My $.02 on Ironridge, tho I have no real knowledge about trading intricacies or laws:
1) I agree withh Lucky that there are ways to short.
2) Ironridge has a double incentive to short into receiving shares
a) lower average price for shares to come
b) virtually lock in profit for a portion of the investment, making the overall return a much, much larger percentage
3) I agree with Bear that Ironridge does not have any real reason to sell received shares, until the price gets where they'd lioke, just like the rest of us. (like Solomon says, they are rational)
4) However, since they receive shares at 80% of the weighted average, $.60 may represent an acceptable return (well over 50%)
5) Therefore there may have been shorting up until now, and an incentive to keep the shares pinned until the $9M trading is through. (I doubt Ironridge can do this alone). Worse yet, there may be overhang at $.60 - $.75 also.
This may have been unavoidable: as LL shared, the loans came due, and there were no other ways to make good. However, imo, this was a major flaw in the way the company is run; that is, going all in for growth using optimistic assumptions, leaving no leeway for any needed cash outlays.
The downside for the shareholders is this overhang. It would have been way worse with more dilution. I think that Solomon did the honorable thing in retiring shares, and did not foresee the overhang problem. Clearly he has an operational bent and a long term view, as he should. But the depressed share price hurts the company in the long run too, as he can't raise funds through equity at a proper valuation, when he needs the cash most.
I sincerely hope a lesson was learned.
My $.02, and probably worth about that.
AI
