The SB2 filing was prompted by the Dutchess debenture. VTSI borrowed $1.2mm from Dutchess. VTSI could either repay that in cash or with freely trading stock. VTSI hasn't had cash so Dutchess is repaid by systematically converting debt for common stock.
Two things happened beginning in early 2006. VTSI did some private placements of unregistered stock while Dutchess continued their normal conversions. Then the stock price started declining. At a lower share price it takes more shares to convert each dollar of debt.
VTSI blew through it's authorized capital and as we all know the shareholders approved an increase. But just because the capital has been increased, doesn't mean that the shares can be freely traded. Dutchess is contractually entitled to freely trading shares. The SB-2 is the mechanism to make freely trading shares available. They've done it before. It a customary practice for publicly traded companies and is cost effective compared to a full blown IPO.
With no SB-2, unless VTSI has found another mechanism to make registered shares available to Dutchess, then Dutchess isn't oonverting. From the last two quarterly filings, it doesn't appear that Dutchess has been converting to shares, nor does it appear that their debt is being extinguished. The remaining debenure matures this month. One has to wonder the magnitude of penalties that Dutchess has imposed if they can't convert.
There has been no announcement of a default or a material change, so my guess is that Dutchess hasn't called a default and is simply piling on non-cash penalties to the principal owed. At two cents per share, the potential is enormous. The market knows this.
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