CDE (ASX) Ann: Chairman Provides A$1m Convertible Loan Facility

Originally posted by Mayi: ↑

ASIC will not take action on this because it is normal practice for listed companies to raise capital and seek shareholder approval later - this is permitted because many things are commercial in confidence.

JH is basically taking a bet on one of a couple of things happening. The first is that because management has tipped in money, the market may take that as a positive sign that the company is viable and increases the chances of a later successful capital raising. If this occurs JH gets very juicy interest payments and 200 million options. The options are probably going to be worthless like all the earlier options; however, in the very unlikely event that the company began to sell product, he could make many times his money at the expense of existing shareholders.

The second option is that the company goes into receivership and JH could potentially exchange the company for the debt. This is a more risky scenario because the only thing of value to anyone within the company is the $80 Million of carried forward tax loses, and makes the company worth much more dead than alive (this is very bad news for existing shareholders). The problem for JH in administration is that it is the administrators that then control the company, not him. If a profitable company came along and wanted the tax losses and a back door listing, they would negotiate with the administrator rather than JH, and could outbid him in a blind tender, or he could get stuck with the company at a value more than the debt. The other bidder would be in a stronger position as the company is only worth something to JH if he can find a buyer, so his negotiating position would be pretty weak.

It is difficult to see how this will play out. The only certainty is that shareholders are passengers and it will end badly for them. It is no surprise that millions of shares were dumped on the market yesterday, creating yet another all time low. I guess they sold out because in another week or so, YPB has to fess up about its quarterly sales and given that they have said nothing about any new customers, it is going to be as ugly as always, if not uglier.

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Mayi-a great analysis!
If I can add my thoughts....
The loan deal that JH arranged as Mayi has put it is certainly "very juicy". In the 2022/2023 financial year it will add around $150k to running costs if the full amount $1m is drawn down (a proportion of the full year interest plus the $20k establishment fee). My projection of YPB's cash flow need is that all of the $1m will need to be drawn down in this financial year.

I see it differently to Mayi in that I sense JH had no other option but to urgently put in funds to keep YPB's doors open and the fees and interest and granting of options is JH's realistic measurement of the risk he was taking. I point to YPB's statement in their Quarterly Activities/Appendix $C Cash flow Report announcement on July 29, 2022 in which in answer to 8.6.2 they make the assertion that " YPB has an existing mandate with a Sydney based AFSL holder who has successfully raised capital for the company previously". The AFSL referred to is none other than EverBlu Capital and I stand to be corrected but I believe YPB has not been able to get support from EverBlu Capital for another CR. If funding was available from EverBlu why wasn't this option utilised rather that adding another $150k cost to their bottom line?

Mayi is also correct in postulating that the only value in YPB is in their accumulated losses. The ability to continue to trade offering the YPB authentication and anti-counterfeiting solutions will be hampered by legal issues of who owns the IP. It appears much of the YPB intellectual property ("IP") is founded on what was acquired in YPB's acquisition of Motif Micro. It would seem MIT own the IP/patent and Motif Micro was given an exclusive license to exploit the IP/patent, and in my experience, such licensing usually includes a termination clause which comes into play on bankruptcy/insolvency of either party to the license.

YPB is really a 'basket case' so far as all those who currently hold YPB shares.