People can use all kinds of models and assumptions but there are key issues and dynamics that will significantly impact this stock price. Some interrelate and impact another issue. But here is what I’m looking at.
1 – There are 25 million warrants at 50% of average trading price that will be exercised in next 19 months. They will do a cashless exercise and thus be 12.5 million. These shares will certainly be sold into the market. That means there has to be volume to support this and the question is hold much downward pressure will this exert and when.
2 – The $421,000 in convertible debt almost certainly converts before its due in September 2015. These convert at 50%. At a6 cent stock price, this is 14 million more shares that will need to be absorbed into the market. A low stock price means more shares, a higher one means less
3 – So using the numbers above, the market needs to absorb 26.5 million shares between now and the September –December 2015 period. The question is how this dynamic alone impacts the shares price (downward or overhead supply)
4. – Fundamentals of NGHT and how this moves the stock price up or down and/or increases volume to better handle the large shares the market needs to absorb.
5 – Can NGHT generate enough cash flow to meet obligations and operating expenses such that it doesn’t need to do additional financing to fund W/C and operations? If not, there will be very significant dilution because their costs of capital will be very high. Additionally, this would negatively impact the stock price and cause even more dilution from the above. If they can generate adequate cash flow to meet the B/S obligations and operations, then the dynamics of 1-3 are in play, offset be better fundamentals. The unknown would be how much opportunity the stock has to rise from fundamentals and reducing the dilution from the debt conversion.
6 – Then you have the wildcard of any expansion efforts and whether this requires dilutive capital and/or negatively impacts operating margins to where this elevates that issue again.
So in summary, they need improving operating performance, combined with a significant increase in trading volume and an upward trending stock price. The status quo becomes problematic. Decreases spell significant trouble.
Some of these, especially the impact of convertibles and derivatives, combined with lower than needed trading volume are thing many don’t factor in (CEO’s, CFO’s, traders, investors, etc.). These will all combine to impact where things go over the short and medium term.
BTW, it’s good to see the S/A article author fess up and take a step back and attempt to have a credible discussion and perspective. Still a ways to go, but he’s getting in the neighborhood (except for this junk about the NBA All-star stuff in Q1 2013 and a few items).
AI
