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Teathers releases Annual Results: where has all the money gone?

By Nigel Somerville, the Deputy Sheriff of AIM | Tuesday 17 January 2017


Disclosure: I own shares in one or more of the stocks mentioned. 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.


Formerly AIM-listed Teathers Financial (TEA) has released numbers for the year to 31 October 2016. They are truly shocking. In its year to October 2015 the group balance sheet sported a net assets value of about £800,000 having raised just over £1 million in the year. That is pretty bad. But as at 31 October 2016 (having raised no further cash) net assets came in at about just under £70,000 with just £658 in the bank. Where did it all go?

That is a question perhaps more appropriately put to the previous management of Jason Drummond, Oliver Fattal and Nilesh Jagatia, but a question that the new board appointed at a requisitioned EGM last year has had to answer instead.

Looking down the balance sheet, we see investments at the start of the period totalling £480,000.  Turn to Note 16 to the accounts and we see a 100% impairment of the £100,000 investment into Kentucky Oil and Gas plc. Ouch.

£217,000 of quoted investments were sold, and the company has written down the fair value of its remaining quoted investments by a further £90,000 to just £98,000 (having taken a 2015 write-down of £53,000) – after spending £25,000 during the year on something new. For an investing company, that is a spectacularly bad performance.

Intangibles started the year at £209,000 and ended the year at just £21,000. Note 14 tells us that this relates to the (new) directors writing off the entire cost of £209,000 of developing the App which was the focus of so much excitement. To have written off the entire amount as at FY15 suggests much about what the cash had been spent on, and we are told that the Directors decided that the software needed to be re-written. Ouch and double ouch.

We might note that under Related Party Transactions (Note 25) that Tactu Applico Ltd, a company in which we are told that Jason Drummond is a Director and controlling shareholder, appears to have done rather well in 2015 out of £209,441 in software development and office-related fees. A further £69,503 was racked up in FY16.

I guess that investment losses and written down intangibles account for about £400,000 of value-destruction for shareholders. But net assets dropped by a further approx. £330,000 – where did that go?

Let’s look at director remuneration:

Just for the part-year before being booted out by their own shareholders it seems that the old guard managed to rack up just over £91,000 in salaries - a bargain when compared to FY15 when they trousered more than £200,000 whilst running up losses of £553,822. Now compare that to the fees charged by the current board of (and only if shareholders approve it) of less than £15,000 plus shares in lieu of half as much again.

Right, so that’s about £500,000 of FY16 losses accounted for. Just £230,000 to go: Note 5 details administrative expenses totalling £362,724. Take out directors’ remuneration and employees and we are left with “other expenses” of £229,454. What was that spent on – and who by? I think we should be told, for it accounts for more than a quarter of the company at the start of the period, and represents about three times the company at period end.

One other thing which catches my eye comes in Note 10 to the accounts. Here we see that the company had tax relief disallowed of £4,926. That represents, on a 20% tax charge, spending of £24,630 ruled as being expenses not deductible for tax purposes. So what was that spent on under the old regime of Messrs Drummond and co? Was it THIS? Or THIS? Or perhaps THIS made a contribution? The bill from those three comes, we hear, to about £16,688. So were there more jollies paid for by the company’s shareholders totalling around £8,000 whilst the good ship Teathers was burning cash and making losses during FY2015?

It would be funny, but really it is no laughing matter. If nothing else, I seem to recall buying a few of these myself, back in the days when it seemed that all was well. Lesson learned – once bitten and all that (yup, Media Corp is there etched on the wall too).

There seems to have been an awful lot of cash heading in the direction of the company’s former boardroom by way of salaries, related party arrangements (including what appears to have been useless software development costs) and, ahem, other “benefits”.

The Chairman’s report from soon-to-retire David Kipling (who, incidentally, seems to have taken nothing at all from the company for his time and efforts since coming on to the board at last year’s sack-the-board requisitioned EGM) and the CEO report from our own former colleague Ben Turney gives a sorry account of the mess the company was in at the point of regime change, where seemingly creditors were banging at the door and court proceedings commenced. Quite how the previous incumbents allowed such a situation to occur is baffling.

We also learn of a bit more largesse – in the form of a 28-berth office in Chelsea which remains an ongoing liability. We are told that former chairman Jason Drummond’s Gametech Ltd continues to occupy the office.

A 28-berth office in Chelsea for a tiny little (formerly) AIM-listed company racking up losses and burning cash? What?? And why are we told that Teathers vacated this plush prime location last August, but has not yet managed to offload the lease? How did that happen? And why is Mr Drummond still there?

The picture I get from this set of accounts is one of a former boardroom which had little, if any, regard for its shareholders. Instead it seems to have been all about reaping the personal benefits.

With the new board, we have seen a major change already in the form of remuneration which is both strikingly modest and being put to shareholders for approval before being drawn. Hats off to them on that – although given the position of the company it would appear completely appropriate.

As for the future, there is talk of trying to get the company back to market at some point. Perhaps there may be an attempt at a reversal, for it does not look as though even the most optimistic (ie the Directors) appears to think that the App on its own is going to be big enough to sustain a listed company.

There is some suggestion of fundraising ahead: shareholder approval is being sought to allow the board to rattle the tin and the auditor – Welbeck – has issued a Going Concern Emphasis of Matter, raising a material uncertainty in the light of past losses and the continuing need for development capital for the App. The directors suggest that they think the company can manage within its resources, but the implication is that this relies upon the timely success of the App development and then revenue generation. Even the most optimistic would concede that these two conditions are not a given, and so asking for authority to raise cash seems a nil-brainer.

The original hope had been that the shareholder action which saw the boardroom revolution last year would see Teathers hand out the cash to its shareholders so that at least some small modicum of return could be seen by the company’s shareholders.

But the results are shocking, and there appears to be almost nothing left beyond hope. My reading is that the clean-up operation has been a major effort of far greater magnitude than could have been envisaged prior to the appointment of the new board. But perhaps the rot has now stopped. Will the App and perhaps a reversal at some point get shareholders some of their cash back in the future?

Some may say the chances are between slim to none. But the chances of survival to this point now seem to have been far worse last summer. In my view shareholders owe the current management a debt of gratitude simply for seeing the company make it in to 2017 at all. But survival has been pulled off and now we must see what rabbits can be pulled from the hat going forward. It is still very tight but I detect a note of optimism.

There remains hope and a boardroom which now seems focussed on its shareholders – something which seems to have been sadly – scandalously – lacking in the past.


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