Rain,
You may be right about this being a "thank you" to Iroquois. But from a financial standpoint, this feels like a terrible financial decision! In fact, it either speaks of crony capitalism at its worst (tho' that is how the game is played these days, but it doesn't make it right) or what does Iroquois know about VRNG that VRNG doesn't want to let out of the bag? (That's probably far fetched). Let's separate out the "thank you" part from the financials......
From what we supposedly know publicly, and according to your post of 64600, VRNG has $27 mil in cash and we were assured the debt would be paid off by July...because it looks like all the long term debt WAS the Iroquois note.
So...Scenario #1, VRNG straightforwardly pays off the 3.6 mill debt, leaving it debt free, non-diluted, and now, an extra $240K accrues to the bottom line each year as there is no longer an 8% interest payment on the principle. Now they have about 23-24 million in cash, good for 3 1/2 years of operation. All clean. If they need more, in this ZIRP environment, don't you think they could get a line of credit for a LOT less than 10% ??!! A company that is debt free having to pay 10% in this environment?? Highly doubtful. And if they can't get FliCharge going or patent monetization going to generate some revenue in THREE MORE YEARS, I think they need to find something else to do with their lives...
Scenario #2, which just occurred..
1) Immediate 6% dilution when no dilution was deemed necessary. This was basically a debt equity swap.
2) Debt and equity were NOT valued equally... debt was given a 25% premium to equity (1.80 share price as opposed to market value of 2.40)
3) Debt still remains on books at a HIGHER interest rate. ??Why on earth should VRNG be paying 10%?? leading to a interest charge of $175K per year that will NOT accrue to the bottom line!
4) There is benefit to ONLY ONE equity shareholder in this scenario.....Iroquois. The rest of us suffer the immediate dilution (partially, but not fully offset by the debt reduction).
5) Iroquois ends up with a guaranteed 10% return on 1.7 mill for another 12 months, and gets a 25% discount on 700K+ shares to the rest of us. AND, a seat on the board.
This is a sweetheart deal for Iroquois and a screwjob for the rest of equity holders, and the pps today reflects that. It is a breaking of the promise not to dilute, and an obfuscation of a very clearcut straightforward fiscal path that was outlined just weeks earlier (elimination of debt and no dilution).
Do we get a competent member on the BOD as you state? This deal is NOT in the best interest of the company. Therefore, if it is approved by the Iroquois guy, then i do not trust his judgment any more than was just demonstrated by the current BOD in approving this deal. Tremendous conflict of interest was just shown IMO.
Great.....now we have a member of the BOD with 700K shares, thus aligning his interests with ours. Yes, that could be a good thing, but why did we as owners of the company have to give him such a sweetheart deal? He could have easily accepted a 1:1 debt/equity swap if he wanted exposure to equity upside. That would not have moved the share price needle in the open market where purchasing 700K shares would have been impossible.
I don't know if this kind of transaction is illegal or just stupid, or just the political cost of capital, but there is NO WAY that this deal, which did NOT have to be done under any publicly known scenario to shareholders, holds up to the standard of "fiduciary duty to shareholders".
I'm glad I've got 85% of my holdings covered by a 2.0 March call, but I never thought it would get this close to being out of the money!! My faith in management has DEFINITELY been shaken, unless they provide some sort of explanation as to WHY this deal was necessary! or unless you, (Rain) or others on this board can give me a different scenario other than an obscenely expensive "THANK YOU" to Iroquois funded by shareholders.
