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Posted On: 10/11/2018 3:02:41 PM
Post# of 72440
Daubers, great post over there! I doubt the MFO has converted all the shares into Class A. The popular play is to convert some, sell immediately to drive the stock down, and convert more at a lower price. Another play is to short first (unlike Aspire, MFO is allowed to), then convert at a lower price and use some of the shares to cover. You may ask what if there’s great news and the stock is over $1? Well, the MFO can convert at a ceiling price of $0.31 to cover the short (at a loss), then exercise the warrants at $0.31 to make money. Yes, I know it’s not fair. IMO it’s the MFO’s best interest to see IPIX succeeds so they can make more money, but they also need to hedge themselves if IPIX fails.
http://coralcapital.com/toxic-financing-explained/
Preferred convertible is called death spiral for a reason. Leo is desperate because he has no other options. The siliver lining is Leo can buy back some of the preferred shares and cancel the warrants at 8% within a certain period. Also the first round is $2.2M, not $10M. In the near-term I expect a lot of selling pressure, but I don’t think the MFO can do too much damage to the stock. It’s encouraging to see the SP holding well today. Before the MFO decides to convert all the shares into Class A, they are our enemy. After the conversion, they are our friend, that is until they decide to exercise the warrants.
I’m not here to scare anyone. You guys know I don’t spread FUD. IPIX can still be saved if there’s a deal (sooner rather than later). BTD will also help and we should know before November 20. Even though the majority of companies with toxic finaning don’t end well, IPIX is different because they have a signed term sheet. The fact that Leo only asked for $2.2M in the first round tells me the deal is expected to be finalized this quarter.
https://www.investopedia.com/terms/d/deathspiral.asp
http://coralcapital.com/toxic-financing-explained/
Preferred convertible is called death spiral for a reason. Leo is desperate because he has no other options. The siliver lining is Leo can buy back some of the preferred shares and cancel the warrants at 8% within a certain period. Also the first round is $2.2M, not $10M. In the near-term I expect a lot of selling pressure, but I don’t think the MFO can do too much damage to the stock. It’s encouraging to see the SP holding well today. Before the MFO decides to convert all the shares into Class A, they are our enemy. After the conversion, they are our friend, that is until they decide to exercise the warrants.
I’m not here to scare anyone. You guys know I don’t spread FUD. IPIX can still be saved if there’s a deal (sooner rather than later). BTD will also help and we should know before November 20. Even though the majority of companies with toxic finaning don’t end well, IPIX is different because they have a signed term sheet. The fact that Leo only asked for $2.2M in the first round tells me the deal is expected to be finalized this quarter.
Quote:
A company that seeks death spiral financing basically has no other option to raise money to survive. Traders who want to short the stock salivate at the prospect that the stock will dive. The only hope for the company to break the death spiral is to improve its operational results. If it can effectively deploy the proceeds of the convertible debt issue in its underlying business, it may be able to avoid the hopes of short sellers and even stick losses to them.
https://www.investopedia.com/terms/d/deathspiral.asp
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