Cloudtag Inc Regulatory News (CTAG)

27 March 2014

CloudTag Inc

("CloudTag" or the "Company")

Final Results

 CloudTag Inc (AIM:CTAG.L), the company which develops personal performance monitoring for the consumer health, wellbeing and fitness markets, announces its final results for the year ended 30 September 2014.

Financial and Operational Highlights

· Launch of MyCloudTag App in Apple iOS App Store and Google Android Play Store

· Appointment of new CEO, Amit Ben-Haim, with strong track record of commercialisation in the medical devices space

· Significant progress in developing wearable device for mass weight loss market - production runs anticipated in H2 of 2015

· Successful fundraisings totalling £1.4 million - £500k equity and £900k convertible debt

· Significant reduction in full year loss to £1,290,000 (2013 - £2,840,000)

· Appointment of Whitman Howard as sole broker to the Company in March 2015

Enquiries:

CHAIRMAN'S STATEMENT

Introduction

It has been an important year for CloudTag and I am very pleased with the progress made across the business during that period. We have made some significant changes to the management team with the appointment of Mr Amit Ben-Haim as CEO. I am very confident that Amit will successfully lead CloudTag through the next important phase of finalising the wearable technology, moving the hardware to mass production and securing strategic commercial and technology partners. I am also delighted by the recent appointment of Whitman Howard as sole broker to CloudTag and we look forward to working with them to increase the profile of CloudTag with the investment community. 

CloudTag launched the MyCloudTag mobile app in May 2014 on Apple's iOS App Store ("iOS") and a second version of MyCloudTag on both Google's Android Play Store and iOS in Q3 2014. CloudTag continues to monitor the user interaction and engagement with the app as we focus on developing the third version of MyCloudTag in collaboration with Preciousbluedot Ltd. to deliver a refined user experience targeted at the weight loss and fitness user. This version of the app will work with the CloudTag wearable device which the Company is developing and will have access to a library of premium training programmes, which is intended to increase revenues from this business stream. 

The team continues to progress the development of the wearable device - a small, light and discreet 24 hour flexible activity tracker that will provide clinical grade wireless ECG monitoring - to the production line field test models. In collaboration with our partners, CloudTag has a wealth of experience in creating global customer-facing and engaging technology products. Having recognised the challenges moving from the prototypes received at the end of last year to production line field test models, Amit has engaged additional in-house resources with the specific systems skill sets required to deliver these models, which we anticipate will be delivered in the coming months.

These production models will undergo stringent field trials to ensure the device performs as intended for the consumer prior to the commercial launch. Bringing more of the core technological know-how and expertise in-house enables CloudTag to more effectively control the unit costs, the timescale to mass manufacture and, react faster to the results from the field trials as we continue to develop new versions of the technology. We expect initial production runs in the second half of 2015 and orders for mass manufacture at that time.

CloudTag has focussed on refining its wearable device and the MyCloudTag app to target the weight loss market, being the mass consumer market. Furthermore, the arrival of the production line field test models will allow CloudTag to progress the on-going discussions for the sales of the device, following the main trends of sales channels for wearables; namely with major retailers and online e-commerce platforms, to enable CloudTag to secure confirmed orders as early as possible and ahead of mass manufacture. 

The management continues to monitor closely CloudTag's costs and evaluate its working capital requirements as we target the opportunities within our core target market. This set of financial results, which have come in under the forecasted budget, reflect the costs of completing the launch of the MyCloudTag App, developing CloudTag's first wearable technology products and investment in the infrastructure for the continued development and marketing of CloudTag's products and initial sales activities. 

Results

In the year to 30 September 2014, the Group recorded a loss before tax of £1,290,000 (30 September 2013: £2,840,000), and a loss after tax of £1,035,000 (30 September 2013: £2,840,000). This includes certain fees settled in shares pursuant to admission and non-recurring costs associated with product development. Share based payments (a non-cash item) amounted to a profit of £169,000, compared with a loss of £227,000 in the previous year. The profit in the year of £169,000 related to the reversal of the charge made in the previous year in respect of certain options where it was concluded that it was unlikely that the options would vest. Development costs increased to £629,000 from £580,000 and other administrative expenses were £830,000 in the period compared with £2,033,000 the previous year. The Directors do not recommend the payment of a dividend at this time.

Outlook

The prime motivation to listing on AIM was to have access to capital and to give shareholders the opportunity to invest in wearable technology. With the new management team, increased in-house technical expertise and a product targeted at the weight loss segment, I believe CloudTag is well positioned in a diversified market. We believe there will be exciting progressions in wearable technology globally throughout 2015 and we look forward to releasing our device to enhance and complement that market. 

Tony Reeves

Chairman

26 March 2015

STRATEGIC REPORT

Business review

Principal Activities, Aims and Objectives

To design, develop and sell unique wearable devices and software for the consumer health and wellbeing markets for global retail and distribution.

Key Performance Indicators

Given the early stage of the Company's development and its current scale of operations, the Board does not consider the use of particular financial or operational KPIs. The Board manages its cash flow on a week by week basis and measures the performance of its third party developers against contractual arrangements.

Business risks

There are a number of potential risks and uncertainties which could adversely impact the achievement of our corporate aims.

The Group faces risks frequently encountered by new companies. In particular, its future growth and prospects will depend on its ability to fund and manage growth and to continue to expand and improve operational, financial and management information and quality control systems on a timely basis, whilst at the same time maintaining effective cost controls.

In order to mitigate these risks the Company maintains regular dialogue with its core investors regarding the possibility of providing additional funding as and when required. The Company maintains systems commensurate with the current stage of the business and has plans to develop further appropriate systems when revenue streams commence.

Progress to Mass Manufacture & Commercial Launch

CloudTag continues to progress the wearable device to mass manufacture and commercial launch. There are a number of steps in the development and requisite approval process of the products to be completed before the products can be launched. The completion of these steps may take longer than the Directors currently anticipate and/or issues may arise during the process which may delay launch of the products. The products may need additional testing in order to be sold in certain markets. Whilst the Directors do not anticipate that this testing will be problematic, it may create a delay in launching the products in those regions and could incur additional costs.

The Company seeks appropriate legal advice regarding the processes and requirements and maintains dialogue with the technology partners to ensure milestones are set and met.

Reliance on third-party contractors

The Group has relied on certain third parties to program, manufacture, assemble and test its products and its failure to successfully manage relationships with these contractors could in turn damage CloudTag's relationships with customers, decrease anticipated sales and limit growth. The Company cannot guarantee that there will not be a prolonged disruption in the supply of the modules.

The Company maintains good relationships with developers through regular contact. It also reviews alternative supply arrangements to ensure that the Company has a second supplier should any issues arise.

To mitigate this risk CloudTag has brought more of the core technological know how and expertise in-house enabling the Company to manage more effectively the relationships with the technology partners and to complete much of the development in house.

Legal and contractual risks

CloudTag Active has entered into a number of significant contractual arrangements with third parties in connection with the products and the development of certain product applications. There is no guarantee that it will be able to enforce any or all its rights under such agreements or arrangements.

To mitigate this risk, in negotiating contracts the Company engages lawyers with suitable expertise to ensure contractual terms are valid, and secondly wherever possible contracts are written subject to English law and enforced by English courts.

Impact of negative press

The Company cannot guarantee that those parties that currently or will endorse its products have not conducted themselves in the past and will not conduct themselves in the future in such a way as to bring negative publicity upon the Company. Equally, the Company cannot guarantee that a major customer has not committed or will not commit an action that attracts negative publicity to the Company. There is the risk that either of the above situations, or any product failure, may be of a high profile nature.

The Company is careful to conduct due diligence and to vet its customers and contractors to ensure a high standard of conduct in order to mitigate this risk.

Product liability

The Group may become exposed to product liability risks arising from the use of its technology in consumer products which, if not adequately covered by insurance, may have a material adverse effect upon the Group's financial condition.

The Company seeks to ensure that its insurance cover is adequate for perceived material risks. Furthermore all of the Company's literature contains disclaimers and protections.

Competition/competing technology

The markets in which the Group expects to operate are competitive and fast moving and may become even more competitive. There can be no guarantee that the Group's competitors will not develop similar or superior technology or offer superior product applications or services to the Group's target markets which may render one or more of CloudTag's technologies or intellectual property rights obsolete and/or otherwise uncompetitive. Technologies used by the Group may have a shorter commercial life than anticipated, if any, due to the invention or development of more successful technology or applications by competitors who may have greater financial, marketing, operational and technological resources than the Group. In order to mitigate this risk, the Company examines market movements and customer driven developments to ensure it continues to utilise cutting edge technology.

Economic climate

The trading activities of the Group will, to a certain extent, be dependent on the economic environment. The current adverse economic environment may have a detrimental effect on trading activity.

The company initiated this project during one of the harshest economic climates in decades and was established on a basis designed to be resilient to adverse economic conditions.

Financial risk management objectives and policies

The Group's principal financial instruments comprise cash and cash equivalents. The Group has various other financial instruments such as trade receivables and trade payables, which arise directly from its operations.

The Group is exposed to a variety of financial risks which result from both its operating and investing activities. The Directors are responsible for co-ordinating the Group's risk management and focus on actively securing the Group's short to medium term cash flows.

The Group does not actively engage in the trading of financial assets and has no financial derivatives. The most significant risks to which the Group is exposed are described below:

Cash flow risks

The Group seeks to manage risks to ensure sufficient liquidity is available to meet foreseeable needs by investing cash assets safely and profitably. The Directors prepare rolling cash flow forecasts and seek to identify the need and raise additional funding whenever a shortfall in facilities is forecast. Further information on going concern is given below.

Currency risks

The Group does not seek to hedge its foreign exchange risk and the Directors consider that the exposure to movements in foreign currencies is not significant. At the time when the Directors consider that exposure to foreign exchange trading risks becomes significant they will seek to adopt appropriate hedging strategies and products.

Going concern

At 30 September 2014 the Group held cash balances of £25,000. Since the year end the Group has raised £850,000 from the issue of loan notes, and settled the amounts due to a creditor through an issue of a further £50,000 of loan notes. In aggregate, £900,000 of loan notes have been issued from a total authorised amount of £1,500,000. The Group has not earned any material revenue during the year ended 30 September 2014 or in the period subsequent to that date and the Company remains in a development phase. To this point, the operations of the business have been financed from funds raised through the issue of new ordinary shares and from the issue of loan notes as discussed above.

The Directors have considered the cash requirements of the business for the next 12 months. As part of this process, they have prepared detailed cashflow projections which assume that no revenue is generated by the Group. These projections contain an assumption that the Group will raise a further £300,000 through the issue of additional loan notes, from the remaining £600,000 of authorised loan notes. On this basis, the projections indicate that the Company will have sufficient cash resources to cover the period extending to at least 12 months from the date of approval of these financial statements. Although the projections used for this purpose assume no revenue is generated the Directors are confident that the Company will launch its first product during the forthcoming twelve months, with associated revenue generation. Although revenue generation is by no means certain, any such revenues generated would reduce the amount required to be raised through loan notes or possibly extinguish the need altogether.

Since the year end, trade creditors had been reduced from £672,000 to approximately £123,000 and accruals had been reduced from £187,000 to approximately £38,000 by 28 February 2015. Additionally the board is looking favourably on converting the £900,000 of Loan Notes detailed in note 17 into shares within the allowable time limit, which will have a positive impact on the Group's net current liability position.

Although the Directors are confident that they will be able to raise £300,000 through the issue of new loan notes if required, there is no certainty that they will be able to do so. The Company will be aided by its new sole broker should they need to raise these funds.

The projections prepared include unavoidable third party running costs of the Group and committed expenditure at the date of approving the financial statements.

On the basis of the assumptions above and following a detailed review by the Directors of the Group's cashflow requirements, the directors believe that the Group will have sufficient cash resources to meet its liabilities as they fall due for a period of at least 12 months from the date that the financial statements are signed. Consequently, the financial statements have been prepared on a going concern basis.

Future prospects

Based on the current estimated timetable, field trials of the CloudTag wearable device, a small, light and discreet 24 hour flexible activity tracker that will provide clinical grade wireless ECG monitoring, are to be completed in the next few months. Initial production runs are expected to start in the second half of this year and orders for mass manufacture at that time.

Amit Ben-Haim

On behalf of the board

26 March 2015

consolidated statement of COMPREHENSIVE INCOME

For the year ended 30 September 2014

All of the activities of the Group are classed as continuing.

consolidated statement of CHANGES IN EQUITY

For the year ended 30 September 2014

consolidated STATEMENT OF FINANCIAL POSITION

At 30 September 2014

The consolidated financial statements were approved by the Board on 26 March 2015.A Ben-HaimDirector

CONSOLIDATED cash flow STATEMENT

For the year ended 30 September 2014

notes

1. Basis of Preparation

The Company was incorporated in the Cayman Islands which do not prescribe the adoption of any particular accounting framework. The Board has therefore adopted and complied with International Financial Reporting Standards as adopted by the European Union (IFRS).

The Group's shares are listed on AIM, a market operated by the London Stock Exchange plc.

The principal accounting policies applied by the Group are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

The financial information set out in this preliminary announcement does not constitute statutory accounts. The consolidated statement of financial position at 30 September 2014, the consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and associated notes for the year then ended have been extracted from the Group's 2014 financial statements upon which the auditor's opinion is unqualified but contained a paragraph of emphasis of matter relating to going concern and the outcome of a law suit as set out in Note 4 below.

2. SEGMENTAL INFORMATION

An operating segment is a distinguishable component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group's chief operating decision maker to make decisions about the allocation of resources and an assessment of performance and about which discrete financial information is available.

The chief operating decision maker has defined that the Group's only operating segment during the period is the development of physiological technology. All of the corporate headquarter costs are allocated to this segment.

The Group has not generated any revenues from external customers during the period.

In respect of the non-current assets all (2013: all) arise in the UK.

3. LOSS PER SHARE

There are 4,549,998 share options as detailed in note 7. Their effect is anti-dilutive, but are potentially dilutive against future profits, although 4,049,998 of these options either lapsed or were cancelled since 30 September 2014.

Since the year end a further 11,463,336 shares have been issued whose impact is potentially dilutive, along with 10,700,000 new options as described in note 16. 6,250,000 warrants are also in issue as described in note 8 which are also potentially dilutive as are further options and warrants issued after 30 September 2014 as described in note 5.

4. EMPHASIS OF MATTER - GOING CONCERN AND UNCERTAIN OUTCOME OF LAWSUIT

The audit report set out in the Company's annual report includes an emphasis of matter statement, as set out below.

In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in note 1(b) to the financial statements concerning the Group's ability to continue as a going concern.

The Group incurred a net loss of £1,035,000 during the year ended 30 September 2014 and, at that date, the Group had net current liabilities of £616,000. Since that date the Company has raised £900,000 by way of the issue of new convertible loan notes that are repayable on 3 December 2015 if not converted into ordinary share capital by the loan note holders. The ability of the Group to continue trading is reliant on its ability to raise further funds to finance activities until such time that sales of its product commence. There can be no certainty that further funds can be raised or of the timing of sales of the Group's product commencing. These conditions, along with the other matters explained in note 1(b) to the financial statements, indicate the existence of a material uncertainty which may cast doubt about the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

We have also considered the adequacy of the disclosure made in note 10 to the financial statements concerning the uncertain outcome of a lawsuit against the Company's subsidiary company by a supplier, where the Company's subsidiary is the defendant.

Note 1 (b) to the financial statements is also reproduced in the Going Concern paragraph of the Strategic Report above.

Note 10 to the financial statements is reproduced below:

The Company's subsidiary company is currently involved in litigation with one of its suppliers, which is claiming €290,000 (£226,509) against the Company for services supplied. The directors have included €150,000 (£117,160) as a provision for this in the accounts which they consider to be prudent. There is therefore a contingent liability of €140,000 (£109,349).

The Company is rigorously defending this claim as it considers the services delivered were unsatisfactory and has entered a counter claim at least equal to the amount claimed.

There were no contingent liabilities at 30 September 2013.

5 POST BALANCE SHEET EVENTS

On 4 December 2014, the Company announced that it has entered into subscription agreements with certain investors in respect of the issue of, in aggregate, £800,000 unsecured loan notes due in 2015 ("Loan Notes") to such investors ("Fundraising"). Under the terms of the Fundraising, the Loan Notes are convertible into Ordinary Shares subject to the following terms:

(i) at the holder's option at a conversion price which is fixed at 3.75 pence of indebtedness per one Ordinary Share, representing an effective discount of 3.23% to the closing mid-market price of an Ordinary Share on 3 December 2014 (being 3.875 pence); or

(ii) at the Company's option at a conversion price which is fixed at 3.75 pence of indebtedness per 1.5 Ordinary Shares (equivalent to 2.5 pence of indebtedness per one Ordinary Share), representing an effective discount of 35.48% to the closing mid-market price of Ordinary Shares on 3 December 2014 (being 3.875 pence). 

 The Loan Notes carry nil interest for the first six months following issue and thereafter carry interest at a rate of 8% per annum beginning on the business day after the six-month anniversary of issue. The Loan Notes are unsecured, are not listed and are transferable.

In December 2014 a further £50,000 of loan notes were issued for cash and £50,000 were issued in settlement of a creditor from the remaining £700,000 of loan notes authorised, under the same terms as those above.

On 4 December 2014, the Company also announced that it has granted to Golden Bridge Services Limited conditional warrants to subscribe for up to 22,000,000 new Ordinary Shares at a subscription price of 4.25p per share ("Warrant Shares"). The conditions are either (i) the introduction by GBSL, within 150 days, of one or more investor(s) investing together not less than £500,000 in the Company, such new investment being on equal or better terms to the Company than the convertible Loan Note issue; or (ii) the introduction of a strategic partner; that means a strategic partner concluding a transaction, acquisition or collaboration with the Company, such party being a hardware, software or sports and fitness company which has mutual business interests with the Company's business operations and which brings either significant strategic advantages to the Company or which has a platform (being any, some or all of a website, app or e-commerce platform) with not less than 30 million unique users.

On 4 December 2014, the Company also announced that it has issued 1,250,000 Ordinary Shares (subject to admission to trading on AIM) at an issue price of 3.75 pence per share to a third party creditor in settlement of fees owed to it in respect of its services to the Company.

On 17 December 2014, the Company announced that it has issued 3,546,669 new ordinary shares in settlement of, in aggregate, £133,000 of fees due to directors and a third party creditor at an issue price of 3.75 pence per share ("Fee Shares").

On 23 December 2014 the Company announced that it has issued 6,666,667 new ordinary shares in the Company to Amit Ben-Haim by way of capitalisation of fees and commissions owing to him at an issue price of 3.75 pence per share.

On 12 January 2015, the Company announced that it has granted a total of 10,700,000 options and warrants over new ordinary shares to certain Directors and employees, as follows:

* The exercise prices of all options and warrants are apportioned equally, such that 25% of each award is exercisable at each of the stated prices

On 10 February 2015 Andrew Jackson resigned as a director, and under the terms of his termination agreement the following amounts were payable:

£41,302.68 shall be paid in lieu of notice pay, payment of the same shall be made in two parts as follows:

- £30,977.01 shall be payable on the Termination Date; and

- £10,325.67 shall be payable three months following the Termination Date (or the nearest working day thereafter).

£5,363.98 shall be paid on the Termination Date in consideration of accrued 10 days' untaken holiday; and

£10,000 shall be paid one month after the Termination Date, in respect of accrued pension entitlement

6. PUBLICATION OF ANNUAL REPORT AND NOTICE OF AGM

The accounts for the year ended 30 September 2014 will be posted to shareholders shortly and laid before the Company at the Annual General Meeting which will be held on 6 May 2015 at 2.30 p.m. at the offices of Collas Crill, 40 Don Street, St Helier, Jersey, JE1 4XD. Copies will also be available on the Company's website (www.cloudtag.com) in accordance with AIM Rule 26.