The Wizard of Oz

As a distressed NASDAQ public company we werethe catalyst for our company to ultimately be
deported from the fertile vineyards of Silicon Valleydelisted. Then we find out, our new investors have
to the dusty prairies of Tornado Alley. Even with thebeen shorting our stock all along. The domino effect
sirens screaming out into the night, we really hadof such factors caused panic and our common stock
nowhere to take shelter. As the twister spunprice was now free floating downstream. This vehicle
violently towards us, all we could do was close ourwas later called a "death spiral" or "toxic" PIPE.
eyes and brace ourselves. It was a fierce F4 tornadoWith the surrounding rivers ready to crest, it was
that struck. With our corporate structure so weak,uncertain how long our footings would hold up. We
the spinning power of the funnel uplifted our homeendured much like the scare crow without a brain,
off its foundation. We were now airborne.the heartless tin man, and the lion lacking courage.
When we awoke the next morning, somehow weOur business continued to grow despite a diverse
were still in one piece. But the violent storms wereinvestor group and complex capital structure. We
the beginning of the end for many companies thatwere essentially doomed if we could not get new
had recently gone public. These were times of startinvestors in to recapitalize the company. The reality
ups and the dot coms, where you could go publicof the situation was that any newer investors would
with no revenue and incur huge losses. Although ouralso want to squeeze the previous investors down.
cash burn and losses were relatively modestThat is, have them permanently cut their investment
compared with many of our contemporaries, we tooto a small fraction of its initial value.
were becoming desperate.The Wizard of Oz was like the puppet master
Many public companies including ours were accostedcontrolling the purse strings behind the curtain. The
by an assortment of deal guys. Their investors hadstrings were not only controlling my hands, feet and
assessed our fundamentals and considered uslips, there was also a noose firmly around my neck.
candidates for private investment. It was the calmWe refused to succumb to the trickery. Six months
before the next storm. These munchkins encouragedwent by. Finally, our own warlock (investment
us to follow that yellow brick road. You could buildbanker) finds the anecdote to put an end to this
anew; just follow that path towards that pot of goldcurse once and for all. He baits the Wizard in
somewhere over the rainbow.throwing out his demands. The Wizard is stunned
We followed that road and took their $4 million. Thethat we accept his offer of a lump sum cash
vehicle was called a PIPE, which stands for a Privatepayment of $650,000 and millions of additional
Investment in a Public Entity. The vehicle was actuallycommon shares.
debt but called preferred stock that matures in 30With the $7 million in new equity secured, the Wizard
months. But with our homes in disarray, the moneythen vanishes never to been seen or heard from
could be used for far more than installing new pipes.again. We were one of the few more fortunate.
We returned home to the prairie and dug out aMany companies that were involved with such
foundation for a stronger home.Wizards fell prey and drowned in these murky
On the horizon, another storm was brewing. Thewaters. The lesson learned is to never take
debt service terms of the new money were severeinvestment money on terms that defy logic-NO
and starting to drain us. The very fact that theMATTER WHAT!
financing was considered debt and not equity was