NeoMedia Technologies, Inc (NEOM)

[ASTOCKCOLLAPSE N0W]

Please refresh me on what exactly you are disputing.

Really, it is a simply process. Believe me, I've been in the finance industry in a number of capacities and have seen how it operates.

It probably looks something like this:

Cornell gives NEOM money.

NEOM gives Cornell convertible securities that have an annual yield and convert at a discount to the market (a.k.a floorless, toxic or death-spiral convertibles).

This paper creates an incentive to short the stock.

For example, I hold some hypothetical paper that converts at a 97% discount to the lowest bid over the last 30 trading days.

The stock price is currently trading at $1.00. The company is virtually bankrupt and I know they have no where else to turn but me if they endeavor to continue operations. Management is inept if not totally corrupt. They are right where I want them.

So I begin shorting - ten thousand here, one hundred thousand there. Six months have passed and the combined effects of my shorting and a garbage company led by crooked fools has dropped the stock price to $0.50. The cost basis on my total short position however - since I slowly scaled in - is $0.66.

I have an outstanding short position of, say, 1,000,000 shares at a net cost-basis of $0.66. I can now offset my short position by exercising my convertible at $0.48 (0.97 * 0.50) for a $0.18 or 28% gain ((0.66-0.48) / .66 plus any yield the convertible paper may have carried minus the carrying-costs on my short).

I've just netted a 30% gain in six months at - and this is important ..

wait for it...

wait for it...

no financial risk.

As long as my short position can be completely offset by my convertible position, I can't lose. My total downside is the yield on the convertible minus the carrying-cost (margin rate) of the short position. This is usually positive by 300-500 basis points if I am a big enough player and thus can demand low margin rates.

Okay, but Cornell no longer can short, nor can their "affiliates". Big deal. There are hundreds if not thousands of firms who do the convertible arbitrage trade. So Cornell then acts as a broker/dealer. They structure the financing, take receipt of the paper and then distribute it at a nice profit to unaffiliated parties who engage it what I described above.

This is not some conspiracy theory I am positing, this is finance 101 - this is the market. It happens all the time - even with big companies. I dabbled a bit in the market back in 2002- early 2003 when large(r) companies were forced to issue convertible paper due to high and rising credit spreads (i.e. issuing traditional debt was prohibitive given the rates the market was then demanding).

It was free money but that was the price back then when these corporations wanted/needed to access capital. They got their capital, we got our arbitrage opportunity, common stock holders got the raw end of the stick. Some of the companies eventually went bye-bye, others have completely recovered, retired the outstanding convertible paper and made longer term shareholders "whole". And the beat goes on...

Some here have wondered why NEOM just doesn't ask their current retail shareholder base for capital. Why can't I participate in the convertible offering they ask. Why? Because it is in high demand. Toxic convertible paper issued by a company with a relatively liquid market for it's common stock and an upside-down balance sheet is like printing money. It's even better when there are active "recruits" hyping the stock, ensuring a fairly deep bid.