My thoughts on CNCN financings in Oct-Nov-Dec 2005.
These were not really financings, but in reality a takeover.
These financings are best described as 18 month options granted to lenders at then-current market prices in return for interest-free loans. Assuming the loans convert, these new lenders would own 50% of the company.
The buyers are big players, 18 different buyers, $8MM total--that is an average of about $50K per investor. Actually, there are a couple $10K-ish small players in there, but they look like "friends and family" of the big guys brought into the deals. Several repeat buyers, oncluding Tai Bok Kim, who bought bigger-$ positions at each increasing price level.
Each month in turn they raised MORE money at succcessively higher prices. This, plus the repeat buyers, suggests that the Koreans liked the deals. There were a couple partnerships buying into the December convertibles--I'd be interested to know whether these partnerships wer formed for that purpose or whether they had operated beforehenad. I suspect they were turning investors away at each level.
In total, these lenders will own right at about 50% of the company if the options are exercised. Tai Bok Kim (google inconclusive, see below) will own 23% by himself. I am assuming the 41MM shares figure on Yahoo pre-dates all 3 financings. If it includes the 10MM r so shares that the Oct convertible can convert to then the percentages are higher.
A Google search on Tai Bok Kim, alone and in conjunction with terms like "Samsung", "Sony" and Korea Telecom" does not turn up anything. Korean names being what they are, there are zillions of Kims. Anybody know anything about this guy? In an outright buy situation he'd own way more than 5% and would be on the BOD (or his nominee would).
What's in it for the company? Clearly thery raise funds immediately with minimal hassle, hopefully to finance an operational ramp-up. They keep an appearance of low outstanding and float share counts. And maybe they cement elationships with key customers (?)
What's in it for lenders? This is a tougher question. As a group, they effectively will control the company June 2007, and accomplished this for about $8MM. Could they have bought 20MM shares in the open market? Don't know. They do avoid hitting a 5% reporting threshold, and there is no taxable
No taxable event (not even income, since there is no interest paid) until Q2-2007.
Assuming CNCN really does collect the money up front, and these are not just options granted to friends and family, these people HAVE to be looking at MUCH higher prices in the future. Tai Bok Kim spent more money, at higher prices, in each of the three rounds. He clearly wanted in. He effectively bought control of 23% of the company at an average price just over 15 cents.
The financiers who put out the money at the .35 coversion price for 18 months had instead invested it, somehow, at 10% SIMPLE interest (a return I can't get, but one that big players who have significant cash to invest in otc companies would scoff at as wildly low for their money), it would be as though the .35 shares went to just over .40 in 18 months. If you bump that rate of return to 25% (still low imho for financiers with leverage over cash-starved small companies) then you are looking at the equivalent of .48 in 18 months (simple interest (certainly over .50 if compounded). I think they are playing for much hiogher stakes than that.
ANyone have more information here?
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