By Nigel Somerville, the Deputy Sheriff of AIM | Tuesday 20 December 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
After last week’s “cleansing” RNS which saw the previous suspension finally lifted, you would have thought that there were no further little surprises to come from AIM-listed CloudTag (CTAG). So imagine my surprise at reading yesterday’s RNS announcing the drawdown of the latest lump of cash from L1: just where did £50,000 of expenses come from?
We now know that the guaranteed $5.2 million sales order for 2016 under an exclusive distribution deal which became a bit over £800,000 of indicative possible sales maybe for 2016 won’t be happening – and it wasn’t all that exclusive either. Oh, and that there has been a bit of a corporate restructuring. Oh, and a binding heads of terms deal has morphed into a possibly maybe deal, unless the potential distributer walks with no notice. Of course the company is still short of something: a product, which we now learn is not going to be manufactured on commercial scale until orders come in – unlike the position about a week previously when we were told that the company expected receipt of stock during December. And we had a bit of a clarification over the last conversion notice received from L1. Oh, and an issue of warrants hadn’t been issued to a company as previously announced, but to its directors.
We have also recently seen large sales by the company’s early backers reported to the market in a stunningly tardy fashion – twice!
You would have thought that there simply wasn’t anything else to come clean over!
But back on 7 November, when the company first released details of its convertible loan package with L1 we were told that it would be in two tranches, both issued at a 10% discount to par. Tranche 1, par value £2.5 million, worth £2.25 million before expenses to CloudTag, was to bring in £2.08 million after expenses. Meanwhile, there seemed to be no expenses associated with the drawdown of Tranche 2, which was to see £2 million of notes issued, also at a 10% discount to par:
The net proceeds of the Tranche 1 Notes (including the Escrow Amount and net of expenses) are expected to be approximately £2.08 million and the proceeds (net of expenses) of the Tranche 2 Notes, £1.8 million.
Now you might think that since the terms of the package were altered as announced by the company on 28 November that there might be a bit of a price to pay. There were concerns that the conditions for the release of an amount held in escrow might not be met and thus scupper Tranche 2.
And so it was announced that the escrow conditions had been waived, changes were agreed over how certain important dates were defined and Tranche 2 was being split in half. Save for a few more details over dates and drawdown timing and mechanism, we were told that:
Other than as described above, there are no changes to the previously announced funding arrangements.
So L1 had very generously waived the escrow conditions and allowed CloudTag to get the lolly without levying any more fees. What nice poeple.
OK, so once the EGM had passed resolutions allowing the company the headroom to issue the lorry-loads of confetti required, we would see the first half (ie £1 million nominal) of Tranche 2 being drawn at 90% of par. So you would have expected the company to get £0.9 million and, under the terms previously announced, with no deduction of expenses. Indeed, one would expect that in the fullness of time the remaining £1 million (nominal) would be released on the same terms, to make a total of £1.8 million to the company and £2 million of convertible stock to L1.
This, of course, all predates the EGM.
But yesterday we were told that:
CloudTag….. confirms that further to the announcement of 15 December 2016, it has received net proceeds of £0.85 million (taking into account costs of £0.05 million) in respect of the first part of the Tranche 2 Notes and accordingly has now issued £1,000,000 (at nominal value) of the Tranche 2 Notes to L1 Capital Global Opportunities Master Fund.
Perhaps there is a difference between “costs” and “expenses” which I don’t understand.
If this is repeated with tranche 2 of Tranche 2 it will cost the company’s shareholders £100,000 and give rise to a 5.56% drop in the net funding under Tranche 2 that shareholders might have previously expected the company to receive as they voted at the EGM.
Now there does look to have been a hint in last week’s “cleansing” RNS that there may be something of this nature on the way:
….the Company expected to issue the first part of the Tranche 2 Notes (being £0.9m before expenses)…
(one assumes that the company means £1 million of Tranche 2 notes, receiving £0.9 million before expenses)
Except that the costs, or expenses, were not quantified and in any case we had previously been told that even after the new conditions had been agreed, it appeared that there were no expenses being applied because L1 are such nice people to do business with.
No doubt the company’s Nomad, Cairn Financial, is completely comfortable with all this, so there’s nothing to be worried about.
After all, if Cairn was to be concerned – especially in the wake of recent controversies - it surely would resign, and it hasn’t done so. Quite why Cairn remained in post last week is a bit of a mystery to me, but I guess they'll know best how they should respond.
So move along please, nothing to see here on the world’s most successful growth market.
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