Replies to post #9929 on DNAprint Genomics (DNAG)

[DougS.]

BBB - shorting the stock as a hedge against shares that have been converted or are about to be converted won't work very well with DNAP unless the company completely falls apart. The problem is one of float size and volatility. DNAP is what one would call a "high beta" penny stock. It doesn't really trend but it's share price movement is often exaggerated (large) when compared to the otc market movement as a whole. This is why a lot of traders like to move in and out of it.

The problem with shorting on an institutional level is that your short position must be established on the open market and, as such, is exposed to the market. To cover that short you must either:

a) sell the original shares and then cover the short.
b) cover the short with the original shares.

Now if you were to establish that short position on a thinly traded stock with a small float then there is a very good chance that you will control the stock price. If you manage to place your sales carefully and walk the stock down (easier said than done because you need buyers to do this!) then you stand to make a hefty profit at the expense of the company. But what if you don't control the price or what if you have difficulty keeping a cap on the stock price due to inherent volatility, changes in market direction, news, etc? Well, you're screwed. You're flat out screwed. You've over committed yourself and now must eat a loss on your short which will only get worse as you cover.

Now given that the market is the market and none of us are seers, it's a given to say that anything can happen. Because anything can happen, the lender is going to be conservative. Hence a discount to market in convertible shares, hence payment in monthly increments, hence an option to cancel funding if things turn sour. But the lender will *NOT* put themselves in a position to hurt themselves. Shorting, by its nature, requires more calculation than going long. Shorters, generally speaking, are also better at managing risk. Would La Jolla Cove enter a funding agreement with the intent of going short? Don't know but I doubt it. If they did it would be much easier to do it with a scam company or a company that they were certain was close to failure.

Now they could sell their converted shares strait up. That's always an option if they don't like the risk they see in the company or the market.

Beyond that there is the issue of Goodwill. Athena relies on their reputation to bring in new clients and La Jolla Cove probably does too. That's very important. If they resort to shot gun wedding style deals between a lamb and a wolf then that really kills their future prospects.

I would also add that the convertible debenture is one of the most common funding arrangements in the investment world. And not just for penny stocks - every exchange and every size company (especially telcom and gold miners). There are many variations to it and each funding agreement needs to be analyzed as a unique event. There is no template by which to judge them because each company has a different business model, share structure and trading pattern.

[worktoplay]

BBBabe...I mentioned this on the other board so I might as well say it here as well. If you are a "sophisticated" or an "accredited" investor, I suggest you call Athena.

The La Jolla deal changed the picture on the PP, but there is another placement being worked out. Confidentiality will prevent you from discussing the details, but my understanding is that the PP terms are being adjusted to make them more in line with the La Jolla funding and the dollar value of the PP has been reduced, again, because they have adequate funding assurances from the La Jolla deal.

As far as La Jolla is concerned, in general you are correct, it is much in the company's and shareholders interest for the share price to be higher than lower. Keep in mind that outside of the $500K ($250K now and $250K when SEC approves), this agreement will not execute for 4 to 6 months. IMO, there will likely be several other developments in the interim. Probably a few that you can think of yourself. It is difficult to predict what the sp might be at that time.

As far as limits, there are usually caps on the low end and high end. The high end cap is designed to provide incentive for the VC to hold, the low end to limit dilution to some certain known maximum number of shares.

BBBabe, IMO the usual crowd is just intent on drumming up fear. Is there the potential for mischief...absolutely. But they seem to be a pretty legitimate outfit from what I can see. They are certainly NOT TBF.

Manti posted a few of the companies they are funding over on the RB board. He made it sound very negative, but if you go in and actually look at those companies, none of them appear to be spiralling down due to La Jolla. In fact, a couple of them are doing quite nicely. I don't know about the individual business plans, or soundness of the companies themselves, that would take more time.

So to make a long story short...they're going to have access to the $8 million they were seeking. The amount of dilution it will cause is very hard to predict. But what we do know is that they'll have the cash to enable them to deliver on the promise we have all believed was there.

If it works out well, the company has the potential to become "wildly" profitable in which case they will have plenty of money to buy back shares. If it goes poorly, none of us are going to be happy with our investments.

But at least we're going to finally watch the rubber meet the road. I for one am anxious to see where the road takes us.

Later,
W2P