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

To: CalculatedRisk who wrote (4378)	3/7/1998 4:42:00 PM
From: CalculatedRisk	Read Replies (2) \| Respond to of 18691

All, more ZITL. A little wild speculation. We know the Zit and MD are desperate for cash. Based on available information, MD is just about out of cash. Zit loaned MD $1.5M in December; even though they have their own serious cash problems. Interestingly, BRCP (cash rich) did NOT loan MD any money. Zit also has a financing problem (as Roger pointed out). They probably cannot raise any additional capital until the debentures are converted. Now, what would happen if a rumor started that Zit was going to merge with MD? The stock would probably increase in value ... because most investors know very little about MD. With a nice jump in the stock price, the "Cayman" investors could convert with a hefty profit(see note). This would allow Zit to arrange another round of convertible preferred financing ... and for Zit to continue to support MD. If the Zit actually merged with MD, they would have to file an 8-K with the SEC, revealing MD's finances. IMO, this would devastate Zit's stock price. ... No ... a merger is not good for Zit. The best scenario is to have a rumor start about a merger, have the Cayman investors convert, arrange another round of financing ... and keep this pig flying! Regards, Bill Note: On Feb 11th Zit's stock price jumped from 10 5/8 to 13 5/8. The Cayman investors convert at 90% of the average of the previous five closing bid prices, about 9 «. Buy at 9 « ... sell at 13 5/8 ... looks like about 42% profit! Not bad. This seems to be the day the merger "rumor" started and corresponds to the day the WSJ ran an article that mentioned Zit. Hmmm ...