ECIG
Yes, the conversion rate went from $5,00 to $3.27 as of September 2014. The one creating the problem with an alternative conversion price is the May 2014 convertible noteholder who also did a note exchange for the FIN promissory note.
Excerpt from the last 10Q regarding the May 2014 Convertible Note:
Conversion Price
The 4% Convertible Notes and the 4% Exchange Convertible Notes may be converted, in whole or in part, into shares of common stock at the option of the holder at any time and from time to time. The shares of common stock issuable upon conversion of the 4% Convertible Notes or the 4% Exchange Convertible Notes shall equal: (i) the principal amount of the note to be converted (plus accrued interest and unpaid late charges, if any) divided by (ii) a conversion price of $6.00, as adjusted from time to time. The conversion price is subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances. Additionally, subject to certain limited exceptions, if the Company issues any common stock or warrants or convertible debt entitling any person to acquire common stock at a per share purchase price that is less than the conversion price for the notes, such conversion price will be adjusted to that lower purchase price with certain limited exceptions. Also, the conversion price of the notes will be adjusted if the closing bid price for the Company’s common stock on November 26, 2014 is below the conversion price, in which case the original conversion price will automatically adjust to 70% of the lowest VWAP in the 15 trading days prior to such date. As of September 30, 2014, the conversion price for the 4% Convertible Notes and the 4% Exchange Convertible Notes was $5.83.
If you look at $ECIG's chart since November 26, 2014, you can see this note holder converting and potentially with the help of shorts/others manipulating VWAP down and down.
Since the last 10Q to yesterday, the O/S increased by ~20 million shares and I believe this note holder is the one converting, taking advantage of the 70% of VWAP clause.
The positive aspect of this is that even if all $5.7 million converted at 10c per share, it comes out to 57 million shares total increase to O/S and float. This, however, does not seem to be the case because it appears conversion started around December 1, 2014 when the PPS was slightly below $1 the session before on 11/28. As price decreases, we see an increasing volume with greatest volume in the 20c area and increasing volume in the 10c area. Close to 90 million shares traded since December 2014 with mean looking like this:
11. Dez. 2014 0,22 0,22 0,16 0,20 13.945.500 0,20
10. Dez. 2014 0,16 0,23 0,13 0,20 9.767.400 0,20
9. Dez. 2014 0,17 0,21 0,15 0,16 2.774.000 0,16
8. Dez. 2014 0,18 0,19 0,14 0,17 3.912.300 0,17
5. Dez. 2014 0,20 0,24 0,16 0,17 4.671.700 0,17
4. Dez. 2014 0,27 0,28 0,20 0,20 3.894.800 0,20
3. Dez. 2014 0,25 0,28 0,20 0,24 3.856.000 0,24
2. Dez. 2014 0,35 0,35 0,20 0,24 6.291.300 0,24
What I see here is shorts really taking advantage of this note conversion and driving price down. It's a serious over-reaction. I think this conversion could be done this week based on price/volume action so far. If in fact this noteholder is the one converting, the Company should be filing an 8-K to the effect to disclose the number of shares issued to them. Someone is converting as evidenced by the increase in O/S--this should be disclosed within 4 days of share issuance if they are not registered security.
Fundamentally, $ECIG still has $156MM in shareholder equity which comes out to about $1.50 per share with O/S at ~100MM. Some will argue that a big portion of $ECIG's assets are goodwill and that the company has considerable debt, but that is not how shareholder equity is to be assessed. Shareholder equity a relative measure of the company's overall capitalization which in this case is the value of equity issued + additional paid in capital - accumulated deficit. To this, you divide O/S.
I've noted that the company booked ~$9MM in impairment charges to goodwill as of last quarter. As long as the company continues to grow revenues and generate positive cash flow, impairment charges should remain minimal or a non-issue. The Company did not necessarily over pay for the acquisitions, they offset goodwill against issuance of common stock at a considerably higher price than where the stock is currently trading.
Another very interesting aspect of $ECIG's financials is the amount of warrants that are out there. All the warrants have been recognized as liabilities in the balance sheet. For 3 month ended September 30, 2014, the company recorded an income of $33 million in warrant and derivative fair value adjustment and another $38.3 million in income on advisory agreement warrants. Due to these adjustments, $ECIG actually recorded $37 million in book income or $0,51 per share for the quarter ended. What we can say about these warrants and derivatives for the 4th quarter is that $ECIG will book an enormous book income on all warrants out there, even bigger than what had been recorded during 3rd quarter due to the decline in the share price of its common stock!
It would not surprise me one bit if $ECIG finished the year with profits at this point.
In the meantime, the company must restructure its debt as a top priority and focus on generating revenues. The rest will take care of itself. As an additional consideration, they might want to buyback stock at this point and return them to treasury.
