OK, I see you're terribly confused as are others here on the Board. For those of you that have been questioning the clarity of the 8-K and PR, I have to disagree. It seems very clear to me as I'll try to explain. This post will address frog's fallacies as well, so bear with me.
First Issue:
I said:
Dutchess is taking 2,000,000 warrants in exchange for the $2,000,000 in "incentive debentures" attached to the DNAPrint Notes Payable.
To which the toad responded:
No they aren't. $2,000,000 is an imaginary upper limit.
Background:
The "Notes" referred to in the filing and PR were a series of Promissory Notes between an affiliate of Dutchess and DNAPrint. To be exact, the "affiliate" was Dutchess Private Equities Fund II, L.P. Each of the notes was non-interest bearing, meaning that the interest was built into the purchase price of the Note. For instance, they would issue a Note with a face amount of $840,000 for a purchase price of $700,000. The $140,000 difference between the face amount and purchase price would have been Dutchess's profit. But, the fund has to be repaid to receive the profit and with several of the Notes this has not occured.
Also attached to each Note was an "incentive debenture" that could be converted to DNAPrint shares at a predetermined rate. For instance, several of the debentures converted at $0.01/share.
You could look up each of the Notes mentioned in the 8-K or just go to the SB2/A, page 8 and see a table that summarizes the outstanding "incentive debentures". BTW, the total market price is approximately $2,000,000. Page 8 of the SB2/A also states that at March 31, 2007, the debentures would convert to 229,998,656 shares of DNAPrint stock if converted.
According to the PR AND the 8-K:
As full repayment for the Incentive Debentures, the Registrant would also issue a warrant for 2,000,000 shares of Pharmaceuticals' common stock to Dutchess which could be exercised at an exercise price of $0.01 per share (expiring July 31, 2012) If the balance on the Incentives Debentures at the time of the spin-off is less than $2,000,000, then DNAPrint will be deemed to have made a principal payment on the Notes in the amount of the shortfall.
I'm certain everyone here, with the exception of the toad, understands the first part of this paragraph. The Registrant (DNAPrint Genomics) would issue a warrant for 2 million shares of DNAPP, in "FULL REPAYMENT" for the $2,000,000 worth of incentive debentures. Nothing "imaginary" about that.
Second Issue:
I said:
Dutchess agreed to take "up to" 2,000,000 shares of DNAPrint Pharma (shares that don't exist yet in a company that doesn't exist yet) to discharge the other $4,000,000 in debt. That means if DNAPrint didn't pay them another nickel, Dutchess is willing to value (the non-existent) shares at $2.00/share and accept them as payment on DNAPrint's debt? I mean, that's what I see folks, unless someone can show me differently.
To which the toad responded:
This is different.
On July 24, 2007 the Registrant entered into a Letter Agreement with Dutchess whereby the Registrant will be permitted to repay a portion of the Notes and Incentive Debentures owed to Dutchess through the issuance of stock and warrants in a planned future spinoff of the Registrant’s wholly-owned subsidiary, DNAPrint Pharmaceuticals, Inc.
Note the significant difference from 'all' the current debt vs. a 'portion' of the Notes.
Under the terms of the Letter Agreement, Pharmaceuticals would issue up to 2,000,000 shares of its common stock to Dutchess after the spinoff as a payment on the Notes due by the Registrant to Dutchess.
Notice the significance of the word 'payment'.
So we have in summary, a fraction of the Dutchess debt (as opposed to the totality reported in the spin) being exchanged for a huge share of the new entity that includes not only a major ownership share but a guaranteed share of any income.
Background:
First of all, I didn't say "all", you did.
I think what has many of you confused, especially the toad, is that some of the terms used in the PR and the 8-K are indefinite. There is a very simple reason, in fact, it is the very reason I chose to highlight "up to" in my original post.
Quite simply, only "some" of the Notes will be paid with DNAPP shares because, as is stated in the 8-K "some" will be repaid with the 4% of DNAPrint revenues, and "some" will be repaid with the 80% DNAPP Royalty Income (everyone here DOES realize that at this point in time DNAPP HAS NO Royalty income).
There is also another source of potential repayment, which is, that if DNAPrint's share price were to rise, Dutchess COULD end up converting some of the "incentive debentures". These debentures convert at prices between $0.01 and $0.023, although realistically the DNAG price would probably have to be much higher for Dutchess to take that chance. None the less, there is a reason for this statement from the 8-K and PR:
If the balance on the Incentives Debentures at the time of the spin-off is less than $2,000,000, then DNAPrint will be deemed to have made a principal payment on the Notes in the amount of the shortfall.
In other words, let's say DNAG's share price rises and Dutchess chooses to convert a portion of the debentures. They're still going to get the 2,000,000 warrants, because the letter agreement is that..."As full repayment for the Incentive Debentures, the Registrant would also issue a warrant for 2,000,000 shares of Pharmaceuticals' common stock to Dutchess"...But, conversion of some of the debentures would lower the balance below $2,000,000, and that shortfall would then be applied "as a principal payment" on the "Notes".
I presume this is another reason the PR says that "up to" 2,000,000 shares of DNAPP will be issued on the Notes. If Dutchess were to convert some or all of the incentive debentures, the "shortfall" (the difference between the market value of the remaining debentures and $2,000,000) would be applied to the debt left on the "Notes" (not the debentures, the NOTES), and would therefore reduce the number of shares needed to be issued to satisfy the remaining Notes. Get it?
Final point, according to the SB2/A, the total value of unpaid Notes is $4,971,798 AS OF May 31, 2007. Presumably, DNAPrint has paid 40% of the proceeds from the Biofrontera shares to Dutchess for the months of June and July. If so, and including the $2,000,000 in "incentive debentures", that would place the total indebtedness at about $6.5 million.
Compare this amount to the PR:
DNAPrint® Genomics (OTC BB:DNAG.OB - News) today announced that it has reached a payment agreement with Dutchess Private Equities Fund, Ltd. ("Dutchess") whereby approximately $6 million in notes and incentive debentures may be paid in full by the issuance of stock and warrants in connection with a proposed spin-off of DNAPrint's wholly owned subsidiary, DNAPrint® Pharmaceuticals, Inc. ("Pharmaceuticals").
And of course, Gabriel's statement from the PR:
"We are genuinely pleased to reach this agreement with Dutchess, which could settle its DNAPrint® Genomics debt in full with the planned spin-off of the DNAPrint® Pharmaceuticals division and help to ensure the stability of the parent Company's finances," stated President and Chief Executive Officer Richard Gabriel.
So I have to ask the toad, since both the 8-K AND the PR were out at the time of my original post (everyone can see that because I clearly referred to both in the text) how EXACTLY do you justify this statement:
So we have in summary, a fraction of the Dutchess debt (as opposed to the totality reported in the spin) being exchanged for a huge share of the new entity that includes not only a major ownership share but a guaranteed share of any income.
The sole justification of a spin-off is to free the new entity from the overhead costs and debt of the parent company so that they can exploit their assets without having to be weighted down with that burden. This 'virtual' spin-off has already been loaded down and constrained before it has even been gotten off the ground.
To the contrary, per the letter agreement, the "spin-off" will end up issuing a MAXIMUM of 4,000,000 shares to "retire" $6,000,000 in debt. At that point, neither the parent NOR the spin-off will be "loaded down and constrained".
Lastly, you DO realize that all of this assumes that the spin-off takes place, which means that by the time the share exchange takes place, DNAPP WILL ALREADY be "off the ground". In the meantime, all we have to pay Dutchess for the $5,000,000 in Notes is about $28,000/quarter.
Again, I'd say that's a pretty good deal. But as always, this is just my humble opinion. Please do your own due diligence and make your own investment decisions.
Later,
W2P
