"Investors don't seem to notice the fact that the big licensing agreement isn't supported by an 8-K form or an official filing of any sort. They do notice, however, that according to the press release, the deal was supposed to be finalized before May 11, so they automatically assume that VTEQ's bank account has now grown by $1.75 million. But what sort of impact will this amount of money make on the company's balance sheet?
"Let's open the 2014 10-K and find out. The most important figures are listed below:
cash: $77 thousand
current assets: $186 thousand
current liabilities: $7.38 million
yearly revenues: $151 thousand
yearly operating expenses: $7.6 million
"As you can see, $1.75 million might not be enough, especially with the colossal amount of debt. And this brings us neatly on to VTEQ's biggest problem.
"A vast portion of the company's liabilities consists of convertible notes which can be turned into common shares at truly horrific discounts. This, in turn, led to some absolutely devastating dilution. The number of authorized shares grew from just over 34 million on August 15, 2014 all the way to around 1.2 billion on February 10, 2015.
"The 1 for 1,000 reverse split then reduced it to around 1.2 million, but unfortunately, the stock issuance didn't stop. The 10-K said that the O/S count was sitting at around 30 million in mid-April and a Schedule 13 form from yesterday informed us that it's now hovering around 383 million. In other words, in a matter of just three months the stock was diluted by a mind-boggling 32,000%.
"We'll leave it up to you to decide whether $1.75 million really is enough to offset the effects of the catastrophic dilution, but while you're at it, you might also want to check on the stock every now and then. In early trading today, VTEQ dropped back in the triple zeros and about thirty minutes after the opening bell, a quarter of yesterday's value is gone."
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