Much has been discussed over the last 24 hrs and there is very little I can offer that hasn't already been said.
I do have a couple of comments though, the first being the flo thru aspect of it. LTGOLDBULL pretty much summed it up, but I would like to add a couple of points. I do participate in them on a regular basis and know a few of the pros and cons. The biggest point is, of course, the tax advantage, but it hasn't been emphasized enough. This is all based on holding the shares for at least 1 year.The real reason I would consider this placement is the timing. If I was to purchase 50k shares @.8=$40k, I get a tax write off for $40k. In a 50% tax bracket that amounts to $20k saving. If I sell next year for $1/sh=$50k, I pay 50k/2x50%=$12,500. I will have received $57,500 for a $40k investment.Add to that the fact that the $40k is only invested up until april 2009 because at that time I would receive my refund (or reduced payment for other income). The net result is that I only will have $20k invested long term.
If I use this $40k now to purchase 66,600 shares on the market, and sell them next year for the same $1, I will gross $66,600 or net 26,600, and have a tax bill of $6,650 and a profit of $19,950, or $2,450 more than using the flo thru
The above exercise involves being in the top tax bracket. anyone that is less than that would have less to gain from the flowthru aspect. I also just used $1 selling price since anything above .8 and te gain is equal either way. There is clearly no advantage to the flow thru aspect. So why would they be doing it now with the SP so low. My only answer is that they want the PP now because that is the only way they can obtain the amount of shares they desire without driving the SP up drastically. This also indicates to me that buying at the present SP might be a wise move.
One other thing to consider though. The pricing of a PP requires that they use the average of the last ten days (or something similar).It is not unheard of to get most of the opposition out of the way, and as the SP is now lower, thay could reprice it to .60 or less.
Regards
K
