Replies to post #103791 on NanoViricides Inc. (NNVC)

[loanranger]

Thanks for trying to sort out this very complicated mess, made more complicated by the failure, whether it comported with securities laws or not, of the company to file the actual agreement. I believe that your conclusion (repeated below) is generally correct and the gist of it is what's important...the rest of it is a matter of sorting out how the math matches up to the subsequent share issuances, made more complicated by the apparent fact that they weren't made according to the original schedule.

This is basically true, but I've found further evidence that sheds more light on it:
"It appears Boniuk and 3 other investors put up $6M on 2/1/13 "
From the 10-K following the agreement filing:
"On February 1, 2013, Dr. Boniuk and entities over which Dr. Boniuk has voting and dispositive power subscribed for $4,000,000 of the Registrant’s Unsecured 8% Coupon Series B Convertible Debentures."
Boniuk's Form 3 INITIAL STATEMENT OF BENEFICIAL OWNERSHIP filing, belatedly filed (I can't help myself) in July of 2013 after his appointment as director, reported that he indirectly held the following, based on his relationship with the indicated entities:
Common Stock 666,667 Held by Boniuk Charitable Foundation
Common Stock 666,667 Held by Boniuk Investments Ltd

The above suggested the following (to me):
The two entities each invested equal amounts in a $4 million debenture investment.

The 2013 10-K also included a statement about the debenture agreement that was just a smidgen clearer than the one in the original 8-K:
"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."
I found this easier to understand than "a number of shares of restricted Common Stock equal to the principal amount of the Debenture multiplied by 0.33", although they were apparently intended to mean the same thing. It provided for an interest calculation that avoided the dollar issue and just involves shares. (I was initially thrown off by the expectation that multiplying a dollar amount by a number would generate a dollar amount. Apparently something other than that was intended here.)
So I believe that it comports with the 666,667 shares that appeared on the Form 3 for each entity (apparently they decided to split the payments more precisely, using .333333 times $2 million), which would have represented the shares issued at the closing.


(Supplementary info in order to try to tie the Boniuk filings together:
In September of 2013 there was a "registered direct offering to institutional investors and accredited investors" that included a $2 million investment by Boniuk and $1 million by Boniuk Investments Ltd.. In post-split terms, "Units" were sold for $3.50 each with a single common share and a warrant exercisable at $5.25 comprising a unit. The cumulative common holding by Boniuk Investments Ltd. was
476,191 shares...285,714 from the new investment and 190,477 from the initial interest payment reported previously as 666,667 pre-split.)


The second payment of interest in shares was due "on the first anniversary of the Closing" per the 8-K filing about the debenture agreement. That would have been on 2/1/14. No filing was made at the time to indicate that a payment was made.


(More supplementary info:
The next Boniuk filing was made in July of this year for "shares of common stock (that) were acquired upon exercise of warrants issued to the Reporting Person on September 11, 2013". The number of shares is small, but the exercise price shown on this Form 4 ($3.50) differs from that which was reported in the 8-K that reported the deal ("and a warrant to purchase one share of Common Stock (“Warrant”), issuable upon exercise of the Warrant at the exercise price of $5.25 per share"). I don't know how that happened, but since it's not the current topic, I'll move on.
BTW, this filing also carries a reference to the 10% Coupon Series C Convertible Debenture and the Series A Convertible Preferred Stock, but I need to ignore them for now or this post could go on forever.)


(The next filing reports 100,000 shares purchased in late September and early October, apparently on the open market, by Boniuk personally.)


The filing made last week was to report the interest payments that were due to Boniuk Charitable Foundation
and Boniuk Investments Ltd on 2/1/14. The filing indicates that the shares were actually paid on 11/7/14....I know not why. Again, the two respective payments were each calculated as $2 million times .333333, and adjusted for the split.


I THINK that that sorts out the status and the calculation of the "additional interest" in shares for the 2/1/13 debenture as far as the Boniuk entities is concerned. It doesn't sort out anything at all regarding what possible justification could exist for it. I have to admit that I fell apart trying to follow the dollar aspects of your post, but I believe your conclusion gives a fair, if not perfect, characterization of the scope of the issue:
"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)."
It's not obvious because the company's presentation of the calculation is, forgive me, all f'ed up, but the additional interest could be more or less than 100% of their initial investment when all is said and done because it rides on the share price that exists when the restricted shares end up being sold. For instance, if the shares paid last week (190,477) could be sold at yesterday's close ($3.34), then the dollar value of that interest payment would be ~$636K. Three payments like that would fall about $100K short of the $2M investment. However, if the shares were paid on time (the closing price on 2/3 was $4.42) and could have been sold at that point, that dollar value would have been ~$842K. Three payments like that would result in total additional interest of over $2.5 million on the original interest of $2M. [A skeptic like me might think that the payment and filing were deferred to avoid someone (again, like me) pointing out at the time that the investors stood to get back significantly more than their investment in "additional interest" alone. Can you think of a GOOD reason....or any other reason....for deferring the payment and hence the report? It's only effect on the company is to add some shares to the outstanding share count. How rich does a guy have to be to "forget" for 9 months that he was due what could turn out to be a couple million bucks worth of shares?]
Neither calculation reflects the 8% base interest or the value of the additional interest warrants (which would currently be worthless based on their $3.50 exercise price).
The only conclusion that can be reached is that the investors in that debenture were granted an EXTRAORDINARY return by its terms...the kind of a return usually reserved for investors in a company in extremely desperate straits. Even the risk the investors took regarding the restricted nature of the stock wouldn't seem to justify the returns that the company offered.

http://www.sec.gov/cgi-bin/browse-edgar?CIK=0001580568&action=getcompany

I appreciate your help with this. It looked for a while there like there was no shareholder interest in it at all, in which case I wouldn't have looked into it further. I know that it seems weird, but it's a process that I find interesting. If I'm mistaken about any of it, I'm sure you'll let me know.


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

[loanranger]

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

For background, the deal was struck when the share price was $4.
Without getting too far into the detail of it, which by comparison is much easier to follow and far less "toxic", here's a link to the 8-K:
http://www.sec.gov/Archives/edgar/data/1379006/000114420414041983/v383420_8k.htm

The only thing that it has in common with the 2/1/13 deal is that neither agreement was provided as an exhibit with the filing. Again, I don't think that that's a violation, but it leaves investors relying on the interpretations provided in the PR and the text of the 8-K....an unnecessary lack of transparency in my opinion.

As you noted, the additional interest component is "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". They do have a voting preference of 9 common shares per preferred share, but that's no big deal.

The complications, which seems to be an obligatory component to these things, are in the contingencies for early repayment. The company CAN decide to pay off the debt early. The repayment can be made in one of two ways, the choice being made at the option of the HOLDER.
If he takes payment in shares when the share price is more than $5.25, he gets the amount of shares (951,381) that would be worth the $5M investment amount, meaning whatever premium over $5.25 exists at the time is his to keep. If he chooses cash, the interest from the date of the agreement is recalculated at a rate of 17% from the original agreement date.


I wonder if the same 2/1/13 agreement could, or would have been struck with Boniuk had he been a related party as he was when the July agreement was made. I suspect that there's a Code of Ethics kicking around somewhere that requires something like "terms commensurate with those available in the marketplace", which I don't think would be a reasonable characterization of the 2/1/2013 agreement.