Ed, let me try and explain the process again. Let us assume that the original "draw down" on the floorless was $2,000,000. (late last year) And let us also assume that all the PP are bandits (as Bernie is saying he and family are not bandits). Here is what happens, they go into the market and over a period short 5 MM shares at $.04, mind you they have not converted at $.40 they just shorted the shares. The stock then dropped in March to $.23 or so (actually, under the pressure of the new huge supply of sold shares from the bandits), they cover their short at let say, $.25 to $.30 for an average profit of $.125/share or a profit of $625,000, lets call this one, step 1. The stock is now in full rally and it increases back to $.375 (everyone is in heaven the stock has just gone up from $.23 to $.375 or more than 60%), the bandits get busy here and they short against their first $2 MM 5.3 MM shares, now the stock drops (once more, under the pressure of the shorts) and break the $.23 area, guess what, at $.23 they can short an additional 3.3 MM shares (for a total short position of 8.7 MM shares). Mind you, on their first shorting they got paid $2 MM, plus step 1 gain of $.625 MM, they already have $2.625 MM in pocket. The additional 3.3 MM shares shorted under $.23, let say at an average of $.20 brings in another $.675 MM, thus they are short 8.7 MM shares and have in their pocket, $3.3 MM. Now come the killer, the stock dropped straight to $.10 or so before it recovered to about $.13, they could have covered at $.10 and short again at $.13 (making another $250,000, but lets forget about that), but I will assume they covered none this time and only decided to short again at $.125, well the $2 MM piece of paper says that they can be short a total of 16 MM shares, but they are short only 8.7 MM, thus they short another 7.3 MM shares at let say, an average of $.12, they get paid another $. 875 MM, thus now they are short 16 MM share and have in their pocket $4.175 (they have already double their money). Well, let say that their next stop is around here (cover at $.06 and short at $.066, but once more let assume they no longer do any short covering), so how many shares can this original piece of paper of $2 MM share convert to? well about 32 MM shares, guess what, they go and short an additional 16 MM shares at 1/16, collecting another $1 MM, total money in they pocket has grown to $5.175 MM, they do the same again at $.03 for another million bucks. They have no fear of a run away, because they have a 5 days look back provision and a nice 30% discount cushion), if a miracle occurs and TSIG goes north above their last shorting, they deliver shares against the short from conversion.
The same will happen with the rest of the money they lend out (the whole situation described only the first $2 MM).
They can do that because they have no "fear" of a short squeeze, because to cover their shorts they can always chose to convert their paper to stock rather then going into the market and buy shares. They can continue with this nefarious process until a major reverse split, or the company goes down the drain, or a positive cash flow miracle occurs, whichever comes first.
Mind you at our last step we already had 32 MM new shares, just for the first $2 MM, if you want to know how far we would be on the whole $10 MM multiply by 5, now you see why Gordon has asked for an additional 200 MM shares.
Zeev |
