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By Tom Winnifrith, The Sheriff of AIM | Wednesday 7 June 2017
Disclosure: I own shares in one or more of the stocks mentioned. 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.
With its hand forced by my article HERE, Advanced Oncotherapy (AVO) has clarified, i.e. changed, the terms of its death spiral deal with loan sharks Bracknor. It states "This reaffirms Bracknor's prior and on-going support for the Company and its shareholders." Dr Michael Sinclair you are talking bollocks. It has changed a death spiral to a death spiral on steroids.
The shares are down to 18p to sell and will be heading towards my 0p target price at full speed now.
Under the terms of the original deal Bracknor had the power to force Advanced to change the nominal value of its shares from 25p if the share price fell below 27.5p for ten consecutive days. D day was last early week. Advanced cannot issue shares at below nominal value but for a death spiral to work Bracknor needs to be able to flog shares it gets in exchange for loan notes at more than it is "paying".
That has been impossible for some weeks so Advanced has simply been issuing shares to Bracknor at 25p which it flogs and then paying its losses either in cash upfront or by agreeing to receive less when the next "1.3 million loan note is drawn down. This is obviously not how things should happen and it is quite amazing that the chocolate teapots at AIM Regulation are allowing it. But allowing it they are.
Had Bracknor forced Advanced to reduce the nominal value that would have panicked even the thickest of its shareholders so the share price would have collapsed, potentially prompting another reduction.
And so Bracknor has agreed not to force a reduction. We are not told what it demanded for this but it is safe to assume that the "workaround" will continue and as the share price craters it will become ever more expensive for Advanced.
Either it is having to hand over hard cash which is bad news as it is set to run out of cash by mid summer and almost certainly already has negative net current assets. Or it means that - with some £3 million of loan notes still to be converted - by the time the fourth loan note is drawn down, net proceeds will be sweet FA. At which point Bracknor will then have to demand cash up front for converting and Advanced will be utterly fucked.
Whichever way you look at this the situation for Advanced is terminal. The only question is when its shares are suspended pending clarification. Knowing that expect Bracknor to convert ( and sell) at an increasingly rapid rate to get out before the fat lady sings. And that makes this now a death spiral on steroids.
Sell as fast as you can. Target price 0p.
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