NanoViricides Inc. (NNVC)

[KMBJN]

It appears Boniuk and 3 other investors put up $6M on 2/1/13

"For so long as the Debentures remain unpaid, the Registrant shall issue additional interest to the subscribers as follows: (i) at the Closing of the Debenture (the “Closing”), a number of shares of restricted Common Stock equal to the principal amount of the Debenture multiplied by 0.33; (ii) on the first anniversary of the Closing, a number of shares of Common Stock equal to the principal amount of the Debenture multiplied by 0.33;(iii) on the second anniversary of the Closing, a number of shares of Common Stock equal to the principal amount of the Debenture multiplied by 0.34 (collectively, with subsection (ii), the “Interest Shares”);"

If Boniuk himself invested $4M, then he gets ~$1.3M worth of shares at years 0, 1, and 2, at a price of $3.50/share = $1.3M/$3.50 = 190477*2 shares.

I think the calculation makes sense, but on looking further I think that calculation is wrong.

If I read the 8-K correctly, investors collect 100% of additional interest on their principal in the form of restricted shares, payable as 1/3 of principal on closing (2/1/13), 1/3 after one year (2/1/14), and the final 1/3 after two years (2/1/15).

His charitable foundation got the exact same number of interest shares last year, 190,477, as this year, to make a total after this year of 380,954. So, the "original principal" number of shares was 190,477*3 = 577,203 (after 1:3.5 reverse split, 2,020,211 before). On 2/1/13, the share price was $.50 ($1.75 after 1:3.5 reverse split). So the original principal for Boniuk was $1.01M for 577,203 shares at $1.75. He gets "additional interest shares" totaling 577,203 (1/3 every year). Now that the stock has doubled from the offering, he stands to quadruple his initial investment just in "additional interest."

If this is true, I think the terms of the funding stink very badly. Maybe NNVC was really desperate back then for cash, but I don't see they would be that desperate to give an 8% cash return annually plus the original principal back in shares (a 100% return if the stock stayed the same price). Maybe someone else knows how often this happens in financing, to give additional interest on debentures.

Now the "interest shares" are restricted, so maybe he can't sell them for a while, and thus they could possibly become worthless by the time he's allowed to sell them?

Also, it seems the debenture is unsecured, meaning if NNVC went bankrupt by 2/1/17, then investors would get none of their principal back. Maybe the interest shares were needed enticement?

Here's the original PR describing the transaction:

http://uk.reuters.com/article/2013/02/04/ct-nanoviricides-idUSnBw8pLXQVa+11e+BSW20130204

"The debentures bear an interest rate of 8% p.a., an additional interest payable in restricted common stock of 0.33, 0.33, and 0.34 shares in year 1, 2, and 3 respectively, and an additional interest of 0.33 warrants to be issued in the fourth year, per $1 of principal. "

The 8-K says 0.33 of the principal amount of shares, not 0.33 "shares."

I dunno, maybe Boniuk and investors somehow swindled the company (incompetent financing?, unlikely), the company gave him an incredible deal (more probable), or there is something we are missing.

Maybe they don't get their principal back as $, they only get the "additional interest" shares? If so, this would make perfect sense. Unfortunately, that does not seem to be the case.

It would be great if someone more knowledgeable with corporate financing, SEC forms, accounting, and such, could chime in.


P.S. How does that 2/1/13 financing compare with the $5M 10% debenture to Boniuk on 7/2/14:

http://biz.yahoo.com/e/140709/nnvc8-k.html

There is "additional interest" there too, of 187,000 shares of Preferred stock, essentially worthless unless converted into common stock in the event of a merger / buyout / loss of control of the company.


Hmmm, maybe it would be worthwhile to look at the terms of some of these financings more closely. Thanks, LR, for bringing such things that don't make much sense to our attention.