The conversion conditions on the preferred shares include a clause that allows the holders to convert their preferred shares into common shares at "80% of the lowest closing price during 21 consecutive trading days ending on the trading day immediately prior to the conversion date, subject to a floor of $0.25 per share."
Each preferred share has a convertable value of $1040.00. The lowest closing price in the past 21 days is well below $0.25, meaning that a preferred share holder can currently convert each of their preferred shares into 4160 common shares.
So, just for argument's sake, let's say they short today at 30 cents. That's 4160 x $0.30 = $1248.00 against each preferred share they hold.
If the stock subsequently drops below $0.25 they have two options:
1) cover the short on the open market and retain their preferred shares. This would allow them to repeat at a later date. As an example, if they shorted @ $0.30 today and subsequently covered @ $0.17 they gross $0.13 x 4160 ($540.80) against each preferred share they continue to hold. Wash Rinse Repeat.
2) cover the short by converting their preferred shares. This would allow then to recoup the original purchase price of $1000 per unit they paid for each preferred share. They profit a gross of $248 per preferred share and recoup their original investment. Keep in mind they would still retain the warrants that were also part of the purchase of each $1000.00 unit.
If the stock continues to rise, their short is already covered. Of course if the stock price were to increase and maintain a higher price, they'd need to convert their preferred shares within 21 days of the last close at or below the floor price.
HOPIUM KILLS!
WARNING: Blind Faith Investing may require putting those who know the stock and have done their due diligence on ignore.
