All About Private Placements - Part 3

Maurice Jackson: Not to digress, but when you're looking at capital structures for company, you see outstanding and fully diluted. That's where this narrative changes. Can you expand on that, how that plays into this discussion?

Tekoa Da Silva: Yeah, that's a really good question too. Shares outstanding versus fully diluted. A company may have 100 million shares outstanding and if you want to do a calculation of the market capital company or the price for that business, if you and I were to buy that business in full today, if the shares are trading at $1 per share in the open market and there are 100 million shares, we know that the business is priced at $100 million. Now if we run off and start making subsequent calculations using that $100 million as our reference number for the price of the business in terms of what we're paying for what we get without looking at something like outstanding options, outstanding warrants, we, or one, could run the risk of overpaying without realizing it. Because what if behind that 100 million shares outstanding, there are an additional 100 million or 200 million options or warrants that are in the money or close to being in the money.

Depending on the strike price of the stock options and of the warrants. One needs to make a determination as to what they feel is a fully diluted market cap that's appropriate to that situation. They could do a straight technical viewpoint of it and say, "Well there's 200 million warrants outstanding, 100 million common shares. Let's assume that all the warrants are exercised and we'll use a $300 million market cap." A $300 million price for a business obviously is dramatically different than $100 million price. So taking into account stock options, warrants, the exercise price for all the instruments, which are usually published within the annual reports or the minutes, the MD&A, management discussion and analysis documents, is key to coming up with a responsible price for what you're paying for business.

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Disclosure: I or members of my family own shares of Novo Resources.

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