How will the conversion terms of the preferred stock affect the dilution of existing shareholders?

The deal issues 7,000 × $1,000 preferred shares that each convert into 200 common shares (1,400,000 common shares total). At a $5‑per‑share conversion price, the preferred stock is effectively a “down‑round” instrument; if TNF’s common is trading above $5 when conversion is allowed, the preferred holders have a strong incentive to convert, instantly adding 1.4 million shares to the float. Assuming TNF’s current outstanding common base is roughly 30 million shares (the typical range for a small‑cap biotech), the conversion would dilute existing equity by about 4.5‑5 %. That dilution will shrink earnings‑per‑share and each shareholder’s ownership percentage, and it will increase the supply of shares, which can pressure the price unless the newly‑raised $7 million is deployed into value‑creating R&D or a near‑term catalyst.

From a technical standpoint, the $5 conversion floor creates a potential support level; the market often respects the price at which a large block of convertible securities could be exchanged for common stock. If the price stays comfortably above $5, conversion risk is high and the stock may experience a modest pull‑back as investors price in the upcoming dilution. Conversely, a sharp move below $5 could delay conversion and give the stock short‑term upside as the dilution threat recedes.

Trading take‑away: Monitor the conversion timetable and any covenants that could force earlier conversion (e.g., a “mandatory conversion” trigger tied to a market price). If the stock is trading well above $5 and the conversion window is near, consider a modest short position or a protective put to hedge the dilution‑driven downside. If the price is near or below $5, the dilution risk is muted and the $7 M infusion could be a catalyst—look for buying opportunities on bounce‑back patterns, especially if the company announces a concrete use of proceeds (e.g., a Phase II trial start). In either case, keep an eye on the post‑conversion share count and adjust your position size to reflect the new float.