ZByte, on May 4th, the company floated a $3 MM floorless on May 4th:
Diversified Senior Services Completes Part One of Three Part Private
Placement
Senior Housing and Assisted Living Company Also Retains Redstone Securities to Advise It on
Corporate Strategy and Raising Growth Capital
WINSTON-SALEM, N.C., May 4 /PRNewswire/ -- Diversified Senior Services, Inc. (Nasdaq: DISS - news), a senior
living and assisted living company, today said it has completed the initial tranche of a three tranche private placement of 12%
convertible preferred stock.
The company sold $3 million of the preferred stock in this tranche and has commitments to sell two additional tranches of
$715,000 and $735,000 upon the filing of a registration statement with respect to these securities and upon said registration
statement being declared effective, respectively.
The preferred stock is entitled to semi-annual dividends at an annual rate of 12%. It can be converted into shares of the
company's common stock at $4.00 per share or, after 270 days, at the lower of $4.00 or the lowest closing bid price of the
company's common stock during the 30 days prior to conversion.
Under certain circumstances, which will be described in more detail in a filing the company will make with the Securities &
Exchange Commission shortly, the preferred stock is redeemable by the company or putable by the holders of the preferred
stock at effective prices which guarantee the holders of the preferred stock minimum annual rates of return.
The purchasers of the preferred stock are prohibited from engaging in shorting transactions with respect to the company's
common stock at any time the common stock is trading at less than $8.00per share.
On the face of it, this is definitely a floorless instrument with a ceiling of $4/share. It seems that the company will have negative cash flows for some time (the recent positive earning is a one time affair due to about $900,000 fees which are not "repeatable"). There is a prohibition of shorting if the stock is under $8, but I am not sure what ways around this are available.
I do not understand the business model well enough to comment on whether this might or might not be a good investment. The floorless feature, by the way does not kick in for another 8 months.
I would not be surprised if the stock was manipulated to just above $8, so that the floorless can then short and actually double their money, take that money off the table and continue and collect 12% interest until the debenture is redeemed. Then they would convert at $4 and deliver the converted shares to cover their short.
Zeev |
