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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: posthumousone who wrote (1956)	1/30/1998 10:49:00 AM
From: vegetarian	Read Replies (2) \| Respond to of 18691

Some points on your observations of floorless convertibles: -The price in practice can be driven much lower. The SEC limitation is only 20% dilution can be done (of outstanding stock) by issuing stock for convertibles, for more shares they need a shareholder approval or special NASDAQ permission. Remember in such companies, insiders are biggest shareholders and approval for more shares should not be a problem, in any case if they don't they have to redeem and burn cash (which they are already starved of) for this. They would much rather dilute shares than burn cash. The companies offering this deal can't obtain financing any other way and is not considered shareholder-friendly. -In practice other folks jump on the shorting train and drive the price much lower (look at CFON, they have not yet filed S-3, so the convertible holders will not convert, yet everyone drove the price down). In many cases when the stock is shorted down enough, the convertible holders do not have to convert, they can buy and cover their position and wait for the next pop to short; they can keep repeating this cycle as many times as it pops; in theory they need to convert only when the stock does not pop up any more (it becomes a penny stock), but by that time they have made a lot of money shorting the stock. The company is producing $5M MTA architecture computers and still struggling withthe prototype installation; the funds are not going to jump into this until they see orders lined up and a good enough demand. So long as they don't have revebues they will keep needing cash and in all probability keep making such offers. This one is a short, IMO. How are you playing this one?