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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: Pronichev who wrote (6591)	1/2/1999 1:33:00 PM
From: Zeev Hed	Respond to of 27311

I could not find much. Bruce was kind enough to point me to three companies where CC was involved, I looked at two (IFMX and FIBR) and they had a swoon down, but in FIBR case's CC was kicked out Nov 10 (if memory serves) and replaced with a more conventional preferred, the stock has been roaring ahead since (of course they have some sales to back that). IFMX recently seems to be doing fine as well, but I did not check on the status of their preferred. CC is also involved in another company that recently has fallen on hard times (PCMS), there, the preferred have a more interesting twist, the ceiling is set at 200% of current price (which was around $3) until May 14, 1999, then the full floorless kicks in. Since the deal, PCMS has come up with almost daily announcements of orders (which together will still not get them to break even) and the stock has shot up close to 50%. As an outside observer, I would say someone is making an herculean effort to get the stock to $6, or what used to be the "pump" phase. If PCMS does not show signs of profitability by the drop dead date, I would not want to own their shares. I would say that CC is acting quite pragmatically in structuring these deals, trying to limit as much as possible their exposure while allowing the companies some breathing room until they can get back to bat. I would also say that it is different then what I have seen with, for instance, Shaar Fund, where the only goal was making money by spiraling the stock down. In the case of VLNC, I doubt that will be done, but as a "last resort". That is why I believe and said before that VLNC is on the cusp. If it performs (and there is not much margin for error), it will do quite fine. If there are too many missteps and repeats of the last two years history of unkept promises, then who knows, CC might chose to make their money, the hard way, the shorting way. I think that the most important lesson from this situation is to understand that companies do not go the floorless route unless management is completely ignorant or with its back to the wall. Since I do not believe the former is a valid assumption, I have to select the second option. Analyzing the cash flow situation of VLNC indeed indicates that their back is to the wall. That does not mean they are dead, but they surely have a serious fight ahead of them. If they win, they could win big. If they lose, they may lose big, after all that is what a speculative stock does offer investors. The polyana approach just prevents one from keeping aware of deadlines that need to be met. As for IDB, as I said, I do not know the specific circumstances of the deal here, but while putting together a small start up company of my own, I had discussions with the good Irish boys on terms for setting up manufacturing there, and the 70% financing (at a very good interest rate of 6%, as of about a year ago) was for working capital (inventories plus accts receivable), and on top of that they were offering a grant of 20% of the total cost of the local facility (including capital equipment). A similar deal can be had in "development areas" of Israel as well, these two were quite competitive in trying to lure manufacturing to their shores. Zeev