By Nigel Somerville, the Deputy Sheriff of AIM | Friday 23 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.
The ‘fessing-up RNS of yesterday leaves a few unanswered questions – so many that I just can’t help but wonder whether what we think we are being told is not actually the same as what we are being told. Let me explain as we “Fiske” the text and wonder whether there had, in fact, been a retrospective alteration to the terms of the loan conversion and associated warrant terms.
There are two things which have me wondering if all is as it seems. Firstly, I’m not sure I feel inclined to believe a word the company says. But secondly, there look to me to have been two concessions given by L1 to the company which apparently have seen no price paid. I just don’t believe it.
The first concession was that the conditions pertaining to the release of a portion of the Tranche 1 loan note proceeds were waived. For free? I doubt it.
The second concession is one I merely suspect, but the evidence is pretty strong in my view. The wording of the original announcement of this death spiral deal with L1 told us that an event of default could be called if:
an event occurs or a circumstance comes to subsist which would in the reasonable opinion of the Investor be likely to have a material adverse effect on the Company
For a cash-burning company with (as yet) no sales, no revenue and no (as yet) available product to sell, I would have thought that a suspension from trading (and thus preventing the issue of yet more confetti to keep the show on the road) would be very materially adverse in the reasonable opinion of an investor which is providing cash via convertible debt! How else does L1 get its bunce?
So my expectation of yesterday’s ‘fessing-up was that we would have changes to the conditions of the fiancé package with L1 announced. But we did not: we were simply told that there is indeed a rounding down mechanism in relation to the exercise prices calculated for the warrants L1 are getting (in equal number to the conversion shares).
Further, we were told simply that the rounding down condition was not mentioned in previous RNSs.
So was CloudTag actually announcing that its previous notifications regarding all this amounted, in effect, to lies by omission?
But that just doesn’t add up. Are we really to believe that the company (and its hapless Nomad Cairn) simply got the calculations wrong? Really?
Are we to believe that even after the company, having a suspension of its shares forced upon it until a “cleansing” RNS was released as its Nomad, Cairn, actually bothered to do its job and check everything, still didn’t correct the omission of the rounding down terms? Really?
Are we to believe that the company pushed through EGM resolutions on the back of false and/or incomplete information in the associated Circular under the watchful gaze of its Nomad, Cairn Financial? Really?
I’m sorry, but I just don’t believe it. So let’s take another look at a few corners of yesterday’s “clarification” RNS (original in bold, with my comments in normal text):
The warrant exercise price is the lower of:
"is", but "was" it at time of previous RNSs?
a) 90% of the closing bid price on the trading day immediately preceding the date on which the subscription form is delivered to the Company, and
b) 125% of the closing bid price on the trading day immediately preceding the conversion notice date (as defined in the convertible securities deed) immediately preceding the date of issue of the relevant warrant.
In each case the warrant exercise price will be rounded down to the nearest £0.005 in accordance with the terms of the relevant agreements.
….but it does not say "in accordance with the terms of the relevant agreements announced on..." or some such. It does not make clear whether the “relevant agreements” are the same “relevant agreements” which were previously announced, or whether the “relevant agreements” are new ones, or altered from the original.
So have the "relevant agreements" been changed or replaced in some way since 7 November? Have changes or new terms been applied to previously announced conversion share and warrant issues and the terms thereon?
This rounding down condition was not included in the Company's notification dated 7 November 2016.
Is that because the rounding condition did not exist at the time?
The Company's notifications dated 14 November 2016, 23 November 2016 and 9 December 2016 did not apply the rounding down to the price in (b) above. When rounded down these prices are:.....
is that because the rounding condition did not exist at those times?
What I suspect here is that the terms have indeed been renegotiated in the wake of:
a) lifting escrow conditions"
b) not calling a default when the shares were suspended
and that the changed terms have been applied retrospectively. Perhaps Nomad Cairn Financial would like to have that little matter clarified.
This, of course, would tie in with the unexpected costs of £50,000 associated with the drawdown of the first part of the Tranche 2 funds, as disclosed in the company’s RNS of 19 December.
As such, yesterday’s “clarification” seems to me to be clear as mud. Perhaps replacing that word with “obfuscation” in the title of the RNS would have been more appropriate.
Yet more questions for CloudTag’s hapless Nomad to address, along with the clarification we still need over the sudden appearance of the rounding down condition as regards the issue of conversion shares.
Stand by for the clarification of the clarification…….but will all then become clear? I doubt it.
One thing is clear, however: CloudTag is an outright sell.
As for Cairn Financial, as it surely must be wondering whether continuing to represent this company is really worth all the bother, the invoice from ShareProphets Nomad Services Limited is in the post.
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