By Tom Winnifrith, The Sheriff of AIM | Saturday 25 February 2017
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Having promised "non dilutive funding" ad nauseam, on Wednesday AIM listed POS Advanced Oncotherapy (AVO) announced a £13 million death spiral funding with are shylocks Bracknor. On Friday it drew down tranche one and promptly served up another dose of smoke and mirrors for punters. The death spiral dance is now underway. Advanced announced that:
Further to the financing agreement with Bracknor announced on 22 February 2017, the first tranche has been drawn down by the Company and the initial funds of £1.3 million received (less 5%, in accordance with terms for receipt of 95% of nominal value of each tranche). Bracknor is prohibited from short selling ahead of any conversion notice, being the notice given to the Company that Bracknor wishes to convert the loan notes into AVO shares."
The underline is mine and it is just a tad misleading. Rewind to Wednesday and the RNS stated:
A commitment fee of 3% of the nominal value of the total initial commitment, payable in convertible loan notes. £40,000 of this fee is payable immediately; the remaining £740,000 falls due upon passing of the resolutions to be put to the General Meeting of the Company, referred to below.
So here is what happens now.
1. Advanced calls a GM sharpish and all resolutions are passed. As soon as that happens.
2. Bracknor picks up £780,000 of loan notes which it exercises and dumps all the shares - that is not short selling. That craters the share price and it then converts the first £1.3 million at the lowest VWAP during the conversion period. The dumping of the stock will mean that the share price has fallen consistently during the dump period so on that c£780,000 it will have made profits of c£120,000 - ie banked c£900,000 in cash. It picks up a £39,000 conversion fee.
3. So at that point Bracknor has paid out £1.235 million and cash cash in its pocket of c£940,000 so a capital exposure of c£300,000. But it also has £1.3 million of newly minted Advanced shares and knows that Advanced will need to draw down another loan note within six-eight weeks.
4. It sells a few - not cratering the price to build up its cash pile on this transaction. knowing that at some stage soon Advanced will want to draw down another £1.235 million. Let us assume it gets £100,000 away so its deficit is now just under £200,000 ( when tranche 2 is drawn down) but when that happens Bracknor goes into overdrive as it has £1.3 million of shares to dump ahead of converting that loan note AND THERE ARE NO RESTRICTIONS ON THAT SALE AS THOSE SHARES COME FROM TRANCHE 1.
By the time tranche two loan note is exercised the shares will have fallen sharply but Bracknor's average sale price will be well ahead of that. So it banks - say £1.15 million, converts and gets a shed load of shares with a face value of £1. 3million. Rinse and repeat. Rinse and repeat.
Even by the time Tranche 2 is done, Bracknor will have advanced a total of £2.47 million. It will however have picked up conversion fees in cash of £78,000 and £780,000 in fees which it sells for, say, £750,000. It will also have dumped two lots of £1.3 million of shares which it should bank £1.15 million on and so its total net income is £3.15 million ( so far) - its cash at hand is thus c£700,000.
Going forward as long as it sells each tranche of £1.3 million of shares for £1.2 million it washes its face. By the time the process is over the share price will have been obliterated. Welcome to the world of death spirals.
Of course it could be worse. The company is yet to comment on the fact that it could well be insolvent within weeks as explained HERE.
Sell at 56p offer - target price 0p
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