By Nigel Somerville | Wednesday 15 February 2017
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.
Shares in AIM-listed purveyor of fictional guaranteed orders for fictional not guaranteed products CloudTag (CTAG) has announced the latest confetti-issue to L1 under the death-spiral loan deal. £300,000 worth of loans converted at 4.5p leaves just £100,000 left over. The shares have shot 15% higher on the news: the BB loons obviously think it’s (nearly) all over. I’ve got bad news there….
At my last count I reckoned there were a bit over 58 million warrants outstanding – all exercisable at 90% of the previous day’s close as/when L1 issues the relevant notices. That figure is now up to almost 65 million.
So the fact that there remains just £100,000 to convert under the loan notes is not the end of the matter at all. In fact, given that the warrant exercise price isn’t just 90% of the previous closing bid price, it is then rounded down to the nearest half penny, there looks to be plenty more pain to come.
Yesterday’s closing bid was 4.75p, meaning that the 90% exercise price would be 4.275p. Round that down to the nearest half penny and you have a 4p exercise price.
L1 will be delighted at the relief rally which seems to have been sparked by the (non) news that it is almost out: it isn’t, but it will be happy to offload 4p warrants at the current 5.75p bid (last seen), or higher, for an instant gain of 44%, should it opt to exercise today.
Respect, L1, respect. How do I invest in your fund, for it is surely a better bet than buying shares in CloudTag!
Not that it matters a jot, as whether the number of shares in issue doubles, trebles or whatever is of no relevance.
After all the intrinsic value of a monstrously cash-consumptive company with no sales, no firm sales contracts (whatever it may have said last year) and no product available to sell – not even a working model to show off is surely 0p.
And you can divide that intrinsic value by as many shares as you like and the result is the same: 0p.
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