Agreed. I posted this last night, but here are my reasons again for voting no.
After careful consideration, I will vote my 2M CERP shares AGAINST the proposals that are up for vote next month. I would, however, vote for modified proposals that, in part, limited the R/S to a ratio not to exceed 1:10. That said, considering the company's O/S has increased from about 32M to 282.4M shares in short order and that the toxic financiers - who have likely demanded CERP's board to recommend the proposals - hold a comfortable majority of the current O/S, I'm not overly optimistic that the three proposals will be rejected. If so, it's anyone's guess where this investment is headed.
In my humble opinion, the only benefit of an R/S is to increase the PPS to an amount that would hold consistently above $1 in order for CERP to regain and hold its seat on the NAS. If the company was to simply let its performance and the normal course of the market lift the PPS to $1, it may take too long for the company to reach the required revenues (e.g., a little below $40M in revenues). Based on my review of the company's financials, the most it has ever earned in annual revenues is $20M in 2011. (To respond to any arguments that the PPS traded well above $1 with even less than $20M in revenues, remember that at the end of FY11, the O/S was only 31,925,334 - since then, CERP's toxic financing has significantly increased the O/S to about 282.4M (almost an 800% increase).)
In addition, many institutions are precluded from buying a stock priced below $5 and many others must wait for a stock to hit at least $10. With about 300M shares outstanding -- we will get there soon and probably higher with warrants, options, stock-based compensation, and maybe more financing -- the revenues to justify a stock price of $5 are about $186M and $10 are about $377M. I believe even the most faithful and optimistic longs here believe CERP is a very long way from hitting those numbers. So, despite my internal beliefs that the company should earn its way to $1, $5, and eventually $10, I believe it needs a little boost to get there. A reasonable R/S may very well be the vehicle to provide that boost -- just not a 1:50 R/S -- which I strongly believe will be toxic and result in significant dilution to appease the toxic financiers. (And, yes, I fully understand that this proposal would only give the board the authority to execute up to a 1:50 R/S, which does not necessarily mean it would go that high. I'd prefer, however, to keep their authority in check with a reasonable limit, say 1:10.)
Instead of the 1:50 RS, which would require less than $1M in annual revenues to justify a $1 PPS, I would vote yes for a 1:10 R/S. Rounding up to 30M O/S, the revenues to justify a PPS of $1, $5, and $10 would be about $4M, $18.6M, and $36.7M respectively. I believe these numbers are reasonably attainable within the next few years if CERP's management is able to execute on its goals and objectives. Considering the company's recent remarks that revenues this year may be similar to 2011's revenues, maybe we get to these numbers more quickly than most expect. So, I believe an R/S is necessary to help move the stock price to a respectable number that will hold a NASDAQ listing and that will attract solid institutional investors. To that end, however, a top-end ratio of 1:50 is way too high and I will be voting against all of the proposals.
If, however, the company amends its proxy again to reduce the top-end ratio of the R/S to 1:10, the company will have my support and my vote.
For anyone interested in my calculations, I simply assumed a modest PE of 15, a 75% tax rate (totally ignored impact of carrying forward specific tax losses), and profit margin of 50%.
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