Konared Gets a Blank Check, & Shareholders Need Not Worry About It (KRED)

There's nothing more vital to a up-and-coming small cap stocks than liquidity, which ironically, is often the most difficult thing for them to muster. The best of the best of the small cap ilk, however, tend to find cash when they need it, because money always finds an opportunity to multiply itself. Enter Konared Corp. (OTCBB:KRED). Not that the company was cash-strapped to begin with, but it won't have to worry about cash for a long, long time. KRED inked a deal with an institutional investment fund that will guarantee the company can sell up to $12 million worth of shares to this fund over the course of the next two and a half years.

Normally such a deal would be the kind of thing that irritates investors to the point of selling their shares - the fear of dilution is just overwhelming. So why aren't KRED shares tanking on the heels of the news? Because this funding deal Konared Corp. made isn't one that puts the common shareholder at a disadvantage. Indeed, this stock-sale agreement is one that's unusually fair to everyone.... and the fact that the company was able to negotiate such reasonable terms only bolsters the bullish case for KRED.

In simplest terms, Konared can sell as much stock to the Lincoln Park Capital Fund as it wants to between now and mid-2016. It doesn't have to sell any. Or, it can sell a lot.... some now, and some later. That flexibility is practically unheard of in the world of private placements, and ultimately benefits current shareholders by allowing the company to expand, advertise, and buy equipment as needed when the time for those things is right.

That's not the stunning part about the stock-purchase deal, however. What's stunning about the deal Konared Corp. just struck is that the selling price for the shares it will transfer to Lincoln is going to be the prevailing market price at the time (well, just a few days before the sale, to give both parties a chance to get the stock certificate and check ready. It's unusual, because nine times out of ten a private placement is transacted at a share price that's well below the prevailing market price at the time. As such, there's no immediate profit-taking incentive for Lincoln Park Capital to sell their shares and drive the stock's price down; the deal may not even qualify as dilution, since the shares are being issued at the market price, and KRED is collecting proceeds on a market-price dollar-for-dollar basis.

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With all that being said, the fact that Konared has gotten this kind of respect and confidence from an institutional investors speaks volumes about the quality of the company and the caliber of the opportunity. Professional and institutional investors tend not to bother with companies that aren't the proverbial "real McCoy", so being in business at all with Lincoln is an accolade. The fact that KRED didn't have to make any actual concessions to get the deal says a lot about how much Lincoln believes in what the company is doing. That may be a hint would-be investors take at face value.

For more on KonaRed, visit the SCN research page here.