Ann: Bonus Options Offer, page-323

With the Bonus Options now available to be taken up, and the SP at all time lows, there are a real risks to weigh up against the potential upside of the SP reaching more than 4.1c in the next 6 months.

While there is no doubt the tech has plenty to offer the IOT space and has the potential to be huge, it’s important to remember that even companies with amazing ground breaking tech can (and do) fail. Typically for one of two reasons.. either they are unable to get critical mass adoption with their target customers, or they run out of money, and exhaust all options for raising further capital.

Adoption:

• It is great to see there are lots of MOU’s in play. This suggests there are lots of discussions going on with customers. I know people are impatient to turn these into meaningful revenue, but given the IOT space is still young the momentum may yet be further away than many would like. One question that was asked recently (which I believe is a fair question) is why are the MOU’s only being published to the ASX, and not to industry forums etc where it can drum up interest from potential customers? After all, one of the uses for signing MOU’s can be to gain exposure. Could the target audience be more about reaching shareholders rather than potential customers?
• So far, the deals in place which are bringing in some small revenue (not yet company making numbers) are not really utilising the core tech, but rather leveraging components of the solution. While this is good to see both some revenue and a chance to prove some of the components, it is no guarantee of adoption of the core tech.

Finance:

• Running out of money can be either (or both) poor management of costs, or being unable to raise further capital
• No need to go too far into the topic of high executive salaries as it has received plenty of airtime, suffice to say that this is one area of cost which management does have the ability to influence, but to date has not shown much sign of intention to do so. It’s not hard to find leaders of small spec companies who run on a shoestring opting to build in equity incentives in place of high salaries in the early days if capital is in short supply.
• Capital raising.. again, there has been plenty of discussion around the way capital has been raised so far. The CN was obviously a disaster, wiping out most of the share price, with the damage probably continuing after the money it raised has been spent. The SPP in January was under subscribed, and now the offer of the Bonus Options which, if fully subscribed will bring in half a million dollars in the short term, but needs the SPP to almost triple in the next six months if there is going to be much chance of them being converted and raising 20 million dollars in January next year.
• If the existing revenue streams don’t grow significantly soon, with continuing high costs, there is a risk of finding ourselves short of money again soon, and no real way of raising anymore capital.

So what should we make of the Bonus Options? With a measly price of 0.1c, short expiry of only 6 months, and a conversion price almost triple today’s price, at first glance it sounds like the share price must be expected to take off soon.

A cynical view might be that with cash running low, and knowing there is no chance of suckering shareholders into donating large amounts again in an SPP, some cheap 0.1c options with a strike price and expiry date which suggest imminent SP rises might be a last ditch way of tempting holders to part with one more donation of half a million dollars. Add in the risk of 50% dilution to your existing holding just to lure in the more sceptical who might feel like they have to “hedge against dilution for the small price of 3%”. Calling it a ‘reward for loyal shareholders’ would make it all the more convincing, but knowing there are so many disappointed holders out there, leaving the cut-off date for eligibility open for a few more weeks might draw in some fresh holders who might be more easily tempted to part with their hard earned..  Could this cynical view be feasible? I don’t know, maybe they have an ace up their sleeve and the options will turn out to be the ‘reward’ they are being called, which will mean great news even for holders who don’t take up the options but would still enjoy seeing their existing holding almost triple in value! That said, when it comes to this point of the journey and something looks a bit too good to be true, it’s worth having a look at the big picture to be sure you are making a fully informed decision before handing over more money.

It really comes down to how well we trust management now. Past actions can be a good indicator of future actions, so let’s look at some key actions in the last few months.

CN and SP
We know the CN was/is a disaster that has destroyed the SP. We know there were some tasty rewards dished out for arranging it. With a quick look at the daily chart over time, you can clearly see the dates of CN conversion/dumping without needing to go back to company announcements. What is a concern though is that management have denied the CN was causing the fall in SP, and blame a shift of investor capital from tech stocks to mining. This is simply not true. A glance at the mining index over the last six months shows if anything money has been flowing out of the mining sector, as the index has been in a downtrend over this time.

So is management simply ignorant to the facts, or are they trying to deceive you? ..and which of these is worse news for your investment?

Consolidation
In the announcement of the agenda for the General Meeting released on the 26/4/2017, a 2:1 share consolidation was announced. There were two reasons stated for undertaking the consolidation: “The Consolidation will result in a more appropriate and effective capital structure for the Company and may result in a Share price more appealing to a wider range of investors.” The SP at the time was 1.6c.

Less than a month later (18/05/2017) the bonus options were announced, planning to issue 50% of the post-consolidation in options to be converted within six months. The CN conversions at prices below 1c (pre-consolidation) continue to deliver massive further dilution. It could be convincingly argued that they have failed to achieve the first objective, and in fact did so before the actual consolidation was even completed!

The consolidation was completed, and trading resumed on the 12/06/2017. Within two weeks, on the 26/06/2017 we were again trading at 1.6c, this time post consolidation. Today we have traded at 1.3c, and with multiple more CN conversions to come, could easily see an SP under 1c in the future. Clearly they have failed spectacularly to achieve the second objective, in record time too!

What are the chances we will get an announcement admitting that both goals of the consolidation turned out to be an abject failure less than a month after completion? Probably slim..

Now, ask yourself what are the chances these bonus option will turn out to be a ‘reward’ and coincide with a rise in SP to triple current prices in the next six months, versus the chance it may be a last desperate grab for your money..

I would be very happy to find it turn out to be a reward, but I’m definitely not confident that it will be