Box Ships Inc (TEUFF)

[ivfk]

There is an open market for the preferred shares on the OTC Pink sheets under the symbol of TEUCF.

I don't know how exactly they handle the conversion but I believe they issue new shares which explains the rampant dilution. There is an SEC filing on the Box Ship web page which explains the details. Here is my simplified understanding as to how I it works:

The preferred shareholder agrees to convert one share of the preferred (TEUCF) at a value of $3.90 and convert it to a common at 40% discount to the lowest trading prices in a 21 day period. Let's say the TEUFF lowest share price in this period was 0.01. The conversion price would be 0.006 (40% discount). Under my simple example, the preferred shareholder would receive 650 newly issued common shares (TEUFF) for each relinquished preferred share (TEUCF).

The preferred shareholder foregoes all outstanding dividends that are owed to him which represents 9% of a $25 PAR value that has accrued over the last 2 years. Box Ship gets rid of their obligation and reduces the number of preferred shares while diluting the common shareholder.

You do the math. There are about 916,000 preferred shares outstanding minus the 36,000 that may have already been converted via the last note. The CEO still owns 22% (208,000). This leaves another 672,000 to be converted.

The only protection the common shareholder has is that the conversion note includes a anti-dilution clause under which the preferred shareholder can never own more than 4.99% of the total outstanding common shares. This is the part I don't understand. With this clause in place, how was it possible for the TEUFF common to grow from 2.9 Million O/S to almost 19 Million within a few weeks? Please chime in if this makes sense to you.