Holy Cow - Dead Man Walking.
Here is a breakdown of the dilution in the pipeline attributable to Cornell. Remember, the paper that Cornell holds has varying conversion prices. Like the controversial "top off" agreements - there is no floor, thus Cornell bears no downside risk.
February 2006 $22 million Series C Convertible Preferred:
715,747,165
August 2006 $5 million Secured Convertible Debenture:
313,888,889
December 2006 $2.5 million Secured Convertible Debenture:
111,444,444
March 2007 $7.5 million Secured Convertible Debenture:
333,668,080
715747165
313888889
111444444
333668080
-------------
1,474,748,578 in pending common stock convertible from currently outstanding Debentures, Preferred and Warrant securities held by Cornell Capital and affiliates.
Of which 1,022,400,000 shares are attributable to securities with a floating conversion level of either 97% or 90% of the lowest closing bid over the last 30 days prior to conversion.
The second figure is the most important as that paper will eventually hit the market as it always converts at a discount to prevailing market prices. The first figure includes warrants which only reprice when NEOM requires additional capital.
Wow, so we can tack on another 40 million or so to the current market capitalization given the yet to be issued over hang of stock. To correct for this overhand, all else remaining the same, NEOM requires another 50% haircut in stock price.
Yet that presents additional problems, given the floating conversion rate, as the lower the stock goes the more common stock is required to satisfy the outstanding Preferred and Debentures.
Now we know why they call it Toxic or Death Spiral financing.
In light of this exercise - I don't buy the strategic investor hype. I can't imagine that any legitimate, reputable capital firm wants a piece of this mess. I also cannot imagine any credible CEO-type accepting employment with a sinking ship.
What a waste - this company, in its current incarnation, is dead.
Now we know why Buffett demands capable and honest management - to avoid getting his capital hamstrung in cluster$%&#s like NEOM.
