Ann: Appendix 3B - Part Conversion of Convertible Security, page-42

Just a note on the conversion .... working out if there would be any value in manipulating the share price to gain a benefit from it.

Perhaps the best way to do this is to work out the cost per share, remembering three factors come in:
1. The original convertible note was purchased at a 10% discount
2. They have to pay a premium of 20% on the 5 day VWAP at conversion
3. There is 25.05% interest payable on the total amount

So, with a share price of S, and a cost price of C

C= S -10%+20%-25.05% = 0.8295S

So if the sp is 2.1c/share on conversion, the cost per share is 0.8295 x 2.1 = 1.742c per share. If we disregard the interest that they have had to pay on the money advanced so far (it would be relatively low, for only 3 months) and their costs, a sale price above that number will provide them with a profit.

So, even if they sell at 1.9c/share, they are still almost 10% up on the principal cost, and that's not bad for 3 months.

Because this is all worked out on a dollar amount ($350,000 per month), it really makes no difference to them what the share price is, because in percentage terms it is still them same. The only time they can gain is if they convert, and then hold as the sp rises to sell later, and they have shown no interest in playing that game thus far.

"The Night of the CN" continues .....