AVT Inc. Dances With The Devil
Seeking Alpha Analyst Since 2006
Alan Brochstein, CFA, was one of the first investment professionals to focus exclusively on the cannabis industry. He has run 420 Investor, a subscription-based due diligence platform for investors interested in the publicly-traded cannabis stocks that he has moved to Seeking Alpha, since 2013, and he is also the managing partner of New Cannabis Ventures, a leading provider of relevant financial information in the cannabis industry since 2015. Alan is based in Houston. He and his wife have two adult children.
Before focusing exclusively on the cannabis industry in early 2014, Alan had 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 advisors. In addition to advising several different hedge funds and investment managers, including Friedberg Investment Management, where he participated as a member of its investment management committee, Alan was also a senior analyst for the independent research firm Management CV. In 2008, he began providing a first-of-its-kind subscription-based service for individual investors, Invest By Model, which offered two different portfolios that investors could replicate in their own accounts. Alan also offered The Analytical Trader at Marketfy, where he used fundamental and technical analysis in a disciplined process to offer specific trade ideas geared towards swing traders.
AVT, Inc. (AVTC.PK) put out a press release on 7/2 and followed up with an SEC filing:
AVT Secures $1.1 Million Equity from Institutional Investor Ironridge Global to Propel Growth
CORONA, Calif., July 3, 2013 /PRNewswire/ -- AVT, Inc. (AVTC.PK) (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."
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.
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.
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