Peter,

If I purchased 2 million shares in the placement and received 1 million warrants on the deal I have until the expiration in April of 2013 to either exercise my warrants (send the company a check for $1.7 million dollars and they send me 1 million shares of common stock) or do nothing and my right to buy stock at $1.70 expires)

The stock is over $2.00 (AS IT WAS A YEAR AGO) A financial investor or arb (a short term investor who cares about the price movements) will take advantage of the stock being above the exercise price by shorting the stock (it is loaned to them by the banks). At some point the person who is short the stock will have to cover (buy it back) to exit out of their position. In this case, if I hold 1 million warrants I may be short 700,000 shares of stock, hence locking in those gains. If the stock continues to rise I will continue shorting the remaining 300,000 shares to lock that in. If the stock falls under $1.70 before the expiration date in April I will buy those shares back to cover the short. If the stock continues to rise I will exercise the warrants (see above) and take the million shares of stock the company sends me to cover the short. Although if the stock continues to rise and the bank that loaned me the shares of stock recalls the shares they loaned me (before the expiration date) I will be forced to exercise my warrants to cover the short.

If you recall this time last year there was a large short, it disappeared in the summer when the stock fell. That warrant holder made their money by covering their hedge. They are shorting it again. This is how arbs make a lot of money.

It is nothing to worry about, they are just selling their shares earlier. They are being gobbled up by new investors.

This could be a $10 stock next year.

GC