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I see that Onzima Ventures (ONZ) is getting a bit of attention again, with Tom Winnifrith having just covered it in his latest Bearcast, but it is a company that I was planning to give an update on anyway, having followed the story since early last year.
Back on March 8 2016 I wrote a piece here questioning whether Onzima was in breach of its investing policy – which states that it will ‘seek to invest a minimum of 75% of its deployable capital in, and/or acquire companies or interests within the natural resource sector’, and that ‘under the company’s investing policy the remaining 25% of the company’s deployable capital can be invested in to non-natural resource based interests’.
At the time a few were quick to point out that I didn’t know what I was on about – whilst no doubt selling their shares into one of the ramped-up spikes - prior to the shares subsequently being suspended on October 17 for failing to implement its investing policy!
This didn’t really come as much of a surprise to me, given that much of the focus of the company appeared to have been on its 49% share in private company N4 Pharma – which definitely fell outside of the natural resources sector.
Onzima initially invested £41,000 along with the issue of just over 24 million shares in order to secure the 49% stake in this tiny private company, and subsequently loaned it a further £125,000, taking its total investment to £166,000 in cash alone (the shares were trading at around 0.86p at the time, so nearly £210,000 worth of those were also allocated to N4 as part of the deal).
It is interesting that many PIs will point at the large position that Nigel Theobald has in Onzima, forgetting that over 24 million of those shares – nearly 15% of the company - were part of the original deal, and he subsequently bought a little under 5 million on the market, equating to substantially less than the loan amount from Onzima to his company!
A lot of fuss has been made about N4 Pharma and its drug reformulation, which may sound impressive until you take a look at the company itself – which like any limited company has to submit its accounts to Companies House.
Around the same time that Onzima was getting itself suspended from AIM, I suspect that many of the PIs invested in it probably missed the filing from N4 Pharma of its accounts up until March 31 2016.
Interestingly these showed that it was effectively trading whilst insolvent, based upon its balance sheet where it had net current liabilities of over £89,000 – with just £50,000 in the bank and a payment of £175,000 being due within a year.
Subsequently £125,000 was borrowed by N4, leaving a further £84,000 that it could draw down upon if it decides to – under the original terms of the deal with Onzima, and which would take a further chunk out of the dwindling cash reserves of that company.
It would appear that the loan has been used purely to meet the current liabilities of N4, rather than for investment into its research or the like – otherwise I don’t see how it will be able to continue trading whilst insolvent, come the end of March. The loan has a four year term and can only be repaid earlier if both parties agree.
So thus far Onzima has put the equivalent of over £376,000 into N4 Pharma, including shares, and all that for a company that net assets of minus £89,000! Obviously all of these bio-tech/pharmaceutical companies have to start somewhere, but the accounts of this one hardly suggest it is going anywhere fast, and Onzima don’t have the amount of cash needed to change that, even if the N4 drugs were ultimately proven to be a success, as getting to market usually costs a lot of money.
Not that Onzima is in a position to put any more funds in that direction anyway, given the breach in investing policy already.
It is hard to see how it is going to be able to return to trading unless there is a reverse takeover, as current levels of cash are probably in the region of £125,000, when you take into account typical cash burn of £125,000 for six months, plus the investments into Kolar Gold and Ferrum Crescent since the last interims. It is unclear as to whether the company still holds the shares in both these companies that it took up during the placings, with both currently trading at around the same share price as the equity raises took place at.
It is hard to know the exact value of the investments of the company today as it hasn’t always RNS’d every trade that it has made, but even being very generous and assuming that they have increased by 50% (some on the list of investments held have done well in recent months – although with some Onzima only hold warrants or options anyway). The company certainly won’t have made anywhere near the £486,000 revenue generated by its investments in the first half of 2016.
So we are looking at somewhere in the £400,000 to £500,000 in total for both cash and saleable investments.
Given that £166,000 in cash has been invested into N4 Pharma (ignoring the amount of shares that were part of the deal), that would mean that at least £498,000 would have to be invested in natural resources. So at present I don’t see how the company is in a position to be able to implement that, as it can’t raise further funds via equity whilst suspended to enable it to comply with its investing policy.
So the only options would appear to be to either offload its stake in N4 Pharma in order to reduce its investment outside of the natural resources sector, or to complete a reverse takeover. Given that net assets stood at £783,000 as at the last accounts – and will likely be lower now – it is hard to see why any company would find it attractive given its shares were trading at a price which valued the company at nearly £2.3 million at the time of suspension.
I would be surprised if this one returns to trading in a way that doesn’t end up screwing existing shareholders, that is if it ever returns at all, with April 17 being the date that its shares will be cancelled if it hasn’t complied by then.
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