I suppose that much of the sell-off of NEOT these last few days was because the recent financing was viewed as bad for the company. In a number of other cases, companies obtained convertible financing and thereby set into motion a chain of disastrous events. The financiers could short the stock, which triggered more selling by others when the prices went down. They they could get more shares at lower prices when they converted their loans into stock. They then used the converted stock to cover their short sales. There are a couple of variations of this scenario.
I communicated with the company because I was concerned about this and got assurances that this is just not the case in this financing. There are provisions in this funding that provide a specific, but not specified, floor, where no shares can be converted below this certain level. There are also redemption features if the stock goes below or above a certain, again unspecified, level. However, these are provisions that are not normally found in this type of financing. In the meantime, they now have available to them some $19 million dollars, which is 95% of what they got to work with in the initial offering, and against which they can draw on their own timetable.
As I understand it, the options to sweeten the financing deal are at prices some 30% above the current market price. This aren't bad terms for the company or for the shareholders. They need the money to complete the tests and this is better than tying the company up in a pharma deal before they get the best possible terms ... which after the testing. It appears that the testing is going well enough for financiers to put up a lot of money on mediocre interest terms with the prospect that they will be able to cash in their options at prices a lot higher than at these levels.
Hopefully, the company will be able to communicate the terms of this deal as well as the results of the tests better. The stockholders are taking a needless beating because of their unwillingness or inability to communicate. They always announce the least possible amount of information they can and, incomplete, unclear and confusing as it may be, call it good enough. It is either that whoever is responsible for keeping a lid on this information is doing too good a job or whoever is supposed to communicate the information is not doing a good enough job. They should determine which it is and fix it. It is getting hard to hang in there, buying on dips and taking big losses on the portfolio, lurching from announcement to announcement, when all you end up getting is just partial information with more caveats than anything else, every 6 weeks or so. |
