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Zoetic Death Spiral announced as institutions give the fraud a big swerve

By Tom Winnifrith | Tuesday 9 March 2021


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.


On January 28, the fraud Zoetic International (ZOE) announced that it really did not need any cash. That was an outright porky as events today showed. Here is that RNS cherry:


The Company retains strong liquidity as evidenced by its cash position in excess of £450,000 at the end of the Period.  In addition to cash, a significant portion of the trade receivables represents a note receivable that will be paid in cash to the Company.  With a positive net cash position and pending receivables, the Company is well-positioned to retain its financial flexibility as it embarks on the pending growth leg from its initial CBD business operations.


Advisors say “that was then this is now.” A lot can change in less than six weeks in the fast moving world of fraud, oops I meant CBD. Today the company has announced a death spiral funding facility of up to £35 million.


With the shares at 103p, the market cap is £200 million. That is big enough for proper companies (i.e. not cash-guzzling frauds valued at 2000 times annualised sales) to attract proper institutional investment. But while I am told that bucket shops were lining up to do a heavily discounted placing, the company has gone for the alternative, a death spiral.


That means that it will get £15m this year and up to £20 million in the two following years. It must repay £700,000 of that as an arrangement fee and the lender LDA will get repaid with shares issued under a traditional death spiral formula, 90% of the VWAP over the 30 days prior to any drawdown tranche.


As always with death spiral shysters, there are red herrings thrown in. 


LDA Capital has agreed not to engage in any short selling of Zoetic and to limit its holding to 19.9% of the issued Ordinary Shares.


Ends.


Of course LDA will not go over 19.9%, it will flog stock as soon as it gets it – it is not in the business of taking capital risk. So it offers up this pledge to confuse retail investors into thinking it might not dump and might actually be a serious investor. As to not shorting? Again it has no need to. It merely flogs the stock as soon as it knows it will be issued, i.e. ahead of it actually being issued and notified via RNS.


Any follower of death spirals has seen this all before. Only piss poor companies need to utilise this sort of finance and invariably it is a sign that the shares will head due south at some point. This will be no exception.



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