Late yesterday, the 29th of July, everyone’s favorite reverse-merger pink sheet Coronacrapper, Cytodyn (CYDY), issued a press release (here) eerily reminiscent of one from the end of March (here).
Here is the one from yesterday:
Sounds pretty good right? Especially with the shares trading under $5.00. But this is Cytodyn, so nothing is as it seems. Instead this press release, like the March press release before it, appears to be quite misleading as to the amount raised, the effective interest rate, the true dilutive nature of the financing, and the true effective conversion price. We won’t know for sure, of course, until the company issues an 8k with the actual details.
We can use what happened in March as our guide. Remember this press release?
Talk about deja vu. This press release was also woefully short on real details. For that, we needed to wait for the 8k, filed on the 6th of April (here).
The first thing that should call out to any reader is that the press release doesn’t name the investor, but in the 8k it is revealed to be Iliad Research & Trading. This is one of many John M. Fife entities (Iliad, St. George, Chicago Venture Partners, among others). Who is he? A one-time variable annuity trader (see here) who moved into toxic financing of shady penny stocks.
The next red flag is that although the press release claimed it was a $15mm note convertible at $4.50, but the 8k reveals it was a $17.1mm note, bearing interest at 10%, but for which the company only received $15mm, a discount of 12.25%.This means that Fife invested $15mm but will receive at maturity the face value ($17.1mm) in addition to annual 10% interest on the face value. The effective interest rate is actually 11.4%.
The note is convertibe into 3.8mm shares at $4.50 per share. But as Iliad only paid $15mm for the note, the effective conversion price is actually $15/3.8 = $3.94 per share.
Finally, for all the claims about this being a non-dilutive financing, the 8k is clear that in addition to “standard anti-dilution” the note also features a “full-ratchet.” A full-ratchet means that if the company raises money in the future at a lower price than given to Iliad, the conversion price is reset to the new, lower, amount. We suppose one could argue that Cytodyn isn’t lying, that the deal is certainly non-dilutive, but only to Iliad!
One can see that the headline on the July press release changed a bit, they now reveal up front that the face value of the note is $28.5mm but the company only received $25mm. The discount is the same as the March deal, 12.25%. This means the effective interest rate is also the same as the March deal, at 11.4% and the effective conversion price will not really be $10 per share, but actually $8.77 per share. ‘
As for what we don’t know, and likely will not know, until the 8k is finally filed, here are our BuyersStrike! HQ predictions for the truth about this new CYDY deal:
The investor will be Iliad, or another Fife entity.
The “non-dilutive” deal will, in fact, be highly dilutive, just like the March deal.
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wow, still not signing your name to your work. you must be very proud of it!
[Wow, still making glaring errors of reasoning, you must be an idiot – Editor]
Capital Structure on this thing quite interesting. Share count is exploding. Co had circa 25mm shs YE12 (the year they paid $3.5mm for Pro 140). Since then add’l offerings on Bloomberg for circa 64mm shs and they paid 27mm shs for Prostagene in Nov ’18. 25+64+27 is 116mm vs todays count of 520mm. Most of this 396mm shs difference is direct purchases to undisclosed investors (unless I missed them in the filings) in direct offerings and warrant exercises and dilution for incentive comp. Who are they? On Bloomberg the holders list only accounts for 70mm of these 520mm shs outstanding. Where are the other 450mm shares held? Retail isn’t likely large enough to take that much stock home every night. Also what is the end game here? At some point in a fraud it needs to get monetized for the orchestrators to win.
One indication that this 450mm shs might be tightly held is that SI is 9mm shares or less than 2% of outstanding and yet borrow is tight as seeing double digit locate rates in the name.
Our guess? A variant of the old Reg S scam. Likely lots of foreign retail (Hello Germany) dummies.
Perhaps the spinmeister NP’s paid article helps explain it all (at least his spin):
“CytoDyn’s (CYDY) 100% Above Market Offering Stuns the Street” By admin -July 30, 2020
in one of his favorite company sponsored web locations – emerginggrowth.com Here’s the link.
It is the usual “let’s fight the short’s” yarn with the usual non-disclosure and anonymous author (admin!!). Surprised the SEC hasn’t descended on NP as he is getting increasing aggressive with his short wars.