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Alan Brochstein, CFA
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Alan Brochstein, CFA has worked in the securities industry since 1986, primarily with the responsibility for managing investments in institutional environments until he founded AB Analytical Services in 2007 in order to provide independent research and consulting to registered investment... More
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  • AVT Inc. Dances With The Devil 4 comments
    Jul 3, 2013 3:06 PM | about stocks: AVTC

    AVT, Inc. (OTCPK:AVTC) put out a press release on 7/2 and followed up with an SEC filing:

    PRESS RELEASE

    AVT Secures $1.1 Million Equity from Institutional Investor Ironridge Global to Propel Growth

    CORONA, Calif., July 3, 2013 /PRNewswire/ -- AVT, Inc. (OTCPK:AVTC) (OTC Markets: AVTC) (www.autoretail.com), a leader in automated retailing systems, customized kiosks and self service stores, announced that they have settled trade payables of approximately $1.1 million, in exchange for the issuance of shares of its common stock to Ironridge Consumer Co., a division of Ironridge Global IV, Ltd. ("Ironridge"), an institutional investor specializing in direct equity investments in consumer product companies.

    The capital will be used to build company-owned automated retailing systems, which will be rapidly deployed and will create recurring revenue streams for AVT.

    One of AVT's business goals for 2013 was to produce more company-owned systems, and derive ongoing revenues from these systems. While AVT's core business continues to be the design and manufacturing of self-service stores and automated retailing systems, the company's management determined that diversifying into other areas would create growth and shareholder value. Those new business units include financing, technology licensing, system management, and company-owned systems.

    "We know the management at Ironridge Global and recognized that their association with other public companies had a positive impact on share values," said Shannon Illingworth, Founder and Chairman of AVT. "We are pleased to work with Ironridge and to subsequently accelerate our business growth plan, and expand on the success we have enjoyed for the past 7 years."

    "A recent report by Global Industry Analysts, Inc. stated that the world market for interactive kiosks is projected to exceed $1.2 billion by the year 2015 as consumers prefer to serve themselves rather than waiting for the service to come," commented Richard H. Kreger, Managing Director of Ironridge Global Partners. "We are impressed by what Shannon and his team have accomplished at AVT," he continued. "As we learned about AVT's business strategy and plans for growth, we became comfortable offering equity financing to help execute on their plans."

    "As we move toward our goal of becoming a $50 million dollar company, one of the key components is a steady flow of capital," said James Winsor, CEO of AVT, Inc. "This strategic infusion will allow us to build on our proven and successful model of placing our award-winning automated retailing systems throughout the nation," he added. "We are confident that our relationship with Ironridge will act as jet fuel to propel our already impressive growth."

    FILING

    On July 2, 2013, IV and the issuer settled $1,024,405 in accounts payable of the issuer now owned by IV, in exchange for shares of common stock of the issuer. Pursuant to an order approving stipulation for settlement of claims between IV and the issuer, IV is entitled to receive that number of shares with an aggregate value equal to 105% of the claim amount plus reasonable attorney fees, divided by 80% of the following: the closing price of the issuer's common stock on the date prior to entry of the order, not to exceed the arithmetic average of the volume weighted average prices of any five trading days during a period equal to that number of consecutive trading days following the date of initial receipt of shares required for the aggregate trading volume to exceed $10 million less $0.05 per share, as reported by the Bloomberg Professional service of Bloomberg LP.

    IV is prohibited from receiving any shares of common stock that would cause it to be deemed to beneficially own more than 9.99% of the issuer's total outstanding shares at any one time. IV received an initial issuance of 1.5 million common shares, and may be required to return or be entitled to receive shares, based on the calculation summarized in the prior paragraph. For purposes of calculating the percent of class, the reporting persons have assumed that IV would be entitled to approximately 591,000 shares based on the $2.37 per share closing price on July 1, 2013, and that there were a total of 14,334,321 shares of common stock outstanding immediately prior to the issuance of shares to IV, such that the shares issued to and retained by IV would represent approximately 4% of the outstanding common stock after such issuance.

    IMPLICATIONS

    AVTC has been trying desperately to raise money. The press release makes it sound great, the filing is the reality: Issuing shares at a 20% discount and subjecting themselves to price risk on their common stock. The company is based in the British Virgin Islands but has offices in the U.S. Here is a link to some companies that they have backed. Keep in mind, they are buying with a lot of protection - they aren't investing at the market price. They make money even if other shareholders don't.

    As I have previously described, they have borrowed from the Chairman's father in a way that has siphoned money from outside shareholders and have also engaged in debt deals with small investors, but that hasn't been working. Now this. The excerpt from the filing shows that the number of shares could almost triple, depending on where the stock trades in the future. This is a potential "death spiral".

    There is a very smart poster on Investor's Hub. Here is a link to his message:

    ECDC - Issued shares to IronRidge on 4/23/12 was trading at $.0043/share then, now trading at $.0003/share

    STKO - Issued shares to IronRidge on 4/26/12 was trading at $.0045/share then, now trading at $.0012/share

    HMNC - Issued shares to IronRidge on 4/20/12 was trading at $.44/share then, now trading at $.14/share

    UCHC - Issued shares to IronRidge on 5/21/12 was trading at $.0027/share then, now trading at $.0002/share now

    SAPX - Issued shares to IronRidge on 5/31/12 was trading at $.052/share then, SAPX a 1:70 reverse split after price fell to $.019/share on 9/4/12

    VELA - Issued shares to IronRidge on 7/5/12 was trading at $.009/share then, dropped to $.003/share then VELA did a 1:100 reverse split on 7/24/12

    Ironridge has also funded AVTC partner JAMN.

    I continue to expect AVTC to plunge. It is down since my original article near the end of May and headed below $1 in my opinion.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: AVTC
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Comments (4)
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  • Sparkt_99
    , contributor
    Comments (693) | Send Message
     
    whew! Dodged the bullet. Thanks AB!
    3 Jul 2013, 07:44 PM Reply Like
  • exposed
    , contributor
    Comments (24) | Send Message
     
    This is a Death Spiral, which Ironridge Global has developed a specialty in.
    11 Mar, 08:14 PM Reply Like
  • Charles Silver
    , contributor
    Comments (3) | Send Message
     
    Yes, you are right!
    11 Mar, 11:30 PM Reply Like
  • Charles Silver
    , contributor
    Comments (3) | Send Message
     
    Perhaps the most predatory of all groups is the newest. Co-founded earlier this year by John Kirkland, an attorney who worked for Marc Dreier, currently serving 20 years in jail after pleading guilty to a $700 million fraud and Brendan T. O’Neil who has run two funds that have folded in the last three years, Ironridge bills itself, according to its web site, as “supplying innovative financing solutions and flexible capital, as it seeks to unlock the full potential of cash-constrained businesses.” There is certainly some truth to that statement, as the companies it has completed deals with seem on the verge of going out of business. Ironridge usually doesn’t fund the company until after it sells the stock, as the filings show that payments are often not made until at least 20 days after they have received free-trading shares (imagine borrowing money from somebody and having to provide them with the money to make your loan before you receive any proceeds from them). The destruction in stocks they have completed transactions with makes the devastation from Hurricane Irene seem tame by comparison. Just two weeks ago, Uluru (NYSE: ULU) announced a “$1.6 million financing at a premium to market with Ironridge.” The problem is that the company neither received $1.6 million, nor was the deal done at a premium. The details in the 8-k suggest that the press release was misleading, as the company will receive proceeds only after a certain dollar amount of stock trades, and Ironridge’s actual cost to buy the stock is a fraction of the advertised price. Investors don’t seem fooled, as ULU’s stock is down nearly 50% in two weeks since the deal was announced. Less than two weeks after announcing the deal with Ironridge, the regulatory arm of the NYSE AMEX notified Uluru that it was not in compliance with listing standards and that it faced delisting. Uluru, like all of the companies Ironridge has completed transactions with, currently has a nominal market capitalization, in this case less than $2 million.

     

    Uluru is not the only company in Ironridge’s portfolio facing delisting. PositiveID Corporation (OTCBB: PSID) was delisted from the Nasdaq less than five weeks after entering into “Strategic Financings for Up to $13.8 Million at a Premium to Current Share Price” with Ironridge. Shortly after the announcement, however, the company acknowledged in an 8-k filing that it did not receive the funds it had anticipated and that the price of the deal was being revised lower (think floorless financing). According to the filing made nearly two months after the deal was announced, the company has still not received the $1.5 million it was anticipating receiving as the first part of the funding. Approximately one month after the deal was announced, the CEO resigned. The stock has lost approximately 60% of its value in two months since the deal was announced.

     

    Apparently inking a deal with Ironridge is not a career-enhancing move for a CEO. Less than three weeks after announcing an initial round of funding of approximately $1.12 million from Ironridge, the CEO of High Plains Gas (OTCBB: HPGS) resigned in the wake of the stock’s loss of more than 65% of its price. Like other companies which have done business with Ironridge, neither High Plains nor its creditors had received funding weeks after the deal was completed. Imagine losing your job, destroying your stock and not receiving proceeds after all of that. On average, from the time a regulatory filing was made announcing a deal with Ironridge, companies saw their stocks lose more than half their value within one month.
    11 Mar, 11:30 PM Reply Like
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