By Nigel Somerville, The Deputy Sheriff of AIM | Friday 2 January 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.
Readers may remember my articles last year which raised serious issues over the insolvency of Digital Learning Marketplace plc (DLM) in 2012. Since DLM collapsed its former chairman, Mr Angus Forrest, has moved on to a company called Tern (TERN) plc, where he was elected to the board on a prospectus which claimed that DLM had been sold. It was not: it was insolvent, and was restructured to a cash shell and put through a CVA before returning to the AIM Cesspit where it remains today, now under the name of Alpha Returns Group plc (ARGP). I’ve been looking at some recent share issues by Tern.
One of the problems of getting to the bottom of what had happened at DLM – and, indeed, being able to explain to the authorities what had happened, was the utter confusion over the number of shares in issue and the details of one share issue in particular. The mess of numbers which did not add up was, somehow, passed by the auditor unqualified. Sam Antar, eat your heart out: you were a rank amateur.
And so, with a certain sense of deja vu, we come to shares issued in September 2014 by Tern. Here goes….
RNS 15 Sept 2014: Acquisition of Cryptosoft
1,922,066 shares issued to the owner. Fine: let’s check the return to Companies House for confirmation. The RNS states “Tern will own 95 per cent. of the issued ordinary share capital of Cryptosoft” and that “Jon Penney and other employees will retain a minority 5 per cent. interest in Cryptosoft”. So far, so good: 95 + 5 = 100.
Except that the Companies House return for this transaction states that the 1,922,066 shares were issued for the “Acquisition of entire share capital of Cryptosoft Limited”. Oh dear, either the Companies House record is wrong, or the RNS is wrong. Which is it, chaps? How much of Cryptosoft does Tern own? You don’t seem to know yourselves, do you? W H Ireland, you are Nomad: anything to say about that?
The number of shares issued as per the RNS does match the figure quoted in the Companies House document. Fine: let’s look at the statement of capital in the Companies House return. We find two entries for ordinary shares: one for 12,028,010 ‘ordinary’ shares of 0.02p and another for 785,750 ‘Ordinary’ shares of 0.325p. That makes a total of 12,813,760 ordinaries. But two different classes of ordinary share with differing nominal values? Are you sure about that? Reading further down the return to Companies House, we find just one class of Ordinary share described in the ‘Prescribed particulars of rights attached d to shares’ (the 0.02p stock). What is going on here? What rights do the 0.325p shares have? We are not told. So we are already in a bit of a mess, are we not?
RNS 17 Sept 2014
£85,000 raised in a placing of 6,800,000 shares at 1.25p. Conversions of loan stock: £30,000 at 1.25p per share [so 2,400,000 shares] and £18,000 at 2.016p per share [therefore 892,857 shares]. Total: 10,092,857 shares.
Then, under ‘further details’, we are told that two directors (Angus Forrest, Chairman, and Michael Clark) are each converting £9, 012.80 of monies owed into 447,063 shares. So that is £18,025.60 into 894,126 shares at 2.016p. But hang on, the first bit of the RNS stated £18,000 into shares at 2.016p which meant 892,857 shares. Which is it?
Also under ‘further details’ we are told that Mr Al Cistro is converting £30,000 of debt into 2,400,000 shares at 1.25p. OK, that part is consistent. But we are left unsure as to exactly how many shares have been issued at 2.016p per share. And therefore we don’t know how many ordinary shares are in issue.
Then the RNS states that as a result of the share issues described above “Tern has issued a total of 10,094,127 new ordinary shares of 0.02pence at a price of 1.25 pence per share.” Hang on, that’s not right:: earlier in this same RNS we were told that a total of 10,092,857 shares had been issued, some at 1.25p and some at 2.016p. This is a mess: none of these numbers add up.
W H Ireland: you supposedly checked and verified this nonsense in your role as Nomad. Really? Rubbish: you didn’t check it at all, did you? Which of the figures in this RNS are correct? Any? Did you bother to check any of it? How much did you charge Tern’s shareholders for this ‘service’ then?
Let us turn to the return to Companies House for this share issue: we are told that 10,094,127 shares were issued at 1.25p per share. It also states: “No shares allotted other than for cash”. What, apart from the converted debt at 2.016p? Where is that bit mentioned? Are we to conclude that members of Tern’s Board converted debt at 1.25p per share when it should have been converted at 2.016p a share? Has there been a fraud? Why do the numbers not add up?
Now let us move on to the statement of capital in the Companies House Return. We are told that there are now 12,028,016 ordinary shares which were issued at 0.02p, 785,750 ordinary shares which were issued at 0.325p and 10,094,127 ordinary shares which were issued at 1.25p. All three classes of ordinary share are described in the same way: “The shares have attached to them full voting, dividend and capital distribution (including on winding up) rights; they do not confer any rights of redemption”. Oh, so that’s clear then: are there three different classes of ordinary share, or just three different issue prices? Just what are shareholders supposed to make of this?
But it gets worse: before, the 0.325p shares were 785,750 in number. Check: new figure matches.
Before, the 0.02p shares were 12,028,010. Now they are 12,028,016. Where did the other six come from?
And the new issue: 10,094,127 at 1.25p. But we already know this is wrong from above, because some of those were (supposedly) issued, according to the early part of the RNS, at 2.016p. Here we are being told they were issued at 1.25p – and fewer of them. Just how many shares were issued? And at what price? How much NEW cash was raised? How much debt was converted? We can have no idea because none of the numbers add up.
And here is another thing: the return to Companies House for the share issue of 15 Sept 2014 gives a total number of shares of 57,495,212 (including a bunch of deferred stock) with a total aggregate nominal value of £1,306,148.95288. But the previous return (before the share issue of 15 Sept 2014) gives figures of total shares : 47,401,079 but total nominal value of £1,307,130.12. Er…so Tern issues about 10m shares on 15 Sept 2014 and ends up with a LOWER total nominal value of shares in issue, does it?
What total rubbish. These figures have been plucked out of thin air. They do not add up. There are multiple errors, multiple contradictions and multiple confusions.
So Angus Forrest (Chairman), W H Ireland (Nomad and joint broker) and my old friends at Peterhouse (joint Broker): how many ordinary shares of 0.02p, 0.325p or 2.016p are in issue right now? How many Deferred shares of 29.999p and 0.00099p are there in issue? What is the total nominal capital of the company? And how do you account for your figures? It is your job to know. It is the shareholders’ right to know.
This is just soooo DLM. Déjà vu. History repeating itself, and all so predictable. I wish your Auditors the very best of luck in unravelling that lot.
To anyone invested in Tern, I ask you this: if you have no idea how many shares are in issue and RNSs detailing shares issued cannot even be made to add up, how is this company investable? Heck, you can’t even be sure of what your company actually owns! (is it all of Cryptosoft, or is it 95% of it?) How many more errors are lurking there waiting to be discovered?
What if something goes wrong (as it did under Mr Forrest’s watch at DLM)? How can you go to the authorities and even start to explain what was up when you can’t even get a correct figure for shares in issue (as was the case with DLM: I got there, but it was a nightmare to get to the bottom of it)?
If it is just a simple case of maths blindness or carelessness, what are the chances of a factor of 10 or even 100 going missing in the evaluation of Cryptosoft?
I await the return to companies house for the latest issue of shares at 9p in December, which followed a ‘know of no reason’ type of RNS in the wake of a sharp share price spike with the greatest of interest.
Happy New Year Angus Forrest, Chairman of Tern plc, former Chairman of DLM plc which saw off millions of pounds of creditors and shareholders alike: you are being watched. You are the subject of one of Tom Winnifrith’s New Year Resolutions. You are one of mine too.
Declaration: I have no position in this POS and should be sectioned under the mental health act if I ever go near it
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