In this article, we'll take a look at how this move impacts investors over the long-term.
Improving Liquidity Ratios
Most investors in early stage companies look at two key factors in their analysis: Operating cash flow growth and liquidity ratios. By discounting the value of future cash flow into today's dollars, investors can see how much a company is worth even if they're losing money right now. For instance, Taglich Brothers analysts estimates OxySure's intrinsic value to be approximately $2.10 per share even though it doesn't project meaningful free cash flow until the end of 2015.
Liquidity ratios are also very important. After all, future operating cash flows are meaningless if a company runs out of money and has to contract or cease operations. OxySure's removal of $967,609 from its balance sheet significantly improves its liquidity ratios and reduces risk. Taking last quarter's numbers, the removal of those obligations yield total liabilities of just $544,144 compared to total assets of $1,201,302 - a ratio of 2.2x.
Growing Pool of Capital
OxySure Systems' liquidity ratios will be further bolstered by a
$750,000 private placement that it closed on January 2, 2014 with
accredited institutional investors. Under the agreement, the company
sold 750 units of preferred stock and warrants at a price of $1,000 per
unit. Each unit consists of one Series B convertible preferred stock and
a warrant to purchase 909 shares of common stock at an exercise price
of $1.20 per share - a price that's significantly above-market.
According to Chairman and CEO Julian Ross, "We believe that this
financing from fundamental institutional investors gets us to our next
significant milestone and we are looking forward to proceeding with
executing our business plan, which is now supported by a stronger
balance sheet. We believe this investment led by an experienced and
respected institutional health care investor is a significant
endorsement of our product value proposition and growth trajectory."
Higher Stockholder Equity
The conversion of $967,609 in debt to common stock, combined with the
addition of $750,000 in equity effectively means approximately
$1,717,609 is added directly to the stockholder equity line on the
balance sheet. This is significant because stockholder equity is a key
criterion for uplisting to a more senior exchange, such as OTCQX, Nasdaq
or NYSE. For example, OTCQX requires a $2,000,000 net worth and NYSE
requires $5,000,000 in stockholder equity. OxySure has made it clear in
prior communications that one of its goals is to uplist to a more senior
exchange, and these recent moves are significantly positive steps
towards that goal.
Lower Risk Enhances Returns
Most investors in early stage companies look for high risk-adjusted
returns instead of just high total returns. The key difference is, of
course, balancing the total return with the risk of loss, which is
elevated in smaller companies compared to blue chip stocks like
Medtronic Inc. (NYSE: MDT) or Johnson & Johnson (NYSE: JNJ). Using
this equation, removing risk directly enhances risk-adjusted returns for
investors.
OxySure's move to lower risk by de-leveraging its balance sheet and
improving its liquidity ratios therefore does the same. Since the equity
conversion and private placement both happened at above-market prices,
there's no immediate disadvantage stemming from dilution for investors
getting involved at current prices. In fact, the only long-term cost is a
potential ceiling at the conversion prices, although these levels are
up to a 127% premium.
Improving Financial Dynamics
OxySure Systems has also been improving its income statement, in
addition to its balance sheet. During the quarter ended September 30,
2013, the company reported revenues that increased 428% to $545,820,
interest expense that dropped 15% to $47,180, gross profits that
increased 722% to $434,710, and a net loss that fell 38.2% to $82,613.
By reducing expenses and increasing revenue, management is moving ever
closer towards a breakeven point.
The increase in revenue was primarily due to an increase in U.S. product
sales and products developed for the military as part of a teaming
agreement, but new agreements with Medizon B.V. and Aero Healthcare
should significantly expand its international reach. New U.S.
distributors and complementary products could also cost effectively
expand its revenue base by removing hurdles to customer adoption and
increasing its domestic reach.
Conclusions
OxySure Systems represents an attractive investment opportunity,
particularly after it de-leveraged its balance sheet to improve its risk
profile. With analysts like Taglich Brothers projecting a $2.10 per
share price target, investors may want to take a second look at the
emergency oxygen provider as it continues to report strong progress on
all fronts.
For more information, see the following resources:
- Company Website - http://oxysure.com/
- Company Presentation - http://www.oxysure.com/aed/3q13_earnings_presentation/
- Recent SEC Filings - http://www.oxysure.com/aed/index.php/sec-filings
- OxySure Saves Baseball Player - https://www.youtube.com/watch?v=iSSlxngn7eg
- Kylee Shea Save on Matt Lauer - https://www.youtube.com/watch?v=qGaTFFuRpDQ
About Emerging Growth LLC:
EGC is a marketing and consulting firm that specializes in creating ongoing communications strategies for public and private companies.
Disclosure: Except for the historical information presented herein, matters discussed in this release contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Emerging Growth LLC is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. For making specific investment decisions, readers should seek their own advice. For full disclosure please visit: http://secfilings.com/Disclaimer.aspx