VINERGY RES LTD COM NPV (CNSX:VIN)(OTCMKTS:VNNYF) Gets A Close Look

Investment professionals are saying that Vinergy Res Ltd Com NPV (CNSX:VIN)(OTCMKTS:VNNYF), the cannabis technology company, is a pump and dump on Twitter and the financial forums. This is a very serious claim, as such kind of stocks usually destroy retail and professional investor's money and damage Wall Street's image. We commenced to research the company as soon as we got to know the information. This article is the result of the research of the team. Have a look at the stock movement. Note the shareholder value that has been destroyed.SourceBusiness and recent mergerOn May 9, 2017, VNNYF announced the signing of a merger agreement with MJ BioPharma. Under the merger contract, Vinergy will purchase 100% MJ BioPharma, a cannabis technology company. The company will pay for MJ by issuing 9,750,000 common shares at a price of CDN$0.20. The merger contract includes some insignificant conditions that we don't believe could break the deal; these include a finder’s fee of 400,000 common shares, the CSE approval, and some other customary conditions that were not highlighted in the press release.By buying MJ, VNNYF will acquire the expertise of the medical professionals, biochemists and researchers, who work for the company. Additionally, the following assets were included in the deal:

• manufacturing breath strips;
• time release capsules;
• extract oils;
• food products and infused juices, tea, coffee and extract drinks;
• pharmaceutical grade delivery systems.

What do we think about the deal? In our opinion, it is a great move. VNNYF is an old business entity, founded in 2001. It is led by old and experienced business managers, who were able to recognize that the approval of the medical therapies using marijuana in North America is a great catalyst for the sector.The big question is whether the business is being set up to profit from the legitimate marijuana business or are there other things at play setting the company up for failure? We will try to answer this question in the rest of the article.Why are they paying with shares?Share dilutionThe first thing that we did not appreciate in the merger agreement is that the company is issuing shares to acquire MJ. This has been quite bad for previous shareholders and explains the recent decline in the share price. Have a look at how the share price reacted negatively to the merger, and note the large amount of shares exchanged. Consequently, shareholders are trying to exit the company.SourceOn the top of it, on May 11, 2017, the company put out another press release about a non-brokered private placement offering up to 400,000 units. The offering consists of shares and warrants. However, the dilution does not end there. On May 16, 2017, the company announced that it will increase the amount of shares issued to private investors. Finally, these are the new securities issued:

The Company will now issue up to 800,000 units (the "Units") at a price of USD $0.50 per Unit for gross proceeds of up to USD $400,000 (the "Offering"). Each Unit will consist of one common share in the capital of the Company (a "Share") and one transferable common share purchase warrant (a "Warrant"), with each Warrant exercisable into one additional Share at a price of USD $1.00 for a period of three years from the date of closing (subject to acceleration in certain circumstances). Source

Savvy traders surely noticed that this last announcement is tricky. The company has issued 800,000 units of stock and warrants. As the warrants are exercisable to obtain another one, the total potential dilution is 1.6 million new shares. According to OTC Markets, the company has approximately 36 million share outstanding, thus previous shareholders lost about 4.4% in this transaction.The balance sheet doesn't look goodWe found the latest balance sheet, which reveals that the financial situation is not optimal. As of November 30, 2016, the company showed the following accounts:

• Loans receivable: CAD$29,400
• Advances to operator: CAD$13,546
• Total Assets: CAD$46,936
• Convertible debentures: CAD$215,000
• Due to related parties: CAD$490,913
• Total liabilities: CAD$907,894

For those who did not jump right after seeing the financial accounts, let us note the following. The company has total number of liabilities, which is 19x times the amount of assets owned by the company. How are the managers going to pay all this money? It is very simple, issuing shares like they are doing.ConclusionVNNYF did one thing very well. We celebrated the company's decision to enter the cannabis sector this year. We believe that the company may be able to obtain outstanding returns operating in this industry. However, the way the company decided to buy MJ BioPharma as well as the large amount of shares issued right after the deal announcement were not appreciated by the market. Additionally, the financial situation of the company does not look stable. The amount of liabilities is quite large, and we don't accept that the management uses shares issued to pay them. To sum up, we could not prove that the company is pumping and dumping its shares, but we found out that the investors need to be aware of being diluted. We will be updating our subscribers as soon as we know more. For the latest updates on VIN/VNNYF, sign up below!Disclosure: We have no position in VIN/VNNYF and have not been compensated for this article.