Quote, "I had chance to go over the offering. Is my understanding correct below?
Not quite- there's a few math errors in the calculations. Everything is correct about the initial share price paid (except it leaves out steep up front underwriter discounts and "fees" which skim cash off the top on the front-end of the deal) and the total end dilution share number is good, but a few basic errors are made-
The major error is made in the following manner:
Quote from original poster's "analysis":
"1. So for each share purchase, the buyer receives a warrant to buy 1/2 share.
2. If all warrants are executed, the total number of shares from this offering would be 5.5. + 2.75M = 8, 250,000.
3. Again, if all warrants are executed that would mean the net price paid for offered shares would be 30M / 8, 250, 000 = 3.63 per share. (approx.)
4. If warrants are all executed, the total increase in post common shares from the current offering will be 8, 250, 000. "
Item 1 is correct.
Item 2 is correct. That would be the ultimate dilution number. OK so far.
Item 3 is where the major error occurs.
a) The original 5.5 million does NOT "net" Ocata $30 million. There's gonna be a large front end underwriter "discount" plus large front-end fees. The actual "net" in the bank account of OCAT is probably about $28 million tops.
b) The item 3 again is in error in that it fails to account for the cash that OCAT will receive when the warrants get exercised. A warrant is a "right to buy" a share of stock at a set price. So OCAT receives cash IF the warrants are exercised. Thus 2.75 million shares at $7.48 per share (the warrant strike price) will net OCAT about 2.75 mil X $7.48 = $20,570,000 bucks in the bank.
Thus, the correct analysis is as follows:
About $28 million initially + about $20,000,000 when/IF warrants get exercised = approx $48 million to OCAT for issuing 8.25 million dilution shares:
$48,000,000 / 8,250,000 = $5.81 a share max
BUT, and this is why the stock has taken such a royal drubbing- is how warrants are used by the "big boy" HEDGE FUNDS who are who buys the shares when the underwriter's sell these weak secondary deals. The hedge funds DO NOT and DO NOT CARE a wit about buying and holding any OCAT stock- they will flip the dilution shares right back into the market as free trading. ALSO, they can and usually will run various SHORT SELLING SCHEMES (as described in the share registration- so it's 100% legal, including naked shorting) - and THAT is why "warrants" get issued in these crappy grade secondary deals to cash poor, cash desperate companies like OCAT.
The hedge funds will use the warrants- as shares in part of their short selling schemes, usually as a way to get shares to cover positions later and they don't care what "price" they are at- as that's not how the shares will be used.
The warrants are known as "kickers" or "sweeteners" in these low end deals- as they help the underwriters/hedge buyers make more money on the secondary to the detriment of the common shareholders. Google it- it's a well, well known "play" on Fraud Street weak secondaries. NO cash strong or financially healthy company would need or allow those warrants on their offering- they're "toxic" essentially.
That's it in a nut shell IMO. The price is being driven down as that is where the hedge buyers who are the behind the scenes purchasers of these secondary shares want it and need it to make their big bucks. They're in total control of the share price here now- likely for some time to come now until all the dilution shares get "worked out" through the system and into the free market and all the shoring that's already occurring and will occurs gets completed etc IMO and from seeing these deals so many times prior.
Biggest issue- is OCAT is still WAY CASH LOW to try and fund a large phase II plus carry their overhead bloat/burn rate spending- this really only amounts to about 6 months or so of real cash if they ramp a phase II in any serious way, then RIGHT BACK TO THE NEXT DILUTION SECONDARY, ROUND 2, I'd guess before 2015 is even over- late in the year probably.
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