Definition of Death Spiral Financing. . .
And, how in impacts WSGI share price through dilution. . .
Indy claims the LJC funding is "vulture capital" and not considered "Death Spiral Financing." Flybyday claims there is "floor price protection" and cites a sub-penny default provision that was removed from the initial agreement as evidence that the LJC funding is not considered Death Spiral Financing.
Death Spiral Financing works through dilution. LJC gets extremely discounted shares for cash. The increased dilution decreases the value of existing shares. A lower share price means more shares are issued to LJC on the next conversion for the same amount of cash. The removed sub-penny default provision has nothing to do with dilution or Death Spiral Financing. I believe we all now agree that the cash true-up provision negates the stated floor price protection.
But, the best evidence is that the stock was trading around .06 when the financing agreement was signed. The stock now hovers just above a penny.
Here's Investopedia's definition of 'Death Spiral' for those who wish to educate themselves.
A type of loan investors give to a company in exchange for convertible debt, which, like convertible bonds, typically has provisions that allow investors to convert the bonds into stock at below-market prices. This can cause the original shareholders to lose control of the company.
Investopedia explains 'Death Spiral'
This type of loan is undertaken by companies that desperately need cash. It is called a death spiral because companies' stocks often plunge drastically after they take on these types of loans. It is important to note that death spirals often allow buyers to convert the bonds into shares at a fixed conversion ratio in which the buyer has a large premium.
For example, a bond with a face value of $1,000 may have a convertible value of $1,500, which means that a bondholder will receive $1,500 dollars worth of equity for giving up the $1,000 bond.
However, upon a conversion, more shares are created, which dilutes the share price. This drop in price may cause more bond holders to convert, because the lower share price means that they will be receiving more shares. Any further conversions will cause more price drops as the supply of shares increases, causing the process to repeat itself as the stock's price spirals downward."
AI
