Nothing is ever on time with these penny stocks. Same goes with their plans, things change. However, one big goal we would hope wouldn't change is to hit their Isity performance shares milestones. And its their secondary performance milestone that is becoming most questionable for us smaller shareholders.
"2.The Secondary Performance Milestones is that for the Financial Years ended 30 June 2018 and 30 June 2019:
(a) From an agreed base of $8 million for Revenue in 2017, the Revenue received from Isity must increase at a minimum of 25% each Financial Year commencing the Financial year ended 30 June 2018; and
(b) That based on EBITDA being 30% of the Revenue and from an agreed base of $2.4 million for EBITDA in 2017 the EBITDA received from Isity must increase at a minimum of 25% each Financial Year commencing the Financial Year ended 30 June 2018."
The first 4C for FY18 has now been released and IMO includes Isity activity. It's their ASX obligation. Even their June-17 4C included Isity commitments in their estimated outflows for the next quarter. All in the $1.6m.
My observations from the Sep-17 4C are:
- Staff costs are down 50% to $15k. This is strange considering we have the additional Isity staff on board. Are they all expecting share placements as remuneration??
- Other item - Isity cash $22,917 - that's all the cash Isity had and is evidence that their activity is included in this 4C
- Product manufacturing and operating costs - projections for the next quarter have been forecast down almost 75% from $1.07m to $283k.
- Staff costs - protections have also been dramatically reduce by approx 45% from $384k to $214k.
I unfortunately cant get to the EGM however the above certainly raises some interesting questions. Still focusing on Isity and most pressing for me is - I cant see any evidence of this "agreed base of $8 million for Revenue in 2017". On what actual activity was that based? Given the reductions in forecast cash outflows how likely will this substantial increase in revenue be caught up in order to reach the secondary performance milestone by 30th June 2018? That's only 8 months away.
Still, as mentioned by a few here, they have an additional Chinese investor on board. Albeit at a lower than anticipated SP. But yes, things change. Particularly with the scale of the projects that Isity are dealing with (and/or trying to?). These are long term projects and delays are always expected - long term too.
Yes, this Chinese investor would only invest if they saw decent upside from here however its worth keeping in mind that they aren't exposed to any risks related to this performance shares. Either way, they see potential but maybe not as soon as originally projected. And if the full CR of $1.5m is still required, they will probably hold a larger stake.
All JMHO.
KKL Price at posting:
3.8¢ Sentiment: Hold Disclosure: Held
