Please tell me if I misunderstand this picture (no pun intended).
This company has cash flow problems (actually no real cash flow) -- the only way they have been able to raise money and pay bills is to sell stock or issue convertible notes. Their goal is to develop a last mile DSL solution.
In the midst of all this, they manage to find $2.25 million to produce a film? This doesn't raise red flags for everyone? They are supposed to make money off this by getting 50 percent of the "net profits?" I'll admit that it has been a few years since I negotiated a movie deal, but unless Hollywood has changed its way of doing business in the last few years, no one (who knows anything) cuts deals for a share of "net profits." This "deal" is a joke, right?
And to top it off, someone is actually saying that it could gross $20 to $30 million? Aside from the fact that this has nothing to do with GAAP "net" much less Hollywood's definition of "net profits," if it were this easy to make this much money is the movies, wouldn't everyone would be doing it? Such "predictions" are inconsistent with reality and the going concern disclosure; specifically:
<<Our continued existence is dependent upon our continued ability to raise funds through the issuance of our securities or borrowings, and our ability to acquire assets or satisfy liabilities by the issuance of stock.>>
This movie deal smells very similar to the guy who in a desperate effort to keep his personal financial situation from going bust, begs and borrows whatever he can to come up with $$ for the deal that cannot miss. It is desperation at its best and worst.
<<We agreed to pay the principal and an amount equal to 50% of the principal if we reach certain milestones from the distribution of our feature length film currently in production. The promissory notes are convertible at any time, in whole or in part, into shares of our common stock at a conversion price of $0.40 per share. In December 2001, we raised an additional $250,000 through the issuance of convertible notes on these terms.>>
They agreed to pay 50% "interest" to get the money to try and get illusory "net profits." This does not raise red flags?
The notes are convertible at any time at $0.40 share. Price recently went to 1.00+ for a short time and is still above .80. If you are an investor and have a choice of making 50% (and only 50%) by doing nothing or doubling (or better) your money by exercising and selling, which do you do? I'd be surprised if the notes had not been converted and most, if not all, of the stock sold. Of course, that means a bit over 2 million more shares issued.
Based on the disclosures, this company has to raise more money NOW in order to even think about making it to the end of summer. Of course, this comes at an ever increasing dilution to existing holders.
And, in the face of all this, one employees gets $600K a year in salary? I now know who is making money off this company. Is anyone else?
What am I missing in this picture?
Troy
Troy
Those who shoot from the hip usually end up just shooting themselves.
Plan the grub and grub the plan.
Where is the party tonight? Who is bringng the drinks?
