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Candid, I can’t find any confirmation of the big trade you mentioned for last Friday.

Ed, thanks for taking the time to put up your thoughts and analysis. It's much appreciated.

Skid35/Brondby

I would like to think you are right about the issue being a relic from the past. But as you say more clarity would have helped to close down this risk. The fact is whatever the historical origin it would have been sensible and good business practise to have recovered these rights.

The risk is that either counterparty allows the source code to find its way into a competitors hands. ACRM claims to have the USP of their software is that its an all in one software package. Loss of this USP would be very unfortunate.

It would be very useful to know who are the counterparties. In the admission document it states:

"Were this counterparty to have the right to sell or to publish all of the STREAM® software as open source and exercise such right then the publishing of the source code of the software as open source would be likely to devalue the STREAM® software to a significant extent, which in turn would be likely to have a material adverse effect on the value of ARM."

The other risk is that if the source code is published or made available, could this benefit those who seek to engage in cyber attacks or in some way circumvent a company's IT security?

Acuity appears to have a good product STREAM in a competitive market. This offers risk management in one package and is said by management to be their USP. Good.

But why have Acuity given counterparties the ability to copy and sell the STREAM product as set out in their admission document? Now I may have missed something. I will be the first to admit that. Perhaps they have subsequently reached agreement with those counterparties to buy back these rights. But I haven't seen any announcement. This raises questions as to why these rights were sold (or given) in the first place). Who signed off these transactions? Are these people still part of management? Are any actions being taken to recover or buy back these rights? If not, why not?

The document gives reasons as to why management thinks counterparties will not use these rights. In the second counterparty case, the contract is not clear whether the right relates to software developed specifically for the project or to all of the STREAM software licensed to the counterparty. The document says "Were this counterparty to have the right to sell or to publish all of the STREAM® software as open source and exercise such right then the publishing of the source code of the software as open source would be likely to devalue the STREAM® software to a significant extent, which in turn would be likely to have a material adverse effect on the value of ARM." This is awful.

We have just had the Sunday Roast commenting on Acuity and Alan Green. Good news? Neither of the two commented on Acuity's own risk so it begs the question how thorough were they in researching the company? Not good!

Had the admission document not happened then these risks would not have surfaced. They do not appear to be published elsewhere.

Now the company may develop good sales from STREAM. But if I were a prospective customer I would be asking why have Acuity not managed their own risks more professionally? Then they would ask if STREAM has been developed up to the highest professional standards. I assume it has but the question remains.

FROM THE ADMISSION DOCUMENT - RISKS RELATING TO THE GROUP’S BUSINESS

Risks of publication of ARM’s intellectual property as open source. ARM has contractual relationships with two counterparties under which it has licensed its intellectual property, particularly the STREAM® software.

One counterparty is not prohibited from reselling or decompiling or reverse engineering the licensed software. The other counterparty has the right (but not the obligation) to publish as an open source certain licensed software (including the source code).

Lots of buyers nibbling today, nearly all small buys. Just wait until the share is discovered. Then we will see some price action.

Agree, a share and part loan would be ideal. But I think they cannot wait 6 to 9 months. The trouble is that such loans often carry 12% or so interest and are accompanied by share warrants. That's tough. Also, the market knows funds are needed and the investors demand their pound of flesh and drive the price down at which they are prepared to invest.

I think the new CEO is good and he has a good business background. The only problem is the shortage of cash and it is hard to see how much cash they will need until cash flow breakeven. When will cash flow breakeven come? I wish I knew but I doubt it will be by 30.6.2025.

Not sure its forced sales or need for cash that's causing sales. JohnHenry says it may be large holders dumping stock. This maybe right.

The background is that the market cap is £13m, cash was $9.9m at 30.6.23 and probably now arounf $6/7m, the annual cash burn rate was $14m annually and that cash is expected to last until 30.6.2024. I expect the cash burn rate to be reduced as FDA is there and its necessary. The company knows it needs a fund raise and in the next months.

IMO the company needs at least $10m (£8m) to take it tho=rough to 30.6.25. Is that enough? If it's all equity then the dilution fir existing shareholders is big.

DD77, currently I cant seem to get back in to the note on their web site. I have a copy so let me know if you have any questions.

I am always looking for risks and downsides in shares. Having known Destiny for some time now, the main risks appear to be Phase 3 trials and normal operating risks. So I wanted to look at the other side of the coin.

The broker Finncap produced research last Feb after the Sabela deal showing a risk adjusted DCF valuation of £338m with a 10% discount factor. This gives M3 a 50% probability of success and 25% for XF-73. If XF-73 enters Phase 3 development this would improve the discount to 50% adding £107m to the valuation producing £445m.

All this translates into share prices of 354p and 466p. But a caveat; these values are based on a 10% discount rate and a rate of 15% produces 275p and 351p per share. If inflation does return the the 2% target then a 10% discount factor should be ample.

Apeirogon, I agree with you about no cash and funding won't be a problem. They say they have enough cash to last until end Q2 2024, now extended to end Q3 2024.

The issue is that they do need funds and cannot leave it until the last moment. With any company needing funds the market will screw the price down as low as possible. The longer they leave the fund raise the more they are at risk to unforeseen events and the greater pressure the market can exert on the share price for the fund raise. This is what the market always does. Also, banking with Silicon Valley Bank hasn't done their financial credibility much good in my eyes, although they appear to have come unharmed from it.

The change in CEO is significant and good I think. Otherwise I have always liked to technology and it's potential.

Noix, thanks for the link. I must look up how much Destiny have spent to date in developing XF-73 as this is likely to be a negotiating point for an upfront payment from any potential partner. I think all parties will expect the partner to reimburse, Destiny for this spending, in part or in full. Now that Destiny has a strong balance sheet, the partner will not have the leverage that Sabela had. We are in the run up to Xmas when business normally slows down. So perhaps news will now come in 2024.

Penstock, thank you for poting your BC model.

DD77, yes the Dowgate note. It’s available to ii’s and investors classified as professional. You can register for it on their web site.

DD77, research note was produced 20th November 2023. Link has already been posted.

HI Shamtown, I agree Destiny may not be the best comparison but there are similarities with patented products and blue chip customers/partners. They announced a Phase 3 distribution deal that brings in $20m in milestone payments in 2024 and sales milestone payments of $550m plus royalties on one product. Despite this the share price was hammered on the placing needed to cement this deal. The major US pharma company wanted to see financial stability in their new partner. It looks very likely with a new deal in the pipeline that the company will be self-sufficient in funds.

Your analysis of Ondo is similar to that I would make. Too often in the past I have reached conclusions, when the broker research had indicated otherwise, only to be eventually disappointed . Ondo broker's research note estimates pre-tax losses of £3.3m in 2023 followed by £3.4m, £3.1m and breakeven in 2026. Net cash/debt is estimated at -£6m, -£6.2m, -£7.5m and -£7.2m in 2026. This indicates a continuing drain on cash in line with the business model. Also, it does not reflect the loan and interest due to be repaid from 31.3.2025. Sure they may be cautious and Ondo may outperform on sales but this would create additional short term pressure on losses and cash flow. I still think the company needs about £5m to establish the sound financial base that will stand up to due diligence done by potential customer insurance companies. None of this detracts from the merits of Ondo's business and prospects as we are talking about the strains of growing a good business.

My thinking about 15p is that the placings market is very tough and we have seen so often companies being hammered on the placing price. This is especially true for small companies than need cash to finance growth when they are loss making. If you want to see a good case study look at Destiny Pharma's last fund raise. The Ondo price depends on market sentiment - I opted for 15p but could have easily put in 12p. Next year we are looking at a possible recession and a general election. Both could dampen market sentiment.

Ondo's new contracts are always good news but the pricing model means that in year 1 sales break-even occurs. It is year 2 that profits are generated. It's a great business model and the profits/cash flow is just a fact of this. the more Ondo delivers on it's strategy the more cash it needs to finance growth until a crossover point is achieved, i.e. year 2 renewals outstrip year 1 sales, or something approximate to that.

DD77 I think you are right about delivering on strategy being bullish, but the price reflects this best in a bull market, but i'm afraid market sentiment will be against us.

Yes, £5m is more what they needed. £1m is a short term fillup for working capital but they need more working capital for the next 12 months. They really need to show to big insurers that are not living from hand to mouth, and they have a solid financial base. 22.5p for the placing was a good price and my guess is that institutions wanted a much lower price for the £5m and that Craig Foster was not prepared to accept this.

Time will tell if this is right. The market knows Ondo want more capital and this will dampen the share price. Good news may well produce spikes in the price but I still expect to see a raising at less than 15p next year.

One issue important for me was that the dependence on one supplier for production of the device is lower risk than I thought. If I understood the comments correctly, the supplier has multi production facilities so that it could if necessary spread the production risk or have a backup in the case of any production disruption. Also, Craig mentioned seeking a foreign supplier to supply the US market. Good.

The other risk about it being a one product company was questioned today. That’s the good about this company: specialisation and focus. The downside might be that when hiccups occur there is not another product stream to cushion this. I think I can live with the hiccups. I know they will happen - they happen with all businesses. The consequences will be timescales for sales and profits, and stress on capital.

I cannot understand why jiggers points come for criticism. The fact is businesses never meet rosy expectations. Business life is not like that. The unexpected always happens and most managements are too optimistic. Good posts IMO cover the positives of a company and also the risks. Poor posts sometimes are those that only ever cover the upside and positives and never see the risks. I don’t need the comfort blanket of only reading positive posts. We will all make more money investing if we understand the business well and that includes especially the risks. Jigger is right in saying these posts will never affect the share price.

Turning to capital it is most unlikely that debt will be used solely, if at all. A growing company needs a sound capital base to cope with business hiccups and the financial consequences. Also, most importantly a small company like this needs a very healthy financial position to show large insurance companies it is serious, not living hand to mouth, has low financial risk and can guarantee financially that it will be in business tomorrow. We have all seen the auditors comments and such comments will not be good enough for the year end results. Large companies do their due diligence on their important suppliers, especially smaller company ones. So a fund raise will come, probably sooner than later, and the market will push the share price down to prepare for this. This is the way it always happens. I know it doesn’t make pleasant reading but this is the way the market works. In Ondo’s case I regard a fund raise as a positive as it will bring its finances and investor/customer perceptions up to a good level to match it’s superb business. There will be some dilution but if the company needs a more solid financial base then so be it.

Ending on another positive note, I had my concerns allayed as a result of the presentation today. I like the management.

A fund raise has to be dilution of existing shareholders as there is no way, IMO, a fund raise will be anywhere near the current share price if it is a meaningful fund raise. With another smaller fund raise investors will be asking how the company will repay its loan note and interest. Until that becomes transparent the fear will be that another more substantial fund raise, or several smaller ones, will come. Loan notes and interest will be some £7m and working capital needs will be around £2m+ per annum. To me it looks as if the share price will see historic lows again. Thankfully, interest rates appear to have topped and the AIM market may have bottomed.

I like this business very much but I don’t like the company’s finances. I will like it a lot when it is debt free but then we may have at least twice the number of shares in issue.

Main concerns are not the business and the business model but debt and "Material uncertainty related to going concern." from auditors. The question is how much cash will the company need to raise to finance growth and repayment of the loan notes? And when? And when will growth in the company's business throw off sufficient cash to contribute to repayment of the loan notes of £6.4m plus rolled up interest?

With the company's change in pricing strategy from selling units to effectively leasing them, which I like, it does mean a slower growth in cash flow but a more sustainable one as the CEO said.

A good business leveraged by the loan notes costing 12% pa from 31.3.24. Shame about the loan but without it the share capital would have been much higher.

Because of all this its difficult to see where the share price is heading until business performance answers these questions. All IMO.