To make a long story short, I think voting "no" would almost certainly result in the loss by shareholders of all benefits and value from Bioasis and xB3. The risk of it is huge. The setup looks like a clinical execution and xB3 is such a good bet that I don't think that Bioasis shareholders can survive a "no" vote. It appears to me that Lind has a stranglehold and both Bioasis and Midatech are 100% constrained by that tight grip that Lind has on everything.
Let's get at it.
Note: References to page numbers are to the number as indicated by the PDF reader and not the page numbers printed on the document's pages. For instance, the title page and table of contents are not usually numbered but the PDF reader indicates the title or first page as page 1.
According to the Information Circular (IC), page 33, starting in the first half of 2022, Ladenburg Thalmann (LT) and Bioasis looked at a number of strategic options. But Bioasis got behind in their Lind repayments, starting with the period ending May 31, 2022. Somewhere around this time Bioasis tried to borrow more money from Lind but was refused. As stated on page 33 of the IC, "Bioasis also approached Lind to extend further financing to Bioasis but Lind advised Bioasis that it was not prepared to consider providing any additional funding possible in the absence of a NASDAQ listing."
With respect to existing Lind loans, page 1 of the WAIVER AND AMENDMENT AGREEMENT between Bioasis and Lind states that Bioasis asked for and was granted some payment extensions, but was refused an important one. Here is the text:
"C. Bioasis previously requested and received a deferral of Repayments due for the months ended May 31, 2022 through August 31, 2022, and has requested a further deferral of Repayments payable prior to the Repayment due the month ended January 31, 2023 (the "Repayment Resumption Date")."
"D. Subject to the terms and conditions contained in this Agreement, Lind has agreed, in accordance with Clauses 5.2(b) and 17.8(b) of the Funding Agreement, to waive (the "Repayment Waiver") the obligations of Bioasis to make Repayments for the months ended September 30, October 31, November 30 and December 31, 2022 (the "Waived Repayments"), such that Bioasis' obligation to make Repayments under Clause 5.2(a) of the Funding Agreement shall be suspended solely for the duration of the Repayment Waiver and Bioasis shall resume Repayments from and including the Repayment due on the Repayment Resumption Date, all in accordance with and subject to the terms and conditions of this Agreement."
Lind did not grant an extension to January 31, 2023. The extension was only until December 31, 2022. It seems to me that since December 31, 2022, Lind is able to call a default whenever it wants. On page 27 of the IC, under "Amendments to CSFA and Tripartite Agreement," we see at the third bullet, that loans become "payable on the earlier of (i) an event of default, (ii) June 30, 2023 or (iii) the completion of the Arrangement."
If Bioasis is technically in default as of December 31, which seems to be what Lind wanted and achieved, then if the acquisition does not go through then Lind cannot be counted upon to let Bioasis continue. They could call in all of the assets. Worse, if the Midatech shareholders turn the deal down, then the transaction does not complete and Lind could also call the default under that circumstance.
Evans & Evens Opinion About Lind
The Evans & Evans Fairness Opinion is in Appendix H of the IC, starting on page 377. There is a lot of information that precedes the Fairness Conclusions, which are just over a page long stating on Page 399. I'll reproduce all of the Fairness Conclusions in a separate post. Evans & Evans has two points to make about Bioasis and Lind. They are:
i. Bioasis does not have the funds in hand to continue to meet its obligations under the Lind Agreement. Further, in the experience of Evans & Evans, it is challenging for a company at the stage of Bioasis to secure equity funding, when a large portion of the funding is being used to repay debt.
j. Related to the point above, there is no assurance Bioasis will continue to receive approval from Lind to delay repayments of the amounts due to Lind. Should Lind demand repayment, the Company would face challenges.
Challenges is nice word that nice folks like Evans & Evans would use. Lind would not demand payment unless they were prepared to foreclose. The threat of an almost immediate foreclosure must be considered to be high.
You will also see in Evans & Evans's list of conclusions that they consider the current BTI share price to be reflective of actual value. Bioasis is being squeezed and it makes no difference what the potential value of xB3 is.
Because Lind declined to offer a repayment extension to January 31, 2023, it looks as though they may mean to foreclose immediately if the acquisition fails. xB3 is a very valuable technology. It's must be beyond tempting for Lind to want to grab it and sell it off to the highest bidder. There would be a lineup of companies who know that Lind is making a profit on anything north of $3 million. I wouldn't exclude Midatech or LT and The Placee from the list of potential buyers. They would possibly get it cheaper than they would in this acquisition, and Lind would get more than their loan back. I don't expect much sympathy would be shown for Bioasis shareholders.
With respect to Midatech, they have one day after the court approves the acquisition to pay Lind all of the Bridge and Holiday loans and half of the larger loan. Any mistake by Midatech could cost them all of the Bioasis IP.
In Summary
Many of us have speculated almost from the moment of the announcement that Bioasis has been beaten. If shareholders vote "yes" then they lose almost everything and if they vote "no" they could actually lose all of it.
It is a failure of spectacular proportions. I think it likely that most shareholders believed that Bioasis had access to $10 million from Lind. I believe it was a material event that Lind turned down further loans to Bioasis. If shareholders had known that they may have been able to put a package together to get payments made and buy some time and opportunity for Bioasis.
There is suspicion that any or all of LT, Lind and Bioasis people created this checkmate situation, leaving Bioasis shareholders without a meaningful vote. Whatever the truth, Bioasis has failed and likely cannot be revived. Voting "no" might satisfy angry impulses and would send some disrespect to the Bioasis management and BoD, but I don't think it can benefit you.
I think there is no choice but to vote "yes" and that is one of the saddest and most disappointing things I have ever written.
However, there may be some upside to Biodexa and pursuing that may turn out to be good. If the stock has a run on news, and there could be some very strong news, then you might find an exit point, or good reason to continue to hold.
But, my goodness, after almost 15 years, to throw this away, to fail so badly, it's a bitter pill. And if xB3 works, never, ever forget the names of Rathjen and Hutchison.
But if xB3 works, and if it turns out to be worth a lot of money, take whatever comfort you can from the fact that you recognized that value, and invested in it based on that judgement that turned out to be 100% correct, only to be betrayed, we hope, by human failure and not by human avarice.
jd