I thought I'd wait a little while before commenting on the resolutions being put before shareholders.
Analyse what's being said and say it another way in plain English so that all shareholders can understand it.
The share consolidation is inevitable given the 90%+ wealth destruction that has happened since Syntonic was listed in its own right.
No share consolidation goes well initially and neither will this one there will be even more wealth destruction initially for all long-term shareholders here and the chances of getting your money back or even making a profit get harder and harder with each round of dilution that's occurred.
When the company listed the non-executive directors were to be paid in shares (1.5 Million per annum in lieu of salary for the previous year) this was when there was something like 2 Billion shares in issue. Which meant very little dilution to existing shareholders of under 0.1% per non-executive director per year.
What is being proposed by the current board of directors is truly shocking. These non-executive directors who do nothing regarding the corporate governance of this company and have not held the executive directors to account for all the wealth destruction that has taken place, believe they should still be paid the same 1.5 Million share per annum as before (to put that in context that is 45M shares on the pre consolidation basis) it also equates to shareholders suffering dilution of over 1.2% per non-exec director per year (which if sort out the breach of the rules regarding 2 Australian based directors means having at least one more of them = at least 3.6% dilution per year)
They want the first of this big wad for financial year 2019, by issuing them the shares after the consolidation takes place, (some 4 months after the period ended) and ordinary shareholders have seen the value of there shareholdings decimated.
I'm sorry but that is totally unacceptable, no shareholder in there right mind would vote in favour of such a resolution.
Now if they had come to us and proposed that the non-executive directors should now be paid something like 300,000 shares per annum in lieu of salary, then I still wouldn't be jumping for joy, but I would consider it overall as reasonable (its 6 times the 50,000 shares they should get if it was adjusted for the consolidation) given the circumstances. A fair compromise not greed.
As to the performance shares for the 2 executive directors
Well they got 2 performance awards previously, neither of which actually made the company any better, or set it on the path to profitability. Indeed they pivoted the company away from what those awards achieved.
They have never invested a single cent of there own money in the company since it listed, all they've done is collect health salaries and cash bonuses while everyone else has seen the value of there investment plummet dramatically and they've either suffered massive paper losses / actual cash losses or a combination of both.
Now your thinking, well the value of the Exec directors shareholdings has dropped dramatically to (and yes it has) but have they actually suffered any losses?
I ask that because on several occasion now I've asked the executive directors to please disclose to the nearest $25,000 or $50,000 how much money they have actually invested in the business themselves to acquire the shareholdings they have!
I'm still wait for an answer to that question and have been for nearly a year now. My best guess is that Mr Dunhill's cash invest in Syntonic is well in excess of the amount either Gary or Rahul has put into Syntonic.
They are now asking shareholders to effectively grant them additional performance awards on over 10% of the shares in issue following the consolidation.
So having made several strategic blunders since listing the company (not bringing 2 cornerstone investors onboard for the initial listing, not raising enough cash when listing, not raising enough cash after the Verizon agreement, not raising cash at all to fund the Zenvia purchase) which have destroyed 90%+ of shareholder value, they feel they should somehow be rewarded for it !
The 2 resolutions put before shareholders are not straight forward in the slightest, they are full of smoke and mirrors and open to subjective interpretation, which will be done behind closed doors and not subject to shareholder or public scrutiny.
Now your wondering what I'm going on about.
The resolution on performance shares "A" has an end date of 31st December 2020
Yet according to the company's own internal projections, Syntonic was meant to reach EBITDA break-even (first by March 2020, then it was revised in July 2019 to) before the end of the current financial year June 2020.
Again the company has refused to share these internal projections with its shareholders so that they can judge if the company is actually on tract to meet this goal or not.
Its this extra 6 month window that should concern shareholders enormously
Why?
Because agreements that are already in place, effectively kick-in on 1st July 2020.
Namely the Aktay Dataflex contract, the terms of that contract mean that in the September 2020 quarter (1st July to 30th Sept) Syntonic are to receive a cash payment of US$1.5M
They also receive all Dataflex money being generated in 2020 until it has caught up with the payment schedule for that year (assuming its actually generating any revenue at all or has gone live)
Now they'll be a valid argument from some around whether this payment is ever received or not (if it isn't then the directors will be in legal trouble with ASIC/ASX as well as shareholders). However at this time there is nothing to actually say it won't.
There is nothing in the resolution or the accompanying notes to it, that states this "one-off" payment will not be counted in that quarters calculations of whether break-even EBITDA has been achieved or not.
As for milestone B, it is hardly onerous at all. The current quarterly deficit is over A$2M and according to the company’s own internal forecasts that is due to be wiped out within 9 months. In other words they expect an improvement of over A$2M per quarter in that short period of time, yet in the following 2.5 years they only expect to achieve a further A$1.5M per quarter uplift in the company’s fortunes!
Its hard to imagine your achieving that rate of growth now to then suddenly hit a brick wall that grinds it to a halt once break-even has been achieved.
Quite frankly this is them just trying to line their own pockets yet again, they should be ashamed of themselves, especially for the suffering they’ve already caused to long-term shareholders
I know no-one else has ever really touched on the topic of a rights issue and why shareholders have never been given the chance to participate on what were very generous terms (at the time) when funds were needed, they were always done as placings (with the excuse that there wasn’t time to organise a rights issue - yet here we are in funding limbo for ages now and most likely out of money). Why?
Simple it would have meant Gary and Rahul having to invest considerable sums of money into the company to maintain their ownership of the company. If they hadn’t taken up their full allocations people would have been asking why they weren’t do so, what do they know that we don’t.
Shareholders should be voting against all of the above resolutions without hesitation
The board of directors should be totally ashamed of themselves, their only interested in themselves no-one else.
