Edster1 - See page 27 of the 3/31/06 10Q Financial Statement. On 2/17/2006, NEOM retired the balance of the $10, Mil. Promissory note, $2,710, Mil, plus interest, $419,000., from the proceeds of the Series C convertable preferred financing arrangement with Cornell.
There was no outlay of cash, by NEOM, in the retirement of this debt.
Among other assets used as security for the $10, Mil Promissory note, 25, Mil shares of NEOM's restricted common shares of stock was also escrowed as security for the $10, Mil. promissory note.
Page 27, also states that NEOM, recognized a $1,964,000., loss, at 3/31/2006, in connection with the retirement of the $3,208, Mil. promissory note, in the issuance of Series C Convertable Preferred Stock.
Page 24, recognizes the $1964,000., loss, as being deducted from the total gross proceeds related to the convertable preferred stock.
Explanation note # 3, on page # 24, states that the debt extinguishment loss was calculated as the amount that the fair value of securities issued, exceded the Company's carrying value.
In reviewing all the computations on page 24, I have not been able to "back into" all the bookkeeping entries in order to reconcile the computations which would result in the $1,964,000., loss on the extinguishment of the $3,209, Mil. promissory note, with all of the values reflected on page 24.
The $1,964,000., loss was added back, as a source of cash in the cash flow statement, as this loss was not an actual payout of cash, but it must be recognized for financial accounting purposes, as a non-cash payout loss, based on the varying and fluctuating values of the Convertable Preferred stock transferred to Cornell to secure debt for additional operating funds.
I can track and reconcile most of the computations on page 24, with all of the financial statement accounts. I have not spent any time attempting to reconcile how this $1,964,000., non cash loss was computed by NEOM's accountants.
For the period ending 3/31/2006, look at the cash flow statement, and you will note that net proceeds from the issuance of Series C Preferred Stock (net of issuance cost $2,725, Mil.) is $14,066, Mil. There was not such cash flow item for the same period ending 3/31/2005 (this is not net comparison with 3/31/2005), nor 12/31/2005. This is net funds advanced on the Convertable Preferred stock which were transferred to secure debt.
For the time being, until the additional common shares are registered, and converted NEOM's convertable Preferred Stock is securing our debt with Cornell, which resulted in cash proceeds of $14,066,000., (see cash flow statement 3/31/06. After you have noted this cash flow increase, go look at the balance sheet for 12/31/2005, under Stockholder's equity, and you will note that at 12/31/05, NEOM had $25,000,000. shares of preferred stock authorized, with none issued.
After you have found the $25,000,000., preferred stock on the 12/31/05, balance sheet under Stockholder's equity, then go look at the same item on the 3/31/06, Balance Sheet. You will note that this Same Stockholder's equity account has changed to $25,000,000., shares authorized, with 22,000,000., issued and outstanding.
Understanding page 24 of the 3/31/06 financial statement is key to understanding why additional common shares are needed.
On page # 24, read the small print (1) under titled (Assets)in the 3/31/06 financial statement.
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