Violeta Slavtchevska

Dilution Risks and Lack of Results Keep LECG Corp. (NASDAQ:XPRT) Down

by Violeta Slavtchevska July 15, 2010
Despite new acquisition plans, LECG Corp. (NASDAQ:XPRT, XPRT message board) stock keeps going down and it looks like investor disappointment from the still missing positive results from the previous expansion prevail.

The stock of LECG has suffered sharp depreciation over the last month and after hitting its yearly bottom earlier this week, there are still no signs of optimism. The closing price yesterday was $2.34, down again by 2.09% and considering the increasing number of shares traded, the market seems to have more shares to dump and the stock is far away from recovering from its recent and long-term oversold status.

End of last month LECG announced an agreement to buy a UK taxation and consulting services provider, though the market sees not much of improvement potential on the near-term, especially in regard of what the previous strategic acquisition has brought. The new acquisition was supposed to be completed by July, 2, but there is still no official confirmation.


Large shareholders might also be drawing back. In the middle of last month Bank of America filed to have ceased to be the beneficial owner of more than five percent of the company's common stock.

It seems the market fears that LECG's losses will continue to grow, considering that still no positive effects from the merger with SMART Business Holdings, Inc. in March can be seen. The company has suffered a lot of restructuring costs, attempting to synchronize the operations with the newly added business, the revenue growth is minor and the net loss increased by over 244%. Moreover, LECG acquired not only SMART's assets, but also its $42.8 million debt, which was not in favor of the company's capital structure.

Further, the company had to issue 6.3 million shares of preferred stock to SMART shareholders in exchange for their subsequent $25 million investment in LECG's ,which money however was mostly used to pay out some urgent outstanding liabilities. These shares raise dilution risks, as they are convertible into the same number of common stock shares, and if converted can dilute current shareholders by 17%.

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