Reverse Split Advantage?

[jmkopp]

I apologize as I don't understand the accounting process of a reverse split.  Will there be any secondary benefit to this process with regards to the large percent of short shares.  For example, MNKD will have to account for every share prior to the conversion.  Will that process uncover anything about the companies that are shorting MNKD?  Will it help with the failure to deliver shares?  Does this process help the SEC identify any wrong doing if they are currently investigating?  Just looking for some silver linings.

[matt]

Every issued share is accounted for by the transfer agent, either as belonging to an individual entity (as in a certificate with your name on it) or as held through the Depository Trust Company (DTC). In turn, the DTC provides a weekly report of their holdings to the issuer (Mannkind) showing the number of shares held in street name by each of the participating brokers and financial institutions. The transfer agent knows exactly how many shares have been issued and to whom, and that number ties precisely to the issued and outstanding number that the auditors approve and which is shown on every SEC filing.

Short shares are created by the brokers who are members of the DTC when they lend out shares from their brokerage accounts.  However, it is all a zero sum game as the DTC knows how many "real" shares are held in street name by Merrill-Lynch, Fidelity, Goldman Sachs, TD Ameritrade, and so on.  If there are naked short shares those were created by the brokerage, and it is up to the brokerage to keep track and to force buy-ins when necessary.  Neither DTC nor Mannkind have visibility to the internal accounting systems of the brokerage houses, and executing a reverse split will not change that.  The SEC can always demand to see such records, but that doesn't happen very often.


So essentially the reverse split changes little with respect to institutional accounting for shares.  Mannkind, the transfer agent, and the DTC will simply divide the share counts by the split ratio, a few shareholders will get some pennies to liquidate fractional shares rights, and life will go on.

[jmkopp]

Feb 21, 2017 11:17:17 GMT -5 matt said:

Every issued share is accounted for by the transfer agent, either as belonging to an individual entity (as in a certificate with your name on it) or as held through the Depository Trust Company (DTC). In turn, the DTC provides a weekly report of their holdings to the issuer (Mannkind) showing the number of shares held in street name by each of the participating brokers and financial institutions. The transfer agent knows exactly how many shares have been issued and to whom, and that number ties precisely to the issued and outstanding number that the auditors approve and which is shown on every SEC filing.

Short shares are created by the brokers who are members of the DTC when they lend out shares from their brokerage accounts.  However, it is all a zero sum game as the DTC knows how many "real" shares are held in street name by Merrill-Lynch, Fidelity, Goldman Sachs, TD Ameritrade, and so on.  If there are naked short shares those were created by the brokerage, and it is up to the brokerage to keep track and to force buy-ins when necessary.  Neither DTC nor Mannkind have visibility to the internal accounting systems of the brokerage houses, and executing a reverse split will not change that.  The SEC can always demand to see such records, but that doesn't happen very often.


So essentially the reverse split changes little with respect to institutional accounting for shares.  Mannkind, the transfer agent, and the DTC will simply divide the share counts by the split ratio, a few shareholders will get some pennies to liquidate fractional shares rights, and life will go on.

Thanks for the thorough answer Matt; I appreciate it. 

[kc]

Reviewing the numbers on page  12 indicates to me that the Mann Family still controls 42.4% since this is the number that was published on the shareholder filing I would assume that this is correct.

files.shareholder.com/downloads/AMDA-22AIJ9/3935108837x0xS1193125-17-39440/899460/filing.pdf

Page 12:

Name and Address of Beneficial Owner Number of Shares Percent of Total
Greater than 5% Stockholders
The Mann Group LLC(1)                 89,652,250                                         18.7%
12744 San Fernando Road
Sylmar, CA 91342
The Alfred E. Mann Living Trust(2)                 114,102,161                         23.7%

Page 13:

What I don't understand is the language on the following page that applies to the

right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options that both the Mann entities and the management team has available.  I assume it means nothing other than based on their contract they have rights to the outstanding options in the event of some right to exercise the options.

(3) Includes 2,234,732 shares which Mr. Pfeffer has the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options.
(4) Includes 1,295,805 shares which Dr. Thomson has the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options.
(5) Includes 247,486 shares which Dr. Urbanski has the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options.
(6) Includes 332,300 shares which Mr. Castagna has the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options.
(7) Includes 176,333 shares which Mr. Consiglio has the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options.
(8) Includes 176,333 shares which Dr. Friedman has the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options.
(9) Includes 176,338 shares which Mr. Kresa has the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options.
(10) Includes 176,333 shares which Mr. MacCallum has the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options.
(11) Includes 176,333 shares which Mr. Nordhoff has the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options.
(12) Includes 71,198 shares which Dr. Shannon has the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options.
(13) Includes the shares described in notes (3) through (12) above, as well as 643,409 shares underlying a stock option that another executive officer has the right
to acquire within 60 days of February 1, 2017.

[Deleted]

Feb 21, 2017 13:33:32 GMT -5 kc said:

Reviewing the numbers on page  12 indicates to me that the Mann Family still controls 42.4% since this is the number that was published on the shareholder filing I would assume that this is correct.

files.shareholder.com/downloads/AMDA-22AIJ9/3935108837x0xS1193125-17-39440/899460/filing.pdf

Page 12:

Name and Address of Beneficial Owner Number of Shares Percent of Total
Greater than 5% Stockholders
The Mann Group LLC(1)                 89,652,250                                         18.7%
12744 San Fernando Road
Sylmar, CA 91342
The Alfred E. Mann Living Trust(2)                 114,102,161                         23.7%

already debunked.
that 23.7% includes the shares in 18.7%.
Infact they sold about 40 mil shares after Mann passed away.
Keep up KC.

[kc]

Not sure how they would publish it in the document if they had sold already. that is not clear to me?

[Deleted]

Feb 21, 2017 13:37:30 GMT -5 kc said:

Not sure how they would publish it in the document if they had sold already. that is not clear to me?

are you for real?
Seems like you read the document since you pasted Items 3 to 13 , but ignores 1 and 2?

(1)
The Alfred E. Mann Living Trust (the “Trust”) is the sole member and manager of The Mann Group LLC (“The Mann Group”).
(2)
Includes (i) the shares described in footnote (1) above, (ii) 20,798,469 shares held of record by the Trust and (iii) 3,651,442 shares which the Trust has the
right to acquire within 60 days of
February 1, 2017 pursuant to the exercise of outstanding options previously held by Alfred E. Mann prior to his pass

[chuck]

"What I don't understand is the language on the following page that applies to the right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options that both the Mann entities and the management team has available. I assume it means nothing other than based on their contract they have rights to the outstanding options in the event of some right to exercise the options."

Reg 240.13d-3(d)(1)(i) requires that the number of shares an individual owns in the proxy disclosure should include the number of shares they currently own PLUS the number of shares they have the ability to acquire in the next 60 days through the exercise of any option, warrant or right. In the context of a stock option, if the stock option can be exercised either currently, because the vesting conditions have already been met, or in the next 60 days, because the vesting conditions will be met in the next 60 days, they would include the number of shares underlying the stock option in the total number of shares they own for purposes of the table. You're welcome.

[surplusvalue]

Another question for those here. How many authorized shares are presently available to MNKD?

[chuck]

There are 700,000,000 authorized of which 487,637,095 have been issued as of February 1, 2017. This leaves them with 212,362,905 shares that can be issued. However, they have to set aside an additional 79,644,263 shares for the potential exercise of existing stock options (31,100,571) and warrants (48,543,692). That leaves them with 132,718,642 available shares. The last equity raise in May 2016 had 100% warrant coverage, with an offering price of 23% discount to market and a 5% placement fee. If they can replicate the same deal, that would allow them to raise a maximum of $24 million, net of fees based on today's closing price. So roughly two months of cash burn. I suspect that the terms of the warrants will be more favorable to the warrant holders this time at the expense of the existing shareholders. Look for a more generous strike price and more price protection coverage.

[surplusvalue]

Feb 21, 2017 19:30:22 GMT -5 chuck said:

There are 700,000,000 authorized of which 487,637,095 have been issued as of February 1, 2017. This leaves them with 212,362,905 shares that can be issued. However, they have to set aside an additional 79,644,263 shares for the potential exercise of existing stock options (31,100,571) and warrants (48,543,692). That leaves them with 132,718,642 available shares. The last equity raise in May 2016 had 100% warrant coverage, with an offering price of 23% discount to market and a 5% placement fee. If they can replicate the same deal, that would allow them to raise a maximum of $24 million, net of fees based on today's closing price. So roughly two months of cash burn. I suspect that the terms of the warrants will be more favorable to the warrant holders this time at the expense of the existing shareholders. Look for a more generous strike price and more price protection coverage.

Thanks Chuck. I was wondering since if they do a 10 for 1  split  they will also reduce the available authorized shares by 10 as well which from your figures leaves them  a fairly reduced number of authorized shares that would make dilution much more difficult in terms of raising substantive cash.  I'm concluding that they are going to use the split more for delisting rather than setting up dilution conditions. I could be mistaken but it provides a better framework for consideration of the proxy vote. 

[matt]

Feb 21, 2017 13:33:32 GMT -5 kc said:

Page 13:

What I don't understand is the language on the following page that applies to the

right to acquire within 60 days of February 1, 2017 pursuant to the exercise of outstanding options that both the Mann entities and the management team has available.  I assume it means nothing other than based on their contract they have rights to the outstanding options in the event of some right to exercise the options.

That is exactly what it means. The SEC has very rigid reporting rules for insiders, such as 5% beneficial owners, officers and directors. Any contractual right to acquire more shares, even if the exercise price of the underlying option is way, way out of the money must be included.