For BRLC, the Problem is Supply-Side.
By GreenArrowInvestments | December 6, 2007 To say that investors have been frustrated with Syntax-Brillian (BRLC) during the past year is a gross understatement. Chat rooms and blogs are rampant with accusations of manipulation, management incompetence, and conspiracies of undervaluation by analysts covering the stock. But amid the flurry of discussion, an important piece of the puzzle has, up-until-now, not been addressed: Dilution. The most egregious mistake that investors make is that they look at the demand-side of things when evaluating the company. Brillian’s income statement and statement of cash flow is brilliant. Net sales are growing at an impressive rate. They have finally achieved a positive net income. Their brand awareness is building and their TVs are stocked on shelves all over the country. The supply-side of the story is not as auspicious. When I say supply-side, however, I am not talking about the supply of affordable TVs but rather of outstanding shares. On November 11, 2007 BRLC filed form S-3 to the SEC announcing the registration of over 10 million shares as a result of a previous PIPE and warrants issued by the company. This is just the latest of a plethora of PIPEs that BRLC has issued in the past two years.
Company | Closing Date | Security Sold | Gross Proceeds
| Syntax-Brillian Corporation | 8/23/2007 | Common Stock | $20,000,000 | Syntax-Brillian Corporation | 3/27/2007 | Common Stock | $15,500,000 | Syntax-Brillian Corporation | 12/1/2006 | Common Stock | $10,000,000 | Syntax-Brillian Corporation | 3/29/2006 | Common Stock | $15,000,000 | Syntax-Brillian Corporation | 12/28/2005 | Convertible Preferred Stock | $16,000,000 | Brillian Corporation | 7/12/2005 | Convertible Debentures | $5,000,000 | Brillian Corporation | 4/18/2005 | Convertible Debentures | $2,500,000 |
The problem with this type of fund raising, however, is that dilution on such a massive scale, destroys existing shareholders’ value. Instead of taking on more long term debt, BRLC has engaged in a dangerous game of issuing more stock. Consider the following table:
Date | Total Shares Outstanding | On NOVEMBER 11, 2007 Filed S-3 | Registered additional 3,083,945 shares
& 6,950,726 warrants | AS OF NOVEMBER 8, 2007
| 93,354,582 | AS OF SEPTEMBER 6, 2007 | 93,047,666 | AS OF MAY 10, 2007 | 62,776,047 | AS OF FEBRUARY 9, 2007 | 59,983,792
| AS OF NOVEMBER 8, 2006 | 51,446,695
| AS OF SEPTEMBER 8, 2006 | 49,331,279 | AS OF MAY 12, 2006 | 48,474,186 |
Since 12/28/2005 BRLC has had 5 Private Placement transactions totaling $76.5M. After this recent registration, there will be more than 100 million total shares outstanding. To take this into perspective, consider that if you look at the income statement’s quarterly data, gross profit is growing; For three months ending 2007-09-30 they had $20.62M gross profit, better than $18.47M they made three months ending 2006-09-30. However, if you consider that the total number of shares outstanding has nearly doubled, the result is not as great because your gross revenue per share almost halved.
Unless the management addresses this problem in the near future, don't expect any price appreciation. DISCLOSURE: The author of this article, GreenArrowInvestments, has a long position in BRLC. If you found this article useful, please support us by visiting our advertisers. Thank you.
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