death spiral funding

wow, i would not want to be long this stock until the Mercer Street guys are completely out.

The problem with the facility is that the funder needs to convert and sell the stock in order to recoup their investment. They call it death spiral funding because the funder has to keep selling, which places downward pressure on the stock price, leading to lower and lower conversion prices (and thus driving more and more selling...until the funder is totally out. $2m is a lot of stock to sell, and $8m is huge if they go for both tranches).

The conversion price is not fixed. It is floating - a discount to the vwap of the market price at the time of conversion. There are no conversion amount or selling limits specified either in the release, meaning the funder can dump a large volume of stock in 1 hit to drive down the price, then convert their note as low as possible and consistently sell into any strength/attempted rally until they are all out. Without much volume in AHQ it's going to be hard for the market to absorb the selling.

From end of September, the funder can convert at any price all the way down to a limit of $0.03. Must have been pretty desperate to accept this funding style. At the very least should have restricted the funder from selling more than a certain $ amount per day, or limiting how much they can convert in any month.

Once the funder is out, could be worth a look at. Will keep on the watchlist to see how it fares. Maybe put in a cheeky buy near 3c if gets there