Crowd-sourcing media organisation Newzulu Ltd (ASX: NWZ) is an example of everything that can go wrong with a speculative investment. An inability to turn several acquisitions and a number of deals into positive cash flow has led to a dwindling cash balance, a ballooning number of shares on issue, and a number of highly dissatisfied shareholders.
Managing Director Alexander Hartman brought the company out of trading halt for a final tilt at the windmill today, having convinced partner organisation Seven West Media Ltd (ASX: SWM) and Thorney Investment Group to tip $5 million dollars into the struggling company.
Here's the substance of today's announcement:
- One initial tranche of 109 million shares to be issued in the next few days, at an offer price of 1 cent per share – a 56% discount to the company's traded price prior to the trading halt
- A second tranche of 22 million shares to be issued at 1 cent per share
- A third share placement at a later date of 369 million shares also at $0.01 per share, subject to shareholder approval
- At a later date, an additional 200 million shares will be offered to existing shareholders, at an issue price of 1 cent apiece with Seven West and Thorney underwriting the offer
- Subject to shareholder approval, a total of 90 million options will be issued to Seven West and Thorney in two tranches, with exercise prices of $0.02 and $0.03 and expiry dates of 3 years
- Directors will each take up their full entitlements
- Funds will be used to grow revenues, general working capital, and to cover the costs of the placement
- After the placement, Newzulu will be funded to reach its business target of cash flow positive operations
Invest at your own risk
After several years of watching the company make acquisitions, sign 'major content deals' and 'partnerships' I conclude that it hasn't achieved a whole lot. Management has complicated the issue by touting non-cash performance metrics such as how many users are using the Newzulu platform and similar, which to my mind has significantly delayed improvements in operating performance (because increased users haven't led to higher revenues).
While the company finally achieved positive revenues this year, it remains to be seen what impact the recent decision to close some operations and focus on the US will have. Existing shareholders should not take the risk of supporting the company with any additional funds, and Newzulu remains a prime example of how unprofitable tech stocks can cost you a fortune.
