Friday, November 26

Roswell equity line: already terminated!

On Wednesday AEHI filed form 8-k with the SEC which outlines the terms of the equity line they arranged with Roswell on 11/22/10. I've had the time to dig a little deeper into this document.

It's an interesting agreement which I encourage you to read. I'll stay at the high level and just make a couple of points:

  1. AEHI needs to register the underlying shares with the SEC. Whether that will succeed is a big question given the likely focus the SEC has on the company currently. If the registration statement is not approved within one year the agreement terminates.
  2. Once the registration statement is effective AEHI can put a maximum of 1,500,000 shares every four weeks to Roswell for a period of three years, for a total of 58.5M shares or $37.4M at current market prices.
  3. Roswell will sell these shares into the market during a 15 business day period. They'll sell on average 100k shares per day if AEHI wants to take advantage of the entire 58.5M capacity of the agreement. I would estimate the real volume of the stock to be lower than 400k per day. So at 100k additional shares we're talking an 25% increase of selling pressure. That means much lower prices!
  4. AEHI can set a minimum price for the stock it sells to Roswell. That limits the volume that can be sold during a put. In the calculation of that volume limit (fake?) block trades >20k are not included!
  5. The agreement terminates if a SEC enforcement action occurs, if company or director or executives pursue actions that result in a civil judgement or a criminal conviction for fraud or misrepresentation or a felony against the company or its officers !!
In summary there are very substantial doubts whether the company will be able to pay its planned obligations with this equity line.

But there's one more very interesting thing: 

AEHI's right to put shares automatically and permanently terminates if any SEC filing since 12/31/2009 was not made on time.

Lets look at the 8-k filing for the change in articles of incorporations which became effective on 2/16/2010. It was filed on 2/24/2010, or 6 business days after the change. According to the SEC's form 8-k instructions the filing was due within 4 business days. Therefore the filing was two days late.

That means that AEHI's Roswell equity line has already automatically and permanently terminated!

I'll notify AEHI by email and lets see if they announce this material event within 4 business days on form 8-k! 

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