MattG...I understand the frustration with the share price, but the drop is hardly commensurate with the level of dilution. I don't have the exact figures on the level of dilution since the R/S, but the stock price itself has dropped 80% and I know that the level of dilution is multiples less than that.
So what's wrong? IMO, it's a matter of investor confidence being at an all time low. The company needs to sell shares to gain capital, but there are few willing to purchase given the history of the share price. Pretty simple really, but it has lead to a decline in share price that far outstrips the actual level of dilution that has occurred.
And I have my own reservations about DNAPrint management, but the Biofrontera deal is not one of them. In fact, I doubt many of the posters either here or on RB understand what DNAPrint pulled off in that deal.
DNAPrint has funded itself from the beginning by selling shares of the company on the open market. The company has had no appreciable assets against which to garner either conventional loan financing or to float a bond. In the absence of revenues (typical for startup companies) and physical assets, they have had little choice but to fund the company the way they have.
So now consider what management just did. They purchased 18% of Biofrontera for $1.84 million. They now hold a total of 455,324 common shares of Biofrontera. Biofrontera, in turn, just floated high yield convertible bonds valued at approximately $25,000,000 (20,000,000 euro) in exchange for 8% interest on the bonds and a fixed conversion priviledge that will equate to 33% of the company shares if exercised.
For those that don't know, those convertible bonds are not the same as the convertible debenture financing DNAPrint is using. Those Biofrontera bonds are basically a loan with a five year duration that can be converted to a fixed number of company shares if such a transaction makes economic sense for the bondholder. In order for it to make economic sense to convert, the post IPO Biofrontera shares will have to be trading above $20/share.
If Biofrontera doesn't IPO, the only option the lenders have is Biofrontera's commitment to pay back the bonds at the end of the five years. That's a pretty big risk that was just taken by bondholders, and the institutional investors that bought those bonds don't generally risk that kind of money unless they're fairly certain they'll see it returned.
But what does it mean for us? It means we bought 18% of Biofrontera for $1.84 million and the Institutional Investors bought 33% for $25 million. Our shares cost us about $4.00 each. Their shares cost them about $20.00 each. But regardless of what either of us paid, our shares are equal shares, so if/when Biofrontera IPO's (and if you saw mingwan0's post on NapHeadsII you know that is their intention), our shares will represent an approximate $9,000,000 asset on our books.
If DNAPrint had a book value in the range of $9,000,000 to $10,000,000, the current share price would look even MORE rediculous than it already does. For example, Orchid trades at about 4 times P/B, Gennaisance trades in the same range, Sequenom trades around 1.25. With $9,000,000 in assets, a P/B of 1.0 would have us trading around $.11/share, which isn't much but is worlds better than where we are now.
Secondly, as DNAPrint gains assets their credit quality will improve which will help open up other avenues for financing.
Trust me, I look forward to the end of dilution as much as you do. But IMO, the recent share price decline is out of line with the level of dilution we've experienced, and as people come to realize that management is adding real value to the company, it'll begin to look more attactive to potential investors.
Of course, this is JMHO. Please do your own due diligence and make your own investment decisions.
Everyone have a great Labor Day holiday and may blessings go out to those that may be struggling to cope with the aftermath of the hurricane.
Later,
W2P
