Ann: Alcidion Appendix 4C - Quarterly, page-18

To be honest, I am not sure what to make of the 4C – some good bits and some not so good bits.

Positives

1) Company has pretty much confirmed that cash receipts will increase in Q4. I am not still convinced that the market understands how a company like Alcidion is affected by the billing cycle and that Q2 and Q3 will always be relatively flat and lower than the Q1 and Q4.

2) Also, company noted the higher volume of work with a completion deadline of 30 June 2018. Am I interpreting this correctly as saying that there will be another uplift in cash receipts in Q1 2018-19 as a result of this increased volume of work?

3) Mergers and acquisition discussions are still underway. Potential partners and targets have to complement and support Alcidion’s commercialisation strategy. Also, blackout period for new directors still applies.

4) Still reasonable level cash holdings and cash equivalents, albeit dwindling!

5) Monies spent on marketing and etc, consistent with what the management has told several of us in terms of raising the company’s profile and etc.

6) Company still expects to execute additional contracts during Q4 – just slightly over two months left. Have they boxed themselves in or just quietly confident?

Negatives

1) Cash is dwindling. I, for one, is keenly awaiting the company to turn cash flow positive from operating activities. That would be a real turning point as opposed to using our cash reserves to fund operational expenses.

2) There is nothing new in the 4C that we are not aware of. Same messages, albeit delivered in a more concise manner. The best I can come up with is that everything is still on track. At this stage, I do not think the company is spinning its messaging. Rather, I am inclined to think that they are quietly confident on delivering. In the end, the market will be the judge. If the deliver, the share price will appreciate. If not, the share price will be punished ruthlessly.

My Thoughts

1) One of the reason I think the share price is being driven down (apart from thoughts put forward by other posters such as in the interest of the party whom are merging/being acquired to see the SP lower) is that the market still thinks a capital raising is a real possibility. I used to discount this possibility but can now see why could be needed because of its current financial status and uncertainty. The former relates to the dwindling cash reserve and the fact that it is still cash flow negative from operating activities. The latter relates to uncertainty over when contracts would be executed and the nature of the potential merger partners and acquisition targets.

While a cash reserve of $3.2 million is still reasonable, it is not going to last long if a significant and meaningful acquisition is to be made. It is also prudent for a small company like Alcidion to maintain a reasonable cash buffer to deal with any unforeseen events. Accordingly, it seems as if the market/someone is taking the view that a capital raising might be required down the track. The funny reloading on the bid and sell sides plus low volume transactions seems to suggest that something is at work here.

For the reason above, I am not discounting the possibility of a capital raising or placement.

Obviously, there could be other reasons such as someone positioning for one of the few off-market purchases that may be made available. The only potential sellers I can think of are those held by Allure and BlueSky. Is anyone aware of any market rumours regarding Allure and what Nathan’s intentions are? I am aware that BlueSky is under pressure now but the only saving grace is that 76 of Blue Sky's 80 funds were closed-ended in nature and would not accept redemption requests. I believe the venture capital fund is one of those 76 close ended funds. Nevertheless, there is nothing to stop BlueSky itself from initiating any sell down of its Alcidion’s position. From memory, they invested around the 2 cents mark so the current share price would still represent a nice profit for them, albeit the current share price is at record low levels.

2) If the company is savvy enough, they would need to line up not just one but multiple announcements. Obviously, they have disclosure requirements but the management can always influence the line up of announcements. Given many of us are deep in the red, I would not be surprised to see some of us selling into any sign of strength. Judging from some of the posts, many of us are tired and Alcidion has definitely tested the limit of our patience. The first announcement/pump is really for the sole purpose of allowing tired investors to exit, with many I am sure happy to just take a smaller loss as opposed to a bigger loss – bearing in mind, the opportunity cost of other investments and Alcidion’s share price history of being pumped and then sold down to new lows. The follow-on announcements are really about alluding the market to the fact that the management is delivering on their promises, building management creditability and bringing on board new longer term investors such as instos.

3) The company has pretty much boxed itself in with the latest 4C that it expects additional contracts to be executed during the remaining two months plus of FY2017-18. Given the previous discussions between some of us here and the management, this expectation, for me, is pretty much what I would be holding the management to account for. The management creditability is pretty much at stake here.

Personally, I don’t like spins and etc and would very much prefer companies I am invested in to be upfront and honest with shareholders, particularly loyal shareholders who have stuck with the company all these years.