Brainchip Holdings Ltd (ASX: BRN) shares are crashing on Tuesday morning.
At the time of writing, the semiconductor company's shares are down over 10% to 33.5 cents.
Why are Brainchip shares crashing?
Investors have been selling the company's shares today after it announced a new agreement to raise capital through another Put Option Agreement (POA) with alternative investment group LDA Capital.
This appears to have dampened any hopes that the company will be pulling in meaningful revenue any time soon.
A POA is a financial arrangement between two parties that grants one party the right, but not the obligation, to sell a specified quantity of an asset (such as shares) at a predetermined price, known as the strike price, within a specified timeframe.
According to the release, Brainchip and LDA have agreed to an amendment of the POA that will provide Brainchip with access to capital, when necessary, until June 2026.
Total funding available under the POA has increased by $37 million to $140 million, of which the company has drawn approximately $68 million in gross proceeds since inception in August 2020.
Under this fourth amendment, the company has agreed to an additional minimum drawdown amount of $20 million, which is to be drawn no later than 30 June 2026.
As part of the latest amendment, Brainchip will issue 40 million collateral shares by June 2025 or earlier, depending on the timing of the next capital call. Any issuance of shares by the company will be done under its Listing Rule 7.1 placement capacity and will be subject to the company's available placement capacity at that time.
The release notes that the formula used to determine LDA's purchase price remains set at 91.5% of the average of the daily volume weighted average price for each day shares were sold throughout the pricing period. No additional fees are due under the amendment of the POA.
This essentially means that LDA Capital can buy Brainchip shares at a discount and either choose to hold onto them or offload them for a quick profit. Given that LDA Capital doesn't appear in Brainchip's top 20 shareholders, it seems that in the past it has decided to do the latter.
Why is Brainchip raising capital?
The company advised that the capital raised under this amendment will support the continued development of Akida 2.0 products and commercialisation efforts, as well as the expansion of the TENNs model portfolio in response to customer engagements.
Commenting on the news, Brainchip's CEO, Sean Hehir, said:
With the growing momentum of our 2nd generation Akida products, and our exceptional TENNS solutions which excel in streaming data at the edge, we recognise the need to accelerate investments to drive growth and solidify our market leadership. While maintaining a prudent approach to cash management, having access to funding from our well-respected partners at LDA Group, enhances our ability to ensure business continuity and remain competitive against well-capitalized industry peers.
