Charles,
I wanted to read your points carefully and so it took some time to respond. I had some meetings whole of today.
1. The S-3 dated 9/26 relates to 2,580 of the 5,000 Pfd. B shares issued in April. (I don't know why all of them weren't shown.)
2420 convertible preferred stocks have already been converted; I have checked this out.
2. Maybe he [Sankar] was thinking, "they want to convert to common now at 6/share and then immediately sell at 6/share to get out of this
investment."
Ordinarily, any interest to convert is a strong bullish sign. My only fear (which got perpetuated as the price began falling) was that the convertible preferred stockholders could short-sell. Suppose by doing so they bring the price down to $6 from $9. Then they demand CTYS to issue the shares at $6 and use these shares to cover their position and get out. This results in a 50% ((9-6)/6) return on their investment in a matter of months. This is my FEAR because such a strategy is financially rewarding if it is not illegal/unethical.
The other alternative is that when a few ex-directors sold at least two blocks of 100,000 shares, the price fell dramatically because this is a thinly traded stock. This was on Tuesday. Short-sellers then got into action and began selling. Clearly, the stock has a support at $6. Did you notice that the low of yesterday as well as of today was 5 11/16. This is a price below which short-sellers are unwilling to sell it seems.
3. As far as the April buyers of the pfd. B who can now convert 33% of their shares to common, the question they have to ask themselves is: would it be better to keep the 6% dividend, or forego it and convert to common, ...
CTYS by choice can pay the dividend in shares.
4. On the special event for pre-mature conversion: This really intrigues me. This is an important point to keep in mind to hang on to our holdings or add more.
A. It is possible that the special event is either a sell-out of CTYS (which is not apparent) or a good earnings report and a resolution of the UK problem that might have prompted the convertible preferred stockholders to ask for conversion at a lower price.
B. The other special event could be bad earnings and so the convertible preferred stockholders wanted to short enough shares now to lock in a hefty profit from conversion and covering their short positions after the price falls. This appears unethical, if not illegal, because these shares are not yet offered for sale and hence (short-sale).
Please jump in to give your opinion on whether A or B could be true. I am inclined to believe in B, but cannot trust the money makers.
Sankar |
