countrybob>"I didn't see where the Investor can turn it off. Did I miss something?"
Yes, you missed this (with my emphasis, and comma abuse from the original text intact):
"..and, upon mutual consent, between the company and the investor may increase the amount of each tranche up to US$300,000 per month."
iWebGate will get US$75,000 per month (enough to pay the directors and their consultants) and then have to go and ask for up to US$300K more. If the investor sees fit, iWebGate gets the funding. If the investor does not, iWebGate go without. iWebGate have basically put their funding into the gift of an investment company.
[Disclaimer: most of the following is opinion and is presented as debate, rather than fact.]
Turning it around to the investor's point of view, they have the option to buy US$300,000 worth of unlisted shares each month at a discount of about 10%. They can sell those shares and take profit of about US$30,000 per month, every month. But the investor will only play this game while they know they can sell the shares they are getting at a discount. When the market says "enough" and no one wants to buy more IWG stock the shares will become illiquid. When that happens the easy, month by month profit will stop, and the investor will stop buying. iWebGate's tranches of US$300K per month will dry up pretty much instantly.
It is a horrible, horrible deal for existing shareholders. A steady stream of new shares is about to start appearing on the market, which means share dilution and constant downward pressure on the share price. It muddies the waters, making it a lot harder to keep track of the company's cash position. Given that this really is life blood funding, it puts the option to pull the plug on the company into the hands of an investor who clearly does not have enough confidence in the company to provide proper funding up front.
It is also a lousy deal for iWebGate. It forces the company onto a short leash where they can't invest or hire new people in order to expand. They are going to end up investing time and energy in repeated hand wringing meetings with investors who might get cold feet at any minute and decide not to pony up.
I am not even sure it will be enough. Assuming they get the full US$375,000 each month, that is about AUD$500,000. iWebGate burn AUD$750,000 per month, so they either need to ramp up sales to match operating expenses, or, rather more likely, get started on another round of fund raising. Since the company is now dependent on a third party, that is going to be even harder than ever.
IWG Price at posting:
10.0¢ Sentiment: None Disclosure: Not Held
