uncle, I spent some time looking at recent S-3 filing of WAVC, and while I could not find a concise description of the terms of the Dec 1998 financing, it definitely seems to be of the "leaky floorless" variety. Unlike most leaky floorless, this one has specific tranches ($3, $3 and $4 MM each, of which the first two have be drawn down). It seems that the conversion rate is determined on the day of the tranche's draw down rather then by the holders of the debt after the the draw down, and in this respect, it is less floorless than the normal "leaky floorless" equity lines, yet it provides for an incentive to the lenders to hedge their position (and thus keep pressure on the stock's price). There is a clause that tranches may not be drawn if the stock is under $1.25 (which it is right now), but if WAVC continues and burn cash at the rate of $500 K per month (and that must be growing if they are in the launch phase of the product), they will have to go to the well again and again. Future financing may be more virulent than the current financing.
If management hopes of getting their business to the $150 to $250 MM level in three years is realistic, then they should also recognize that they will require working capital additions of at least 1/3 of that value (between $50 MM to $80 MM) and there is no way that this working capital can be generated from profits in the near future. You should therefore expect drastic equity dilution over the next few years, unless they can finance some of that growth by traditional debt financing.
All in all, WAVC is severely under capitalized for the plan they are professing to undertake, and my experience has been that poorly financed companies do poorly.
Zeev |
