More on the current status of convertible notes...
Post# of 7769
Posted On: 05/23/2014 11:37:18 AM
Re: Bsav88atty #3129
More on the current status of convertible notes...My one iHub post for the day:
The use of the term "friendly" comes straight from the company, so there is no intent to fabricate the company's prior statements. But for certainty, Scrips stated that as of December 2, 2014, its convertible note balance was as follows: $1,856,000 in convertible debt, of which $900,000 is in friendly hands (http://scripsamerica.com/q-a/). So it is apparent to me that the company has made a point to separate the friendly and unfriendly shares.
On March 31, 2014, the balance of the unfriendly notes was $107,864, and the balance of friendly notes -- with much more favorable terms -- was $761,174. And remember the remaining friendly notes are convertible at $0.17 and the maturity dates for many of these notes have already been extended by the "friendly" noteholders. Moreover, the company has reported principal payments on these friendly notes, and I anticipate more principal payments before maturity. Comparing this to the discounted toxic shares that have been dumped on the market as quickly as the toxic financiers could sell them, and it is easy to see why the company makes the distinction between friendly and unfriendly shares.
On a similar note, I anticipate the unfriendly note balance will be $0 within the next few weeks. I also believe 2 of the 3 toxic notes remaining on March 31st currently have a $0 balance. I further believe the remaining balance on the final toxic note (the toxic Typenex note with an initial principal balance of $227,500) will have a $0 balance after SCRC makes the third and final payment. That payment must be due very soon based on the timing of the prior payments. At that time, all of the toxic notes will be gone and the loyal and patient SCRC shareholders will have much to celebrate. Indeed, with the toxic shares out of the inventory, from a share structure and selling pressure perspective the shareholders need only deal with the day traders and flippers as the company continues charing forward to profitability and success.
Incidentally, I place no weight in opinions that the company-friendly shareholders will dump their shares, regardless of whether they were purchased on the open market, as part of a subscription agreement, converted at $0.17 as part of the remaining friendly convertible notes or received by some other form of compensation or payment. Even so, with the current trajectory of the impressive specialty pharmacy revenues, over the next several quarters, there will be a growing population of excited investors jumping into this little gem.
Good luck to all the loyal and patient longs, and have an enjoyable and restful holiday weekend.
Bsav88atty (these are only my opinions, for which I am not being compensated)
___________________________________________________________________
By the way, here are some details on the toxic notes for anyone who is interested (please excuse the mistakes and lack of organization below, I was in a hurry):
From pp. 23+ of the FY13 Q3 report:
(32) On August 16, 2013, the Company entered into a securities purchase agreement with Typenex Co. Investments LLC (“Typenex”) pursuant to which Typenex purchased from the Company an 8% convertible note. The Company received $180,000 in cash for an 8% convertible note payable with a principal amount of $227,500. We did incur a discount fee of $20,000 and paid a fee of $7,500 and a finder’s fee of $20,000. The accrued interest and principal are due on the maturity date of March 16, 2015. The conversion price is equal to a 35% discount to the average of the three lowest volume-weighted average trading prices of the Company’s common stock at the close of trading during the 20 trading day period prior the date of the notice of conversion. There is a prepayment charge of 135% of the principal amount outstanding and interest due at any time prior to maturity date.
Since this note has a convertible feature with a significant discount and could result in the note principal being converted to a variable number of the Company’s common shares, the instrument includes an embedded derivative. The fair value of the derivative associated with this note was determined by using the Black-Scholes pricing model with the following assumptions: no dividend yield, expected volatility of 185.4% risk-free interest rate of .12% and expected life of 19 months. The fair value of the derivative at the date issued amounted to $336,177 and was revalued at September 30, 2013 to be $343,460. The debt discount associated with this derivative is being amortized over the life of the note, but since the derivative liability at date of issuance was greater than the principal amount of the note the debt discount was valued at $227,500 and the Company expensed the difference of $128,677 to interest expense. The Company would have been required to issue 2,812,562 shares of common stock if Beaufort [sic] converted on September 30, 2013.
This note contains a cross-default provision, which means if the Company is in breach or default on any loan agreement the holder of this note, at its option, can consider this note in default. If this note is considered in default all unpaid principal and interest is due immediately if not cured within the applicable cure period. This note shall thereafter accrue interest at the rate of 22% per annum, compounding daily, but in no event shall the applicable interest rate at any time exceed the maximum interest rate allowed under applicable law.
From the Q1 10Q (p. 45): "On February 25, 2014, the Company issued 527,177 restricted shares of its common stock to Typenex Co Investment LLC for the conversion of a note in the principal amount of $63,261."
The company also announced it paid off some of the balance of this large note: Feb. 19, 2014 - SCRC...commenced the prepayment of its outstanding convertible debt by issuing the first payment on its convertible note with the largest principal and closest conversion date. (I could not pull up the link to this announcement.)
From the Q1 10Q (p. 45): "On March 26, 2014, the Company issued 488,460 restricted shares of its common stock to Typenex Co Investment LLC for the conversion of a note in the principal amount of $48,846."
Here is the link to the April 2, 2014 PR in which Scrips announced this second payment to Typenex -http://finance.yahoo.com/news/scripsamerica-issues-second-payment-largest-123000064.html. I initially assumed this payment was made during the quarter based on the Q1 10Q, which reported the principal of the Typenex note decreased to $132,142: 8% Variable Convertible notes payable: "As of March 31, 2014, (only one note is still outstanding) and December 31, 2013 the principal balance was $132,142 and $402,500, respectively...The Company would have been required to issue 2,312,542 and 6,044,978 of common stock if the lenders converted on March 31, 2014 and December 31, 2013, respectively..." (pp. 17-18).
On the debt table on page 15, however, Scrips reported the balance for the 8% variable unfriendly notes was only $50,842. So unless I am reading the Q1 report incorrectly, there is an $81,300 discrepancy contained in the report regarding the remaining Typenex balance that existed on 3/31/14. That said, based on where the "$50,842" was inserted in the report, how it was listed, and my rose-colored glasses, I strongly believe the $50K amount listed in the debt table was accurate. Note also that the Q1 report stated only one of the 8% convertible variable notes remained on 3/31/14, which must be the Typenex note.
It also appears that with each payment Typenex is also receiving shares. So perhaps the company makes half of its principal payments in cash and the remaining balance in discounted shares. Assuming the 35% conversion discount, if half the remaining balance converts at about $0.062, this would add about 410K shares to the float. If so, I strongly believe this will be the LAST tranche of toxic shares to hit the float in 2014 and possibly long into the future. And with the continued increase in the company's specialty pharmacy revenues, these additional shares will be absorbed in less than a week.
By the way, the Q1 report also stated the balances on the only remaining 10% variable unfriendly note was $32,997 and the only remaining 12 variable unfriendly note was $24,025 (see debt table on p. 15, as well as pp. 17-19).
Per the FY13 Q3 report, there were three toxic convertible notes written after the Typenex note: (1) Beaufort - 10% variable convertible note written on 8/30/13 with $50K principal balance; (2) Hyde Park - 12% variable convertible note written on 9/18/13 with $40K principal balance; and (3) Vista - 12% variable convertible note written on 9/24/13 with $52,140 principal balance. The Beaufort and Vista notes converted to shares, and Scrips prepaid the Hyde Park note...details below:
Back to FY13 Q3 report: "
33) On August 20, 2013, the Company entered into a securities purchase agreement with Beaufort Ventures PLC (“Beaufort”) pursuant to which Beaufort purchased from the Company a 10% convertible note. The Company received $45,000 in cash for a 10% convertible note payable with a principal amount of $50,000. We did pay a $5,000 finder’s fee. The accrued interest and principal are due on the maturity date of February 20, 2014. The conversion price is equal to a 40% discount to the lowest trading prices of the Company’s common stock at the close of trading during the 10 trading day period prior the date of the notice of conversion. There is a prepayment charge of 120% of the principal amount outstanding and interest due at any time prior to maturity date."
From p. 45 of the FY14 Q1 report: "On March 20, 2014, the Company issued 850,794 restricted shares of its common stock to Beaufort Ventures PLC for the conversion of a note in the principal amount of $85,079." Note how the principal balance increased from $50K on 8/20/13 to $85,079. Ouch!
Back to FY13 Q3 report: " 34) On September 18, 2013, the Company entered into a securities purchase agreement with Hyde Park LLC (“Hyde”) pursuant to which Hyde purchased from the Company a 12% convertible note. The Company received $37,500 in cash for a 12% convertible note payable with a principal amount of $40,000. We did pay a $2,500 finder’s fee. The accrued interest and principal are due on the maturity date of September 18, 2014. The conversion price is equal to a 42.5% discount to the lowest trading prices of the Company’s common stock at the close of trading during the 20 trading day period prior the date of the notice of conversion. There is a prepayment charge of 25% of the principal amount and interest at any time before 30 days from issuance, a 35% premium of the principal amount outstanding and interest due at any time 31 days until 179 days of the effective date and 45% of the principal amount outstanding and interest due at any time after 180 days from the effective date. Collateral for this loan also includes 1,500,000 shares of the Company’s common stock."
From subsequent PR: "TYSONS CORNER, Va., March 12, 2014 (GLOBE NEWSWIRE) -- ScripsAmerica Inc. (SCRC), a leading supplier of prescription, OTC and nutraceutical drugs, today announced that the Company has prepaid the balance of an outstanding convertible promissory note with a principal amount of $40,000.
The convertible note was issued by Hyde Park LLC on September 18, 2013 and has a one-year term with a 12% interest rate per annum. On March 18, 2014, $42,400 due under the note becomes convertible into shares of ScripsAmerica's common stock at a specified discount. The Company's cash payment has rendered the note paid in full prior to its conversion eligibility date."
Back to the FY13 Q3 report: " 35) On September 24, 2013, the Company entered into a securities purchase agreement with Vista Capital Investments LLC (“Vista”) pursuant to which Vista purchased from the Company a 12% convertible note. On behalf of the Company Vista prepared a $33,000 convertible note paying Continental $52,140. The Company issued to Vista for a 12% convertible note payable with a principal amount of $52,140. The accrued interest and principal are due on the maturity date of December 31, 2013. The conversion price is the lesser of (a) $0.25 or (b) the amount equal to 60% of the lowest trading price of the Company’s common stock at the close of trading during the 20 trading day period prior to the date of the notice of conversion."
From the FY14 Q1 report: "In January 2014, the Company issued an aggregate of 390,000 restricted shares of its common stock to Vista Capital Investments LLC for the conversion of a note in the principal amount of $62,100."
To that end, with the exception of the remaining balance of the 8% variable convertible Typenex notes, ALL of the notes that were disclosed in the 2013 third quarter report have either converted to shares at a large discount or were paid off by the end of the first quarter. And per the company's prior PR, the last convertible note (my interpretation is the last "unfriendly convertible note"
, was written on 10/22/14.
Per prior PRs and the remaining unfriendly note balances disclosed in the FY14 Q1 report, I believe Scrips wrote four additional unfriendly convertible notes between the 9/23/13 Vista 12% note and 10/22/13. I believe two of those unfriendly notes converted on their maturity dates in April 2014 (i.e., the reported one remaining 10% note with a $32,997 balance and the one remaining 12% note with a $24,025 balance). I believe that on or before 3/31/14, Scrips prepaid the other two notes written between 9/23/13 and 10/22/13 (i.e., $55K Redwood note written on 10/4/14 with 4/4/14 maturity date was paid on or before 3/17/14 per PR on that date, and $51,732 LG Capital note written on 10/22/13 with a maturity date of 4/22/14 was paid on or before 3/31/14 per PR on that date). In my strong opinion, the LG Capital note was the last unfriendly convertible note written by the company. And if the specialty pharmacy revenues continue in the path they appear to be headed, the LG Capital note will be the last unfriendly convertible note that Bob Schneiderman will ever have to sign on behalf of ScripsAmerica, Inc. To that end, I am confident the toxic bucket of unfriendly shares is 30 days or less from being emptied.
Scrips is a public company that is on the verge of profitability. I have never said dilution is good. But with a significant investment in this company, I prefer dilution over dissolution. In my strong opinion, the period of very heavy dilution has ended. That said, I do see the potential dilution sitting on the Q1 report in the form of Preferred Shares, remaining convertible notes, executive compensation, interest payments, services, and other payables. But I do not believe my worst-case scenario of my EOY total OS of 200M will be reached (unless SCRC finds a large specialty pharmacy that would have an accretive impact that would quickly result in double, triple or more revenues than I have projected from MAvP), though I will still use the 200M figure in my financial projections.
The use of the term "friendly" comes straight from the company, so there is no intent to fabricate the company's prior statements. But for certainty, Scrips stated that as of December 2, 2014, its convertible note balance was as follows: $1,856,000 in convertible debt, of which $900,000 is in friendly hands (http://scripsamerica.com/q-a/). So it is apparent to me that the company has made a point to separate the friendly and unfriendly shares.
On March 31, 2014, the balance of the unfriendly notes was $107,864, and the balance of friendly notes -- with much more favorable terms -- was $761,174. And remember the remaining friendly notes are convertible at $0.17 and the maturity dates for many of these notes have already been extended by the "friendly" noteholders. Moreover, the company has reported principal payments on these friendly notes, and I anticipate more principal payments before maturity. Comparing this to the discounted toxic shares that have been dumped on the market as quickly as the toxic financiers could sell them, and it is easy to see why the company makes the distinction between friendly and unfriendly shares.
On a similar note, I anticipate the unfriendly note balance will be $0 within the next few weeks. I also believe 2 of the 3 toxic notes remaining on March 31st currently have a $0 balance. I further believe the remaining balance on the final toxic note (the toxic Typenex note with an initial principal balance of $227,500) will have a $0 balance after SCRC makes the third and final payment. That payment must be due very soon based on the timing of the prior payments. At that time, all of the toxic notes will be gone and the loyal and patient SCRC shareholders will have much to celebrate. Indeed, with the toxic shares out of the inventory, from a share structure and selling pressure perspective the shareholders need only deal with the day traders and flippers as the company continues charing forward to profitability and success.
Incidentally, I place no weight in opinions that the company-friendly shareholders will dump their shares, regardless of whether they were purchased on the open market, as part of a subscription agreement, converted at $0.17 as part of the remaining friendly convertible notes or received by some other form of compensation or payment. Even so, with the current trajectory of the impressive specialty pharmacy revenues, over the next several quarters, there will be a growing population of excited investors jumping into this little gem.
Good luck to all the loyal and patient longs, and have an enjoyable and restful holiday weekend.
Bsav88atty (these are only my opinions, for which I am not being compensated)
___________________________________________________________________
By the way, here are some details on the toxic notes for anyone who is interested (please excuse the mistakes and lack of organization below, I was in a hurry):
From pp. 23+ of the FY13 Q3 report:
(32) On August 16, 2013, the Company entered into a securities purchase agreement with Typenex Co. Investments LLC (“Typenex”) pursuant to which Typenex purchased from the Company an 8% convertible note. The Company received $180,000 in cash for an 8% convertible note payable with a principal amount of $227,500. We did incur a discount fee of $20,000 and paid a fee of $7,500 and a finder’s fee of $20,000. The accrued interest and principal are due on the maturity date of March 16, 2015. The conversion price is equal to a 35% discount to the average of the three lowest volume-weighted average trading prices of the Company’s common stock at the close of trading during the 20 trading day period prior the date of the notice of conversion. There is a prepayment charge of 135% of the principal amount outstanding and interest due at any time prior to maturity date.
Since this note has a convertible feature with a significant discount and could result in the note principal being converted to a variable number of the Company’s common shares, the instrument includes an embedded derivative. The fair value of the derivative associated with this note was determined by using the Black-Scholes pricing model with the following assumptions: no dividend yield, expected volatility of 185.4% risk-free interest rate of .12% and expected life of 19 months. The fair value of the derivative at the date issued amounted to $336,177 and was revalued at September 30, 2013 to be $343,460. The debt discount associated with this derivative is being amortized over the life of the note, but since the derivative liability at date of issuance was greater than the principal amount of the note the debt discount was valued at $227,500 and the Company expensed the difference of $128,677 to interest expense. The Company would have been required to issue 2,812,562 shares of common stock if Beaufort [sic] converted on September 30, 2013.
This note contains a cross-default provision, which means if the Company is in breach or default on any loan agreement the holder of this note, at its option, can consider this note in default. If this note is considered in default all unpaid principal and interest is due immediately if not cured within the applicable cure period. This note shall thereafter accrue interest at the rate of 22% per annum, compounding daily, but in no event shall the applicable interest rate at any time exceed the maximum interest rate allowed under applicable law.
From the Q1 10Q (p. 45): "On February 25, 2014, the Company issued 527,177 restricted shares of its common stock to Typenex Co Investment LLC for the conversion of a note in the principal amount of $63,261."
The company also announced it paid off some of the balance of this large note: Feb. 19, 2014 - SCRC...commenced the prepayment of its outstanding convertible debt by issuing the first payment on its convertible note with the largest principal and closest conversion date. (I could not pull up the link to this announcement.)
From the Q1 10Q (p. 45): "On March 26, 2014, the Company issued 488,460 restricted shares of its common stock to Typenex Co Investment LLC for the conversion of a note in the principal amount of $48,846."
Here is the link to the April 2, 2014 PR in which Scrips announced this second payment to Typenex -http://finance.yahoo.com/news/scripsamerica-issues-second-payment-largest-123000064.html. I initially assumed this payment was made during the quarter based on the Q1 10Q, which reported the principal of the Typenex note decreased to $132,142: 8% Variable Convertible notes payable: "As of March 31, 2014, (only one note is still outstanding) and December 31, 2013 the principal balance was $132,142 and $402,500, respectively...The Company would have been required to issue 2,312,542 and 6,044,978 of common stock if the lenders converted on March 31, 2014 and December 31, 2013, respectively..." (pp. 17-18).
On the debt table on page 15, however, Scrips reported the balance for the 8% variable unfriendly notes was only $50,842. So unless I am reading the Q1 report incorrectly, there is an $81,300 discrepancy contained in the report regarding the remaining Typenex balance that existed on 3/31/14. That said, based on where the "$50,842" was inserted in the report, how it was listed, and my rose-colored glasses, I strongly believe the $50K amount listed in the debt table was accurate. Note also that the Q1 report stated only one of the 8% convertible variable notes remained on 3/31/14, which must be the Typenex note.
It also appears that with each payment Typenex is also receiving shares. So perhaps the company makes half of its principal payments in cash and the remaining balance in discounted shares. Assuming the 35% conversion discount, if half the remaining balance converts at about $0.062, this would add about 410K shares to the float. If so, I strongly believe this will be the LAST tranche of toxic shares to hit the float in 2014 and possibly long into the future. And with the continued increase in the company's specialty pharmacy revenues, these additional shares will be absorbed in less than a week.
By the way, the Q1 report also stated the balances on the only remaining 10% variable unfriendly note was $32,997 and the only remaining 12 variable unfriendly note was $24,025 (see debt table on p. 15, as well as pp. 17-19).
Per the FY13 Q3 report, there were three toxic convertible notes written after the Typenex note: (1) Beaufort - 10% variable convertible note written on 8/30/13 with $50K principal balance; (2) Hyde Park - 12% variable convertible note written on 9/18/13 with $40K principal balance; and (3) Vista - 12% variable convertible note written on 9/24/13 with $52,140 principal balance. The Beaufort and Vista notes converted to shares, and Scrips prepaid the Hyde Park note...details below:
Back to FY13 Q3 report: "
33) On August 20, 2013, the Company entered into a securities purchase agreement with Beaufort Ventures PLC (“Beaufort”) pursuant to which Beaufort purchased from the Company a 10% convertible note. The Company received $45,000 in cash for a 10% convertible note payable with a principal amount of $50,000. We did pay a $5,000 finder’s fee. The accrued interest and principal are due on the maturity date of February 20, 2014. The conversion price is equal to a 40% discount to the lowest trading prices of the Company’s common stock at the close of trading during the 10 trading day period prior the date of the notice of conversion. There is a prepayment charge of 120% of the principal amount outstanding and interest due at any time prior to maturity date." From p. 45 of the FY14 Q1 report: "On March 20, 2014, the Company issued 850,794 restricted shares of its common stock to Beaufort Ventures PLC for the conversion of a note in the principal amount of $85,079." Note how the principal balance increased from $50K on 8/20/13 to $85,079. Ouch!
Back to FY13 Q3 report: "
34) On September 18, 2013, the Company entered into a securities purchase agreement with Hyde Park LLC (“Hyde”) pursuant to which Hyde purchased from the Company a 12% convertible note. The Company received $37,500 in cash for a 12% convertible note payable with a principal amount of $40,000. We did pay a $2,500 finder’s fee. The accrued interest and principal are due on the maturity date of September 18, 2014. The conversion price is equal to a 42.5% discount to the lowest trading prices of the Company’s common stock at the close of trading during the 20 trading day period prior the date of the notice of conversion. There is a prepayment charge of 25% of the principal amount and interest at any time before 30 days from issuance, a 35% premium of the principal amount outstanding and interest due at any time 31 days until 179 days of the effective date and 45% of the principal amount outstanding and interest due at any time after 180 days from the effective date. Collateral for this loan also includes 1,500,000 shares of the Company’s common stock." From subsequent PR: "TYSONS CORNER, Va., March 12, 2014 (GLOBE NEWSWIRE) -- ScripsAmerica Inc. (SCRC), a leading supplier of prescription, OTC and nutraceutical drugs, today announced that the Company has prepaid the balance of an outstanding convertible promissory note with a principal amount of $40,000.
The convertible note was issued by Hyde Park LLC on September 18, 2013 and has a one-year term with a 12% interest rate per annum. On March 18, 2014, $42,400 due under the note becomes convertible into shares of ScripsAmerica's common stock at a specified discount. The Company's cash payment has rendered the note paid in full prior to its conversion eligibility date."
Back to the FY13 Q3 report: "
35) On September 24, 2013, the Company entered into a securities purchase agreement with Vista Capital Investments LLC (“Vista”) pursuant to which Vista purchased from the Company a 12% convertible note. On behalf of the Company Vista prepared a $33,000 convertible note paying Continental $52,140. The Company issued to Vista for a 12% convertible note payable with a principal amount of $52,140. The accrued interest and principal are due on the maturity date of December 31, 2013. The conversion price is the lesser of (a) $0.25 or (b) the amount equal to 60% of the lowest trading price of the Company’s common stock at the close of trading during the 20 trading day period prior to the date of the notice of conversion." From the FY14 Q1 report: "In January 2014, the Company issued an aggregate of 390,000 restricted shares of its common stock to Vista Capital Investments LLC for the conversion of a note in the principal amount of $62,100."
To that end, with the exception of the remaining balance of the 8% variable convertible Typenex notes, ALL of the notes that were disclosed in the 2013 third quarter report have either converted to shares at a large discount or were paid off by the end of the first quarter. And per the company's prior PR, the last convertible note (my interpretation is the last "unfriendly convertible note"
, was written on 10/22/14. Per prior PRs and the remaining unfriendly note balances disclosed in the FY14 Q1 report, I believe Scrips wrote four additional unfriendly convertible notes between the 9/23/13 Vista 12% note and 10/22/13. I believe two of those unfriendly notes converted on their maturity dates in April 2014 (i.e., the reported one remaining 10% note with a $32,997 balance and the one remaining 12% note with a $24,025 balance). I believe that on or before 3/31/14, Scrips prepaid the other two notes written between 9/23/13 and 10/22/13 (i.e., $55K Redwood note written on 10/4/14 with 4/4/14 maturity date was paid on or before 3/17/14 per PR on that date, and $51,732 LG Capital note written on 10/22/13 with a maturity date of 4/22/14 was paid on or before 3/31/14 per PR on that date). In my strong opinion, the LG Capital note was the last unfriendly convertible note written by the company. And if the specialty pharmacy revenues continue in the path they appear to be headed, the LG Capital note will be the last unfriendly convertible note that Bob Schneiderman will ever have to sign on behalf of ScripsAmerica, Inc. To that end, I am confident the toxic bucket of unfriendly shares is 30 days or less from being emptied.
Scrips is a public company that is on the verge of profitability. I have never said dilution is good. But with a significant investment in this company, I prefer dilution over dissolution. In my strong opinion, the period of very heavy dilution has ended. That said, I do see the potential dilution sitting on the Q1 report in the form of Preferred Shares, remaining convertible notes, executive compensation, interest payments, services, and other payables. But I do not believe my worst-case scenario of my EOY total OS of 200M will be reached (unless SCRC finds a large specialty pharmacy that would have an accretive impact that would quickly result in double, triple or more revenues than I have projected from MAvP), though I will still use the 200M figure in my financial projections.
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