The options were not issued in September 2012 because of a need...

The options were not issued in September 2012 because of a need for capital. They were issued at only 0.2 cents each and at that price were effectively a gift to shareholders. Understandably oversubscribed, the total issue raised only $5.4K and would appear to be hardly worth the effort. So why were they issued?

My reading is that CDYO were issued as smart forward planning to allow $10M to become available to meet the anticipated costs of the clinical trials program next year without the uncertainties of a rights issue or placement.

For holders to elect to convert them of course the CDY price will need to be higher than 3.4 cents next October. The reason for the current concentrated focus on obtaining high revenue growth from the OTC business I think is to support a much higher share price at the required time so that conversion will be certain.

Shareholders of the converted shares will not want to sell at a loss. They will only break even at a sale price of 3.4 cents plus what they paid to obtain the options as well (currently 1.6 cents). The current market therefore indicates a minimum CDY trading price of 5.0 cents at time of conversion, which says it does not appear to be concerned about an overhang.

On conversion the company will immediately be worth $10M more because of the cash injection. In recognition of this the market cap should increase by $10M at the same time that the converted shares become available to trade. The process therefore should be self-supporting of the share price and no dilution effect should occur.

As Tricky says, “surely a win win”.