Capital Growth Systems, Inc.(fka CGSYQ)

[hedge_fun]

DD on PIVOTAL GROUP....the asset purchaser

I got some clarification from Dan in IR with CGSY. It turns out I WAS WRONG ABOUT PIVOTAL OWNING 61.5%. I based my opinion on what the SEC says on it's website about Schedule 13D and why and when they are filed. The SEC says 13D's are to be filed within 10 after the stock purchase. I assumed the stock had been purchased.

Per Dan with IR, Pivotal actually HOLDs debentures that are convertible into common stock. Someone suggested this to me earlier, but didn't do a very good job INFORMING. Dan directed me to the 8K filed on 2/1/2011.

http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=7686563

The sale of the assets to Pivotal will be effected pursuant to an Amended Asset Purchase Agreement (“APA”) in the form attached as an Exhibit to this Form 8-K, and as may be amended to incorporate: (i) the terms of the Sale Order, to the extent it supersedes the foregoing, and (ii) certain agreements with parties to executory contracts being addressed in follow-up stipulations and orders. It contemplates the purchase of substantially all of the Debtors’ assets for a purchase price not to exceed $28,643,000, comprised of: (i) approximately $10,983,000, representing credit against the amount of estimated indebtedness on the debtor in possession facility through the closing date; (ii) not more than $8,660,000 representing sums necessary to fund cure amounts (including payments to mission critical vendors for certain pre-petition liabilities) and to fund priority claims and administrative expenses of the Debtors’ estate, including professional fees and amounts needed to wind down the estates; and (iii) $9,000,000 representing a credit bid amount against pre-petition secured loans; plus also the undertaking of Pivotal to assume certain agreed upon assumed liabilities of the Debtors. The APA contemplates the retention of certain retained causes of action by the Debtors.

This is from the Schedule 13D filed 12/12/2010.

2 The securities held by Pivotal Global Capacity, LLC consist of debentures immediately convertible into 195,454,028 shares of the Issuer’s common stock, $0.0001 par value, and warrants immediately exercisable to acquire 73,765,625 shares of the of the Issuer’s common stock, $0.0001 par value.

http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=7626703

Let do some simple math;

With a price per share of .10 those debentures are worth $19.5MM
195,454,028 x .10 = $19,545,402.80.

At .20 it's $39,090,805.60 That would represent about a 40% ROI by Pivotal Group.

BREAK EVEN is around .15 per share without exercising the warrants.

Now they could just take the corporate bond rate and not convert those shares, but what about the warrants? They can still exercise those as well. The could convert them all and break even in the .12 area, right?

Why would they take a bond rate over a VERY LIKELY chance that a REVERSE ACQUISTION would take the price per share MUCH HIGHER than .20 with Pivotal's current assets, and the ROI could be much higher than a corporate bond rate of a few percent.

Who is Pivotal Group? They have been approved by the court to BUY CGSY out of bankruptcy.

http://www.pivotalgroup.com/

Convertible debentures defined and explained......

A type of loan issued by a company that can be converted into stock by the holder and, under certain circumstances, the issuer of the bond. By adding the convertibility option the issuer pays a lower interest rate on the loan compared to if there was no option to convert. These instruments are used by companies to obtain the capital they need to grow or maintain the business.

Convertible debentures are different from convertible bonds because debentures are unsecured; in the event of bankruptcy the debentures would be paid after other fixed income holders.

http://www.investopedia.com/terms/c/convertibledebenture.asp

IN MY OPINION, this is bigger than I thought because I can put numbers on the page, and understand WHY Pivotal sought to purchase the debt of CGSY.

The way I see it, Pivotal may even have OTHER clients that want to go public.

The CONVERTIBLE option means that the interest rate is LOWER on the debenture.

I'm just trying to follow the money...............

Of course they could CANCEL the stock, and kill the MORAL of those insiders that NOW work UNDER them through the asset purchase. Then sell the shell for a few hundred thousand, right?

Or Pivotal can be CAPITALIST PIGS, like me, and make their NEW employees very happy by making the EXISTING shares and shell INCREASE IN VALUE, even if they sold it off to a client that wanted to go PUBLIC.

Of course it's just speculation. Some may suggest that CGSY is done. They can chose to believe that if they wish. I don't think it shows VISION.

I just see TONS of possibilites.

Many companies fall when bankruptcy occurs, CGSY is still functioning thanks to Pivotal Group, and the creditors are going to get PAID.