Good day, and welcome to the Trinity Biotech third quarter 2021 financial results call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Joe Diaz with Lytham Partners. Please go ahead.
Thank you operator, and thanks to all of you for joining us today to review the financial results of Trinity Biotech for the third quarter of 2021, which ended on September 30, 2021. Management will also discuss the entry into an $81.25 million loan facility to refinance substantially all of the existing $99.9 million of exchangeable senior notes issued by the company's subsidiary, Trinity Biotech Investment Limited, and exchange agreements for over 99% of the outstanding convertible notes, all of which are subject to certain conditions precedent. Joining us on today's call is Ronan O'Caoimh, Chairman and Chief Executive Officer, and John Gillard, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session.
Before we begin, I must inform you that statements made in this conference call may be deemed forward-looking statements within the meaning of federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include, but are not limited to, those set forth in the Risk Factors section of our annual report on Form 20-F, filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events. With that said, I will now turn the call over to John Gillard, CFO of Trinity Biotech, for a review of the results of the quarter and provide some comments on the planned capital structure transactions.
He'll be followed by Chairman and CEO, Ronan O'Caoimh, for an update on sales, marketing, and revenue. John, please proceed.
Thank you, Joe. Good morning, everyone. Thank you for joining. As Joe mentioned, I will now take you through the results for Q3 2021. Starting with revenues. Total revenues for the quarter were $22 million, compared with $32 million in Q3 2020. As Joe pointed out, and is our typical approach, Ronan will discuss revenues in further detail on the call. As such, I will move on to discuss other aspects of the income statement. Gross margin for the quarter was 40.4%, compared to 52.4% achieved in Q3 2020. The reduction in gross margin is mainly due to the exceptionally strong sales and margins recorded in Q3 2020 within our COVID-19 related portfolio of products.
With the pricing for such products falling over the course of 2021 as a result of lower demand as the pandemic somewhat subsided in North America and the availability of greater supply from other manufacturers. As ever, our gross margin remains susceptible to product mix changes, geographic spread, currency fluctuations, and product level variation. Other operating income increased from $3,000 in Q3 2020 to $1 million in Q3 2021. This income relates to a Paycheck Protection Program loan received by the company in 2021, totaling $1 million. That was forgiven during Q3 2021 and has therefore been recognized as income this quarter. This loan was treated as a short-term liability at June 30, 2021.
Subsequent to the quarter end, the final remaining Paycheck Protection Program loan for $700,000 was also forgiven, and we expect it will be recognized as income in Q4 2021. Moving on to R&D expenditure. This decreased to $1.1 million compared to $1.3 million in Q3 2020. Meanwhile, SG&A costs have decreased from $6.3 million in Q3 2020 to $5.9 million in Q3 2021. The company continues to focus on operating efficiency and cost control and has continued to reduce headcount as it pursues greater automation and simplification of processes. These resulted in an operating profit for Q3 2021 of $2.7 million, compared to $9.1 million reported in Q3 2020.
With the aforementioned reduction in revenue and margin contribution from our COVID-related portfolio of products being the main driver of that reduction in operating profit being somewhat offset by lower R&D and SG&A expenses. Moving on to financial expenses. This includes the quarterly cash interest cost for exchangeable notes of $1 million. $200,000 relates to notional finance charges associated with leased premises. These notional finance charges are required by the relevant accounting standard IFRS 16. You will note that there is also non-cash financial net income of $31,000, which is made up of a $193,000 fair value adjustment to derivatives embedded in the exchangeable notes as required by the relevant accounting standards, less accretion interest of a $162,000 in the accounting carrying value of the exchangeable notes.
As you will have seen from the press release on the 15th of December 2021, the company had entered into exchange agreements with holders of over 99% of the convertible notes that provide for the early repurchase of the convertible notes, subject to a number of conditions precedent. I'll speak about that a little bit later. Profit after tax before impairments, one-off items and non-cash financial expense was $1.3 million in Q3 2021, compared to $7.5 million in Q3 2020. As in prior quarters, and as set out in the press release, we quote earnings per ADS effectively our equivalent of EPS on a standard basis, and also before the impacts of impairments, one-off charges, and non-cash financial items. Using the basic measure, earnings per ADS have decreased from $0.35 to $0.063 in Q3 2021.
I will now move on to talk about the significant balance sheet movements since June 30, 2021. There was an increase in intangible assets of $1.5 million, which was made up of additions of $1.7 million, offset by an amortization charge of $0.2 million. Moving on to inventories. These have decreased by $2.6 million and now stand at $32.1 million. Earlier in 2021, we reduced the level of production of our PCR viral transport media, VTM, in line with projected demand. This was the main reason for the reduction in inventory this quarter. Meanwhile, trade and other receivables have increased by $1.5 million to $16.8 million, reflecting lower cash collections.
Our trade and other payables reduced by $3 million compared to June 2021, of which $1 million relates to the release of the Paycheck Protection Program loan liability to the income statement in the quarter. Finally, I will discuss our cash flows for the quarter. Cash generation operations during the quarter was approximately $500,000. Non-operating cash inflows during the quarter included income taxes refunded of $1.1 million. Non-operating cash outflows during the quarter included capital leases, capital expenditures, excuse me, of $2 million, and payments for property leases of $0.7 million. Overall, this resulted in a cash balance of $27.5 million at the end of quarter three, 2021. You will have noted from yesterday's press release that we have entered into agreements related to our capital structure, and I will take you through these now.
As already mentioned, after extensive process, the company and certain of its subsidiaries have entered into a $81.25 million senior secured term loan credit facility with Perceptive Advisors. The company is excited to be partnering with a specialist life sciences investor such as Perceptive. The loan is a four-year term and carries an interest rate of 11.25%, plus the higher of 1% or one-month LIBOR. Under the terms of the loan, on drawdown of the funding, the company will issue warrants exercisable for 2.5 million of the company's ADSs to Perceptive. The per ADS exercise price for the warrants is equal to the lower of, one, the 10-day volume-weighted average price or VWAP for the company's ADSs for the 10 business days prior to 15th December 2021.
Two, the 10-day VWAP of the company's ADSs for the 10 business days prior to the drawdown of the funding under the loan. In addition, the company has entered into exchange agreements with five institutional investors that hold approximately 99.7% of the 99.9% in outstanding notes. While the notes have a maturity of 2045, they have a number of put and call options, one of which would allow the holders to put the notes to the company at par in April 2022.
Under the exchange agreement, each note holder should receive $0.87 for each $1 of notes they have, plus $0.08 of stock in the form of newly issued ADSs at a price of $1.4955 per ADS, which is a 13% discount to the five-day trading VWAP of the company's ADSs on Nasdaq on December 9th, 2021. Overall, this equates to an approximate discount of 4% on the early repurchase of the notes. These transactions should allow the company to repay the convertible notes in advance of the April 2022 put date, thus extinguishing uncertainty regarding the company's near-term capital structure and access to funding. The company believes that this stability should add to investor confidence and provide a strong foundation for which the company can grow.
While the interest rate is higher than the rate on the convertible notes, it is important to note that apart from the 2.5 million ADS warrants, the term loan has no other convertible features, thus reducing the potential dilution impact of another convertible debt instrument if one was available. In addition, these transactions, if approved by shareholders, should mean the company will have no material debt maturities for four years. The term loan allows the company greater optionality in choosing its capital structure going forward compared to the convertible notes by allowing for partial or full early repayment, albeit at a premium. The transaction will also result in a reduction of gross debt of approximately $19 million, somewhat offsetting the additional interest rate.
Based upon current prevailing rates, the annual interest cost is expected to be approximately $10 million. The company intends to primarily service the additional interest costs to cash on hand, growing earnings through the near-term launch of key pipeline products, including TrinScreen HIV and our rapid COVID antigen test, thus continuing to focus on cost controls and disciplined R&D investments. The company's board and management team intends to keep the company's capital structure under review. Both the term loan and exchange agreements are subject to shareholder approval, with 75% approval from votes cast required for the transactions to proceed. The company expects to hold a general meeting in January 2022 to seek such shareholder approval. I will now hand over to Ronan, who will bring you to our revenues.
Thanks, John. I'm now going to review the revenues for quarter three and for the corresponding quarter in 2020 before opening the call to a question and answer session. Our revenues for quarter three were $22 million, compared with $32 million in quarter three 2020, which is a reduction of 31.3%. Points of care revenues in quarter three were $4.1 million, compared with $2.1 million in quarter three, which is an increase of 99%. This increase is attributable to higher HIV revenues from Africa-related sales. Revenues in quarter three 2020, however, had been negatively impacted by logistical constraints caused by the pandemic. While the situation has improved during 2021, COVID-19 continues to have the potential to cause disruption to HIV testing in Africa.
In March of 2021, we announced that we had submitted our TrinScreen HIV product to the World Health Organization for approval. This product, once approved, will allow the company to enter, for the first time, the HIV screening market in Africa, which at 170 million tests annually, is a 12-fold bigger market by value than the confirmatory test market, where Trinity Biotech has for many years had a dominant market share with Uni-Gold. In late September 2021, the WHO requested additional information on the submission, and this information has been provided, allowing the assessment to be finalized. Typically, this process would take another 30, 60 days, but because of COVID-19, the WHO review processes are taking longer. Despite this, we are confident that an approval is imminent. Following approval, we are confident of quickly leveraging the quality of this product, given its advantages over the competition.
Also given our experienced sales and marketing team on the ground in Africa, our reputation for excellence with Uni-Gold, and our high volume automated production capability in Ireland. We believe that all of these factors will enable us to quickly take market share in the African HIV screening market. Moving on to clinical laboratory. Our revenues for quarter three were $17.9 million, compared with $29.9 million in the corresponding quarter, which is a decrease of 40%. Decrease is largely due to lower revenues from within our COVID-19 related product portfolio. In quarter three 2020, demand for our PCR viral transport media product was exceptional, but as the pandemic has persisted, manufacturing capacity in the market has ramped up significantly, with a consequent negative impact on demand.
While the situation related to COVID-19 products remains fluid with the evolving impact of the new variants, the company has seen increased customer demand in VTM for VTM products over recent months, and we have resumed manufacturing VTM products, albeit in lower volumes. Yet we have retained the capability to increase manufacturing volumes should market conditions warrant. Meanwhile, we are pleased to report that we have completed the development of our COVID-19 antigen rapid antigen test, which has demonstrated really impressive performance characteristics in its evaluations. We are confident of launching the product in the European market during quarter two, having achieved European approval or CE mark. While we do expect to launch the product in the USA, the regulatory path for such products remains fluid and thus we'll continue to assess the most appropriate regulatory approval pathway.
In reality, it may well be that a standard EUA will suffice, and that we'll actually enter that market almost immediately after the European market. Our principal focus at this time is on transferring the product onto our high-volume automated production line in Ireland. As the COVID-19 pandemic continues, and with new variants emerging, it has now become apparent that despite widespread vaccine availability, antigen rapid testing will be a key tool in day-to-day COVID-19 management for the foreseeable future. We therefore expect our high-quality antigen test, which we can manufacture in high volume, to be a very significant growth driver for the business into the future. Now moving back to our core business. Our clinical laboratory business, when COVID-19 products were excluded, increased 5% compared with the corresponding quarter in 2020.
Within our hemoglobin A1c business, we continue to have lower instrument placements with just over 40 instruments placed during the quarter, which is just over 50% of normal placement levels. This was expected as hospitals and clinics are less likely to purchase new capital equipment during the pandemic. However, we are confident these placements will fully recover in a post-pandemic environment. Meanwhile, hemoglobin reagent revenues, and by this I mean the number of tests being run in our diabetes business, are running at about 90% of normal. Again, due to the fact that patients are less likely to perform discretionary tests during the pandemic. Meanwhile, our autoimmune business generated revenues approximately 8% lower than in the pre-pandemic environment, with reference laboratory testing volumes down approximately 10% and product revenues marginally down.
We believe this is also entirely due to the pandemic as many patients defer doctor visits unless absolutely necessary, and we are confident these revenues will fully recover post-pandemic. Operator, could I now open the call to a question and answer session and pass it back to Jason?
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Paul Nouri from Noble Equity. Please go ahead.
Hi, good morning.
Morning, Paul.
As it relates to the refinancing, can you talk about the financial covenants on the new loan? I saw that there's a minimum cash balance required and revenue requirements, but is there anything other than that?
They're the main financial covenants. There's kind of operational covenants in terms of a that would be standard within those types of loan agreements. Yeah, it's basically the trailing trading revenue covenant and minimum cash covenant, Paul.
What's the process if you fall below the required amount of revenue?
There is a penalty interest rate of 3% default interest rate. It would be a default, technical default under the loan, as will be the case, I suppose, with other loan agreements. That would be the position. We believe that there is significant headroom within those revenue covenants for us to be able to, you know, relatively comfortably meet those requirements.
Okay. Going forward, with this new loan, will you have to get lender approval if you want to sell a segment of the business or the entire company?
Yeah, we certainly would. For significant transactions, we would need to work with the lender in terms of that.
Okay. Then considering you need shareholder approval for this, maybe you can talk about the last shareholder vote in terms of, you know, how close it was or not and what your plan is over the next, you know, I guess 30 days or so to, you know, get enough votes to get this passed?
Paul, Ronan here. Yeah. What happened on the last call was that at the AGM we actually had a particular resolution that required one resolution which was basically resolution which under Irish Companies Act, and it's not a kind of a condition for that U.S. shareholders basically present for U.S. shareholders in under U.S. rules. But basically under Irish rules, the shareholders get to vote once every five years to basically allow preemption to be over to be bypassed. Basically you need to get consent from your shareholders in 75% by 75% resolution to bypass preemption rights.
What actually happened in this instance was that we have two quant funds who are basically impossible to speak to who just basically vote on the basis of ISS recommendation or Glass Lewis. ISS actually recommended a vote against it. I think really without necessarily understanding it, and as a consequence, we didn't get 75%. We were like in the 60s% or something like that. That's why we now have to actually put this whole thing to the members. I mean, I kind of make an analogy that to vote against this would be a little bit like a turkey voting for Thanksgiving or Christmas, right? Doesn't make a lot of sense.
Having said that, we basically are talking with ISS and are also endeavoring to talk to quant funds. It's actually quite difficult to do. I think the other thing that happened on the last situation was that the vote was very low, so we only had literally 30% of shareholders voting, and therefore, that kind of magnified the importance of the quant fund's position, right? We'll work on it, and I think it's unthinkable that this wouldn't carry the 75%. I mean, the alternative is very unpleasant, clearly. I just left people with the analogy of the turkey, you know. Basically get out there and vote. It's really the only show in town.
We are absolutely confident of actually getting that support. It's unthinkable that ISS could recommend against this. I mean, basically, it's like inviting in, you know, receivers and bankruptcy Chapter 11. It's all that. It's just insane. We're absolutely confident of achieving it, and we work diligently at it. We've already commenced that. We call the meeting before Christmas, and we should have a meeting sometime sort of in the last 10 days of January, and then the deal should close. Everything is signed up and we should close at that point.
Okay, great. Turning to the business, can you tell us how much COVID revenue you had in the quarter?
This quarter, Paul, was $3 million.
Okay. You're already selling the long-haul COVID test out of your lab, right?
What do you mean by long-haul?
The long-haul COVID that tests for, you know, different, I guess immunocompromised conditions.
I think some of those tests are active, and then some of them are continued through validation. They're really focused around, I think, you know, yeah, this is the autoimmune impact of-
Oh, yeah. Yeah.
of COVID-19.
Yeah. Sorry. We talked about
Where we are, Paul, continuing to see strong growth in the lab driven by COVID is our Sjögren's tests. That's our proprietary test for dry eye. We're seeing a correlation there between the level of COVID and the referrals for that test, in terms of some of the symptoms. That product is performing well for us.
I mean, in terms of COVID, what we have at this time is we have our viral transport media, which is beginning to pick up again. We mentioned that in our prepared remarks. We're back manufacturing again. We have our antibody tests, which are selling in modest enough volume. We have the long COVID tests that you just referred to, which are selling in modest volume. We have our first round of monoclonal antibodies. I think what we're really excited about though is the antibody test. Excuse me, the antigen test. Rapid antigen test, sorry. Which is now complete. Really what we're doing is just we've just had to buy in various pieces of equipment to ramp up our production.
We can basically manufacture this test now in the several millions. We are confident of having approval for that test to sell initially in Europe and very quickly thereafter in the USA. In actual reality, I think we're more excited about the opportunity in Europe, where we think we can sell in very high volumes. An excellent high-quality product, better than we believe than basically the tests we're using at the moment, which are mostly Chinese, a lot better. We're very confident of achieving big volumes there. I think it's become apparent to us all with the various variants that we've seen that you know antigen testing is gonna be with us in the longer term.
Yeah, we're very excited about that. I think that's probably the single most exciting thing we're doing right now. That doesn't in any way mean to detract from TrinScreen, which, again, we said we have an approval literally imminent. We just had some interaction with WHO even just in the last few hours that makes us believe that very reasonably, very quickly, imminently that we'll be into the market.
Okay. For WHO approval of that test, and then if you get FDA clearance for the Premier Resolution, are these things you'll put out press releases for?
Yes. We assure you with both of those scenarios, we'll have it. We will press release TrinScreen, Premier Resolution and/or the antigen rapid test.
Okay, great. Last question. Any update on the timing of the IFA instrument, the ScopeSmart?
Not really. I think what we are doing with that, Paul, is we're talking to a number of potential partners that we can link with in terms of scaling up the manufacture for that. There are other parties in the industry that we believe can use that technology. If we can increase the level of, you know, the manufacturing runs in terms of the instrument, we can significantly reduce down the price point at which we can sell that instrument, and that should allow for a much greater level of adoption. Rather than launch a very, you know, at a higher price point, we're looking, as I said, to partner with one of the other industry players and use that basically as a technology platform, that, you know, more than just Trinity can use.
That should allow us to have, you know, a much larger scale of sale of instruments, but also, you know, a lower price point in terms of getting into more labs and making it more, like, cost-effective for a number of different settings. It's more of a strategic play at this stage.
All righty. Thank you.
Again, if you have a question.
Can I follow up?
Oops. Sorry. Again, if you have a question, please press star then one. Our next question comes from Jim Sidoti from Sidoti & Company. Please go ahead.
Hi. Good afternoon. Can you hear me?
Yeah. Hi, Jim.
Hi, Jim.
Great. I just wanted to follow up some questions on the antigen test. Just, you know, first of all, where do you anticipate that test being used? Do you think that's the test for in the home or, you know, at airports or doctor's offices? You know, what do you think the market for that will be?
Well, firstly, it'll be approved for both home use and for professional use. It can be used in either scenario. I mean, the kind of things it can be used in is airports, in the home. For example, all the supermarkets in Ireland at the moment are selling the test.
As an example, I'm invited to a wedding on Saturday, and everybody's been asked to do an antigen test before they go to the wedding, for example. I'm sure we're seeing that kind of thing a lot around the world. I mean, you know, most homes now have antigen tests, you know, basically in the kitchen, basically. They're being used so often. It's probably something that's going to be with us, isn't it? I think in the longer term, I mean, we'll be positioned to service both the professional and the home market, either one. For example, you know, for traveling obviously, people are traveling around Europe.
In many instances now, you're being asked to, you know, either do an antigen test 48 hours before departure or a PCR test which is definitely two hours, and people tend to pick the antigen test. It's cheaper, and you only, you know, they only take one swab as opposed to two. So, it's less uncomfortable. Well, it's really becoming a feature. I know that in banks, you know, a lot of banks and employers now are testing their employees three times a week. We think that the test has got huge potential, and we're confident of getting into the market immediately upon approval.
Really at this time, I mean, I think the CE mark, I mean the CE mark is in effect is a form of self-regulation. It's automatic. The real challenge for us now over the next number of months is in terms of ramping up our production capability, and that's what we're fully concentrated on at this moment. The test is ready.
What does a patient need to use the test? Is it a nasal swab or is it a saliva test?
You know, swab, yeah. It's the same identical swab to the one you use basically when you get a PCR test. Except the only thing is, you know.
Okay.
You basically only go into one nostril. You don't, you know. The PCR, you go into either one or both nostrils. You go into, you know, one nostril and then once in the throat. Whereas with the antigen test, it's just the one dip.
All right. Assuming you get this test approved in early 2022 and you get the TrinScreen approved, you know, around the same time, you know, when you look at the ongoing business, you know, what are you thinking about for your R&D and SG&A expenses? Will those start to come down once development of these tests is finally complete?
Yeah. I suppose that that's the benefit. I suppose in terms of both of these near-term projects coming to fruition, right? You get a double benefit in terms of your cash flow. Obviously, Jim, we'd expect, as Ronan suggested, significant revenues from both of these products, right? They're high volume. They're in our sweet spot of lateral flow. We have the equipment. We have the manufacturing facility. You know, there's not a significant cash burn in order for us to get up to significant volumes for production, which is very important obviously. Yeah, the other side is you reduce down your investments in R&D because you've done the work.
One of the benefits of these lateral flow type tests is they typically don't take a huge amount of ongoing R&D to keep them up to date. Therefore, you know, it provides a good, solid long-term investment. Especially for a company like Trinity, who's been making lateral flow tests for many, many years. We know how to do it, and we know how to do it well.
Can you give us a little more color on, you know, where you are with the VTM, you know, the COVID supply business. I mean, I understand that it was down pretty considerably in the September quarter as customers started to burn through some of the inventory out in the field. You know, with Omicron, with the resurgence of COVID, are you seeing demand for those materials picking up?
Yes, we are. Absolutely. Not to the same extent as we saw this time last year. It is becoming somewhat apparent that this is somewhat of a seasonal disease. Obviously, the variants are changing that somewhat. But we are seeing increased demand. As I'd mentioned previously, pricing is not as strong as it was because there is more supply into the market. However, you know, we still think that there is a place for us within that market. There's decent opportunity for us going forward. As Ronan had mentioned, we retain the capability to ramp up production even further if demand so warrants it. It's something that we're keeping a very, very close eye on and do expect it to be a feature of the business for quite some time.
Is it reasonable for us to assume that, you know, revenue from the COVID-related products will fall somewhere between the $3 million you did in September and the $13 million or so you did in September 2020?
Yeah, I think that's fair. I think it's probably more towards what we did in quarter three 2021 rather than in quarter three 2020, just given that pricing and, like, quarter three 2020 was really exceptional, right, in terms of that product. Not as high. Then look at the pandemic is changing, you know, on a weekly basis. We're seeing the market change very, very quickly. You know, traction over the last little while has all been towards more demand and slightly better pricing, right? We'd expect that to continue.
I suppose our role is to make sure that we're ready and willing and able to execute on that opportunity as it arises. You know, we've kept the manufacturing, all the manufacturing equipment that we had when we were at max capacity. We had used a significant amount of temporary labor for that peak production capacity, and we've maintained relationships with those providers. Really, within this part, we think, you know, the key focus is just making sure that we have optionality with regards to being able to ramp up production and capture the market as it improves.
Is that the thinking that went into the decision to refinance with the term loan? Are you assuming that the VTM business is kinda stable? You start to add revenue from the antigen test from TrinScreen, and then you see the R&D and SG&A expense start to come down a little. Are you thinking you have enough operating income to service the debt or service the interest? 'Cause obviously, the interest will be substantial. It'll be, you know, on the order of $10 million annually. Do you think that, you know, the-
Yeah.
The additional revenue combined with that lower expense will be enough to service that interest?
Yeah. I mean, Jim, obviously our interest here as a consequence of what we're just doing here is increasing from $4 million grand up to $10 million grand approximately. I mean, I think we're confident. I mean, during the COVID, during the whole COVID, Trinity as a company has slimmed down significantly and I think continues to do so. In addition to that, we've two very big catalysts for growth in the antigen test and in TrinScreen. All right. I think that, as John mentioned, one of the advantages of this particular instrument is that we can pay it back at any time we wish.
To the extent that we generate excess cash flows or to the extent, for example, that we had a stronger share price, we could choose at any moment to basically rebalance our balance sheet and eliminate some of this debt. The penalty, by the way, just to share it with you, is in year one 10%, in year two 9%, year three 8%, and year four 7%. We have a lot of optionality there in terms of dealing with the structure of our balance sheet, which it's kind of fairly obvious to say that we're, you know, it's a bit imbalanced in terms of debt at the moment.
We will have the opportunity from either excess cash flows or indeed from choosing to take advantage of the strong share price actually basically to correct that imbalance and to basically reduce our debt. We'll just take maybe this opportunity just to mention in general terms that we had another alternative, I suppose, in terms of how we would have dealt with this, and that was to do an amend and extend. What we could have done is what we might have done was with the. If we had reached a final agreement with the bondholders, we could have basically done an amend and extend. We probably would have paid an interest rate of 6% or 7% or something like that. Got, you know, a three-year extension.
The point is that the conversion price would have been around today's price. It would have been one dol- say it was $1.50. And of course, that would have given rise to the issuance of maybe 60 million shares, which in essence would have given the bondholders 75% of the company, all right? I mean, we regard what the deal we have done as an excellent deal that basically avoids any significant dilution of the shareholders. Put it in context, the $8 million worth of equity that we're issuing to the bondholders gives rise to, I think, 5.3 million shares. And in addition to that, you've got 2.5 million shares, which is the warrant, basically. Which remember, aren't free shares. We do get paid money for them.
The total dilution there is 7.8 million shares, which is 35%-38%. Very different than kind of, you know, 60 million shares that you would otherwise issue. It's just an entirely different scenario, and I think a much preferable one from the point of view of shareholders. We regard this as a very good day's work.
Understood. All right. Thank you for taking the questions.
Thanks, Jim. Thanks so much indeed. I don't think we've any more questions. Nobody else there. If I could take this opportunity of saying thank you very much, thank you for your support, and look forward to speaking to you in the new year. Good afternoon.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.