Monday, November 19, 2012

A Return to the Story of Best Blogs Ever, Inc. (3)

WALL STREET SMARTS, THE BLOG, IS NOW WALL STREET SMARTS, THE BOOK.  FULLY EDITED AND REVISED WITH NEW MATERIAL ON AMAZON

We will continue the story of BBE with the next two previously posted chapters.  Here is a  portion of the fifth blog, which was called Venture Capitalists at the Door:

Before the meeting, Venture Funds, Inc. ("VFI") had asked for copies of BBE's  Articles of Incorporation, Bylaws and BBE's financial statements for each year of operation.  Those statements consist of three different accounting reports.  At the end of each year, our Treasurer prepares a balance sheet, which shows the assets, liabilities and equity of the company as of year end; a profit and loss or income statement, which shows the income and expenses of the company and any profit or loss for the year; and a cash flow statement which shows the cash held by the company at the beginning of the year, the cash generated during the year from all sources of cash: operations, loans, stock sales or any other cash generators; how cash was spent during the year for the purchase of equipment or other assets, investments, loan payments and dividends; and the cash position of the company at year end.  The financial statements provide the information needed to determine how a company is doing financially.

Here is a link to the entire blog, which was posted on February 28, 2011.

Here is a  portion of the sixth blog, which was called Round Two of Negotiations with the VCs:

"It was agreed that the directors of BBE would have the right not declare any dividends; however, there would be a cumulative dividend provision in the Articles of Incorporation.  If a company has cumulative preferred stock, then any and all unpaid dividends on the preferred shares must be repaid before the common shares could receive any dividends.  Kate suggested that if the company was unable to pay the preferred stock dividend for a number of years, this would be an indication that the company was not being run properly.  In that case, VFI should have a right to take control of the company and install a new board of directors.  The new board could elect new officers to manage the company.

Susan said that a way to provide VFI with additional shares of common stock would be to add a convertibility provision to the Articles.  If the preferred stock dividend was not paid for a number of consecutive years, then VFI would have the right to convert some or all of its preferred shares into common shares with voting rights.  Preferred shares with that type of right are called convertible preferred shares.  The convertibility provision would set forth how and when the preferred shares could be converted.  She also pointed out that if BBE were to be sold to another company or group of investors, VFI's preferred shares would not share in any increase in the value of the company.  Preferred shares do not appreciate in value.  Their value remains at the original purchase price, and the owners receive their investment back if the shares are redeemed.  She proposed that the VFI's preferred shares should also be convertible into common shares if the shareholders voted to sell BBE or take it public at some point in the future.  By converting the preferred shares into common, VFI would share in any increase in the value of BBE and any consequent appreciation in the common shares."

Here is a link to the entire blog, which was posted on March 7, 2011.

We will look at the final chapter of BBE's story in the next blog.

Comments are always welcome.

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