Let's look at the Broad situation for a moment.
Broad represents the investors in the private placement. Their conversions are based on a specific dollar value rather than shares. So for the sake of argument, let's use $500,000 per month to convert into shares. Ed and Jerry, you've both been around this stock long enough to know that when the price drops by an uncomfortable amount, there is always a decent recovery over a short period of time. I'm sure Broad knows this too. So all they have to do, is short sell their monthly allotment at say $2, driving the price down. Knowing they get the 15% discount, they short roughly 294,100 shares. Let's say the price drops to $1.5. That's when they convert. With the 15% discount, they convert to 392,150 shares or so. They then deliver 294,100 shares leaving them with 98,050 shares to sell on the open market when the rally hits. Let's say it goes back to $1.75 and they sell those remaining shares. So they shorted 294,100 at $2 for $588,200, and sold 98,050 at $1.75 for another $171,590 for a total of almost $760,000. Almost a 52% return.
If my reasoning and calculations are correct, you can see why they have been doing this without regard to the price of the stock. It is actually to their advantage to have a low price. They get more shares - spelled d-i-l-u-t-i-o-n to the company and us shareholders. At this point, I'm a little fuzzy on some of the details, but I think Broad can still convert under the new terms, but they have agreed not to sell those shares.
As I understand it, the re-negotiation took place in the middle of Broad converting in July, and as a result, they are now long the stock and will stay long for 6 months. Assuming the price rises to $4 or $5 by the time the 6 months is up, those 294,100 shares would be worth between $1,176,400 to $1,470,500. They must have been convinced of a higher price by then.
Up until now, it was obvious when they were converting. For the next 6 months, they will have to convert at higher prices - if they can under the new terms, but that's where I'm fuzzy - but we won't know it. The company had to give a little to get them to agree though. But there's a catch to that situation too.
I'm told there will be a news release regarding the re-negotiation. Hopefully it will spell out the terms. I've seen announcements like this boost other stocks, maybe it will help SCNG too.
I can see at least 3 or 4 news announcements coming out over the next 2 weeks. One to announce the re-negotiation and lock-up, one to announce the release of SV, one to announce actual 2Q results, and one (or more, hopefully) to announce the first sale(s) (and customer name(s)) of SV. The 2 week period prior to earnings announcement is when we usually get the best news - then it gets quiet again. It would be nice to see the noise level stay up for a while for a change.
Although everyone has anxiously awaited the actual release of SV and the announcement of the first sale, I, for one, would be happy to wait a little longer if it meant they released a "good" product rather than see it released with "bugs" just to keep the shareholders happy.
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