@Kmtw, If you have a question send it directly to the company. That is what I have done for you on this occasion.
Here is the response.
Hi Holdtight:
Thanks very much for sharing a few of the questionsyour fellow investors have. As always, happy to answer as best I can.
First of all, let’s talk about why cashspent on operations was larger negative this past fiscal year than thelast. There are three reasons for this (all this data is public, andinformation that we’ve shared in ASX releases, but I recognize that this iscomplex stuff and can get confusing).
The first is that there was $7.2 millionof interest paid in 2021 versus only $1.7 million of interest paid in2020. Most of that happened in Q3 when we did our debt restructuring, andthat was a bullet payment of interest accrued. That means that we were accruinginterest from the acquisition of LIFX, but didn’t have to pay it until the end(and as part of the refinancing – this was always the plan, and was disclosedback at the acquisition). In the quarter that we did the refinancing(FYQ3), interest paid was $5.1 million. It was only $590K in Q2 (thequarter before) and $778K in Q4 (the quarter after). That means we had aone-time payment of about $4.5 million.
The second reason is that we invested alot of cash in inventory this past fiscal year. As of June 2020, we only had$4.5 million of inventory and $5.1 million of deposits (refer to our annualreport) and as of the prospectus just released, we now have $11.7 million ofinventory and $2.2 million of deposits. The math then would suggest that atleast $4.3 million in cash was used to buildup that inventory, before which wemoved to “terms” with our manufacturers, so that too is a one-time or unusualexpense (and was called out as such). It should be noted that payables were waydown too (in part because of the accrued interest mentioned above).
Thirdly and finally, looking atreceivables, there was only $2.6 million last year (see the annual report) vs.$5 million this year (see the prospectus). That means there is an extra$2.4 million of customer cash locked up in receivables.
If you add back those three numbers($21.7m - $2.4m - $4.3m - $4.5m), the cash loss from operations was a morecomparable $10.5 million compared to $8.8 million last year. So yes, thecash loss from operations was slightly larger in FY21 than FY20, but alsoremember that in FY20 only the 4th quarter was affected by COVID vs.pretty much the whole year in FY21.
However, I’d also draw your attention tothe fact that receivables at the end of FY20 were only $2.6m vs. $5m in FY21,indicating that business activity June over June is up.
Also, take a look at item 1.2 in theAppendix 4C. Setting aside item 1.2(b) because of the inventoryinvestment, look at items 1.2 (a) (c) (e) and (f) – these are all themanageable expenses. They totaled $20 million last year. This year,they total $16 million, meaning that in real terms we’ve managed expenses downin a tough year, and we’ve been clear with the market that we’ll continueworking hard at this.
Some other quick comments:
- The reason we didn’t state how many quarters of cash we have remaining in the Appendix 4C (question 8) is not because we “don’t know” – it’s because we generated cash in the quarter, so there’s no number of quarters left to be entered at that question – that only applies if you burn cash in the quarter. We have no reliance upon raising money in the EO, other than more is better, but the company’s viability is not affected by the EO raise.
- “If more funds aren’t raised (in the entitlement offer) then you guessed it, more debt” – no, that’s incorrect. If we assume that $0 is raised in the EO, then yes, the debt owning to PFG increases, but by much less than the debt owing to Eastfield goes down (because of the debt forgiveness we negotiated), so we’re net better off. As we stated in the 4C commentary, there is no outcome from the entitlement offer or restructuring that results in a poorer outcome for the company from a debt perspective.
- “Over the year manufacturing cost equals sales revenue, brings supposed 30% margin into question.” – I think this poster is forgetting much of what I said above, which is that we pre-paid for a very large amount of product in FY21, much of which isn’t sold until FY22. That means you’ll see large cash outflows to pay for materials & manufacturing, without the product yet being sold (or for much of H2, not even built) and so without the corresponding cash receipts. That’s why it looks like COGS approximates revenue, but yet we can still maintain ~30% margins (it varies by month of course).
I hope that helps clarify. Don’t be afraidto share any other questions, I’ll be happy to answer.
Thx, Dave.
David McLauchlan
CEO; Buddy Technologies Limited
