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Spunk the Mon(k)ey - TrakM8 disaster acquisition exposed - told y'all

By Tom Winnifrith, The Sheriff of AIM | Thursday 12 January 2017


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.


It is my birthday today and the TrakM8(TRAK) supporters club of top blogger Paul Scott, crony capitalist PR man Reg Hoare and tech analyst Lorne Daniel of FinnCap need each to order a bottle of ouzo to send me with a note saying "you were right - you is da king". Subsidiary accounts for Route Monkey have finally emerged and are truly diabolical just as I predicted to hoots of derision from the supporters club.

Roll back to December 21 2015 when TrakM8 announced it was buying Route Monkey partly by taking on debt but largely by placing shares at 333p to raise £6 million. The price paid was £7.1 million. I think we can now accept there will be no additional defcon.

Route Monkey's accounts showed that it was profitable and thus we were told "The Acquisition is expected to be immediately earnings enhancing."

Also we were told The Acquisition brings the following strategic benefits for Trakm8: yak yak yak, etc, etc etc.

Unfortunately the accounting standards used were patently ludicrous, aggressive revenue recognition was the order of the day which was why - like TrakM8 itself - profits did not translate into cash generation. And thus on 23 January 2016 I wrote HERE the testimony of an industry source:

"I know Route Monkey as we also looked at buying them..to cut a long story short we ended up walking (running) away when we got underneath the accounts. As you’ll have seen, massive accrued income, very slow paying debtors, WIP that isn’t really WIP at all, etc, etc. Basically their entire rev rec and reported revenue and profit was very suspect and guy in charge seemed to be deluding himself.

With that said, RM might have good technology and IPR but IMHO is a significantly loss making entity by traditional accounting standards. Not sure why they ended up in such a mess but were I to hasten a guess it would be to ensure the VC equity funding and subsequent debt funding kept on coming.

At any rate, you are correct in your assessment of RM and I’m very surprised Paul Scott is ignoring these accounts as it seems clear to me RM will be a massive drain on TRAK cash going forwards"

Oh dear....

Paul Scott suggests that me picking up on historic lies and lack of cash generation at TrakM8 is a red herring I should look forward. I have indeed looked at FinnCap (the lapdog house broker) forecasts and it is expecting a lot of the profits growth and cash generation over the next 12 months to come from the profits bought in with the Spank
The Monkey.

Ends.

Well perhaps that is why TrakM8 had such dismal interims and served up a profits alert as Route Monkey has been a disaster for all the reasons I predicted. Accounts for the 15 months to March 31 2016 are now out. By extending the year end (to match the TrakM8 year end), Route had an extra three months to file. The bad news was postponed. The accounts were finally filed at Companies House when no-one was watching on 23rd December.

Well knock me down with a feather. The revenue recognition policy has been deemed too aggressive and changed and the company has alao reviewed the capitalisation of costs. Who could have predicted that? Er me? All the folks who looked at this dog and did not buy? The auditors also note that the record keeping of the old management meant it was hard to verify certain things. And that makes the claims made that this deal would be earnings enhancing even more of a rum and coke.

The net result is that sales crashed from £1.723 million to £757,824 and a pre-tax profit of £296,517 was transformed into a loss of £2,839,408. Net current assets of £338,952 became net current liabilities of £3.19 million and net assets of £358,792 became net liabilities of £2,453,922.

You can read the horror story from Companies House HERE

Surely there must be an impairment against the carrying value of this awful acqusition which will wipe out profits this year and ensure TrakM8 reports a full year loss? And surely those investors who took part in that 333p placing must - with the shares now at just 100p to sell - ask chairman John Watkins how he defines "earnings enhancing" and why his due diligence is so slapdash?

Meanwhile, Lorne, Paul and Reg you know where to send the ouzo!

Our full coverage of this dog is HERE - who is "da king?"


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