The way I understood the merger agreement, Preferred As were intended to have a liquidated preference of $10 million. Accordingly, instead of stating them at par value MDNT opted to use the stated value of the Preferreds to reflect $10,000,000 in the balance sheet. This is a subjective treatment but not illegal. If these were also redeemable at the option of the holder, they would be stated outside of equity and treated as a contingency or other commitments (after current/long term liability). It seems to me that the Preferred As were intended to mirror the assets that were exchanged for them hence recorded at their Stated Value of $1 per share. This is all fine but shareholders/investors alike must consider that valuation of these assets were not made available hence could also be subjective, very.
The presentation of these assets, liability and equity for the merger is fine but what I have doubts about is how Shapiro's issuance should be treated.
Manu alleged in his complaint that no consideration was given for this issuance but this may not be true since we now know that Shapiro holds/held debt in MDNT. We cannot know what portion of the current liability belongs to Shapiro and if he has forgiven or will forgive debt for taking the preferreds--this news could be coming. This is a possibility because if he weren't offering anything for the pfds, he just created a serious problem for himself as the new CEO because the $40MM to Preferred A must be offset by SOMETHING.
I personally have NEVER seen a split presentation of the same series of Preferred, meaning one portion (10 millions shares) presented at Stated Value and another portion presented at par value--I've seen a lot of creative accounting, trust me. They need to be consistent in their presentation so Preferred A must continue to show Stated Value at $1 per share. If the offsetting entry is what I think it is, things could go well on MDNT. BUT if it is the other entry, shit will hit the fan here for sure.
I have asked for comments from a few others about this issue and will share them as they come in.
Good night,
In God We Trust. All Others Must Pay Cash.
