I've done some more reading and some more calculating, and let me share three conclusions and then an overall assessment:
1. It looks like sales for the current fiscal year's third quarter are about $1.2 million compared to $1.1 million for last fiscal year's third quarter. So while there is solid, nearly 30%, growth in the nine month's comparison of sales, there is not that much growth in the third quarter over last year. In other words, the rate of sales growth has slowed, which is unfortunate after all the hype that had been given to the Wells-Fargo industry report that was emphasizing the phenomenal growth rate of the industry.
2. I've been focusing too much on Typenex/Iliad loans and not enough on this 18% loan from the TCA Global Credit Master Fund. See the following excerpt from the second quarter 10Q...
On December 24, 2015, we entered into a Senior Secured Credit Facility Agreement with TCA Global Credit Master Fund, LP (“TCA”). At the initial closing on December 24, 2015, we received gross proceeds of $750,000 and issued to TCA a Convertible Promissory Note in the principal amount of $750,000 (the “TCA Note”). The TCA Note is scheduled to mature on June 24, 2017 (the “Maturity Date”). At any time prior to the Maturity Date or the earlier termination of the Loan Agreement, we can request up to $9,250,000 of additional loans, which additional loans may be made in the sole discretion of TCA. We may prepay borrowings at any time, in whole or in part, without penalty.
The loan will accrue interest on the unpaid principal balance at an annual rate of 18%. We will make interest only payments of $11,250 on each of January 24, February 24 and March 24, 2016, and thereafter, will make payments of approximately $56,208 of principal and interest per month until the Maturity Date. In the event we are in default under the loan agreement with TCA or any related transaction document, including as a result of a default in our payment obligations, any amount due to TCA under the facility will, at TCA’s option, bear interest from the date due until such past due amount is paid in full at an annual rate of 22%. In addition, upon the occurrence and during the continuance of an event of default under the transaction documents, TCA may terminate its commitments to us and declare all of our obligations to TCA to be immediately due and payable.
3. It was actually a pretty serious negative event that the company didn't mention contemporaneously, rather than wait until earlier this week, to discuss the debt into equity conversion as of April 15 related to the Typenex/Iliad loan. Even if it took awhile to negotiate everything out, the fact that there was no cash repayment on April 15 should have been disclosed right away.
The overall assessment that I reach, which really hasn't been changed from some earlier posting, is that the company really needs to improve its capital structure (less debt - or at least "friendlier" debt - and more equity), and that all the activity in China, in Indonesia, and wherever else needs to be translated from merely a lot of process to actual results.
The capital needs are going to increase in order to be compliant with the new FDA regulations, even if there is some softening or some corrective legislation passed. The FDA will likely put a few competitors out of business, I would guess, and VHUB needs to be positioned to take advantage of the situation.
As the products the company makes are excellent per our vape-shop contingent on this board, my best guess is that the company will be sold, or that the equity infusion will be so large that it will require so many new shares to be issued that the company might just as well have been sold. This needs to happen in the next six months or the stock will get totally creamed by tax loss selling in the last two months of the calendar year.
Let's see if the 10Q when released (soon, I'd guess, as I'd believe that that it was held up so that the 8K could be released first) contains any narrative (or if a shortly subsequent press release contains any narrative) that resembles anything I've written this morning. This is a very legitimate company with some very real and immediate challenges, and I would believe that the overall market valuation of under a million dollars, based upon a stock price of a penny, already reflects the situation at hand. (But even if I'm right, I'm no great stock-picker, since I was bullish at twice the current price.)
