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By Nigel Somerville, the Deputy Sheriff of AIM | Sunday 24 September 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.
Joining in with Cynical Bear’s run of interims previews, I thought I’d take a look at our old favourite, AIM-listed Advanced Oncotherapy (AVO). The history here has been nothing short of a disaster in the last 12 months or so, and appears to be now culminating in a potential cash-crisis.
At an operational level, although the company says it is on track, that is on track with revised estimates of when we will see a working machine. The delays apparently put off Sinophi, who got a full refund of deposits paid – and at the same time wiped out the Advanced order book.
In the middle of this came a placing, failed attampts at "non-dilutive financing", and questions over whether the company knew perfectly well the order had been lost while raising fresh cash. Oh, and to top it all Lord Evans was shown the door as he sold his shares. Hardly a good place to start.
But then came the death-spiral deal with Bracknor which, apart from boat-loads of confetti being issues, saw the shares collapse from around 67p to below 10p. Anyone who had held their shares through all of this would have watched the shares crumbling from almost 120p.
Now that Bracknor has been removed from the scene (at what cost?) the shares have recovered to 20p, but the company has been taking on debt since it can’t issue equity (the par price being 25p).
The bigger of two loans is with Blackfinch for around £6.5 million, ostensibly convertible at 100p but more likely repayable in cash at the end of next March. Worryingly for Advanced shareholders, it is secured on its Harley Street site and associated technologies – although a guarantee has been offered by Advanced’s boardroom to buy back the properties if security is called, and open up to existing shareholders the opportunity to pitch in. It almost sounds like a pre-pack.
More recently some shareholders ponied up for a £3.9 million loan facility, although I suggest that most of that will have gone on paying off Bracknor. The deal is a two year maturity at 12% interest, and a stack of warrants at 25p. There is also a conversion facility, although that too needs the share price to go over 25p before the end of this year.
The question, therefore, is how long before Advanced runs out of (other peoples) money. My back of an envelope says any day now. The company can’t issue more shares, and its main assets have already been hawked so any further debt deals are surely going to be offered only on the most usurious terms.
Historically, the company has been burning around £1 million per month and the fears are that has continued apace with nothing in place to fund it. That is the big issue facing the company, as it has no income and none in prospect for many a month.
With a period-end of 30 June 2017, the binning of Bracknor came as a post-period event, as did the new loan from existing investors for £3.9 million. That means that the pay-off of Bracknor may not need to be disclosed (although it should be), nor the cash position following the loan.
But there will be other clues.
Perhaps Advanced will surprise us all by giving the full details, announcing a (material) order and a placing at above 25p.
But I wouldn’t bet on it.
More likely is there’s a cash crunch heading Advanced’s way. The only question is how soon.
So my questions are: how much cash is left now and what is the net curent assets position right now? I bet they won't answer that.
They can make all manner of technological breakthroughs but if they run out of cash then it is game over.
Stance still unchanged: sell with a target price of 0p.
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