Comment on financingGood news because they had no choice. They were up against a wall. Now, let’s do some math.
Before the financing there are 175,950,573 basic shares outstanding + 13,489,956 options which gives 189,440,529 shares outstanding on a fully diluted basis.
Let’s say they want 10 million $ as they will need to repay their debt and fix the working capital. After these priorities, whatever is left can go to growth. It’s a marketed deal and remember institutions typically will not invest to fund working capital which is no-growth proposition. This means, they surely will be tight.
So, lets assume D-BOX can convince the market to buy the warrants at 15 cents roughly at todays close with a 30% premium on the warrant for two years which would be a good deal.
Personal Note : I doubt they can get a higher premium, unless you believe what is on page 6 of the prospectus “D-BOX management estimates that annual sales of D-BOX haptic products in the home entertainment market could reach up to $120 million for the fiscal year ending March 31, 2026”
Back to our math:
So, stock issued at 15 cents
Price of warrants 15 cents + 30% = 19.5 cents rounded at 20 cents.
To get 10 million $:
30 million shares x 15 cents upfront = 4.5 million $
30 million shares x 20 cents for the warrants = 6 million $ within two years
D-BOX gets 10.5 million $ before fees issuing 60 million shares
So, D-BOX needs to issue 30 million units considering one warrant per share, that is 60 million shares over two years. To calculate dilution, calculate 60 M shares on 189.4 O/S FD shares pre-issuance for a 31.7% dilution. Ouch! Again, they have no choice, may as well bite the bullet.
Now, let’s say they want (they probably need) 10 million $ extra for growth or 20 million $ in all. You then need to issue 60 million units or 120 million shares for a dilution of about 64%. Which is over 50% and equates to losing control. Then, the key for management becomes to place the deal as spread out as they can (in retail hands). This way they can avoid having a major institution that could impact the vote and eventually kick management and the Board out if the fail to deliver.
The pricing of the deal will be very interesting, and it will surely be priced to be placed. Then what we need to watch out for are the future filings to see if any institutions stepped up to the plate, bought the deal and held. If none did, the stock will remain on a roller coaster. In the short term, the Institutions will buy, if retail supports they will short the stock in their face and ride the warrant. Good old arbitrage.
On a final note, the syndicate appears to be well chosen and has an interesting retail exposure especially with Canaccord and Industrial Alliance. This is sound strategy. If Steve Li drove it, good for him and good job. Also expect research reports to shortly follow to support the stock and considering D-BOX may come back to market relatively fast. Especially if they go for a smaller raise this time around.