Nantahala Capital Management Discloses Stake in Scientific Learning Corp (SCIL) ~ market folly

Tuesday, April 10, 2012

Nantahala Capital Management Discloses Stake in Scientific Learning Corp (SCIL)

Wilmot Harkey's hedge fund Nantahala Capital Management filed a 13G with the SEC regarding shares of Scientific Learning Corp (SCIL). In it, they reveal a 7.79% ownership stake in the company with 1,849,672 shares.

The filing was made due to activity on March 28th, 2012. On that date, Scientific Learning had settled a private placement of $7.2 million worth of common stock and warrants. The company sold 4.2 million shares of stock and warrants representing 2.5 million shares. These warrants have an exercise price of $1.82.

This is a newly revealed position for the hedge fund as they did not report owning a stake in their last disclosure as of December 31st, 2011.

About Nantahala Capital

This is the first time we've covered Nantahala's movements so here's some background: The hedge fund runs a fundamental strategy with a primary focus on small cap stocks. They have a market-neutral discipline as they take a balanced risk management approach (their long book resembles their short book). They focus on expected return on capital.

Though we haven't seen more recent numbers, as of mid-year 2010, Nantahala had seen a 19.2% net annualized return over 5 years. Wil Harkey founded the firm in 2004. Prior to founding Nantahala, he worked at Sagamore Hill Capital where he focused on capital structure arbitrage. He earned his BA in Mathematics and Economics from Williams College.

Dan Mack joined as co-portfolio manager in 2007. Prior to that, he also worked at Sagamore Hill Capital focusing on event-driven and convertible arbitrage strategies. He earned is BS in Economics and a BSE in Computer Science and Engineering from the University of Pennsylvania.

About Scientific Learning

Per Google Finance, Scientific Learning Corp "distributes the Fast ForWord family of software. The Company creates educational software that accelerates learning by improving the processing efficiency of the brain. Its products are marketed primarily to K-12 schools. The Company’s products are marketed in 45 countries globally. It offers an online data analysis and reporting tool that uses algorithms to provide diagnostic and prescriptive information and intervention strategies."

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