Replies to post #340297 on Innovation Pharmaceuticals Inc (IPIX)

[olden_grumpini]

The holder will make money no matter the share price and can convert preferred to common in a short period of time. I gathered some info this weekend.

For starters, each preferred share with a purchase price of $982.50 is immediately given a stated value of $1,080 (that’s 10%). Next, the purchase criteria you outlined guarantee that all purchases will be made below the current share price. To give you an example, if preferred shares are converted to common shares tomorrow, the effective conversion cost is $0.1332 per share. This is arrived at by taking the lowest VWAP for the past 10 trading days ($0.1741 on Jan 13th), applying the 10% discount for the difference between purchase price and stated value, then applying the 15% discount as part of purchase terms. The $0.1332 conversion cost will be in effect even if the stock price goes up for the next 7 trading sessions.

How quickly can preferred be converted to common at this price? Here’s what IPIX included in the 8k:

The holders of the preferred stock are limited in the amount of stated value of the preferred stock they can convert on any trading day. The conversion cap limits conversions by the holders to the greater of $75,000 and an amount equal to 30% of the aggregate dollar trading volume of the Company’s common stock for the five trading days immediately preceding, and including, the conversion date. However, the conversion cap will be increased if the trading volume in the first 30 minutes of any trading session exceeds certain trailing average daily volume amounts. In addition, the holders of the preferred stock may not convert shares of preferred stock if, after giving effect to the conversion, a holder together with its affiliates would beneficially own in excess of 9.99% of the outstanding shares of the Company’s common stock.

My eye goes to $75,000, but this is a ruse. The real number is 30% of the aggregate dollar trading volume. Here are the aggregate dollar trading volumes that would be used for conversions as of Friday:
1/8 -- $122,895
1/11 -- $111,403
1/12 -- $117,471
1/13 -- $144,057
1/14 -- $1,783,839
1/15 -- $744,865

If the holder converted preferred to common this past Friday they would have been able to convert $907,359 of their preferred shares and received 6,812,695 shares of common. One day.

The combination of discounted share price and 30% of aggregate dollar trading volume means that the preferred can be converted to common in a very short period of time. In fact, they can be converted faster than they can be sold. Since Dec 8th to last Friday, 23,847,710 shares of IPIX were traded. In that same timeframe the holder could have converted preferred shares to yield 53,788,034 shares of common and they would still have 2,738 preferred shares left from the first closing if they exercised the warrants. The only thing limiting the number of shares they can convert is the 9.99% cap on ownership (35,564,000 shares based on number outstanding at time deal was struck).

Fun fact, any shares they convert on Friday and sell on Monday at $0.23 would gross 72% profit. Not bad.