AI
Sunday, October 26, 2008 10:13:38 AM
I think it probably is a carry over from "vapor" stocks that people may have the misconception that companies are created from thin air and the founders issue themselves millions of shares of stock for voting "present" at the first board meeting. I have seen cases where hundreds of million shares were issued for nothing more than a business plan.
The founders preferred shares in real companies are issued for the property and cash put into the business. Deep Down Inc. was a profitable ongoing company that R/M'd into a public shell with property, equipment, inventory, existing clients, and all of the incidentals that take time to get established. Preferred shares by definition carry a preferred claim on assets in case of liquidation.
Taking a company public has risks above what a private company has. The preferred status can be viewed as an "insurance policy" on the success of the move.
In the case of Smith/Budrunas, the shares were redeemed for common which surrenders the first claim on assets. Removing the preferred shares is beneficial in the sense that when financing acquisitions, lenders will not see other creditors being senior to them in case of default.
Looking back at the balance sheet at the time of the redemption before and after the event will show where the changes are in shareholder equity.
It is good to note that shareholder equity has increased during the 12 month period of June 07 to June 08 from -0.8M to 52.8M.
I don't have my other DPDW notes on this computer, maybe someone else can add to this.
I am a JOE (plumber or 6-pack, take your pick)
- POWERZONE - a mixture of pattern and chaos
The founders preferred shares in real companies are issued for the property and cash put into the business. Deep Down Inc. was a profitable ongoing company that R/M'd into a public shell with property, equipment, inventory, existing clients, and all of the incidentals that take time to get established. Preferred shares by definition carry a preferred claim on assets in case of liquidation.
Taking a company public has risks above what a private company has. The preferred status can be viewed as an "insurance policy" on the success of the move.
In the case of Smith/Budrunas, the shares were redeemed for common which surrenders the first claim on assets. Removing the preferred shares is beneficial in the sense that when financing acquisitions, lenders will not see other creditors being senior to them in case of default.
Looking back at the balance sheet at the time of the redemption before and after the event will show where the changes are in shareholder equity.
It is good to note that shareholder equity has increased during the 12 month period of June 07 to June 08 from -0.8M to 52.8M.
I don't have my other DPDW notes on this computer, maybe someone else can add to this.
I am a JOE (plumber or 6-pack, take your pick)
- POWERZONE - a mixture of pattern and chaos
It seems a bit rough lately.
