Stay Calm and Carry On.

Before I posted I wanted to get all the facts together.

Two weeks ago I was anticipating an amazing quarterly that commenced a series of ever growing EBITDA quarterlies.
I was expecting $9m-$10m Customer revenues with $13m in other incomes from Forgiveness that landed on 5th Jan. Total revenues of $23m
I expected liabilities to drop by up to $20m as some of the $13m Nov Cap raise was used to pay off interest owed to Eastfield for the vendor finance and loans from Eastfield for manufacturing.

So what happened. TWO speed bumps.

(1) Accounts made an internal accounting mistake. What does this mean moving forward??

It means that $4m that accounts thought was sold in the March quarter will moves to the June quarter! The stock has been built and the extra $4m inventory will be moved to fill back orders at the Lifx.com sites, and to fill waiting customer orders. The entire PFG $10m facility was used to for manufacturing as demand for the products remain at all time highs.
This is a totally unacceptable error but mistakes do happen and this one does not really cost the company too much other than, it is not a good look and removes some of the small and recently built credibility of the management team.

(2) Global Semiconductor shortage. What does this mean moving forward??

IMHO, there is Nothing management could have done here. Many many much larger companies ( Tesla, Ford, Apple, Samsung, Philips Hue and all the other LED lighting coy, etc etc ) have been caught by the shortage. Eastfield placed orders for the chips through its normal process and thought it had secured those chips and informed management as such. Management made forecasts based on this information and disclosed to the market as required by the ASX. The supplier of the chip made the decision to sell those chips to a party other than Eastfield. Now what is happening is called "the toilet paper syndrome". Everyone that needs chips is buying 3-4 times what they need and at inflated prices. Could management have forecast this happening? IMHO, no. The business world is forever changed by covid and the rules of honoring agreements have changed.

Moving forward, it is now impossible to give guidance as who know with any certainty when those chips will be made available. They may be able to be source in 2 weeks or 6 months. One thing is certain, like with toilet paper, the shelves will get filled again. As soon as the part arrives the lights can be built. Eastfield are currently able to build 15,000 LIFX lights per day from scratch and a second manufacturer wont be long until they are on line.

Also, there are other alternatives to the missing chip part. However, those alternatives will require up to 2 months of testing, registration and approval. So worst case, the manufacturing of lights pauses for a maximum 2 months. So that will affect orders that would have been received for August and Sept. Until that time, the current inventory ( in factories, on ships/docks ) will be sold as business as usual.

I emailed DM and asked him if all the SKU's are affected by this particular chip shortage. The strip and the switch are NOT effected.

What does this mean for revenues?

Its almost impossible to tell the extent of the drop in the 12 month revenues. I had been expecting that CY 2021 would come in around $80m customer revenues ( plus $13m forgiveness ). My estimates had been $10m March, $18m June, $22m Sept and $30m Dec. I will now revise that to $5m March, $17m June, $3m Sept and $35m Dec. A total of $60m. That is correct June should still land around the $15m-$18m mark.

Reading through the quarterly, here are my observations and why talk of administration is totally fear mongering:

(1) There was $875k was paid into a closed account and landed in April. Thus the $1.6m cash position should have read $2.5m. Trade Rec of $6.8m and inventories of approx $13m . This required an investment of $4.4m plus full use of PFG facility.
(2) Cost of goods Pre paid of $3.3m
(3) The quarter had a lot of one off costs. $627k to restructure the finance, interest payments to Eastfield and $4.2m loan repayments to Eastfield.
(4) Liabilities dropped by >$22m
(5) Improved margins and a 21% decrease in operating costs.

CONCLUSION

There is no doubt this is very disappointing news for shareholders. A lot has been achieved in the last 12 months. Getting the coy refinanced, releasing new SKU's ( such as Clean, switch and downlight), signing new customers ( such as Target, Costco, Lowes, HSN ), improved app, reducing manufacturing and operational costs and closing in on a positive EBITDA.

IMHO, talk of admin is unfounded. The team has turned the Lifx business around and have faced worse scenario than these two speed bumps.

DYOR, and I am still HOLDING TIGHT.
I wont be reading the responses of the well know trolls who claim they are "right". This is not a company specific event, its a global issue.