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Microcap & Penny Stocks : Saliva Diagnostics (SALV) -- Ignore unavailable to you. Want to Upgrade?

To: rl who wrote (2118)	2/18/1998 3:03:00 AM
From: Eric Winterhalder	Read Replies (1) \| Respond to of 3369

I've been following this thread with some interest and find the posts of "rl" fairly close to the mark with regard to the probable outcome of the co preferred stock issuances. I wrote the following post some months ago regarding another co that appears to be very similar and might provide a good example of what could take place or has been taking place with SDS. <<<< Well it certainly looks like the co's continued issuance of floorless convertible securities has virtually killed this stock. I wouldn't count on 5/8 being the low as the series M holders have yet convert. In fact given the relatively low volume recently the series M holders could do some really nasty things to the stock: Follow my reasoning, I am a series M preferred holder of XXXX. I'll be getting 3% interest (dividend) on my $1.5MM. Now, I am a vulture, so I do not really care about the company, I try and maximize my profits. I look at the companies recent trading history and say, not much volume lately and there doesnt seem to be the same level of hype there was a few months ago..not too much upside potential...investors and traders are too wary.... too many unfulfilled statements by the company etc. So how can I make a killing? Well, here is what I do. The preferred stock is of the floorless variable conversion kind, and at today price they are convertible to somewhat more than 2.9 MM shares ($1,500,000/.6875 X .75). Well, I go and short 2.9 MM shares against the block (not all on the same day). Since the average trading in this stock is about 300,000 shares a day, such a huge new supply will bring the stock down quite sharply, how much I do not know, but for the sake of the current example, let's say to .50/share bid. Now let's say my average shorting price was 9/16 (bid will fall as stock is shorted) and I've shorted $2.9 MM shares of stock against the block. I'll receive $1.63 MM for the shorted stock so I've got my original investment back plus approx 8.5% profit, but I am real pig, now the shares are $.50, which with my conversion rate (75% and no floor) I can be short not 2.9 MM shares, but 4 MM shares ($1.5MM/.50 X .75), so I go and short another 1.1 MM shares at $.50. Say my ave shorting price was now 7/16, I collect another $480K which ups my profit to 40% . Guess what, the stock is now at say 3/8, I say great, I can be short 5.3 MM shares, so I short another 1.3 MM (5.3MM - 4 MM already shorted) shares and get get $415K (assuming ave shorting price of 5/16)and my profit grows to 68% on the original $1.5MM. If I want to stop here, I call the company and ask for conversion (after the restricted period ends), at 5/16 minus the discount, and deliver the shares against my short position and I've made over $1MM on my $1.5MM investment. Often, it does not stop there. Once the professional investment community starts to see a history of this type ( no floor convertible securities), the stock is avoided like the plague which actually helps to set up the scenario I just mentioned. Don't think it can't happen...believe me it does and its becoming more and more prevalent. Unfortunately many investors do not fully understand this new method of fleecing the co and the small investor.>>> I might also add that many cases these deals are made more attractive to the buyer by setting them up so that the preferred shares can bought on margin through the middleman or finder. Of course the money is paid back almost immediately from the initial short. Obviously this represents a very attractive and relatively low risk way of making money in this case. EW