My financing prediction:
I agree that CC is wanting to 'kick out' the series A shares, either by using them to cover a short position, or preparing to sell outright on a runup. I also consider this bullish, because I also think they might be lined up to do a third wave of financing, and do not want their position in the stock to be larger than it currently is. I would note that this selling need not take place on the open market. If Valence is close to production, interested parties could arrange to take on the shares.
In one scenario, CC is setting up to waive the condition on the second tranche, agree to convert the series B at the fixed rate, and then issue a third tranche of financing having terms like the first two (with another 6-month trap door 'just in case'). Basically, this is a vehicle for Valence to minimize and control the effect of the share dilution, by borrowing just enough until the share price is high enough to *really* get a lot of money to carry us forward.
In another scenario, another outfit might agree to do a private placement of fixed-conversion rate preferred shares outright (CC's conditions on the previous financings give them the upper hand regarding not allowing others to have equally dilutive terms). This would be a bullish signal, as others here have noted.
In either case, until the share price is higher, it's better for Valence to do quarter-by-quarter financing (what one might call 'just-in-time financing'). This will do for now, and I think people have come to understand it. At $6 share prices, you are better off to minimize the amount of equity-based financing, especially if you are getting close to the time when you could triple the money raised, for a given amount of share dilution.
Even if a PO is coming down the pike, they'll need to do financing for another quarter to serve as a 'bridge' until the revenues commence.
It's also possible that Carl's loan could get tapped, but there's benefits to keeping that in reserve (for handling monthly cash-flow issues). However, I did review the SEC documents and determined that if Lev gets a 'letter of intent,' then Carl is required to provide Valence up to $7.5M of the loan (with Valence issuing additional warrants as well). So if they're starting to produce for a PO, and they can more accurately estimate the timeline for revenues to appear (and hence when the IDB monies will be available), they may choose this nondilutive route.
This last scenario would also provide a 'smoking gun' in that it would tell us that they have such a contract, even though Lev is unable to speak of it yet. This would be a VERY BULLISH indicator, as we'd then have something to 'hang our hat' on.
Of these three scenarios, a moderately-sized private placement seems most likely. We should know within a month or so.
Recall that we don't really know the cash-flow condition of the company at this point in time, only that in December, they had projected to be out of cash at the end of March. But the selling of samples and laminates, the issuance of options, the exercising of warrants, and other various mechanisms may all have served to provide additional liquidity that we are unaware of.
I am confident in management's choosing the best course for the shareholders, knowing that Lev is a large shareholder himself. |
