15th December 2016
CloudTag (CTAG:LN), the company that brings personal monitoring to the wellbeing, fitness and digital health markets announces a trading and corporate update further to the notification of 7 December 2016. The update includes information on distribution, manufacturing, new brand name, corporate reorganisation undertaken earlier in 2016, working capital and exercise of warrants. In addition, the Company is issuing a clarificatory statement relating to the notification dated 9 December 2016 regarding the conversion of L1 loan notes.
Further to the Company’s announcement of 5 December 2016, the Company announces that on 7 December 2016 it entered into a distribution agreement with Nemesis Limited (“Nemesis”) (“Distribution Agreement”), a UK based company which specialises in the distribution of wearable and automotive technology accessories. The Distribution Agreement is intended to complement the distribution rights granted to Second Chance Limited and CITIES.
Nemesis is not committed to make any sales under the agreement and there is no guarantee that the Distribution Agreement will lead to any sales.
New brand name and product images
The Company plans to announce the brand name under which its first product will be marketed tomorrow. The Company’s website has a countdown page indicating this. Website users will be able see images of the product which the Company will be exhibiting at the CES in January 2017.
To date, a small number of units of the Company’s latest product have been produced for demonstration and marketing purposes. Production has also commenced of a modest order to ensure stock availability for CES at which the Company is exhibiting in January 2017.
Given the importance of CES in demonstrating interest from retailers in the product and applying a cautious approach to managing the Company’s working capital, the Board has decided to delay its instruction to commence the manufacture of significant amounts of stock until firm orders are received from retailers and distributors. The Company previously announced (most recently on 7 December 2016) that it has received an indicative, non-binding order from Second Chance for £880,000 which was subject to manufacturing and delivery date being agreed (“Indicative Order”). In view of the Board’s cautious approach as outlined above and understanding that Second Chance wishes to firm up orders from its own customers before committing to a firm order with CloudTag, the timing of the fulfilment of the Second Chance Indicative Order will be aligned with the stock manufacturing timing described above and so will not now be fulfilled in December.
On admission to AIM on 14 March 2013 (“Admission”), CloudTag Inc. had one wholly owned subsidiary being CloudTag Active Limited (“CloudTag Active”), which was incorporated in England and Wales on 26 October 2011. Following Admission all intellectual property was and continues to be held in the parent company, CloudTag Inc., a Cayman Island company, with CloudTag Active being the principle UK operating subsidiary whose focus was on the technical development of the Company’s product. In this respect, the Company and CloudTag Active were party to a development management agreement and also a trademark license agreement as set out in the admission document.
In late 2015, CloudTag undertook an exercise to introduce a corporate structure appropriate for its expanding operations in accordance with its tax objectives and its developing technological approach.
As a result of this exercise, the Group established a UK Branch office of CloudTag to facilitate the EIS status of the Company and incorporated a new wholly owned UK subsidiary, CT Technology Services Limited for the development of the Company’s latest technology and products. CT Technology Services Limited was incorporated in England and Wales on 2 June 2016 and became a wholly owned subsidiary of the Company on 22 June 2016. The purpose of CT Technology Services Limited is to facilitate the ongoing development of the Company’s technology. The operations, employees and directors of CloudTag Active Limited have, during the course of this year, been transferred to CT Technology Services Limited. CloudTag Active is being wound down.
On 7 December 2016 the Company stated that with the monies received from L1 and funds previously raised, working capital was expected to meet the Company’s immediate working capital needs. In accordance with the announcement dated 28 November 2016, following the approval of the requisite resolution at the Company’s EGM held on 12 December 2016 the Company expected to issue the first part of the Tranche 2 Notes (being £0.9m before expenses). The first part of the Tranche 2 Notes has not yet been issued. Upon restoration of trading the Company intends to give notice of drawdown.
L1 has confirmed to the Company that subject to the restoration of trading on AIM of the Company’s shares and the admission to trading on AIM of the shares deliverable to L1 pursuant to the conversion notice dated 6 December 2016, all conditions precedent required in connection with the next issue of Convertible Securities have been satisfied.
Exercise of Warrants
The Company announces that it has received notice from Lee Musgrave and Mark Betteridge, being the owners and directors of Preciousbluedot Limited (“Preciousbluedot”), to exercise warrants over 3,433,334 new ordinary shares (“New Ordinary Shares”) at an exercise price of 3.0 pence per New Ordinary Share raising £103,000 for the Company.
On 29 September 2015, the Company announced that it had settled historic fees in respect of services provided by Preciousbluedot relating to the development of the Company’s app through the issuance of warrants over 11,433,334 ordinary shares at an exercise price of 3.0 pence per share (the “Warrants”) as compared to the closing market price of the Company’s shares of 2.38 pence on the day prior to the issue of these Warrants. The Warrants were transferable, vested immediately and were exercisable at any time until the tenth anniversary of the date of grant, being 28 September 2025. The Company’s annual accounts for the year ended 30 September 2015 (Note 8) state these Warrants were valued at the value of the services provided, being £34,000.
The award of the Warrants was made to the directors of Preciousbluedot in equal part rather than to Preciousbluedot as announced. Lee Musgrave, who was awarded 5,716,667 Warrants had been a director of the Company’s subsidiary Cloudtag Active Limited within twelve months of the date of grant. The transaction was a related party transaction in accordance with AIM Rule 13 and should have been disclosed and approved as such at the time of grant.
Application has been made for the admission of the New Ordinary Shares to trading on AIM which is expected on or around 19 December 2016. The New Ordinary Shares will rank pari passu in all respects with the Company’s existing ordinary shares.
Conversion of £1.15m Loan Notes announced on 9 December 2016.
The Company announced on 9 December 2016 that L1 Capital Global Opportunities Master Fund (“L1”) had provided notice to convert £1,150,000 of Tranche 1 Notes (nominal value) into 19,166,666 new ordinary shares (“Notice”) (“Conversion”). The Company clarifies that the Notice relating to the Conversion was dated 6 December 2016 however it was not received by the Company until 7 December 2016. In accordance with the terms of the Tranche 1 Notes, the exercise price of the warrants issued to L1 on 9 December 2016 as a result of Conversion had an exercise price of the lower of:
a) 90% of the closing bid price per ordinary share on the day immediately prior to the date of exercise of such warrants and
b) 9.6875 pence per share being 125% of the closing bid price per ordinary share on 5th December 2016, being the day immediately preceding the date of the Notice.
Application has been made for the admission of 19,166,666 new ordinary shares to trading on AIM and it is now expected that dealings in these shares will commence on or around 19 December 2016.
Total voting rights
Following the issue of the above mentioned new ordinary shares, the total number of ordinary shares in issue will be 408,211,752. This number may be used by shareholders as the denominator for the calculation by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of the Company.
Restoration of Trading
Further to the temporary suspension of the Company’s shares on 9 December 2016, the Company advises that the suspension will be lifted at 7.30am on 16 December 2016.
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
Cairn Financial Advisers LLP (Nominated Adviser) – Liam Murray / Jo Turner +44 (0) 20 7213 0880