Now this is a long post....read it if you dare.
For those who hate reading financials, and SEC documentation, let me summarize what I see happening, based upon the Series C Preferred Stock Conversion outlined in the recent 10-Q.
In a nut shell, there were 525 Series C Shares sold last December which became convertable on April 15, 1997. Shareholders may covert their $10,000/share investment (which earns 8% interest per year) into common shares either at a fix price of $3.25/share, or at 85% of the average "Closing Bid Price" during the five trading days leading up the conversion.
What I have noticed in the last two months is a significant increase in trading volume, which I believe is partially due to the conversion of Series C shares. Some Series C share holder may have already converted a portion of their preferred shares to common shares at 15% below market value, and held their shares pending the "News" of two weeks ago. Some, perhaps many, of those converted shares have been sold since?
Others, may be thinking...gee, the stock has been tanking since the news of two weeks ago. As soon as the conversion schedule will allow, "I'm converting and selling all, or a part, of my converted shares". "At least I got 8% interest for the time I held my preferred shares (i.e. 6 months, or 4%), and I've made an easy 15% on top of that...and I'm outta here...this is just too risky for me!".
The Series C shareholders have a significant ability to move the price of INCE "DOWN" during this time of transition simply by getting cold feet and selling their shares. A declining market, with no positive news, only encourages more converted shares to be sold. It's as if INCE is being "shorted".
Let's talk numbers: Last December 525 Series C shares were sold for $10,000 each. That's $5,250,000, of which 60% could be legally converted by now (April 15, May 15th, and June 15th; 20% of a shareholders shares can be converted each month starting 4/15/97).
$3,150,000 worth of Series C shares converted at 85% of the average common stock share price in the last 60 days (let's say the avg. share price has been $1/share in the past 60 days) means that over 3.7 million shares could have been converted and available for sale (or sold already)up until today.
At today's prices ($0.625 cents avg. 5 day close)$3.15 million convertable Series C shares equates to 5.9 million common shares available for sale ($0.625/.85 = $0.53125) ($3.15 million / $0.53125 = 5.93 million shares).
Taken to a more managable level: If shares are converted today, and sold, each $10,000 Series C share could be converted into roughly 20,000 shares (more likely 18,823 shares), and then sold for a profit by the owner (given their conversion rate of 85% of market value), all along dragging down the share price.
Now how many shares have been actually converted, at what price? That's anyone's guess, but the volume is very high for a Bulletin Board Stock, and you can imagine what kind of downward pressure the converted shares can put on the stock if sold after conversion.
If you look past the share price, which may be artificially effected by the scenario I've laid out, and look at the ITCO share price, newly assigned warrants, addition of the Technical Advisory Panel member, Dr. Shaw, if you believe Sigma 7 has the potential to be a $50 million, profitable, subsidiary, and that PIC has the same potential it had before, then you'll probably sleep better tonight.
Each person has to decide for themselves if there is hidden value in a company or not. I personally think the selling has gotten way out of control, and that the Series C shareholders are taking short term (narrow) profits on many of their shares and heading for potentially greener pastures. Hence the price gets hammered, since institutional buyers can't buy BB stocks (offering price support), and with all the recent turmoil, there are more sellers than there are opportunistic buyers.
My opinion: Once INCE proves Sigma 7 is profitable and growing, and if PIC finds an alliance parter....the selling should dry up. If the stock goes above $3.75 the Series C conversions should dry up too.
With all this said, I'm not buying more, because I can't afford too. But if someone has not averaged down yet, the time may be drawing closer to do that, if that person believes Sigma 7 is in the black, can grow further under Bauer, and that PIC will find an alliance. Perhaps it's prudent to wait until one or both are confirmed?
I'm not hawking shares....I own 35,000 at a $40,000 paper loss. I'm doing my due dilligence to determine how much trouble I've gotten myself into. So, far I think I'll come out in one piece, and I hope to make a decent return for my patience, but I'm not enjoying the ride down.
Hope this helps add some depth to the current picture.
Bill
From the recent 10-Q:
(snipped from approx page 10)
ITEM 2. CHANGES IN SECURITIES
On December 16, 1996, the Company completed an offering of 525 shares of Series C Preferred Stock (the "Series C Preferred Stock"). Each share of Series C Preferred Stock is convertible at the option of the holder into Common Stock as described below during the following period: (i) up to 20% of the Series C Preferred Stock initially issued to the holder at any time on and after April 15, 1997; and (ii) an additional 20% per month on the 15th day of each month thereafter; provided, however, that the holder of the Series C Preferred Stock may not convert more than 25% of the aggregate Series C Preferred Stock initially issued to such holder in any given one month period beginning April 15, 1997 and ending on April 15, 1998.
In general, each share of Series C Preferred Stock is convertible into shares of Common Stock pursuant to the following formula (the Conversion Formula") (800) x (N/365) + 10,000/Conversion Price (with N being the number of days that have expired between the date of conversion and December 16, 1996, and the "Conversion Price" being the lessor of: $3.25 (the "Fixed Conversion Price") or
85% of average closing bid price (the "Closing Bid Price") of the Common Stock for the five trading days immediately preceding the date of conversion (the "Variable Conversion Price")).>>>
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