Member Info for h4mmered

You posted on 30 September about the meeting but didn’t hear about it before it happened 🤷‍♂️

Weirdly misleading headline - Nirland and the Rowlands are not on the Board, although they have a secured loan that effectively gives them control of the assets. That they are selling down their holding certainly must mean that they are extracting whatever value they can from the equity before the loan defaults and they can call it. It should be a signal to anyone who still believes that there is any value in CDT really should think again. The company does not have the cash resources to make it through the current quarter, and needs somewhere around $10m to simply make it into 2025, which would require an equity issue equivalent to 100% of the current market cap. Unbelievable story of non existent corporate governance. The only possibility for any money for Vela is a claim against the D & O insurance and (if it was taken out) POSI.

Why would anyone pay 0.03p per share for 0.018p of assets, of which .004p is in unquoteds of questionable value. As I said earlier, absolute tops we might get 0.01p per share, if someone was being generous.

Why would anyone buy the company? £3.5m of assets, of which £400k is WeShop (of questionable value), and a cost of £500k to get a takeover completed. Let's assume that the buyer would need to have visibility of a 25% profit to make it worthwhile (otherwise, why bother) and so the most anyone would want to offer is £2m, which is basically 0.01p, and it would be a paper offer (no one would want to offer a cash exit to Vela shareholders).

If you were offered 0.01p worth of someone else's paper would you really sell Vela?

New S1 published by CDT, to admit the AZ and Nirland shares to trading. The first of the key risk factors sums up the situation of the company perfectly:

"There is substantial doubt regarding our ability to continue as a going concern. We will need to raise additional funding, which may not be available on acceptable terms, or at all."

None of our investments were anywhere near the value that CDT used to be, but that was before it ran out of money and the principals leveraged their share holdings, got called and lost ownership of their stake. It is now less than 0.0006p per share of Vela, around 3% of total assets.

There was a chance to sell, the Board decided to run with it, and the holding has now, to all intents and purposes, disappeared. WeShop is four times as important to the NAV of Vela...

CDT has posted an updated S1, suggesting it is looking to place some stock to keep it alive. Should prevent the stock going to zero but limits upside from here given the massive dilution implied - to get through to the end of the year they need to issue stock equivalent to half the current market cap.

Who owns the company is now completely unknown. A Director had a “substantial” amount of shares sold and 30% more have been pledged, so there’s a huge amount of uncertainty. Corvus Capital did own about 50% of the company, and that would appear to be the holding partially sold and partially pledged, so they are effectively out. There isn’t the cash to keep going, so the company is now effectively controlled by the Rowland family through the $2.6m secured loan they have granted the company, as there is no way of repaying the loan. It is likely they will have to continue to fund the business, since an insolvency will destroy all value and leave them with nothing. However, this could come at a cost of huge dilution for shareholders. On the plus side, there will be plenty of grounds for claiming against the company’s insurers, due to the fact that the company has admitted it did not disclose the pledged stock, as required.

I guess, on the plus side, if Corvus and Andrew Regan have leveraged their positions, not informed the company and their stock is no longer in their control, they will be out of the business. On the negative side, the Corvus facility, which was subject to documentation, is now moot and the company needs some funding plan in place this quarter to survive into next quarter, without filing for Chapter 11. The Rowlands will have to manage this path through carefully, as any insolvency causes the strategic partnerships to all fall away, so from a shareholder perspective, despite them having debt, their interests are aligned with shareholders to an extent.

...and the Corvus Capital website has gone offline...

Interestingly, and perhaps not entirely unconnected with the latest announcement, Corvus Capital held 14.4m shares through a wholly owned subsidiary, Algo Holdings Inc, and approximately 30m shares themselves, from the time of the MURF deal...

https://s3.amazonaws.com/sec.irpass.cc/2892/0001493152-23-033782.htm

The delisting stuff is irrelevant, since they lose their listing for trading below a buck in January next year. It does emphasise just how small the company has become, that it starts to hit the minimum size criteria less than a year after completing a deal that had the stock valued at over $1bn at one stage.

There's two curious elements to the paragraph of the 8-K on the pledges of stock; the statement "...that one of its directors, through a wholly owned subsidiary, had previously entered into certain collateral pledge agreements..." is peculiar, because it's not clear whether this is a wholly owned subsidiary of the company or of the Director. If the latter, maybe the entity is Corvus Capital? Second curious element is that the further 30% of the company under pledge is a "...pledge arrangement with a significant stockholder of the Company." which suggests that this is in respect of a loan from a significant stockholder in the company. I can only believe that this stockholder is Nirland, as they are engaged in lending (including to the company). I wonder whether this further pledge is something to do with the personal guarantee that Andrew Regan gave for the Nirland facility?

Whatever the case, there's a blizzard of litigation approaching the company and let's hope Vela joins any class action suit to recover whatever they can.

Probably explains why so many shares have been changing hands this week, with one day turning over nearly 100% of the number of shares in issue - someone borrowed against their shareholding and the lender has called in and sold the security. There's an SEC investigation on its way no doubt, because whoever it is that has been leveraging their position probably failed to report their holding correctly. If it is a substantial shareholder as the announcement suggests that has had stock sold, I would guess that it would have been a fairly senior member of the founding team. If it is anything to do with Corvus it could complicate the drawing of the $5m facility that Corvus had agreed but is not yet documented. Sounds like big changes are coming in the Board and governance structure, and a whole heap of litigation, because shareholders are going to sue the company and all its Board members for this. Potentially this is good news for Vela - if the company (and whoever failed to disclose) had decent levels of insurance then this could become much less about what CDT is worth and much more about how much insurance cover did everyone take out that can now be claimed against. Sadly, from Vela's perspective, they will only get to claim from $5 down to $0.15, rather than from $10, because of the way the option agreement worked, but getting some of the $5m losses back would go a long way to restoring the finances of the company.

As usual pre-market spike soon slumped but I notice the volume today - by 10am NY time there had been 61m shares traded, vs around 100m in issue. This is clearly a stock not being bought and sold on fundamentals!

I only had 5,550,671 shares in issue for CSIL, and I could well be out of date on that, in which case you would be right in terms of the underlying Vela exposure, but with respect to the price, whilst WeShop may say that their shares are worth 619p, the market is valuing them at less than 68p, and it is the market that will ultimately price them.

The real challenge, if the shares ever list, is that the shoppers who are shareholders will all want to cash in and who is the buyer who wants to hold the stock, and if the shares turn out to be worth just 1% of what the company has told its customers they are worth, surely the business rapidly loses all of its customers as everyone walks away in disgust?

The Corvus commitment is still subject to documentation, so it's not like it could be drawn tomorrow.

However, mention of Corvus did prompt me to check out their website, and bizarrely there is nothing in the "About" and "The Team" sections, like someone got halfway through building the site and then moved on. It also looks like the website has been used to log in to mail servers, as there are links including "Regan Mail", which presumably is how the CEO accesses his mail. Not exactly normal to pop this on your home page...

Just looked at the implied value Vela's holding in WeShop from the current value of WeCap plc. WeCap holds an underlying 5.1m shares in WeShop, through convertible loans and its holding in CSIL. The current market cap of WeCap is around £3.5m. If we ignore the fact that it has other assets and just assume that the sole asset is WeShop (as this maximises the WeShop value), the WeCap price implies a value per share of WeShop of 68p per share.

If you then apply this to the Vela holding, through its 71,429 shares of CSIL held. CSIL holds 1.5 WeShop shares for every one of its own shares, giving Vela a look-through holding of 107,237 WeShop shares. At 68p per share this is worth £73k, vs the c. £400k holding value in Vela's books, implying the net tangible assets of Vela are probably nearer £2.75m than £3m.

The destruction of value in this business has been truly spectacular.

CDT quarterly report out overnight. Company had just $219k cash at June 30, compared with $4.2m at March 31, demonstrating just how cash-strapped they are, and why they borrowed $2m at an all-in cost of something like $5m.

One thing that I hadn't noticed before was that 25% of any equity fund raise has to go to repaying the $5.7m deferred commission from the MURF transaction, which explains why only 75% of any fund raise has to go to repaying the debt. Therefore the first $3.6m of any raise goes out the door, without a penny accruing to the company. With a cash burn rate of over $1m a month, and in addition having committed to more trials of drugs, the company will need to raise c. $25m over the next 12 months just to stay afloat, on a mkt cap of $10m. Chances are close to zero.

For shareholders the only hope realistically is a chapter 11 filing immediately, restructuring (without insolvency, as all the agreements with AZ would fall away) and some value being left after massive dilution.

Why would anyone pay £3.5m for £3.0m of net tangible assets, with probably £0.5m of costs to wind it down and £0.8m of assets being illiquid and (in the case of WeShop) of dubious value?

Given that the whole business model of CDT is to acquire rights from big pharma for indications that big pharma are not willing to pursue, it's hardly likely to be a big pharma take-out.

Far more likely, I would have thought, would be a take private transaction, albeit the chances of much of a premium for a bankrupt business is unlikely.