RE:[Time Value of Money]Boss,
With regards to your first post:
Here's the logic for the 25% ballpark guess.
First, the fomula for determining the royalty is this:
(Gross revenues - 3rd party related costs) = Net revenue
And, the 17.5% is a function of Net revenue, which is above the rest of COGS. So, COGS needs to be separated into 2 categories essentially. As I've mentioned before, we should expect total operating margins to be approximately 50%. Mark Gomes came to the same independent conclusion in his videos. Therefore, I split the 50% in half, stating Intermap will perform half the work, and half will be subbed out. The truth is it is impossible to know. And, the way I've explained before is that each day, each month, each quarter will be different., Each stage of the project uses vastly different resources. Some portions of the project will utilize no 3rd party expenses, while some will only utilize 3rd party expenses. Without seeing the contract, we can merely guess. Even trying to forecast a net sub contractor % is a fools game for us, but not for Vertex. Therefore, we know the total contract value is $175 million, which is comprised of $143 over 3 and then $32 over 9. Once the funding comes in, this is all guaranteed. But, due to time value of money, future cash flows must be discounted which I have not done as a part of this calculation, so it will lower my total projection, slightly. The royalty applied to all future net revenues, forever. So that is why share price is not appreciating. No matter the cost, it needs to go. I believe you reached that conclusion in your second post. The potential return on the share value, given share price reaches $2, for example, will happen at a far more accelerated pace, so I can trust your numbers are good and say 1/12th the time, that makes sense. Also think of it this way, if price hits those prices, Vertex will then be able to negotiate a premium in the ale of the company. I would expect them to keep a massive warrant position until close to expiration to prevent premature hostile takeovers. If any bids come in for the company, they threaten to exercise, or, sell the warrants and their equity at their exit price, which will account for future revenues, so, that price may be pretty high.
Bottom line, this all begins with the conversion of the royalty. I believe this conversion will happen in concurrence with the funding, as it was also intended to be in place to collect revenues UNTIL the SDI closed. This would dramatically hit the lower end of my forecasts. However, still safe to keep expectations low to avoid disappointment.