Singing Machine Company Inc (MICS)

[NobleRoman]

My PF Warrant Theory.

This is the simplest explanation I've been able to find on Prepaid or prefunded warrants:

https://thebusinessprofessor.com/en_US/investments-trading-financial-markets/prepaid-warrant-definition

So basically, I think I finally undestand the "penny warrant" part of the original legalese. And some finance major, please step in and tell where I go wrong, IFF I do.

1. The warrants were issued at .30ish which were more expensive than the common at the time prior to the reverse split.

2. The company got its money up front. Just like the capital raise we just experienced. Pre-funded works the same way. Basically buying shares up front. But it's done that way by large holders of stock to avoid legal threshold limits. Becacuse unexercised warrants are not voteable shares, can't receive dividends, if any, and can expire worthless like a real warrant.

3. The penny warrant attachment is how they exercise them. An additional penny. It's a mere formality. They already paid 99% of the money up front. The "penny warrant" part of the legalese isn't new warrants. It's their cost to exercise each share which they already already paid for each share. You could think of it as a transaction cost. Like holding a period to stay under legal threshold limits.

4. With MICS, their PF warrants share count went through the reverse split. The .30 price did not. That part I don't understand on the filings. That needs explanation to me.

5. Now it seems by the preponderance of the evidence that they were exercised. What changed? My theory, and I haven't done the math and don't know which parties exactly used this loophole -- but my theory is that the dilution of the secondary changed the math. So that they could now own the shares above their previious legal threshold lmit without incurring new legal responsibilities that would occur as a significant owner.

6. I suspect they didn't anticipate a falling price. I don't see how they gained financially. They still paid more out of pocket than the total shares acquired. Because the OS of their PF warrants did adjust for the reverse split. So, they pay a penny for each one. Or why not 30 cents? Wait, I think I just answered my own question. The PENNY WARRANT would be 30 cents in the reverse split. It cost them .30 cents to per share to exercise. Which I assume also into our cash coffer. Along with the other 99% of that cost we already received (prepaid)

7. LIGHT BULB MOMENT. I think I solved my enigma. They paid a net cost HIGHER than the pre-split amount, which is even higher than this post-split amount. They just know they are in for the long haul, and took their voting rights and this was their plan all along. And take all the confusion out. Because of the secondary (dilution) they can own the shares without the additional legal responsilities.

I answered my question I think. That doesn't necessarily explain why our share drops more shares than the entire OS being traded several times over -- obviously a float changing hands between traders. A game of ping pong it seems . But, I think get it.... It's kinda easy to understand, actually...

I think what was also throwing me off is that I kept seeing a .30 price that did not seem to reverse split with the share count. Yet, it was a 30 for 1 reverse split. So the "penny warrant" attached became a 30-cent warrant, which just by coincidence was the same price as the original prefunded warrant, to my memory. So it created the illusion of no change.

They are NOT shorting. It's just damn confusing is all. Because they already paid more. A lot more. This is additional capital. But not additional dilution. The PF warrants won't expire worthless now. So, yes, they should have been included i the fully dilluted count, which is now the offical OS.

All existing warrants at $10.50 remaining are all clearly anti-dilutive to me. Even these PF warrants were too, in reality. They just wren't being properly understood by me as common shares. In reality, they were common shares. Yes, in theory they could expire worthless, but that would be ompletely illogical to do.