Juli - you are correct. The financing for $8.5 million was done by NPCT, not INCE.... clearly NPCT preferred shares will be converted into NPCT common shares. The discounted convertibles are directly dilutive to NPCT shareholders as they are converted to common shares, and in turn INCE position in NPCT is also diluted(from 74% to less than 60%, more than likely).
If read literally, the NPCT financing package has already "closed" (see first line of INCE press release). Although it will be easier to figure out the potential dilution of the Series B & C shares after reading the 8K on August 7th, we can talk in broad numbers now.
The conversion price of the Series B shares is the lesser of: 110% of the average of the closing BID price for the common stock of Nanopierce on the date of closing OR 80% of the average of the Closing Bid Price for the five days preceding the conversion.
This seems to be written poorly, but in essence it seems to be saying:
If the "Closing Date" is taken as last Friday, for worst case purposes lets say the avg. closing bid price was $3.75. If NPCT requested cash today, and those preferred shares were eventually converted to common shares using the closing bid price of $3.75, then the conversion price to common shares might be $4.125 (110% of $3.75), or if we used the average of the last 5 days closing bid price of $2.7875, and we took 80% of that, we'd end up with a conversion price of $2.25.
So we have a wild @$$ guess of two conversion prices using the only data available today: $4.125 or $2.25. The lesser of the two is clearly $2.25.
$1.5 million divided by $4.125 is 363,636 shares, and by $2.25 would yield 666,666 shares. It would appear that without the details which the 8K will no doubt provide, it's difficult at best to determine the dilutive effect of the Series B discount convertibles on NPCT's outstanding share count, however approx. 666,666 share would be created using the conversion price of $2.25. Assuming the share price increases, this becomes the worst case scenario. Assuming the price drops in the long run, the picture worsens.
The incentive to fund the $1.5 million, and convert ASAP is clearly built into the structure of the Series B shares, which is obviously by design, since NPCT no doubt needs this cash NOW.
A very important missing piece to the puzzle is the "allowable timing" for conversion from preferred shares to common shares. The press releases don't say how quickly the preferred shares can be converted into common, which is a huge issue for those looking to PLAY this particular game. However, if the time frames are similar to the Series B/C shares INCE sold through private placement previously it could take less than 9 months for the conversions to be completed, and they could start as soon as 4 months.
The Series C shares if converted at a 17.5% discount from the average closing bid price preceding the date of conversion, and we used the worst case scenario (today's average closing price for the last five days) = $2.7875, $7 million dollars could convert into 3,056,768 shares of NPCT common stock. Of course the higher the price goes, the fewer number of share created; the lower...the higher number of shares, and the more dilutive.
The press release mentioned that there are 12,342,350 shares, and 11,747,111 shares are closely held, with 74% being held by INCE (or 9,133,339 shares...although I thought it was 7.5 million?). If the above shares are added into the count, just over 3.7 million shares, NPCT would end up with 16+ million shares outstanding. That would leave INCE shareholder with less than 60% ownership of NPCT.....
Of course all this is totally hypothetical, and remains academic until the 8K comes out. And the wild card in this story is the stock price at the time of conversion: As conversions are made, and shares are shorted during the process, the share price will drop, the number of shares created through the conversions can substantially increase. I hope that doesn't happen, because that is exactly what happened to INCE.
The process can drag on and on. Case in point: I'm pretty sure INCE still hasn't completed converting all 525 of the Series C preferred shares they sold, so who knows how that may effect the continued downward pressure on the stock even as NPCT moves higher in the near term. The INCE Series C shareholders still make 15% automatically on their conversion and they end up with a higher and higher percentage of ownership the lower the stock price falls.
That's the dangerous part of these discounted convertibles is they don't have a floor. The lower the price is driven, the higher the percentage of company ownership for preferred shareholders becomes. The unfortunate incentive is NOT to drive the stock price up, but to drive it DOWN.
It no doubt will be a great ride for those who can afford to take it in the short term.... The shorting will start almost as soon as the buying does, and when the conversions begin, and the selling that accompanies them...... NPCT's share price is going to be more volatile that any OTC:BB stock most will ever trade. Especially given NPCT's apparently small float.
If The Rocketeers jump in and work their magic, by buying up what little float there is....it's going to get interesting fast. There will be money made fast. This thing is going to turn into a circus, and will never again resemble an "investment" made in a viable company.
Other factors: As some have said it will likely be 2+ yrs before the PI Tech can be exploited, and don't forget that Louis D has a suit against Paul, and who knows how that is going to effect the fundamentals of NPCT. Who in their right mind is going to sign a deal with NPCT when doubt exists over who owns the patents. And don't forget Louis D has already developed a new version of NPCT that far exceeds the capabilities of his original patents)
Paul and his friends will come out smelling great financially on this, given the number of stock option shares they have gifted themselves. The big losers will remain INCE shareholders, who paid full price for the PI Technology only to have those assets ripped from their hands without proper compensation. It is upon the dead bodies of former INCE shareholders that the foundation of the current NPCT shell game is built. |
