Friday, June 15, 2012

iHub poster Davinci69 discusses negative message board posting re JBII


The predominance of the negative comments on this message board emanate from two primary factors. The first causal component is that JBI pursued a reverse merger technique of becoming a public entity in advance of profitable revenue generation. The second component is that JBI management and the board of directors lacked the experience traditionally associated with building significant and profitable public enterprises.

 Companies that effect reverse mergers as a means to go public and raise capital, traditionally possess more nascent stages of development of their business models, and commence their public entity exposure with a negative perception. Their market capitalizations are typically in the Micro-cap category, and the desired institutional base of investors and associated “following” by analysts are absent. Consequently, the shares typically do not trade on the more desired NASDAQ exchanges nor the NYSE. Accordingly, they have smaller retail investors, shares are traded in markets that are more subject to manipulation, and lack of information from analysts is filled in by less than scrupulous individuals and entities. Resultant from their premature “going public” entre’, and less developed business models, they are more apt to procure capital through PIPE financings than secondary offerings.

 Like JBI, they typically occur with some degree of frequency as their aggregate offering amounts are relatively small in comparison to that of typical secondary offerings, and require pricing with significant discounts to the market price due to their restricted marketability, and frequently, share prices that lack the trading volume to be truly reflective of fair market value.

 As one can readily ascertain through the frequent disparaging commentaries about JBI’s “dilutionary” financings, the reality is that if JBI were a private entity financed by VCs or other institutional investors, they would traditionally go through a series of “dilutionary” financing rounds anyways. However, these financings would not be subject to the scrutiny of less than sophisticated and knowledgeable investors about how early stage business are developed, requiring investments in technology, management teams, possess negative cash flow, require capital investment, and accordingly demand a series of capital raises.

 The resultant “dilution” to shareholders is arguably not that different between the two approaches, however, one could proffer a case to support a divergence between the two with respect to one being more dilutive than the other. But it is not absolute either way. Ideally, JBI would have been financed privately, commenced significant rates of profitable revenue growth, procured a number of contracted relationships with sources of plastic feedstock and purchasers of fuel, and been able to incontrovertibly prove to the market the veracity of their extraordinary technology.

They would have constructed a world class management team and board of directors, and procured the services of a prestigious investment bank to take them public and enlisted the following of reputable Wall Street analysts. They did not pursue the aforementioned path, and are, consequently, paying the price associated with the reverse merger path. Such as doubts about their technology, defamatory commentaries about individuals within the company, repetitious comments about the negative cash flow, negative comments about PIPE deals, etc.

However, despite such chosen pathway, it does NOT preclude them from becoming a world class enterprise with significant market capitalization, but it does require persevering through more market “hurdles” and associated negative commentaries with going public through a reverse merger. The second component that has been adversely effecting JBI, is the inexperienced management and board of directors.

 With all due respect to John, he is a brilliant technology mind, but lacks the experience to be a CEO of a publicly traded company. Likewise, for the board of directors. Consequently, they have not been adept at; properly communicating expectations to the public market, procuring the services of reputable auditing firms, errors in judgment about financial matters, and rigorous and efficient deployment of capital to commercially develop the technology. Some would and do argue of the comments from the Company that are less than forthcoming and proper. These elements are resultant from the absence of the critical experience typically correlated with building substantial and profitable public companies with extraordinary market values.

 Despite the aforementioned, for the long term investor, JBI is now going through a very positive metamorphosis, most evident from the recent PIPE financing and associated attributes. Meaningful capital invested by a highly credentialed investor group, a reorientation of John’s role to one consistent with his skill set, a highly seasoned CEO with familiarity with the technology, building businesses, and the culture of JBI, establishing objective parameters for an experienced board, effective elimination of the control attributes of the Preferred Stock, and another “validation” of the JBI technology by a world renowned company.

 Furthermore, the likelihood of a settlement with the SEC is now immeasurably enhanced with John’s removal as a board member and CEO, as well as the new terms associated with his Preferred Stock. Now, the single minded focus of the company, and imperative, is to become cash flow positive as expeditiously as possible, and to “prove” the veracity and effectiveness of the technology through installations at Niagra, and at the first RKT site as well, with demonstrably objective financial data resultant from such processors.

Will there be further PIPE deals comprised of equity, that is highly likely preceding the company’s ability to procure debt financing. But that is a reality of building successful companies. As a long term investor, one would hope that such future equity financings are effected at a more robust price per share, reflective of the positive changes inuring to shareholders of JBI. May the patience of the JBI shareholders be rewarded with substantial IRRs, as the metamorphosis to overcome the “hurdles” are surmounted through perseverance and effective execution of the business model.

No comments:

Post a Comment

Please comment on this post.

Note: Only a member of this blog may post a comment.