CarbonMeta Technologies Inc (COWI)

[j_t]

Okay, I am cautiously optimistic about things here; however, I also believe along with Pergamon that this company cannot succeed under the present financing agreement/structure with Cornell. It is simply not possible to survive with a cash flow deficit (calculated minus the continual Cornell finance injections) - they are sinking deeper with each passing day.

There seem to be good people at the helm, and they seem to be making progress and making the right decisions; also, it is apparent that the company has good products and good market opportunities for slow and steady growth. Unfortunately, like many promising small tech companies with "a good idea at the right time and place", the flame on this one just might get blown out by the hurricane of debt they are carrying.

They are generating acceptable profits on what Coroware is selling (sales of Coroware products minus direct/variable costs of making and selling these products); however, they are $15,000,000 in the hole and there is no way they can service that amount of debt on current or even modestly increased revenue. In addition, they are carrying some ridiculous "prior obligation" expenses like lease agreements that mean they are paying double in 2008 and 2009 the amount they will pay in 2010 (2008 - $ 43,042; 2009 - $ 44,338 ; 2010 - $22,993). And, in relation to that, Eugene Gartlan (no disrespect intended) and Walt Weisel took $250,000 and $270,000 respectively out of this company in 2007 ???????? - 200K and 220K of those respective amounts being in cash???!!!!!!!!. I don't know how the heck that was ever justified, but it apparently still is in regard to Walter Weisel, as his "termination and retirement" agreement guarantees him 11 monthly payments (total $110,000) of $10,000 that began in March. The agreement guarantees:

a) Eleven monthly payments beginning in March 2008 of $10,000 in the Corporation’s restricted common stock at the Volume Weighted Average Price (VWAP) of the Corporation’s stock price for the five (5) trading days immediately preceding the payment date; such VWAP will be the share price amount as determined by Bloomberg.

At current share prices, that is/will be literally tens of millions of shares. Does that and the next clause explain some of the share volume in recent weeks?

In addition, he will receive:

b) Additional Stock Payment. The Corporation shall pay 2,800,000 shares of the Corporation’s restricted common stock to Executive in four equal quarterly installments in 2008 beginning April 1, 2008.

So, over the next year, Walter Weisel will go from owning 8 million odd shares to who knows how many? I am not very happy with a deal that rewards the person who piloted the ship while the share price plummeted by 98% over an 8 - 10 month period (although, I suppose that is "welcome to modern corporate America/Canada").

I am also extremely concerned about the share dilution - I don't see how we can come back to these .19 prices a few of you are talking about if the number of outstanding shares continues to rise ... that is simply not possible - unless revenues dramatically increase, more shares equals less value per share. It takes a little digging, but on page 23 of the 10K, it reports there are 158,519,667 shares of common stock outstanding as of March 31, 2008 . That is a 35% increase over the 117,550,000 that was reported back in November, and which is still being used for most calculations/valuations. If we continue at that rate every quarter, we will be looking at 250,000,000 - 300,000,000 shares by the end of the year. How can we get to .19 a share under those conditions? I imagine there will be a 10-1 reverse split, but that just means .19 will equal .019 for those of us holding right now (although, 0.019 would be considerably better than what it is now).

I would like to see a few things:

1) A detailed "letter to shareholders" from the CEO posted on the Innova/Coroware websites that clarifies many of the changes which have occurred. I would also like him to acknowledge the difficulties and realities of the share dilution and debt issues and to provide direction on where he intends to take the company.
2) A revamping of the Innova website as it hasn't been updated in a while, and I think it is very important for tech companies to look ... well up to date (Coroware could do with a makeover too, but that is purely just my opinion ).
3) Another major contract deal with either Microsoft or another buyer. Yes, yes, I know that is what everyone wants, but what I am implying is that it simply not possible for this company to survive long term at current or modestly increased revenues. Sadly, and despite doing everything right, slow and steady will not win this race. A major contract is essential in order to continue to service and/or refinance the debt.
4) This one is a complete pipe dream, but I want to know who has been dumping all the shares in the last while. Is it Cornell or not?


Having said all this, I do think that Lloyd Spencer deserves recognition for stepping up to the plate and attempting to do battle with all the ferocious monkeys this company is carrying. Kudos for cutting costs and trying to turn things around, and particularly for not going "overboard" on his own salary (hopefully that continues).

jt