By Nigel Somerville, the Deputy Sheriff of AIM | Thursday 10 November 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Talk about a good day to bury bad news: every media commentator is trying to come to terms with the election of Donald Trump (with the notable exception of our own Tom Winnifrith, who is off to get his new Poll Sheriff’s badge) and so at 3.41pm yesterday AIM-listed Milestone Group (MSG) slipped out a “miscellaneous” RNS. It may have won two big contracts recently but in terms of this RNS, there was nothing miscellaneous about it: this company is in serious trouble.
It announced a Placing on 20 October; the shares were admitted to trading on 31 October but only yesterday did the company bother to ‘fess up that most of the cash never arrived. Quite apart from that being a monumental scandal in its own right (and, as we shall see, the company has previous “form”), it raises questions over the solvency of the company. And for good measure, why did the company’s shares start to crater shortly before midday, hours before the RNS was released?
Wind the clock back to 20 October and we were treated to an “issue of equity” RNS:
Milestone (AIM:MSG), the AIM quoted provider of digital media and technology solutions, announces that it has agreed to issue 92,333,332 new ordinary shares of 0.1 pence per share in the Company, subject to admission to AIM, raising £1.385 million before expenses, at a price of 1.5 pence per share (the "Placing"). The proceeds of the Placing will be used for marketing of the newly launched Alchemy e-media platform, recruiting key staff, and additional development of the Passion Project platform.
Yesterday we were told that:
The Company announced on 20 October 2016 that it had placed 92,333,332 new ordinary shares at a price of 1.5 pence per share, raising in total £1,385,000 of gross proceeds.
As at 20 October 2016 the Company's broker had received irrevocable undertakings to provide the Company with £1,385,000 of funds subject to the new ordinary shares being admitted to trading on AIM. The 92,333,332 shares were admitted to trading on AIM on 31 October 2016.
The Company's broker is in receipt of £135,000 of the placing funds.
The balance of £1,250,000 remains outstanding. The balance of the funds receivable is outstanding from an FCA regulated entity (the "Counterparty") that had been sourced directly by the Company.
The Company's broker has terminated its relationship with the Company's sourced Counterparty.
The Company has been in active communication with the Counterparty to seek a resolution to this matter, however the Company has to date been unable to resolve it.
The Company currently has limited working capital resources and is carefully managing its existing cash balance. The Company is in active discussions with alternative sources of financing and a further announcement in relation to this matter will be made in due course.
There is no guarantee that further funding will be available to the Company.
So let’s get this right: the company does a placing on 20 October and has irrevocable undertakings which total £1.385 million of cash in the bag. The shares are admitted to AIM on 31 October – eleven days on - and we are now told, more than another week later, that £1.25 million hasn’t turned up.
That is surely a blatant breach of AIM Rules in that a major funding round has not raised money which the market has been told is in the bag. For a company with a £5.8 million market capitalisation (following a 42% drop yesterday), £1.25 million going missing is a material amount. The company has clearly been sitting on the non-arrival of these funds for a long time, and the release to the market of the non-arrival “without delay” clearly has not happened. Indeed, any investors who were buying shares from 31 October until late afternoon yesterday will have been buying those shares on a false prospectus. I put it to you that the delay is market abuse.
But it gets worse, for in its interims to 31 Mar 2016, released on deadline day of 30 June 2016, the company posted a loss of £742,857 on revenues of just £50,408 (the lion’s share of the loss coming from Administrative Expenses of £780,356!) and, critically, net current assets sat at MINUS more than two million quid.
In those interims the company said it had pulled in another £540,500 in post-period placings. Well that’s all jolly good news – only £1.5 million to go, then. But the numbers there don’t stack up.
On 30 March 2016 (ie one day before period end) the company announced that it had issued 54,950,000 shares to take the total number of bits of confetti in issue up to 680,113,582. The next issue of equity RNS was released on 3 August (so a month and 3 days after the interims which stated that the company had raised a further £540,500 post period) which told us that that it had agreed to issue a further 54,855,000 shares to take the total to 734,968,582 shares. That, of course, means that there was no issue of shares at all between 2016 H1 period end and the release of the interims. Yet in those interims, under “Funding” in the CEO statement we are told:
During the period, the Company raised £293,600 cash with a further £540,500 cash raised after the period end
And in the Going Concern statement we are told:
During the period the Group has raised funds of £293,600 through the placing of shares. Since the period end further funds of £540,500 have also been raised through further share placements.
But the corresponding issue of equity RNS did not come for a further month and three days. I put it to you that either those statements in the interims were untrue (because the cash had, at that time, not been raised) or that the issue of equity RNS on 3 August was more than a month late. I would suggest that we can’t believe a word this company says – especially in the light of yesterday’s RNS.
How did the company get those statements past the Nomad, Cairn, and then re-announce the same fundraising over a month later – and get that RNS past the Nomad too without an eyebrow being raised? With that, and now this latest scandal, I put it to you that Cairn needs to consider its position as Nomad on grounds of integrity.
Or does Cairn operate a three strikes and you’re out policy?
Since that 3 Aug 2016 RNS which announced the raising of funds the company had stated it had already raised more than a month earlier, we have had further fundraisings, settlement of fees in shares and accrued director fees being settled in options which will have improved the balance sheet (before expenses) by about £1.45 million (including the little bit of loose change which did turn up from the October 20 placing).
That means that the company has brought in £1.99 million since H1 period end - still not enough to wipe out the negative net current assets position as at H1 period end, and there will be a spot of Broker commission to knock off too.
Then there is operational cash-burn – we are, after all, about seven and a half months on from H1 period end. The H1 cashflow statement shows a net loss before working capital movements of £672,690 – call that about £112,000 a month, which suggests that the company is going to be underwater right now to the tune of around £840,000.
How about that for a third strike, Cairn? I suggest that the market needs clarification of the company’s financial position, and that the shares should be suspended in the meantime.
The company announced that the unpaid-for placing stock would be admitted to trading on 31 October and nine days later we are told that £1.25 million never arrived. That, in my book, is market abuse: investors would have assumed that the company had sorted out its balance sheet issues from that placing and would have been buying the stock on the basis of an exciting growth company with a solvent-looking balance sheet. To have waited all that time and slipped the announcement out under a “miscellaneous” headline when everyone is in a lather about the election of Trump is appalling behaviour.
I fancy that CEO Deborah White should be having an uncomfortable chat with the FCA in a bare-brick room with a bare light-bulb about that delay in relation to the Market Abuse Directive.
Now we find that the company has not raised the cash (on top of the cash that had been raised post-period as announced in the interims, but was then raised over a month later) and could well be facing solvency issues – something highlighted in its last FY numbers with an Emphasis of Matter raised by the auditor in relation to a material uncertainty as to whether the company could continue as a going concern if it ran into bother raising enough additional capital. Oh dear.
Who in their right mind would back a placing by this company now?
Until this mess is sorted out my view is that the shares should be suspended pending clarification. Nomad Cairn should be considering its position in the face of not one but two scandals involving placings which appear to have failed to bring in the cash either when the company said it already had in one case, and at all (beyond a few coins for the meter) in the other.
Finally, just because this is the world’s most successful growth market the story would not be complete without a share price chart. I give the squiggles from yesterday, courtesy of ADVFN, along with volume. Note how the share price started to crater before midday yesterday, yet the RNS was not released until 3.41pm.
Another day on the Casino……
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