Help! TAVA's new loan agreement is very confusing and it is possible that TAVA has made an error in their SEC filings.
The loan agreement is contained in TAVA's 10-Q filing:
sec.gov
The basics are:
1) TAVA borrowed $4.0M on March 27th.
2) TAVA agreed to pay interest on the loan at 11.5% AND
3) TAVA agreed to grant warrants for 155,000 shares at the lower of $6.25 or a market price formula in 6 months.
There are other complications, but this paragraph makes no sense:
"Borrowings under the loan agreement were $4,000,000. In connection with the loan, the Company issued 155,000 warrants to purchase an equal number of shares of its common stock. The estimated value of the warrants was determined using the Black-Scholes option pricing model. That value, $315,000, is presented as a discount to the loan and is being accreted as additional interest expense over its term."
Here are the problems:
1) On March 27th, TAVA's stock closed at 13 1/16. Therefore the intrinsic value of the warrants was over $1 Million. How can the Black-Scholes value be only $315K?
2) How can the value be "a discount to the loan" and be "accreted as additional interest expense"? That makes no sense. In fact, elsewhere in the 10-Q, TAVA reduces the loan by principal by $315K. By the terms of the agreement, they still owe the entire $4.0M and interest. No where (that I can find) does it say that the loan is to be reduced in anyway by the warrants.
Regards, Bill
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