which upside road for shareholders, page-15

There appears to be one important factor missing from this conversation about takeovers, consolidation and rocketing share prices. The company has stated in recent announcements that it is actively looking for a new major investor. I believe this is a critical factor that should be the starting point for any assumptions and predictions about the future.

The company currently has a market cap of about $10mil and almost double that in debt owed to note holders. Assuming they seek to raise $20mil to pay out the debt and provide some additional working capital, then assuming any investor buys in at no discount to current market prices, this scenario infers additional dillution of about 66%. It also infers said investor gains majority control of the company.

Actual price per share paid by such an investor would obviously have to reflect the real value and genuine prospects of the company at the time the deal was done so the dillution may be more or considerably less depending on what rabbits MST can whip out of the hat in coming months. The prospects have started looking better and better in recent months but this hasn't translated into sales, revenue or a higher share price yet and there is no definative timeline to count on.

The notes rollover is for 6 months and the company seems confident that they will find a new investor during that period. We don't know if it was the company declaring to noteholders that it only needed an extra 6 months or one of the major note holders telling MST that they will only agree to extend to for 6 months but we do know that 6 months isn't very long given the protracted and financially constrained product development coupled with the prolonged sales ratification cycles typical of the customers that we seek.

I don't profess to know exactly what rabbits will emerge or even if there are any rabbits but I'd suggest 3 likely outcomes short term:

a) Maul sales are looking extremely possitive and Colt has agreed to take a big stake in MST conditional upon certain events. Said events would be very possitive for MSTs share price but Colt would end up with upto 50% of MST and resulting cash would payout notes holders plus provide working capital for further product development while revenue from Maul sales slowly ramped up.

b) MST desparely seeks an investor and seeks to free themselves of the notes hanging over their heads. Sales opportunities still look good but with no signed contracts (or ratification of those already signed) MST has no ability to push for anything higher than market price although a discount to market is more likely. Major investor takes majority stake which has to be agreed to by shareholders but with no alternative a dillution of 50% or more would be inevitable.

c) MST kicks the notes can down the road for another 6 months hoping that one of the prospects will pay off. They seek an investor to provide working capital and just hope to fallback to negotiate another extension in 6 months if nothing material transpires. They can't get one of the big notes holders to agree to more than 6 months now but in 6 months time given the same situation the notes holders would make the same decision once again. Ongoing dillution for working capital purposes continues.


There may be other more reasonable explanations for what is going on and what management actually think they are going to do. They obviously know more than I do about the actual prospects (at least I hope they do) and they know the reality behind the 6month extension and their comments about a new investor.

All I'm suggesting is that before thinking about a takeover and all that stuff, think about what we already know and the things that management have recently said and what these mean. This should provide a good starting point for determining what the register looks like in 6-12 months time. Also note that under a number of these scenarios there is no traditional takeover simply because management are likely to give a blocking stake to said investor. That could subsequently translate into that investor wanting 100% of MST and making an offer to the rest of us but remember their majority starting position is probably given to them by us at current prices.

Now I know this isn't as bullish as some of the other posts and I too would like to see a $1 price based on todays issued capital but deep down we all know that is a long shot (still possible though). If actual contracts aren't too far away then the corner could be turned very quickly and MST rerated prior to any investment deal transpiring. This won't give us 10c or $1 per share but it could see 2-3c per share materialise in the short term and finally give shareholders some visable signs that the company has a revenue stream from which to further develop its other products and cease the dillution cycle which has ravaged the share price. It could be a short term stepping stone to MSTs full scale recovery but if those sales don't happen soon then the majority of benefits will go to Johny come lately, not longers term investors.

I hold and hope like the rest of you that management have the rabbits that we so desparately need. We need them soon as later will be too late to provide most of us with any significant financial reward. Still worth the punt.