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Technology Stocks : VALENCE TECHNOLOGY (VLNC)

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To: Pallisard who wrote (14197)	9/2/1999 10:21:00 PM
From: MGV	Read Replies (2) of 27311

Feel free to skip this post if you have a weak stomach and own VLNC shares. Start with Dawson's statement that "he did not want to issue more shares until the stock price was higher." He said that in February when the stock price was around 7 1/4. From that point, though he had 3-4 months to accomplish his objective, he not only failed to get the stock price higher but also was unable to keep it from falling to 6 then 5 then at least 4. So what did he do? In June he did exactly what he said he didnt want to do: he issued more shares at a lower price. That is your first signal that Dawson and VLNC are failing to achieve expressed milestones. The only conclusion is that he HAD to sale shares. The question was how much money would he choose to raise at $6. He chose to sell $3 M worth, presumably because it was the minimum acceptable level to keep from being insolvent. Before you dispute that conclusion tell me why else he would do exactly the opposite of what he said he wanted to do. The answer is - he perceived he had no choice. By selling $3 M and only $3 M he chose to gamble that the share price would be higher in a month when the next $3 M tranche would be required. He lost the gamble and this time sold for under $6. The share price had fallen lower. then what did he do? He again gambled, knowing in one month he would need $3M more. The result: An even lower share price and even more shares issued in contravention of his statement in Feb., yet more dilution. This time the price received was $4.35. This is 40% lower than the the price he said was TOO LOW in February. Again he was forced to do at 4.35 what he expressly stated he did not want to do at 7.25. One goes against plan and does what one does not want to do when there are no other alternatives. There are none. He cannot sell at a price higher than $7.25 nor $6 nor $5 nor even $4.35. He needs $3 M and he is forced to sell at $4.35 to get it. This is 40% lower than the already "too low price of $7.25" as Dawson defined it in February. In sum, he has sold $9 M worth of shares for an average of approx. 5.25 (have klemencic sweat the details). He could have raised $9M less the interest he would have earned on it from Feb to now by selling approx. 1.2 M shares. Instead, he has issued almost 50% more shares. That is 50% more dilution than was necessary. But that is not the worst of the issue. He still has not resolved the monthly need for capital. The upshot is that the market perception of VLNC has deteriorated further because it has not settled its capital requirements issue. This is a publically traded co. that is gambling its future on month to month solvency fundings. The uncertainty engendered by this policy has eroded support for VLNC's share price. It has "bush league judgement" stamped all over it. More importantly to the shareholders, it is costing them. The bottom line: though newbattery may be right in saying that Dawson effectively is forced to continue to finance month to month with all the attendant costs discussed here, his judgement has been very poor. He made an atrocious bet in February, again in June and again last month. He has a record of unwise bets with VLNC. He was wrong in 1994 with Motorola. There is no evidence that his judgement has changed. There is building evidence that his judgement is just as poor today. Given how often he has been wrong in telegraphing his judgement regarding the timing of a contract, a shareholder would be right to have very low confidence in management.

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