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By Nigel Somerville, the Deputy Sheriff of AIM | Wednesday 26 April 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.
At no-one-is-watching o’clock last night (5.48 pm) AIM-listed Advanced Oncotherapy (AVO) slipped out an announcement that it had drawn the £2m second tranche of cash available under its one-year loan deal with Blackfinch. With my maths suggesting that the company was close to running on fumes that extra £2m to keep the show on the road pro tem will come in handy.
Advanced took receipt of the first tranche of Bracknor funding (net £1.235 million) as announced on 24 February and the £3m first tranche of Blackfinch funding as announced on 27 March, when it also stated that it had 60 days during which time the £2 million second tranche could be drawn.
Whilst it would have been silly to leave that 60-day period running down to close to the end, here we are just 29 days (not quite half-way) through and the £2 million top-up has already been called.
Has Advanced really burned through £4.235 million since 24 February, at a rate of more than £2 million per month? Were the company coffers almost dry? If so then the extra Blackfinch cash might only keep the lights on until around 24 May. Perhaps that explains why the company slipped out news of the £2 million drawdown after-hours last night. We suspect it is not quite that grim despite the hefty capex on Harley Street. But it is fairly grim. Lights out July?
With the announcement that Bracknor has converted another £200,000 (nominal) of its death-spiral loan notes this morning – at another new low price of just 25.89p per share, getting 772,499 shares (and another 23,174 shares as a conversion fee) - that means a total of £700,000 (nominal) of the £1.3 million (nominal) first tranche of Bracknor funding has been converted. At last – we are finally over the half-way mark. Just £600,000 to go, then…..oh, and all the fees which are convertible into shares, call that another £700,000 or thereabouts.
In the wake of yesterday’s little ramparoonie exercise of yet another 100,000 NED purchase which pushed the shares, rather amazingly, back over the 30p mark (some relief there for the company, as it restarts the clock with regard to Bracknor forcing an EGM to drop the nominal price of the shares in the wake of 10 consecutive closes below 27.5p) perhaps the timing of the latest conversion comes as little surprise: Bracknor will want to take advantage of any liquidity it can so as to offload conversion shares as fast as possible, having a £1.3 million hole in its pocket to fill.
But if Advanced thinks it can breathe easy over a forced EGM it would do well to remember that the shareholder authorities it got to allow the conversion of Bracknor funding was calculated on the basis of loan conversions at an average 44p and the associated warrants being exercised at an average 57p.
With £700,000 of loans through the rinse-and-repeat cycle the average conversion price is currently sitting at just 28.96p. That is a very long way below the 44p assumed when the company got authority to issue the conversion shares. If the company draws the full £26 million Bracknor package, something will have to give….anyone for an EGM?
And if Bracknor is going to get anywhere near converting enough loan funding it will have lorry-loads of confetti to offload. It can’t convert below 25p (because you can’t issue shares below their nominal price), which is why that 10-day 27.5p clause is there. Advanced may have re-started the clock but one suspects that a breach of only a matter of time.
But there may be a get-out, for I noted before that the EGM Circular mentioned Bracknor’s rights to issue loans to Advanced but there didn’t seem to be a right for Advanced to demand the cash from Bracknor.
Could Bracknor refuse further tranches? Could Bracknor refuse even to issue tranche 2?
That would set the £0.7 million fee (in loan notes) in some context against £1.235 million of cash so far received by Advanced!
One wonders how much longer this funding charade can go on before something breaks.
Meanwhile, with now £5 million (plus interest at 11%) to repay to Blackfinch in less than a year (since conversion at 100p per share looks a tad unlikely with the shares currently knocking around the 30p mark) which is secured on both the company’s Harley Street premises and the kit to be installed (costing somewhere in the region of £18 million plus the value of the property lease) there looks to be much to lose.
As for cash-burn, at the last count (from Companies House, not an RNS) there looked to be £10 million of spending to go on Harley Street. Add on historical cash-burn of around £1 million a month ….could Advanced burn through another around £24 million by this time next year and need to find £5.5 million to repay Blackfinch or lose its Harley Street project?
Even if all the £26 million (minus 5% and minus the funds already received, so only £23.465 million to go) of Bracknor funding comes in over the next 12 months (and only one twentieth has arrived two months into the deal, so that looks to be as likely as Tom Winnifrith’s beloved West Ham winning anything) that all rather suggests that Advanced is going to run out of other peoples’ money – it is just a matter of how and when.
One senses that the wheels could come off at any moment: how empty were the company’s coffers ahead of that £2 million drawdown? Can Bracknor refuse to pony up any more funding? What is the current cash-burn? What is the state of net current assets right now?
All questions to consider. With the shares still around 30p if I were a holder (which I am not and never have been) I’d run for the exit.
Advanced Oncotherapy remains an outright SELL, 0p on the cards.
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