Breckenridge gave Fonix $1.5 million for use in operations and secured payment by using a debenture of 46,296,296 shares of common stock. There were 83,333,333 shares put up as collateral to ensure performance. Fonix has paid back $400,000 and reduced the debentures by 12,345,679 shares. Fonix has to make payments of:
1/17/03 100,000 0.0324 3,086,420
1/24/03 150,000 0.0324 4,629,630
1/30/03 150,000 0.0324 4,629,630
2/18/03 350,000 0.0324 10,802,469
3/20/03 250,000 0.0324 7,716,049
4/20/03 250,000 0.0324 7,716,049
5/11/03 250,000 0.0324 7,716,049
1,500,000 46,296,296
If all payments are made, the debentures will expire sometime in May 2003. Breckenridge received 7,777,778 shares as interest on the 1.5 million. Breckenridge also received 9,503,333 shares from the collateral shares for revising the re-payment schedule. Therefore, Breckenridge has a total of 17,281,111 shares to sell in the open market. Breckenridge can only hold 4.99% of the 600,000,000 shares, all the rest have has to sold. The most shares Breckenridge can have for sale is 30 million shares. Since 1/17/03 approximately 150,000,000 shares have been traded.
The price per share dropped, which was due to heavy selling prior to the S-2 filing. It cannot be determined if Breckenridge has sold since or not, but with the heavy volume and continued price drop, I assume continued dilution by the Breckenridge sales.
Because Fonix has sold all its registered sales, Fonix has no shares to sell prior to the 1/28/03 S-2 filed with the SEC. The only dilution can come from shares held by Breckenridge or default by Fonix not making the re-payment for the $1.5 advance. The S-2 states that all payments are being made.
Where is the cash flow coming from to make the payments? Would a company borrow $1.5 and then use that money to repay? I think Fonix has money coming in from sales. They have operating cost of approximately $3 million a quarter (reduce costs by 50%) and paying Breckenridge for this quarter $1 million and operations 3 million equals 4 million for the 1st quarter 2003.
If the sales are $4 million for the 1st quarter, this equals $16 million for the year. If costs are 3 million a quarter, then cost for the year would be 12 million plus the 1,5 to Breckenridge or 13.5 million. If I have estimated correctly and absent a curve balls, I would expect $2.5 million in profit for this year.
If a 40 to 1 R/S goes through, then this equals a $.17 earnings per share. If Fonix can become re-listed and if the PPS is 20 time earnings, I estimate Fonix will be trading at $3.40. If an investor invested $2,000 and bought 100,000 before the R/S and would have 2,500 share after the R/S or $8,500 (2,500 x $3.50) on a $2,000 investment.
Until next time.
