BrainChip Holdings Ltd (ASX: BRN) shares are locked at 20 cents per share on Tuesday.
Anyone hoping to buy or sell shares in the neural networking chip developer will need to wait a little longer after BrainChip entered a trading halt this morning. Meanwhile, the rest of the Australian share market is roaring ahead, with the S&P/ASX 200 Index (ASX: XJO) up 0.6% today.
It turns out BrainChip is on the hunt for some fresh funding.
Running low
Currently, the only information to run on is BrainChip's trading halt request to the ASX. In this announcement, the cash-burning technology company notified the exchange of its request for a halt related to a capital raising.
The halt will remain in place until the company releases further details on the funding exercise. Alternatively, BrainChip shares will be back trading on Thursday morning at the latest. Shareholders will need to wait until the next announcement to find out the specifics of the capital raise.
On 31 March, BrainChip had US$13 million in cash on hand. Payments to suppliers and employees during the last quarter amounted to US$4.9 million, equating to a cash runway of a little more than two and a half months.
BrainChip also arranged funding via an agreement with LDA Capital in March. Approximately A$50 million worth of capital is available through a capital call arrangement. At the time, BrainChip committed to drawing upon no less than A$12 million from this deal up to 31 December 2024.
Still, it looks like the loss-making company is worried about the well running dry.
What will it do to BrainChip shares?
The BrainChip share price set a 52-week high of 54 cents apiece. Unfortunately, the company's valuation has been on a steady downhill slope, dwindling to its present 20-cent state, as shown in the chart below.
There's a hidden cost for shareholders in raising capital now: dilution.
BrainChip will need to issue more shares now than what would have been needed back in February to raise the same amount of money. The side effect is all existing shareholders, unless they fork out more money, will be diluted in the process.
We will know the extent of dilution to BrainChip shares once the company makes its announcement.
