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Angus Forrest of Tern time to fess up on another AIM Rule breach? Or just lack of transparency?

By Nigel Somerville, The Deputy Sheriff of AIM | Saturday 5 September 2015

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.

Oh deary, deary me. We still have not fully cleared up the mystery warrant issue (thus far we have simply been told that the exercise was all done correctly, but there is no explanation of the statements in the 2013 and 2014 annual results RNSs, nor the relevant Annual Reports which contradict this) when along comes another difficulty. I fear that this next wee problemo may be rather more clear-cut. Is t an AIM Rule breach or just a lack of transparency?

It involves the very first investment made by AIM-listed Tern plc (TERN) and the interests of its Chairman, Mr Angus Forrest. Unfortunately it appears that Mr Forrest had already been a shareholder in that investee company for some time when the transaction was announced, and in not declaring it a Related Party Transaction in the relevant RNS, along with a statement that the other directors has passed the deal as fair and reasonable following consultation with the Nomad it would appear that we have a slam-dunk breach of AIM Rules. Or is this not a related party transaction but just a minor and undeclared Conflict of Interest?

Under AIM Rules for Companies (Feb 2010 edition – HERE - which is the relevant version at the time) we find Rule 13:

Related party transactions

13. This rule applies to any transaction whatsoever with a related party which exceeds 5% in any of the class tests.

An AIM company must issue notification without delay as soon as the terms of a transaction with a related party are agreed disclosing:

♦ the information specified by Schedule Four;

♦ the name of the related party concerned and the nature and extent of their interest in the transaction; and

♦ a statement that with the exception of any director who is involved in the transaction as a related party, its directors consider, having consulted with its nominated adviser, that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned.

So ANY TRANSACTION WHATSOEVER with a related party which exceeds 5% ANY of the class tests? Let’s take a look at just the first of those class tests, the Gross Assets test, which is detailed in Schedule Three of the 2010 AIM Rules:

Schedule Three

The class tests for determining the size of a transaction pursuant to rules 12, 13, 14, 15 and 19 are as follows:

The Gross Assets test

(Gross assets the subject of the transaction / Gross assets of the AIM company) x 100

Figures to use for the Gross assets test:

1. The “Gross assets of the AIM company” means the total of its fixed assets plus total current assets. These figures should be taken from the most recent of the following:

(a) the most recently notified consolidated balance sheet; or

(b) where an admission document has been produced for the purposes of admission following a reverse takeover, any pro forma net asset statement published in the admission document may be used, provided it is derived from information taken from the last published audited consolidated accounts and that any adjustments to this information are clearly shown and explained; or

(c) in a case where transactions are aggregated pursuant to rule 16, the most recently notified consolidated balance sheet (as at a date prior to the earliest aggregated transaction).

2. The “Gross assets the subject of the transaction” means:

(a) in the cases of an acquisition of an interest in an undertaking which will result in consolidation of the undertaking’s net assets in the accounts of the AIM company, or a disposal of an interest in an undertaking which will result in the undertaking’s net assets no longer being consolidated in the accounts of the AIM company, the assets the subject of the transaction means the value of 100% of the undertaking’s assets, irrespective of what interest is acquired or disposed.

(b) in the case of an acquisition or disposal which does not fall within paragraph 2(a), the assets the subject of the transaction means:

♦ for an acquisition, the consideration plus any liabilities assumed; and

♦ for a disposal, the book value of the assets attributed to that interest in the AIM company’s last audited accounts.

(c) in the case of an acquisition of assets other than an interest in an undertaking, the assets the subject of the transaction means the book value of the assets.

On 25 November 2013 Tern released this RNS announcing its first investment (into a company called Flexiant Corporation Limited, although the RNS simply refers to Flexiant Limited, which was a subsidiary), to the tune of £100,000. That covers the figure for “Gross assets the subject of the transaction”.

What of “Gross Assets of the AIM Company”? Well, we have to use the most recently notified balance sheet to get that (since there was no Admission Document issued in relation to a reverse takeover, and this was a single investment being announced). That most recent balance sheet was published by RNS on 31 July 2013: we had Interims to the end of June 2013 and FY2012 numbers all produced that day. The total assets in the Interims are reported to be £368,917 which gives us a figure of 27% for this class test. Alternatively, the FY figures (as confirmed in the Audited Accounts) give us a figure of 28%. Both figures comfortably exceed the 5% mark, and thus Rule 13 comes into play.

So was the investment into Flexiant a Related Party Transaction? Well, according to the Annual Return for Flexiant Corporation Limited to 31 December 2012 (HERE), a Mr Angus Forrest appears on the Shareholder list (shareholdings 4 and 32, to be precise). He is still there in the Annual Return a year later (HERE – again, shareholdings 4 and 32) and where Tern plc appears as shareholding number 110.

Does this make Forrest a related party?

When Tern released its RNS of 25 November 2013 – which would have to have been signed off by its (current) Nomad, WH Ireland – Tern plc was announcing that it had invested into a company which was already part-owned by Tern’s own Chairman, Mr Forrest. Yet there was no statement that this constituted  Related Party Transaction, nor was there a statement that the directors (apart from Mr Forrest) had consulted with the Nomad and passed the transaction as fair and reasonable insofar as Tern’s shareholders were concerned.

The posting of the FY2012 Annual Return of Flexiant is dated 2 Jan 2013 by the Companies House website. Well before any checks and verifications might have been required ahead of the 25 November 2013 RNS.

Now it may be that this transaction by Tern has indeed served its shareholders very well. I guess that we will find out in the fullness of time. We shall be looking at the price paid by Tern and what Flexiant is actually worth shortly.

The real issue is is this an undeclared related party transaction or is it just a minor conflict of interest which in the interests of transparency should have been declared? More to follow as we look at what Tern paid for its Flexiant stake and what Flexiant is really worth.

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More on TERN



  1. Burbling at a technical level it is interesting to note that,

    Does not offer a secure HTTPS connection. You will note that,

    result in a ‘Cannot Find Server’ response. That strikes me as being a bit of a fail for a company that is supposedly espousing its expertise within the Cryptographic Arena.

    dig 7200 IN A

    inetnum: –
    netname: DIGITALOCEAN-LON-1
    descr: DigitalOcean London
    country: GB

    redirects to a secure connection on,

    at least their hosting provider knows a little.

    If you download some of their literature,

    Amongst the ‘buzz words’ and the ‘big numbers’ what they are offering are cloud based solutions hosted via Amazon EC2 and Microsoft Azure… along with Industry Standard Java Based Technologies and APIs, Application Interfaces and DataBases.

    From the above graphic you can see that this is a Microsoft Azure Instance. It is extremely likely that it is built on COTS software available to anyone who might wish to set up a similar platform, much of it will or may be available as FOSS and subject to GPL licensing.

    Cryptosoft will probably providing the ‘glue interface’, APIs to interface with the underlying systems…. ‘DashBoards’. In respect of crytography again from the above graphic mention is made of ECC, Elliptic Curve Cryptography, and PGP, Pretty Good Privacy. These are well known solutions to Crytography and also are or have Open Source implementation.

    The conclusion would be that Cryptosoft have no ‘secret sauce’ and as such their proposed business ecosystem will be subject to rapid entry by interested third parties. It will not help that IOT, Internet of Things, and M2M, Machine to Machine, communications will be subject to implementation and adoption of standards over which Cryptosoft, whilst they might play a part, will have no overall control. They might however try to claim ‘first mover advantage’ but such a claim is likely to be fragile.

    So, in respect of the above, all they have is a cloud based platform which could be implemented by any number of other interested parties which is used to communicate securely with ‘endpoint devices’.

    Within their literature they make reference to the HTTP protocol in conjunction with Encryption. Again it is quite surprising that they do not implement HTTPS on their own site.

    Otherwise it would appear that they are suggesting that ‘Their Agent’ on the IOT ‘endpoint device’ will be used to encrypt HTTP data, presumably to HTTPS data, prior to transmission over the network. Naturally a ‘DashBoard’ is one thing but a ‘Cryptosoft Agent’ on every IOT ‘endpoint device’ works out to be BIG licensing numbers.

    Whoopy Do.. Loads of Money.

    I would be inclined to call ‘smoke and mirrors’. The implication is that the target ‘endpoint device’ is already capable of running an HTTP client. By extension that means it likely to be running a Linux Kernel and Nginx on a low level ARM processor. It will also mean it is capable of running ECC/PGP.

    Once again all of this stuff is based on Open Source software subject to GPL, BSD and other licences over which Cryptosoft has no control and, assuming Cryptosoft had some ‘secret sauce’, based on such software that ‘secret sauce’ would have to be returned back to ‘the community’ under similar licensing rendering it ‘non secret’. I should say I cannot state this as being fact. Just that it seems extremely likely.

    Otherwise fundamentally there is absolutely no reason why the IOT community individually or as a whole should or would tie themselves into anything proprietary to Cryptosoft. The tools are already available. Cryptosoft might provide a ‘framework’ but then similar opportunities are available to anyone with access to the tools which basically means everyone.

    At least they do not appear to claim ‘patents’ or ‘patent pending’.

    Tern ‘does’

    In respect of Seal Software Limited. It is always quite worrying when companies claim ‘approved’ patents but fail to link to them. Presumably they have something to hide from investors…

    This was, presumably, a US Patent on Software and/or a Business Process. As such it is unlikely to be granted anywhere else in the world and the USPTO has a reputation for ‘rubber stamping rubbish’…

    The previous link is to the WIPO application, note the word ‘application’, it has not been granted outside of the US. The associated document is available from,

    You will need to get past the Captcha. From Page 1)

    Having got their patent in the US naturally they try it on elsewhere. That’s going to cost them a bunch of money but fortunately it means they might maintain the illusion that they have Intellectual Property with some value. Of course if the companies concerned do not link to the ‘paper trail’ then unless you dig you will not know.

    And the reason why the companies concerned will not link to the underlying application.. From Page 32)

    All 34 claims are being rejected by WIPO on the basis of a combination, Y, of prior art.

    Now that WIPO has done the job properly then any US company, should they be interested in what Seal Software is trying to protect, can wave that document in the face of the USPTO or a Judge and probably/possibly get the Seal Software Patent rescinded.


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