NeoMedia Technologies, Inc (NEOM)

[brewskih]

cjzak.....it does apply to Cornell, contrary to what others have posted here. Death spiral financing is a concept. The example that was used in the writing you wrote, is just that an example. The investor does not have to short the stock, in order for the death spiral concept to actually apply. Besides there are other ways to drive the price down besides shorting the stock. As Cornell did, they exercised their options and immediately sold the shares on open market, making a huge surplus, higher then demand, thus lowering the stock price. At the same time a director was also unloading a lot of shares, thus increasing supply even more and helping to push pps even lower.

Death spiral financing applies to any financing, where the investors pps is tied to the market pps instead of being a fixed pps. The fact that the investor can't short the shares is inmaterial. Its called a death spiral financing mainly because of the dilution it creates if and when the investor converts shares, because the lower the price of the stock goes, the more shares the investor recieves at time of conversion. And the more shares they recieve, the more dilution. The more dilution equals even more downward pressure on the market pps and its a continous cycle, hense death spiral. With a fixed price financial deal, the dilution is set at a specific number of shares and all investors know the dilution rate at the time of the agreement. With a non fixed conversion rate, the investors dont have a clue how much dilution, therefore they dont have a clue how much downward pressure on the market pps etc.

And in the case of Cornell, you know quite well, unlike many investors, they will not hold the shares. If the investors held the shares, you wouldnt have the same downward pressure on the market as with an investor who dumps them after conversion, creating an over supply. Its a fact Cornell has not held onto any of NEOMs stock throughout the years they have been invested, and thats why they dont appear in the list of institutional investors with any quantity of shares.

Also keep in mind the Cornell made their millions already off NEOM, just as your example points out. They were paid I believe about 1 million just to enter into the deal, then got their shares at less then half the market value at the time, and in addition gort warrants to purchase mant more shares at a discount.