PhotoChannel has been quiet of late, but interesting news was out on the company early this week, and it’s worth having a look at what it could mean to shareholders.
In case you missed it, PNWIF disclosed it had completed a $15 million private placement. The company sold units at $3.40- each unit contained one share of common stock and one warrant convertible into common stock at $4.
The market seems to have viewed this event as a very mild negative- the stock was around $4 when the news came out. Today it closed at $3.78. It could have drifted down to that level in concert with the overall market.
In my view, there are both positives and negatives associated with this financing. Here’s a list of positives:
- PNWIF will now have $20 million in cash and no debt. This strong balance sheet should open up new opportunities with potential customers who might have been reluctant to do business with the company due to its limited resources.
- PNWIF now has the capital to accelerate some of the other digital products it is developing- i.e. music download kiosks.
- PNWIF will now qualify for both a NASDAQ and a TSE listing. The company should be moving forward on both fronts.
Here are two negatives:
- In my view, the biggest negative is the warrant associated with the unit. The warrant provides and incentive for the participating funds to sell the stock as soon as they can. If the funds can sell their stock for $3.40 or more, they can keep the warrant risk free and still have the upside. Open market buyers don’t have that advantage.
- The dilution is a negative. This financing represents nearly 4.4 million shares of dilution, all of which might be for sale in pretty short order.
On the plus side, the price of the financing establishes a down side of $3.40 – my guess is it probably won’t trade at or much below that level. After all, $15 million of pretty smart money was willing to jump in at $3.40.
Another possible plus- the participating funds could be open market buyers. We’ll have to wait about this one.
So- buy, sell, or hold? I would call it more of a buy than anything. Clearly, $15 million just went into this stock, and those investors believe they can make money from $3.40. So, why sell it at $3.80 if the big money loves it at $3.40?
Their balance sheet will open up some new opportunities, and they could start popping up. Stand by for more information, but for the time being I believe this week’s event makes this stock a buy.
Comments and questions are welcome.