Hi A2, can I provide some details which will help explain the facts over which you are confused. Its not quite as it seems so hopefully this helps.
Firstly management didn't plan to raise $500k in the SPP. As per the SPP document: "The maximum number of shares that will be issued under the SPP is 270,714,829". 270m shares at 1c is marginally over $2.7m.That is what they wanted to raise. The $500k was the minimum.
The above was replaced with the rights issue with a maximum raising of $2.7m. Only about $7000 less than the maximum the SPP could have raised, so basically the same. The difference is Mahe agreed to underwrite the rights issue for a total of $750k therefore by default thats the new minimum that can be raised but this is deceptive and isn't in any way indicative of the minimum cash BIT would get from the rights issue.
I can see that on face value this looks like they are expecting to get a minimum of $750k in the rights issue and only $500k in the SPP however this simply isn't true and is something management aren't keen on explaining for reasons which will become evident. Underwriters don't agree to be the participant of last resort for free (or because they believe in the cause for that matter). They charge a whooping big fee which comes out of the money raised. If no money is raised from shareholders then this fee comes out of the $750,000 that they contribute.
Would you believe that the fee for the underwriter alone is somewhere between $105,000 and $232,500. If nobody participates and the underwriter actually is forced to buy $750k of shares then they get $232,500 back. Yep, almost a third of the $750k underwritten is handed back to them in fees in this instance. Therefore in a failed rights issue scenario BIT only walks away with around $500k after fees. No different to the SPP minimum.
If shareholders do chip in the minimum $750k out of their pockets then the underwriter doesn't need to contribute a single cent to the rights issue but still walks away with about $125,000 of the funds contributed by shareholders leaving BIT with about $625k of the funds paid by shareholders.
Its a sucky situation but best to understand that $750k underwriting agreement by no means BIT gets a minimum of $750k. Its actually much closer to $500k !
Does this help?
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