CloudTag Inc (LON:CTAG) has received a provisional purchase order from its European distributor, Second Chance (SC), for its first product, the Cloudtag Track.
The order is subject to a manufacturing and delivery date being agreed and is worth £880,000. If consummated, the order would represent around one-fifth of the £4.2mln (US$5.2mln) of orders SC has committed to placing with CloudTag for 2016.
The wearable well-being monitoring devices maker acknowledged that, with less than two months of the year left, SC is unlikely to actually place £4.2mln of orders this year, but Cloudtag is optimistic that the indicative order, at least, will be finalised this year.
The delay in SC placing purchase orders is partly attributable to the decision by CloudTag to move its manufacturing capabilities to a larger scale manufacturer, as announced on 12 September 2016.
In the meantime, the company is to raise up to £4.05mln through the issue of 12-month senior unsecured zero coupon convertible notes to an institutional investor.
The notes will be issued at a 10% discount to their nominal value, which is a bit like borrowing 90p on the understanding you will pay back a pound.
Cloudtag said should the notes be converted into shares, it would also issue the investor one warrant along with each conversion share.
The notes will be issued in two tranches. The first tranche, with a nominal (or repayment) value of £2.5mln, is expected to be issued tomorrow, raising £2.25mln before expenses, and £2.08mln after expenses.
The issue of the proposed second tranche of £2.0mln of notes is conditional upon shareholders waiving pre-emption rights; pre-emption rights exist to enable shareholders to participate in large share issues so as to maintain their percentage holdings in a company’s share capital.
With the finance in place, the company said it is of a mind to ask SC to extend the terms of the agreement in order to accept orders placed by SC in 2017 against the balance of SC's order commitments for the third and fourth quarters of 2016.
CloudTag continues to actively pursue its stated strategy of obtaining further product orders by the end of 2016 as outlined in announcements previously made although the board emphasises that additional purchase orders may not be forthcoming.
News of the delay in orders hit the company’s shares hard. The shares were 4.18p lower at 9.69p in early deals.