News: CM8 Crowd Mobile expands into China with SmartTrans partnership, page-29

Hi Brighton,

Well to begin with if JGB converted its entire loan into shares at 30c then that would equate to an additional 42.5M shares on the register (AU$12.76M initial drawdown) - assuming the company does not draw down any further than the initial amount (which it may).

There are currently 157M shares on issue plus about 30M options of various types, so fully diluted the 42.5M conversion shares would represent 42.5/187 = 22.7% dilution to existing shareholders.

But of course that doesn't mean the SP will decrease by 22.7% - because in the process of doing the conversion, the company has swapped its debt which has a value of AU$12.76M for equity - so the company is still then valued at 30c/share.

However after that what happens to the share price depends on what JGB does with its shares. I would expect them to sell them on to the market - this type of lending institution is normally not a cornerstone type of investor - they are in business to lend money and if possible add profit through the sale of conversion shares if the SP is favourable.

That being the case, I would not expect them to actually convert when the SP is 30c. They would be taking a risk that the SP may fall and then incur a loss on the sale of the shares, or hold them for a longer term to wait for the SP to be profitable. Much more likely, they will wait until the SP is at a healthy premium to 30c (I would guess at least 30-50%) and then convert at 30c - then they face very little if any risk of not making a healthy profit on those conversion shares. They will not be in a hurry to do this - in the meantime they earn their interest income from the debt with no risk, and if and only if the SP significantly exceeds the 30c conversion price would they convert some or all. Note: once they do, we can expect there to be a temporary overhang as they sell off those shares in an orderly manner so as not to depress the price. But if the conversion price is indeed set at around 28-30c, then we are talking about an overhang when the SP gets into the high 30's or low 40's - I can live with that (because I will probably have taken my profits by then too).

That's just my opinion on how it will work. I could be wrong.

Cheers, Sharks