Positive vs Negative Dilution
OK. In its most basic and very simple terms yes, technically there is dilution as Titan is adding more shares to its float.
This type of dilution is not negative dilution though.
What do I mean by that? Let me explain how I view this situation.
There is positive dilution and then there is negative dilution. This is the positive type of dilution.
I view negative dilution as issuing a huge number of shares for “very little or nothing in return”. If Titan had debt on its books for something like $2 million (I pulled this number out of the air) and the share price was still around $0.40 per share and Titan decided that to make a deal with the debt holders to simply clean up their balance sheet by allowing the debt holders to convert this debt at such low levels, they would end up issuing 5 million shares to these debt holders for that $2 million. These new and most likely only a small number of debt holders would be issued somewhere in the range of 7% to 8% of the company. That is simple and useless dilution. No money came in to Titan so no real benefit to the company or its existing shareholder and now these former debt holders become collectively some of the largest shareholders in the company. They may or may not be friendly shareholders to the company as well.
Another example in my opinion of negative dilution is that had Titan’s share price still have been in the $0.40 range and had management raised the same $10 million as they just did last week (and to be comparable to every other financing Titan has done in the past I will use a 10% discount versus the usual 20% discount) they would have issued shares for a price of $0.36 per share plus a warrant at $X.XX per warrant. That means they would have issued 27.8 million shares ($10 million / $0.36) and would have diluted the company by about 1/3. That is extremely heavy dilution and would have been irresponsible and unfair to the existing shareholders. Has I been an existing shareholder of Titan and had they raised $10 million at such a low share price I would have been very upset due to the unnecessary large raise at such a low price. In my opinion negative dilution.
What happened last week was the company received enough funds to keep them going for about 18 months with the new funds they raised as well as the remaining funds they had in the bank. This was positive for the company as now management can get back to the business of finishing the development of the product or arrange a JV with a major who has lots of money or maybe even find a strategic for some type of takeout (hopefully at $10 or more LOL). The dilution was minimal and was necessary as they would have been out of funds in 3-4 months anyway. They received lots of money and for this there was only approximately 9% dilution (don’t quote me on the exactly number as it could be 10% but you get the idea) to the shareholders. This to me is very positive and I happened to be a shareholder before this financing and I am still a shareholder and I will continue to be one.
There is no doubt in my mind the share price will be substantially higher than it is today. Great company with great technology and lots of money in the bank.
Regarding the warrants. Same answer as above. Most of the warrants that Titan has outstanding are at higher prices than Titan is trading at now. The only lower priced warrants at the Series C warrant which I am certain have an exercise price of $1.25.
Yes the company will have to issue more shares each time someone exercises their warrants but Titan will also get lots of money for these warrants (and they don’t have pay brokerage fees and legal fees when these are exercised). It’s not like these warrants are $0.40 or $0.50 warrants. Essentially it’s a decent way for a company to pre-arrange its financings for the future. Most of these warrants are $1.85 and higher I think (again, with the exception of the Series C warrants).
If you invested in Titan and did not realize that this was a technology development company that would require more money to complete, test and build its product then you are invested in the wrong stock. When you develop technology like Titan is developing lots of money is required. The good news for Titan and its shareholders is that their technology is amazing and I strongly believe that someone will come in and take them out before they ever get to market this technology.
Sorry for being long winded but I hope you understand why the dilution was minimal in the grand scheme of things. Titan is now virtually fully funded and they simply need to focus on completing the development of the product.
This is my opinion and I would like to know if you disagree on much of what I tried to explain here with the answer to your question.
Titan will now go much higher is my bottom line summary.
