Roosevelt Capital Group Inc. and Cloud DX Inc. Announce Further Details on Proposed Qualifying Transaction, Including Amended Letter of Intent and Concurrent Brokered Private Placement
Calgary, Alberta--(Newsfile Corp. - October 16, 2020) - Roosevelt Capital Group Inc. (TSXV: ROSV.P) (the "Corporation") a capital pool company as defined under Policy 2.4 - Capital Pool Companies ("CPC") of the TSX Venture Exchange (the "Exchange"), is pleased to announce further details concerning its proposed arm's length qualifying transaction (the "Transaction") involving a proposed business combination with Cloud DX Inc. ("Cloud"), as previously announced on May 1, 2020, including further information about Cloud, an amended letter of intent and updated terms of the Transaction, and a proposed concurrent brokered private placement.
Cloud is a digital healthcare provider with offices in Canada and the United States. Cloud offers a remote patient monitoring platform known as "Connected Health" that includes proprietary medical devices approved by Health Canada and the Food and Drug Administration (the "FDA") in the United States, mobile apps, clinical dashboard, telemedicine video & text, and electronic medical record (EMR) integration. Cloud's Connected Health platform is used by North American hospitals and clinics to monitor patients after discharge (including COVID-19+ patients) and to remotely care for those with chronic illnesses.
Cloud was founded in September 2014 by Robert Kaul (President & CEO), Anthony Kaul (COO), Dr. Sonny Kohli (CMO) and Larry Steinberg (former EVP Business Development). Cloud's head office is located at 20 Jay Street, Brooklyn, New York.
Shortly after its founding, Cloud's wholly-owned Canadian subsidiary, Cloud Diagnostics Canada ULC acquired certain medical device and medical software assets from Biosign Technologies Inc., including all intellectual property, physical assets, intangible assets, inventory, and goodwill surrounding the Pulsewave PAD-1A blood pressure platform.
Between 2015 and 2017, Cloud conducted extensive research and development activities to create commercial products, starting with the Connected Health platform, a remote patient monitoring system including the Pulsewave blood pressure monitor, wireless devices (oximeter, thermometer, weight scale), mobile apps and an online clinician dashboard that doctors use to monitor patients. In September 2014, Cloud was a named a global finalist in the Qualcomm Tricorder XPRIZE competition and in 2017 earned the XPRIZE Bold Epic Innovator Award as one of the three winners of that prestigious competition with the Vitaliti "Tricorder" platform.
In 2018, Cloud began sales of Connected Health in the United States and Canada. During this period, Cloud also invested in the commercialization of three products that were developed as part of the XPRIZE-winning "Tricorder": the Vitaliti™ wearable continuous vital sign monitor, the Cloud DX Cough Analysis software application and the Cloud medication detection & efficacy software platform. Cloud has obtained seven patents in Canada and the United States covering these inventions.
Cloud is certified under ISO 13485 for medical device quality management, has a Health Canada Medical Device Establishment License (MDEL) and is registered with the FDA. Cloud's products, where necessary, are licensed by Health Canada and are cleared for sale in the USA by the FDA. Cloud's technology center in Kitchener, Ontario employs 32 full-time employees and retains 5 additional full-time employees and contractors based remotely in BC, Nova Scotia and Ontario. In the United States, Cloud currently employs 4 full-time employees and 1 contractor in sales, logistics and customer service.
Today, Cloud sells Connected Health products and services to hospitals, provincial/territorial health departments and healthcare providers across Canada and the United States. Between April and September 2020, Cloud was awarded approximately C$3.3 million in direct funding and approximately C$3.5 million in related funding to partner institutions for a total of C$6.8 million in project contracts. These project-related awards include C$213,000 from the Industrial Assistance Research Program (IRAP) and C$17,500 from the U.S. Small Business Administration (SBA) to Cloud in direct support for payrolls; C$100,000 from Roche Diagnostics, awarded to Cloud and Hamilton Health Sciences for the PVC-RAM1 study; C$880,000 in support from an anonymous foundation & STAR Air Ambulance to Cloud and the University of Calgary for the Intelligent Systems Monitoring project; C$1.75 million from the NextGen Manufacturing Supercluster to Cloud for the Pulsewave® 2.0 transition to manufacturing project; C$355,000 in direct funding to Cloud and approximately C$1M in related co-investment from the Digital Technology Supercluster for the "Stronger Together" community mobile app project with partner Curatio Inc.; C$673,000 from the Canadian Institute for Health Research (CIHR) to McMaster University for the VISION-2 Study; C$100,000 from the Ontario Centers of Excellence (OCE) to Sheridan College Center for Mobile Innovation and C$300,000 from Innovation Solutions Canada to Cloud for the Low Cost Sensor continuous vital sign monitoring project. Cloud is utilizing these funds to fast-track commercial launch of its Pulsewave® 2.0 blood pressure & respiration monitor and its Vitaliti™ continuous vital sign monitor, alongside improvements to their award-winning Connected Health Platform, in an effort to provide enhanced tools for clinicians who are managing the coronavirus pandemic.
Summary Financial Information of Cloud
Based on the audited financial statements of Cloud for the years ended December 31, 2019 and 2018, in 2019 Cloud had revenue of approximately C$1.3 million (2018: C$0.24 million), gross profit of approximately C$1.0 million (2018: C$0.12 million), and an operating loss of approximately C$4.6 million (2018: C$6.76 million), and as at December 31, 2019, Cloud had total assets of approximately C$2.0 million (2018: C$2.0 million) and total liabilities of approximately C$3.8 million (2018: C$2.0 million). The presentation currency in Cloud's financial statements is USD and the above figures use a CAD/USD exchange rate of $1.32.
Amended Letter of Intent and Updated Transaction Terms
Amended Letter of Intent
The Corporation and Cloud entered into an amending agreement dated October 15, 2020 to amend the non-binding letter of intent dated April 30, 2020 (as amended, the "LOI"), which provides for a proposed transaction structure and an updated share exchange ratio.
It is currently anticipated that the Transaction will be completed by way of a court-approved plan of arrangement (the "Arrangement") pursuant to the Canada Business Corporations Act. In connection with the Transaction, Cloud will incorporate a new company under the Canada Business Corporations Act ("Cloud Canada") for the purpose of participating in the Transaction. Following completion of the Transaction, the Corporation will be renamed "Cloud DX Inc." ("New Cloud" or the "Resulting Issuer").
Pursuant to the Arrangement:
- Cloud Canada will purchase all of the issued and outstanding shares in the common stock of Cloud ("Cloud Shares") in exchange for shares of Cloud Canada ("Cloud Canada Shares") on a one for one (1:1) basis, following which Cloud will be a wholly-owned subsidiary of Cloud Canada and all of the current shareholders of Cloud will become shareholders of Cloud Canada on a proportionate ownership basis;
- Cloud Canada, the Corporation, and a newly formed Canadian subsidiary of the Corporation ("Amalco") will complete a three-cornered amalgamation, pursuant to which Amalco and Cloud Canada will amalgamate and exist as a wholly-owned subsidiary of the Corporation, and each issued and outstanding Cloud Canada Share will be exchanged for common shares of New Cloud ("New Cloud Shares") on a 1 for 164.8 basis ("Exchange Ratio").
The Arrangement will be subject to various closing conditions, including receipt of court approval and Cloud Canada shareholder approval.
Updated Transaction Terms
As of September 30, 2020, Cloud has issued and outstanding 1,962,509 Cloud Shares and 255,850 stock options ("Cloud Options") with exercise prices ranging from US$20.00 to US$33.00.
As of September 30, 2020, Cloud also has outstanding convertible notes ("Cloud Notes") in the aggregate principal amount of approximately US$2.6 million (approximately C$3.4 million), entitling the holders thereof to acquire approximately 200,000 Cloud Shares based on a 20% discount to the deemed price of C$21.42 per Cloud Share (based on a CAD/USD exchange rate of $1.32 and before taking into account any Cloud Shares to be issued in respect of interest accrued to the date of conversion).
In connection with the proposed Transaction:
- each Cloud Note shall be converted pursuant to its terms into Cloud Shares, and will then participate in the Arrangement on the same basis as the other holders of Cloud Shares; and
- each issued and outstanding Cloud Option shall be cancelled for nominal consideration.
It is anticipated that in connection with the Transaction, the Corporation will issue approximately 356 million New Cloud Shares to the former holders of Cloud Shares, including the former holders of Cloud Notes outstanding as of September 30, 2020 (based on a CAD/USD exchange rate of $1.32 and before taking into account any Cloud Shares to be issued in respect of interest accrued on the Cloud Notes to the date of conversion, any securities issued in connection with the Brokered Private Placement or subsequent closings of the Note Private Placement (further details below)).
New Cloud - Share Capitalization and Funds Available
Upon completion of the Transaction and assuming the Brokered Private Placement is completed for aggregate gross proceeds of C$7,500,000 and the Note Private Placement is completed for additional aggregate proceeds of C$1,560,000, it is anticipated that there will be an aggregate of 446 million New Cloud Shares issued and outstanding (based on a CAD/USD exchange rate of $1.32 and before taking into account any Cloud Shares to be issued in respect of interest accrued on the Cloud Notes to the date of conversion). In connection with the completion of the Transaction, Roosevelt will complete a share consolidation on a basis to be determined and disclosed in a subsequent press release.
The Corporation also announces that Roosevelt and Cloud have determined not to proceed with the previously announced secured loan in the amount of C$250,000.
The funds to be available to the Resulting Issuer upon the closing of the Transaction are expected to be a minimum of approximately C$9 million (assuming the Brokered Private Placement is completed for aggregate gross proceeds of C$7,500,000 and assuming no additional proceeds are raised under the Note Private Placement), less costs of the Transaction and the Brokered Private Placement. These funds are anticipated to be used towards expansion of U.S. sales and marketing, scale up of Canadian operations and the various transaction costs required to complete the Transaction.
Brokered Private Placement
In connection with the Transaction, Cloud plans to close a brokered private placement for minimum gross proceeds of C$7.5 million (the "Brokered Private Placement"). It is currently anticipated that the Brokered Private Placement will be structured as a private placement of subscription receipts of Cloud or an affiliate of Cloud.
A further news release will be issued confirming the final terms of the Brokered Private Placement once determined.
Note Private Placement
From March to September 2020, Cloud completed a portion of the previously announced non-brokered private placement offering raising aggregate gross proceeds of US$1.75 million (the "Note Private Placement" and together with the Brokered Private Placement, the "Private Placements") in the form of convertible secured promissory notes (the "Notes"), which mature eighteen (18) months from the date of issuance. Holders of Notes earn 10% per annum interest accrued and paid at maturity or conversion.
Cloud may raise up to an additional US$1,200,000 (approximately C$1,560,000) in gross proceeds in one or more closings under the Note Private Placement on the same terms. The final closing of the Note Private Placement is expected to occur on or before October 30, 2020.
In connection with the Transaction, the principal amount of the Notes issued under the Note Private Placement, plus the interest accrued thereon, shall automatically convert into Cloud Shares at a 20% discount to the deemed transaction price of $21.42 per Cloud Share, which results in a conversion price of $17.14 (or approximately US$12.98 using a CAD/USD exchange rate of $1.32). The former holders of Notes shall then participate in the Transaction on the same basis as the other holders of Cloud Shares.
In connection with the Note Private Placement, Cloud may pay finder's fees to arm's length third parties in cash or in securities of Cloud or New Cloud.
Upon completion of the Private Placements and the Transaction, it is expected that Robert Kaul, Chief Executive Officer and a director of Cloud, who currently holds approximately 16% of the issued and outstanding Cloud Shares, and Brad Miller, a director of Cloud, who currently holds, indirectly, through his ownership in B&M Miller Equity Holdings Inc., approximately 16% of the issued and outstanding Cloud Shares, are expected to hold 10% or more of the voting rights attached to the New Cloud Shares.
Under the policies of the Exchange, the parties to the Transaction will be required to engage a sponsor for the Transaction unless an exemption or waiver from this requirement can be obtained. Roosevelt expects that the Transaction will be exempt from the sponsorship requirement of the Exchange as a result of the Brokered Private Placement to be completed in connection with the Transaction. There is no assurance that an exemption or waiver from this requirement can or will be obtained.
Immediately following the completion of the Transaction, the Resulting Issuer is expected to change its name to "Cloud DX Inc.", and the Resulting Issuer will be an Industrial/Technology/Life Sciences issuer under the policies of the Exchange.
Proposed Management and Board of Directors of Resulting Issuer
Concurrent with the completion of the Transaction, it is expected that all directors and officers of Roosevelt will resign and the directors and officers of New Cloud will be as follows:
Robert Kaul. Chief Executive Officer, President, and Chair of the Board
Mr. Kaul founded Cloud in 2014 and has nearly 30 years of experience in sales, marketing and operations leadership. Mr. Kaul previously founded Cloud Diagnostics LLC in 2009 and served as Executive VP, and later CEO at Biosign Technologies Inc. ("Biosign") following the sale of Cloud Diagnostics LLC to Biosign in 2010. Mr. Kaul holds a Bachelor of Science from the University of Alberta and an Executive Certificate in Operations Strategy from Sloan School of Management at MIT.
Sonny Kohli, MD. Chief Medical Officer and Director
Dr. Kohli co-founded Cloud in 2014 and is an attending physician in Halton, Ontario. Dr. Kohli also served as Chief Medical Officer of Biosign Technologies Inc. and as the President of Aviva Medical Diagnostics. He is a former Canadian Astronaut Candidate, and a graduate of the International Space University in Illkirch-Graffenstaden, France. Dr. Kohli holds a Bachelor of Science from the University of Calgary and earned his Doctor of Medicine (MD) from Western University.
Michele Middlemore, CPA, CA, CFA, CBV. Director
Ms. Middlemore is founder and Managing Director of MC2 Business Advisors Inc. and brings over 25 years of experience in mergers & acquisitions and corporate finance, having advised public and private companies in a variety of industries, including manufacturing, healthcare, consumer packaged goods, retail, technology, and professional services. She was previously, a partner with MNP LLP, an advisor with PricewaterhouseCoopers LLP in Canada and the United Kingdom and a sessional lecturer at the University of Toronto Rotman School of Management. Ms. Middlemore obtained an Honours Bachelor of Commerce from the University of Windsor, is a Chartered Professional Accountant, Chartered Financial Analyst and Chartered Business Valuator.
Brad Miller. Director
Mr. Miller graduated from BCIT with an honours diploma in Mechanical Technology in 1986. He purchased his first manufacturing business, Advanced Bending Technologies three years later, at the age of 25 and went on to purchase IMW Industries which he built into a globally successful exporter with subsidiaries in five countries around the world, over $100 million in revenue and 700 employees. After selling IMW in 2009, he continued to invest in the manufacturing space in Canada and the US and currently owns seven companies specialized in marine and industrial manufacturing with a focus on clean tech manufacturing. Additionally, Mr. Miller is a significant investor in several tech start-ups in the food processing and medical device sectors. Mr. Miller is active as a director on the boards of two foundations, three not-for-profits and one NGO with a focus on education and health in Canada and Uganda.
Constantine Zachos, MD. Director
Dr. Constantine (Gus) Zachos (MD, DCAPM, ABAARM) has been actively practicing clinical medicine for almost 30 years. He is a diplomat with the Canadian Academy of Pain Management and Board Certified with the American Board of Anti-Aging and Regenerative Medicine. He has special interests in addiction medicine and in the study of the aging process from a hormone and nutritional perspective as well as extensive experience in emergency and ambulatory medicine, particularly as it relates to clinic development. Dr. Zachos has developed extensive entrepreneurial experience in land development and in startup investment, particularly in the MedTech space as it relates to the future of healthcare both in Canada and abroad.
Stephanie Bird, CPA, CA. Chief Financial Officer and Corporate Secretary
Ms. Bird has 28 years of experience in finance and has served in both senior financial and operations leadership roles. Most recently, she was Sr. Vice President of Operations for Kognitiv Corporation; previous to that she was Vice President of Finance for tour operator G Adventures. Her professional experience includes building in-house Risk Management and Internal Audit from the ground up as the CRO for a large publicly traded energy retailer. Ms. Bird earned a BBA degree from York University Schulich School of Business and completed an Executive Development Program at the Kellogg School of Management. She became a Chartered Accountant in 1995.
Anthony Kaul. Chief Operating Officer
Mr. Kaul co-founded Cloud in 2014 and, prior to Cloud, is the founder and Chief Executive Officer of executive recruiting & HR consultancy HigherBracket.ca. Before that, he served in an escalating series of sales management roles at recruiting firm HCareers, an example of his 25+ years of experience in executive leadership, business development, human resources and operations management roles. Mr. Kaul earned a Bachelor of Commerce from the University of Alberta.
Arm's Length Transaction
The Transaction is not a Non-Arm's Length Qualifying Transaction in accordance with the policies of the Exchange.
In connection with the closing of the Transaction, a finder's fee of equal to the value of 1.0% of the Transaction will be payable in cash or stock of the Resulting Issuer at a price equal to the deemed price per share to 2478061 Ontario Inc., an arm's length party, excluding any funds raised in the Private Placements or any additional concurrent private placement.
In connection with the Transaction and pursuant to Exchange requirements, Roosevelt will file a filing statement on SEDAR (www.sedar.com), which will contain details regarding the Transaction, the business combination, the Private Placements, Roosevelt, Cloud and the Resulting Issuer.
It is intended that the Transaction, when completed, will constitute the Corporation's "Qualifying Transaction" in accordance with Policy 2.4 of the Exchange. A further news release will be issued by the Corporation disclosing details of the Transaction, including financial information respecting Cloud, once an agreement has been finalized and certain conditions have been met, including, but not limited to:
approval of the Transaction by the boards of directors of the Corporation and Cloud;
satisfactory completion of due diligence;
receipt of all required court and shareholder approvals;
closing of the Brokered Private Placement; and
execution of the definitive agreement.
Approval of the Roosevelt shareholders is not required with respect to the Transaction under the rules of the Exchange. In the event any of the conditions set forth above are not completed or the Transaction does not proceed, the Corporation will notify shareholders. Trading in the common shares of the Corporation will remain halted and is not expected to resume trading until the Transaction is completed or until the Exchange receives the requisite documentation to resume trading.
This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction.
ABOUT THE CORPORATION
The Corporation is a capital pool company (a "CPC") that has not commenced commercial operations and has no assets other than cash. Except as specifically contemplated in the Exchange's CPC Policy, until the completion of its qualifying transaction, the Corporation will not carry on business, other than the identification and evaluation of businesses or assets with a view to completing a proposed qualifying transaction.
For further information, please contact:
Chief Financial Officer
Roosevelt Capital Group Inc.
Telephone: + 1 (905) 567-3431
Chief Executive Officer
Cloud DX, Inc.
ANY SECURITIES REFERRED TO HEREIN WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "1933 ACT") AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO A U.S. PERSON IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. The Exchange has in no way passed upon the merits of the Transaction and has neither approved nor disapproved the content of this press release.
The information contained or referred to in this press release relating to Cloud has been furnished by Cloud. Although Roosevelt has no knowledge that would indicate that any statement contained herein concerning Cloud is untrue or incomplete, neither Roosevelt nor any of its respective directors or officers assumes any responsibility for the accuracy or completeness of such information.
Completion of the Transaction is subject to a number of conditions, including but not limited to, execution of a binding definitive agreement relating to the Transaction, completion of satisfactory due diligence, Exchange acceptance, receipt of requisite regulatory approvals, and if applicable pursuant to Exchange requirements, majority of the minority shareholder approval. Where applicable, the Transaction cannot close until the required court and shareholder approvals, and any ancillary matters thereto, are obtained. There can be no assurance that the Transaction will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the Transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.
This forward-looking information in respect of Roosevelt and Cloud reflects Roosevelt's or Cloud's, as the case may be, current beliefs and is based on information currently available to Roosevelt and Cloud, respectively, and on assumptions Roosevelt or Cloud, as the case may be, believes are reasonable. These assumptions include, but are not limited to, management's assumptions about the Exchange or other required approvals for the Transaction, closing of the Private Placements, closing of the business combination announced above, funds available and use of available funds after closing, and Cloud's assumptions regarding its business objectives.
Forward-Looking Information Cautionary Statement
This release includes forward-looking statements regarding Roosevelt, Cloud, and their respective businesses, which may include, but is not limited to, statements with respect to the completion of the Transaction, the terms and timing on which the Transaction and the Brokered Private Placement are intended to be completed, the use of the net proceeds from the Private Placements, the ability to obtain regulatory, court and shareholder approvals, the proposed business plan of the Resulting Issuer and other factors. Forward-looking statements can be identified by the use of words such as "plans", "is expected", "expects", "scheduled", "intends", "contemplates", "anticipates", "believes", "proposes", "estimates" or variations of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Such statements are based on the current expectations of the management of each entity. The forward-looking events and circumstances discussed in this release, including completion of the Transaction, may not occur by certain specified dates or at all and could differ materially as a result of known and unknown risk factors and uncertainties affecting the companies, including the risk that Cloud and Roosevelt may not obtain all requisite approvals for the Transaction, including the approval of the Exchange for the Transaction (which may be conditional upon amendments to the terms of the Transaction), failure to obtain regulatory, court or shareholder approvals, economic factors, any estimated amounts, timing of the Brokered Private Placement, the principal uses of funds, the equity markets generally and risks associated with growth and competition. Although Roosevelt and Cloud have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. No forward-looking statement can be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Roosevelt and Cloud undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.
1 Post discharge after surgery Virtual Care with Remote Automated Monitoring, a clinical study of 900+ post-surgical patients at 7 hospitals across Canada.
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