I agree with the need for more transparency moving forward, and hope management's current tack is driven by some master plan to outwit the Sykes and Moe's of the world.
I'll also accept your argument for the reverse split with 500mm O/S... it's a possibility.
But I've heard the arguments supporting the fact that the A/S was increased to facilitate short covering and it makes no sense to me at all.
As you know, when a legal short position is covered, a share is bought on the open market and it's returned to whom it was borrowed from.
When a naked short position is covered, a share is bought on the open market and because there is no one to return it to, it goes "poof" and returns to the thin air from which it came. The company does not need to create a reservoir of shares from which to cover, the shares are already out in the float. They need to be evaporated. Covering will do just that.
Where it gets interesting is the possibility that the rumors of massive company buybacks is true. It's possible that between Furth, RME, and the company, that the float is owned. Shorts would be forced to once again approach the company looking for shares, this time on their knees. Regardless, there is no scenario (except for one) that I know of that would require raising the A/S.
What's that scenario? I'm glad you asked. ;)
What if... and it's a big what if, we proceed with our reverse split and find ourselves with an O/S of 5mm shares and an A/S of 3 bil. Hardly equitable, and the shorts still haven't covered. So what if the company declared a massive stock dividend to re-balance the 'authorized capital structure'. For every share you own on the date of record you get 10 more from the treasury.
Think about this... and please feel free to correct me where I'm wrong here...
In this stock dividend scenario, if you're holding a short position, you have three choices:
1. Buy 10 shares on the open market on or before the day of the dividend and pay the dividend, keeping your short open.
2. Buy 1 share on the open market prior to the ex-divi date and cover your short.
3. Short 10 more shares on or before the day of the dividend and pay the dividend, keeping your short open.
Remember we're on the Reg Sho still, and naked shorting might be a bit more difficult. ;) That may make Option 3 impossible for most as the shares available to borrow diminish. So that leaves 1 and 2. Which one would you pick? I expect most would cover... close their short position prior to the ex-date so they would not be forced to pay the 10 share dividend.
Assuming a post-split O/S of 5mm, this would bump the O/S to 55mm, which still sucks against a 3 bil A/S, but it's a hell-of-a-lot better than the 5mm : 3 bil ratio.
Assuming a post-split O/S of 30mm (worst case), post dividend we would have a 330mm : 3 bil O/S to A/S ratio. (30mm + (30mm x 10)= 330mm)
Before y'all laugh this off, think about it. Short of a buyout, this may be the only way to get the shorts to cover. Shoot, a CUSIP change doesn't even necessarily force a cover. They could cover the day of the CUSIP change and re-open their short the day after, all done by shuffling paper.
My guess, no, my hope is that Moscowitz is taking this personal and will accept nothing less than yet another meeting with the shorts, this time on his terms, dicussing the terms of their surrender.
Thoughts please...
Market Data 
Markets 
AI
