to $16.4 million. This presumably was due to the disappointing Q4 calling into question the pace of the FDE ramp, plus the anticipation of increasing expenses.
Then in the Q1 2008 10Q, with Q1 behind them, the estimate was reduced considerably, from 16.4 to 9.6. That would make sense as they look into 2009. (This was reflected in the S-3/A.)
QUARTERLY CASH USAGE BASED ON YEAR-LONG FUNDS-NEEDED ESTIMATES
Below I’ve broken down the year-long funds-needed estimates into possible quarterly scenarios. This may be overkill, and difficult to follow, but FWIW.
Quarter-to-quarter cash usage estimates:
2007 2008 2009
Q3 Q4 Q1 Q2 Q3 Q4 Q1
Q2 07 5.0 4.0 3.5 2.7 (12.5 thru Q1)
Q3 07 4.5 3.3 2.7 2.0 ( 7.8 thru Q1)
Q4 07 & S-3 5.0 3.0* 4.5 3.9 ( 7.0 into June)
Q1 08 2.3* 3.5 2.5 1.3 ( 1.5 into June)
S-3/A June: 1.6* 3.5 2.5 0.5 ( 1.6 into July)
* Some of the details make this a bit difficult. For example, the 2007 10K said they could get into June with $7.0 million, and the Q1 08 10Q continued this, saying they could get into June with the $1.5 million cash left on hand at 3/31. Neither of those projections seem realistic. Maybe there was an expectation of some warrant exercises. Anyway, I went ahead and used those estimates because otherwise the subsequent quarters would not reflect what they were saying about the full year.
When they raised $1.6 million in the May PP, they said that 1.6 would add about a month to the length of time their cash would last. That implies a $4.8 million shortfall for Q2, which seems closer to reality.
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