By Cynical Bear | Monday 17 April 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.
Apologies for the delay in this mini-series (Part 1 of which can be accessed HERE) but I thought I’d do the decent thing and ask Falcon Media House (FAL) some questions directly first. As it has ignored me, I thought I should just crack on instead and now turn to the worrying matter of the fast vanishing cash balance, both historically and forecast.
The prospectus helpfully tells us that the company had made its way through almost all of its cash to date and needed to be funded by way of convertible loans issued in February. But the business had £2.8 million in the bank as at 30 June 2016 and, although we now know that it had lent around £1.2 million to Quiptel and Teevee over the last few months, where’s the rest of it gone?
Unbelievably, it appears that Falcon has managed to get through the entire £4 million or so it raised in early 2016 but, no need to worry as it has just raised a further £4 million at 25p, although costs soak up about £900,000 immediately which is pretty expensive.
The prospectus also helpfully tells us that over £1.5 million of the remaining £3.1 million will be spent in the first three months from start of trading, spilt as follows:
Teevee Makers: £50,000
Gulp - that’s half the remaining cash in just three months, so before the end of June.
Miraculously though, after that, say from 1 July, Quiptel will be generating profits to offset the remaining costs so the remaining £1.6 million is a mere contingency.
So you expect shareholders to believe that despite pissing away £1.5 million in a mere three months, £600,000 of which relates to Quiptel, Quiptel is suddenly going to become this all-conquering money making machine that can fund a start-up TV distribution and content business in a hugely competitive space, as well as covering general plc costs.
Let me remind you of Quiptel’s track record:
Year to 31 March 2014 – No revenue and loss of $2.5 million
Year to 31 March 2015 – No revenue and loss of $2 million
Year to 31 March 2016 – Revenue of $97,000 and loss of $1.5 million
In the last year, we know that it actually generated some revenue - $268,000 in the six months to 30 September 2016 - which is a start although there was a still loss of $760,000 and we know that in total it borrowed over £1 million from Falcon from last July through to the relisting.
If Quiptel really was going to become such a cash cow from July onwards, it would need to be announcing significant contracts right now as the work has to be done, then it has to be invoiced and then the debt has to be paid. I doubt that the working capital cycle here is short.
Also, if Quiptel was really going to grow so incredibly in this way, I doubt very much that its shareholders would have sold it to Falcon.
It seems to me that there is a very high chance that Falcon will need further funds by the end of the year, if not sooner. In fact, I’m prepared to make another one way bet that if Falcon makes its way through a year from the return to market without accessing further funds from one source or another, which is what it claims in its working capital statement, then I’ll make a £50 donation to a charity of the CEO’s choice.
Never going happen.
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