NeoMedia Technologies, Inc (NEOM)

[Poptech]

ARP: Good post. I agree it would be a strain to manage a company with month-to-month funds. It certainly means they would be unable to forecast or take on new product development. Basic rule of thumb is you don't include verbal agreements in your hard numbers. In NeoMedia's case, their entire budget is soft. The other two points of strain is 1) key expenses are related to funding and salaries, 2) gross revenue is going straight to YA.

Iain's point in the call was YA won't walk away now, but he dodged the larger question of why YA is forcing this strained financing on a struggling entity. The reality is YA owns all the assets and will have a decent return on their investment. Walking away is clearly an option on the table - otherwise they would put in sustainable financing.

Iain also said he wanted to reset the clock and craft themselves as a start-up. It would be nearly impossible to find a CEO of a startup who would accept monthly funding. During the downturn, we saw VCs trying to place term sheets with this type of tranche financing, albeit not monthly, and they weren't getting buyers. It would have been a great deal for VCs since they are able to lock in long-term funding at start-up valuations - while reducing risk. Right.

Today, NeoMedia is stuck in a financing deal they can't walk away from - they have nothing left to offer another financier. The debt load, a decade of weak revenues, crippling monthly financing, and no funding options will eventually mean a reset (BK), exit or closure.