Rewardle Details $14M Convertible Notes and $1.8M Restatement Impact
Rewardle Holdings addresses ASX queries on its CloudHolter investment, convertible note funding, and financial restatements, while outlining its going concern status despite operational losses.
- CloudHolter’s Tier 2 financial disclosures deemed appropriate despite IPO plans
- Convertible notes raise $14 million with potential dilution to Rewardle’s 49.9% stake
- Restatement of CloudHolter’s FY24 accounts due to $1.8 million consulting expense error
- Rewardle maintains going concern status amid net liabilities and operating losses
- CloudHolter is a material but not critical customer, with revenue concentration risk acknowledged
Background on CloudHolter Reporting and IPO Prospects
Rewardle Holdings Limited (ASX – RXH) has responded comprehensively to ASX’s Aware Letter concerning its investment in CloudHolter Pty Ltd. Central to the discussion is CloudHolter’s use of Tier 2 financial disclosures, which RXH defends as appropriate despite CloudHolter’s stated intent to pursue an IPO by the end of 2025. RXH notes that Tier 2 disclosures, while less detailed than Tier 1, maintain the same recognition and measurement standards, providing sufficient transparency for equity accounting purposes.
RXH also clarifies that CloudHolter has not yet commenced substantive IPO preparations beyond signing a lead manager mandate, and does not expect an IPO by 31 December 2025. The lead manager mandate lacks underwriting and does not obligate RXH to participate or fund the IPO, underscoring the tentative nature of the process.
Convertible Notes and Dilution Scenarios
CloudHolter has raised approximately $14 million through convertible notes issued in multiple tranches, with 58 note holders involved. RXH details that if all convertible notes convert by mid-2026, its ownership stake would dilute from 49.9% to roughly 37%. Similar dilution levels apply under hypothetical trade sale or IPO scenarios valued at $100 million. Notably, none of the convertible note holders have board representation rights, and there are no restrictions on the use of funds or payments to RXH from these proceeds.
Financial Restatements and Internal Controls
CloudHolter’s FY24 financial statements were restated to correct a $1.811 million understatement of consulting expenses caused by a system calculation error involving placeholder values in tax invoice formulas. RXH expresses confidence in CloudHolter’s strengthened controls following this issue, highlighted by recent appointments of experienced executives. The restatement led to a non-cash equity accounting adjustment for RXH but did not affect cash flows or operational capacity.
Revenue Concentration and Going Concern Considerations
RXH acknowledges that over 80% of its FY25 revenue derives from CloudHolter, representing significant customer concentration risk. However, RXH maintains that CloudHolter is not critical to its ongoing viability, citing diversified revenue streams and a substantial equity investment in CloudHolter that supports participation in its growth irrespective of operational dependencies.
Despite reporting a net operating loss of $7 million and net current liabilities exceeding $8 million, RXH’s FY25 Annual Report includes a going concern disclosure supported by positive operating cash flows, available undrawn loan facilities, and potential capital raising options. RXH has also secured a $2 million working capital facility and is negotiating a payment plan with the Australian Taxation Office to manage accrued tax liabilities.
Compliance and Disclosure Transparency
RXH confirms compliance with ASX Listing Rules and continuous disclosure obligations, explaining delays in releasing CloudHolter’s audited FY25 accounts were due to coordination challenges now being addressed through formal information sharing agreements. The company also clarifies that certain disclosures previously marked as price sensitive were done so in error and that all material information has been appropriately disclosed.
Overall, RXH’s detailed responses aim to reassure investors and regulators of its governance standards, financial transparency, and strategic positioning amid the complexities of its investment in CloudHolter and other operational challenges.
Bottom Line?
Rewardle’s next steps hinge on CloudHolter’s IPO progress and convertible note conversions, which will shape its ownership and financial outlook.
Questions in the middle?
- Will CloudHolter meet its IPO target by the end of 2025 or delay further?
- How will convertible note conversions impact Rewardle’s control and valuation?
- Can RXH effectively diversify revenue to mitigate CloudHolter concentration risk?