This Corporate Action Seems Too Good To Be True

M

martingale

https://www.prnewswire.com/news-rel...s-offering-subscription-period-301087452.html

My understandings:

BIOL had a rights offering in July 2000. Before ex-date, BIOL was trading at around $0.5/shr.
So one could receive one such right after spending $0.5 to acquire one BIOL share.
One can then exercise this subscription right, to spend another $1000 to get one "unit", which includes
1) one convertible preferred and 2) 2500 five-year warrants (whereas each warrant has a strike of $0.4).

One can immediately convert the one convertible preferred to receive 2500 shares of BIOL (b/c par value for the convertible preferred is $1000 and the conversion price is $0.4), and sell such 2500 shares of BIOL to re-cover that $1000.

So one can pick up 2500 five-year warrants for free? This absolutely makes no sense.

What am I reading wrong in the news press?
 
This is capital raising of a company barely surviving, obtaining loans requiring minimum cash balances and on the verge of being delisted. I am surprised the market didn't punish them for this. This company will be pink sheet unless they do something quick.
 
I agree that it is certainly highly risky to have a long exposure to this.

But it still does not explain why there seemed to be free warrants available. The rights were indeed over-subscribed (many people did shell out that $1000 for units).

Was the company really "giving away the shop" to get cash to survive? Or more likely, did I just mis-understand the transaction terms?
 
Read the quarterly reports - run out cash, loans are contingent on keeping cash balance, delisting notice from Nasdaq
 
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