Early this morning, the 11th of November, everyone’s favorite reverse-merger pink sheet Coronacrapper, Cytodyn (CYDY), issued a press release (here) eerily reminiscent of one from the end of July (here) and the end of March (here).
Here is the one from this morning:
Sounds AMAZING, right? Especially with the shares trading right around $2.00. But this is Cytodyn, so naturally nothing is as it seems. Instead this press release, like the July and March press releases before it, appears to be quite misleading as to the true 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.
Talk about deja vu. For the March deal we didn’t get any real details until the 8k was filed on the 6th of April (here). For the July deal we only had to wait 2 days, as the 8k was filed on the 31st of July (available here).
Both of those 8ks revealed important information that the press release conveniently omitted. The “institutional investor” in both turned out to be Iliad Research and Trading, LP. 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.
And while the headline screams a top-line number of $28.5mm, the actual amount of money raised by the company was only $25mm.
The next red flag is that although the press release claimed it was a $28.5mm note convertible at $10, bearing interest at 10%, but these are misleading. As the company only received $25mm, a discount of 12.25%. This means that Fife invested $25mm but will receive at maturity the face value ($28.5mm) in addition to annual 10% interest on the face value. The effective interest rate is actually 11.4%.
And the $10 conversion price?
The note is convertible into 2.85mm shares at $10.50 per share. But as Iliad only paid $25mm for the note, the effective conversion price is actually $25/2.85 = $8.77 per share.
Finally, for all the claims about this being a non-dilutive financing, the 8ks from April and July are 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!
Not being big on coincidences here at BuyersStrike! HQ, we took a look at the unusual volume in Cytodyn shares on the 9th and 10th of November, 6.3mm and 11.1mm shares versus around 2mm shares a day on average the previous week:
Which may not be that unusual by itself, but what about the odd increase in shares outstanding as seen on Otcmarkets.com?
583.5mm shares as of November 9th, compared with 579.4mm as reported as of November 6th. Where did those 4.1mm shares come from? And to whom did they go?
As for what we don’t know, and likely will not know about this November deal, 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 and July deals.
And, those 4.1mm mystery shares that were issued sometime between November 6th and November 9th? Our prediction: Inducement to someone, most likely Iliad, and most likely the big seller on the 9th and 10th.
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