Tuesday, July 24, 2007

Internet Of Things, Or Physical World Connection A Superb Investment Opportunity

From BusinessWire After A Decade, Internet Of Things Offers Superb Investment Opportunity

What now appears to be an inevitable explosion of data and connections to the Internet generated by billions of ordinary and not-so-ordinary devices and sensors is creating a huge investment opportunity for venture capitalists, says Terry L. Opdendyk, a General Partner of ONSET Ventures.

The opportunity comes from the emerging need for new applications to leverage an increase in network traffic of several orders of magnitude. Such traffic is produced by devices ranging from the billions of tiny, wireless RFID tags increasingly used for inventory management and location control to sensors in buildings, factories, homes, or everyday objects that report or react in real time to changes in status.

Additionally, says Opdendyk, as the underlying software enabling the “Internet of Things” becomes available and new sensors enable even more information to be harvested, thousands of additional reasons to connect devices to the Internet will emerge, creating a virtuous cycle of disruptive proportions.

This “Internet of Things” or the “pervasive Internet” is a new paradigm that describes a world where inanimate objects of every conceivable type – from toothbrushes and toasters to environmental monitors, motor vehicles and industrial machines – will communicate effortlessly through a network that – thanks to wireless and fiber optics – is beginning to bathe the planet.

ONSET believes, that a tremendous opportunity is being created for startup companies – like the early days of enterprise computing. “There is such a paradigm shift about to occur that it’s ‘déjà vu, all over again’,”


streetstylz said...

Those clowns at the EFF just can't win can they Scott?

You picked the wrong team to go to bat for.

This is our VINDICATION.

Scott Shaffer said...

Wrong team to go to bat for?

If you're referring to the EFF patent news today, I would say that the "team" breathing a huge sigh of relief today is Cornell Capital.

streetstylz said...
This comment has been removed by the author.
streetstylz said...


I've been pondering (it's what us primates do best)

. . . With the recent validation of NeoMedia's patent, where does this leave Scanbuy? Since the EFF failed in their attempts to get the US patent office to reexamine NeoMedia's patent, do you anticipate a Scanbuy settlement?

As you know the November Markman Hearing is right around the corner.

Scott Shaffer said...

EFF failure to get the USPTO to invalidate a patent and saying the patent has been validated are two different things.

Regardless of that...

The market is taking longer than expected for PWC adoption. That is pretty obvious. Text messaging is in right now and do the metrics with number of texts sent and revenues generated...the numbers are still very small.

What happens before the Markman hearing (if anything) I don't know.

However, reviewing NeoMedia's financials has me wondering if they will even survive to see this technology take off.

Here's why I think they are in serious trouble.

Neom went on their massive buying spree (including companies that are not even in the mobile space). They used their stock as currency and promised price guarantees. When the sahre price continued to drift down, they realized they didn't have enough shares oustanding to satisfy the increasing shares for this dilution. At the CTIA show in 06 they announced they would be raising the shs oustanding from 1 billion to 5 billion. They were finally forced to pledge their IP to a death spiral financier Cornell, that sealed their fate in my eyes.

The number of shares and warrants (and their exercise price) Cornell holds is frightening if you're a shareholder. The stock is on the verge of massive dilution. I urge anyone to spend a few minutes and read their latest financial filing.

In 4 yrs they have gone from 85m shs outstanding to close to 2 billion (and it grows every day). I don't think people have read their latest financial filings to see what the "real" number of shs outstanding are and can be.

The current registration of shares has yet to be approved by the SEC, and shareholders are facing massive dilution shortly.

Because PWC is taking longer to adopt, and the money is just not there yet, I see massive risk and little reward for a current and future Neom shareholder.

Don't get me wrong, PWC will be big, but with billions of shares, death-spiral financing from Cornell, unethical management practices and management blunders,... (in my opinion) a Neom share has been diluted to a point where there is very little reward.

A few years ago, this looked like a terrific speculation. That was when the share count was 300 million and manageable. Because their shares oustanding grow every day (how many billions is it if you include ALL of the wts and preferred shares?), and the market is taking to longer to develop, any upside is limited.

When PWC takes off I don't see how a Neom shareholder can be rewarded considering the massive dilution they are facing.

streetstylz said...

Thank you for the reply.

You bring up valid and concerning facts. Without question, the dilution is frightful and management's past mistakes have hurt the company and left shareholder moral at an all time low. There is no one who can contest against that.

However, despite the financials and dilution, I continue to hold steadfast in my belief that NeoMedia is on the verge of a miraculous turn-around.

In looking at the positives:

* We have gotten rid of those who were responsible for the 2006 buying spree.

* We have hired an excellent CEO with an extensive background in the mobile and telecommunications space. Not to mention an impressive military background.

* We have hired a turn-around specialist who has been working hard to right the company and get us back on track.

* We will be selling AutoXperience and Triton in the very near future.

* We are bringing in a strategic equity partner who will be infusing $10 million in cash.

* Our subsidiary Gavitec is making tremendous strides in Europe, Asia, and North America with their mobile ticketing, couponing, and code reading initiatives.

* Both Gavitec and NeoMedia are tightly aligned with technology giant HP, marketing powerhouse Publicis Groupe, handset manufacturer Nokia, and carriers Deutsche Telekom, O2, and KPN through the Mobile Codes Consortium.

* We have a great Co-Marketing partner, Mobalis, who is saturating the Latin American market with qode initiatives.

* The US Patent Office upheld our patent and denied the EFF in their request for reexamination.

It is for those reasons I remain faithfully invested in NeoMedia, and continue to promote the company and their optically initiated mobile code reading platform, qode.


Scott Shaffer said...

You left out a key point to your analysis.

The law of diminishing returns. the hole in the bottom of the boat is allowing more water to come in, than can be scooped out with a Dixie Cup.

Bigger and faster boats are starting to appear and create waves. In addition, it is starting to rain.

It's all about the amount of risk versus the reward for the investor.

Would you invest in any company if your shares would be diluted daily AND you didn't know how many shares are really outstanding?

From their latest financial filing.
"In addition, the lower NeoMedia’s stock price is, the more shares of common stock NeoMedia will have to issue pursuant to the conversion of preferred stock or the convertible debentures"

Another thing that I think investors should be aware of.
"NeoMedia cannot guarantee that it has enough authorized shares to net share settle the Series C convertible preferred stock"..

At what point do you get realize swimming is better than being stuck on that boat.

In my opinion, the reward for the Neom investor is long gone, and there are much better ways to invest in Physical World Connection.

Anonymous said...

scott, Not sure what your background is , technology wise or just a promoter, But I do work for a big telecommunications company and I disagree it is coming latter as you imply. Remember the internet was not a one day wonder when it came out.. think about it

Anonymous said...

The following is from the 10k. The
question at todays price is; Is 5 billion authorized share evough.

Existing Shareholders Will Experience Significant Dilution When Certain Investors Convert Their Preferred Stock to Common Stock, Convert Outstanding Convertible Debentures, Or When the Investors Exercise Their Warrants and Receive Common Stock Shares Under The Investment Agreement With The Investors

The issuance of shares of common stock pursuant to the conversion of Series C convertible preferred stock, the conversion of convertible debentures, or the exercise of warrants pursuant to NeoMedia’s transactions with Cornell Capital Partners will have a dilutive impact on NeoMedia’s stockholders. As a result, NeoMedia’s net income or loss per share could decrease in future periods, and the market price of its common stock could decline. In addition, the lower NeoMedia’s stock price is, the more shares of common stock NeoMedia will have to issue pursuant to the conversion of preferred stock or the convertible debentures. If NeoMedia’s stock price is lower, then existing stockholders would experience greater dilution.

NeoMedia is currently in default of: the Investor Registration Rights Agreement entered into on February 17, 2006, in connection with the Series C convertible preferred stock , which called for a registration statement containing the shares underlying the secured convertible debentures to be filed by June 1, 2006 and the Investor Registration Rights Agreement entered into on August 24, 2006 in connection with the secured convertible debentures, which called for the shares underlying the secured convertible debentures to be registered by November 22, 2006

Scott Shaffer said...

Like I stated earlier "The current registration of shares has yet to be approved by the SEC, and shareholders are facing massive dilution shortly."

I agree with you, I don't think the 5 billion shares they have authorized is enough to handle the upcoming massive dilution.

I seem to recall the company having to call an emergency (or abruptly planned) shareholder meeting in 2006 to get shareholders to approve an increase in their shares outstanding from 1 billion to 5 billion.

I think the company realized they didn't have enough shares authorized to cover the price guarantees made for the acquisitions they made.

Looks like deja-vous all over again.

Anonymous said...

Toxic Financing


Brokerages/Wall Street
Death Spiral Convertible Just Refuses to Die
By Matthew Goldstein
Senior Writer

The "death spiral convertible" might sound like your last car, but it's a bond -- and it's making an unlikely comeback on Wall Street.

These much-maligned securities, whose conversion into common shares can be triggered by precipitous drops in a company's stock, all but disappeared from the market three years ago. The near extinction occurred as investors got wise to the deleterious impact an endless flood of new shares can have on price.

Subsequent allegations of manipulative trading by some of the hedge funds that invested in these deals looked to be the death knell of the death spiral convertible. Those allegations ultimately spawned a regulatory investigation that led to a number of enforcement actions against hedge funds accused of illegally profiting from declines in stock.

Over the past year, however, there's been a surprising revival in the market for death spiral convertibles -- known officially on Wall Street as "floating convertibles.'

In particular, small, cash-strapped companies with market capitalizations often under $100 million are selling these bonds to hedge funds in deals covered by the Wall Street acronym PIPEs, or private investments in public equity. The resurgence in death spiral deals may be an indication that tiny, cash-strapped companies are finding fewer options for raising money.

This year, 10% of the 478 completed PIPE deals brought to market have been death spiral transactions. By comparison, just 1.9% of all PIPE deals in 2003 were categorized as death spirals, according to research firm PlacementTracker. (PlacementTracker officially calls them floating convertibles).

Last year, death spirals accounted for 6.4% of the $20 billion-a-year PIPEs market. Death spiral deals peaked in 1999, when they represented 20% of all PIPE transactions.

Some of the companies that have done death spiral PIPE deals with floating conversion prices this past year include Generex (GNBT:Nasdaq) and Vasomedical (VASO:Nasdaq) , according to PlacementTracker.

So far, two hedge funds are leading the way in investing in death spiral deals. Over the past 12 months, Cornell Capital Partners has emerged as the top investor in death spiral transactions, sinking $175 million into 42 deals. In second place is NIR Group, which has invested $77 million in 40 transactions.

No other hedge fund comes close to Cornell Capital or NIR, says Robert Kyle, executive vice president of Sagient Research, the parent company of PlacementTracker.

Mark Angelo, the founder and president of Cornell Capital, a $500 million fund located in Jersey City, N.J., declined to comment. Corey Ribotsky, the manager of Roslyn, N.Y.-based NIR Group, did not return several phone calls. NIR Group has $486 million in assets under management.

PIPE deals, of course, come in all shapes and fashion. But almost every deal involves the sale of discounted shares to a group of hedge funds.

Death spiral PIPEs got their unsavory reputation because, unlike typical convertible bonds, which get converted into shares only when a stock rises to a fixed price, the conversion price for these notes keeps getting adjusted downward whenever the underlying stock falls. The drop in the stock price also means the buyers are entitled to receive more shares when the conversion occurs.

The floating convertible feature is intended to be an embedded hedge to protect investors in the event the stock doesn't rise in price after the deal. But, in the past, some unscrupulous hedge funds that bought the bonds saw the floating conversion feature as an invitation to make money by literally shorting the stocks to death. In many cases, those hedge funds violated contract provisions forbidding any shorting of the company's stock. (Nobody has lodged such allegations about Cornell or NIR.)

A short sale is a market bet that a stock will fall in price.

To some degree, every PIPE deal, not just death spirals, is a bit of a Faustian bargain for a company. In selling discounted stock or a bond that converts into discounted shares, the company hopes all the extra shares coming into the market won't depress the price of its stock.

PlacementTracker reports that six months after a death spiral convertible is placed, the stock of the issuing company is down, on average, 7%. Yet, ironically, death spirals are not the worst-performing PIPE deals.

PlacementTracker says companies that sell bonds with a so-called "convertible reset' conversion provision often see their shares plunge by 26% six months after doing a deal. A convertible reset PIPE is a modified death spiral that doesn't have an endless conversion feature.

Indeed, the NIR Group, which mainly invests in death spiral PIPEs, reports having some stellar annual returns. The NIR Group's AJW Offhore hedge fund is up 6% this year, after rising 17% last year, according to a report sent to the hedge fund's investors.

One hedge fund manager who didn't want to be identified says most investors in death spiral deals want a company's stock to go up. He says the floating convertible is intended to provide protection to investors. He says there's more money to be made from a company's stock rising than falling.

The hedge fund manager says death spirals unfairly got a bad reputation because of abusive short-selling by some rogue hedge funds.

Casper Hallas, a portfolio manager with Denmark's Scandium Asset Management, agrees with that sentiment. He says his fund invested with the NIR Group because he likes PIPE deals with a floating-conversion feature. He says the downward-conversion feature provides added protection for investors.

"If the market goes down, you convert at the lower rate,' says Hallas. "Having a floating rate is a little bit like riding a put.'

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Anonymous said...

"Nobody has lodged such allegations about Cornell or NIR."

That you know of.......