Medical artificial intelligence (AI) specialist DEEPNOID launched a rights offering worth 27 billion won. It is the first rights offering about two years after raising about 22.6 billion won through a rights offering.
DEEPNOID said it will use the funds raised this time to expand its medical AI business and security AI business and to advance its information technology (IT) infrastructure. However, DEEPNOID has a history of allocating money designated as facility funds from a previous rights offering to organizational operating expenses and sales expenses.
DEEPNOID shares were trading at 4,935 won on the KOSDAQ market at 10:55 a.m. on the 9th. The stock fell 13.87% (795 won) from the previous day. The decline was due to news of the rights offering. It appears many investors are worried about dilution of share value as the number of shares increases.
DEEPNOID disclosed its rights offering plan after the regular trading session closed the previous day. The company will issue 6,835,444 new shares, allocate them to existing shareholders, and, if there are forfeited shares, conduct a public offering to general investors. The issuance ratio relative to existing shares is 30.33%. The lead underwriter is Korea Investment & Securities.
If DEEPNOID raises 27 billion won through this rights offering, it plans to use 21 billion won of that for personnel and marketing expenses, and permit costs for its medical and security AI businesses. The remaining 6 billion won will be invested in expanding graphics processing unit (GPU) servers and storage.
Actual spending may differ. DEEPNOID had planned to use the 22.59 billion won raised through an October 2023 rights offering as 15.169 billion won for operating funds and 7.421 billion won for facility funds.
However, after adjusting business and sales strategies, it invested more in research and development and service organization operating costs, and sales and marketing expenses. As a result, it used 20.235 billion won for operating funds and 2.355 billion won for facility funds.
The amount DEEPNOID raises through this rights offering may also change depending on future stock movements. The final issue price for the new shares will be set on Dec. 3 based on the volume-weighted average price reflecting trading volume. The amount the company can secure from the rights offering decreases as the stock price falls.
DEEPNOID initially aimed to raise 17.865 billion won in the 2023 rights offering. After the first offering price rose, potential proceeds swelled to as much as 30.375 billion won, but the rights offering concluded with 22.59 billion won secured when the final issue price for the new shares was set at 15,060 won.
DEEPNOID, facing continued losses, turned to shareholders again after two years. DEEPNOID's accumulated deficit as of the end of the first half of this year is 67.3 billion won. The gap between paid-in capital and total equity has narrowed to about 4.3 billion won. If the current trend continues, the company may face capital erosion.
Choi Woosik, DEEPNOID's CEO, said in a shareholder letter the previous day that this rights offering is an unavoidable process to grow into a global leader in medical AI.
Choi said, "The medical AI industry will find it difficult to make the next leap without upfront investment supported by clinical trials, stringent regulatory approvals and global market expansion," and added, "Generative AI medical devices are a field that must demonstrate both technological innovation and clinical evidence, and investments made now will determine future competitiveness."
He added, "We fully understand that this rights offering may be a short-term burden," but said, "I am confident it will lead to long-term shareholder value enhancement."