Friday, February 24, 2017

And, From "Friday's Foolishness" Dept. -- At The Other End Of The Spectrum: Micro-Cap Edition...

We will post on an entirely unrelated development (on another small NASDAQ tech company we cover, at a separate property) -- as it showcases the pain of repeatedly overpriced earlier equity rounds -- which inexorably then lead to a "hard down" highly dilutive later equity round (i.e., today's private placement). It is captioned "'Down Round' Ugliness: Mattersight Agrees To Sell Another 20 Per Cent Of Itself, For About Half The Price Of The Last Round."

[UPDATED -- the stock opened at $3.30 (i.e., down sharply from yesterday's close, and down even more -- for the week), but now it is likely C-H will stabilize trading. MATR is flat, on medium volume now, well into the first hour. Applicable SEC/NASDAQ offering "stabilization" rules prevent a market maker/placement agent from being an unsolicited "uptick" trader in the first half hour, or the last half hour. Now you know.]

Frankly, I didn't think the company would pull the trigger here, until after the investor conferences -- but this says the team wouldn't (otherwise) be in compliance with quarter end Hercules (lender) covenants -- without closing the $16 million equity offering. [My educated hunch would be that the "unrestricted cash balance" -- at the end of Q1 2017 would be below $7.5 million, in violation of the Hercules covenants. So, the company is selling equity to bolster "unrestricted cash" levels, here. This buys Mr. Conway only a few quarters of relief -- unless organic revenue growth (without price claw-back) really takes off.]

This need for equity was repeatedly mentioned -- about 20 separate times -- on our blog, from about August 2016 to yesterday (see below thumbnail graphic). But the pricing is worse than I would have guessed, for the company.

This pricing is at about half of the per share price for the last $16 million raise, in mid-2015. Now that's a down-down-down round, for ya'! Ouch.

Also, frankly -- management is buying only 100,000 shares, in for under 2 per cent of the total -- at $3.45. That's ugly. Now, if I were Mr. Gomes (i.e., an open market purchaser yesterday), I'd be furious. He could have bought at $3.00 a share, but had to pay $3.45 or so.

More in a minute, with graphics -- but here is the just-filed SEC Form 8-K. Ugly. [And... Craig-Hallum pockets a $1 million placement agent's fee, for its trouble. Was its highly bullish research reporting conflicted, when it was touting MATR's future last year at this time -- at around $5/share, on the NASDAQ OTC? I'll let the readers decide.]

A rational investor would expect the stock to open at around $3.20 this morning. Here's a bit:

. . . .On February 23, 2017, Mattersight Corporation, a Delaware corporation (“the Company”), entered into a definitive purchase agreement (the “Purchase Agreement”) for the sale of 5,328,187 shares of its common stock (the “Shares”) to certain investors and certain officers and directors (collectively, the “Purchasers”) in a private placement (the “Offering”). Under the terms of the Purchase Agreement, the Company expects to raise approximately $16.0 million in gross proceeds by selling 5,228,187 Shares to certain investors at a price of $3.00 per share and by selling 100,000 Shares to certain officers and directors (including certain of their affiliates) at a price of $3.45 per share. The Offering is expected to close on March 1, 2017, subject to the satisfaction of customary closing conditions. . . .

So management only bought just under two per cent of the offering. Not a striking show of confidence. At $3.45. Ugh. Expect the Form 10-K to disclose that price clawback I've been mentioning.

And what should we think about the CTO being a big open market seller, right ahead of this offering? Ugly, cubed. Wow. Be careful out there.

[Just some Friday fluffiness/space-filler, truth told. . . along with an additional reworked celestial masthead, for the weekend of wonders, doubtless in store. . .dancing, and more. . . . smile.]


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