O'Connor-based BrainyToys Ltd is looking to raise additional funds after reporting a net loss of $4 million for fiscal 2008 and a working capital deficiency of $1.1 million.
O'Connor-based BrainyToys Ltd is looking to raise additional funds after reporting a net loss of $4 million for fiscal 2008 and a working capital deficiency of $1.1 million.
In its 2008 financial year report, the company said its accounts have been prepared on a "going concern" basis, which is dependent on the group achieving significant cash flow either from product sales or raising additional funds.
In late August, the company signed a settlement agreement with the vendor and licensor of the Marshmallow Fun Assets in the US, which required Brainytoys to pay $US926,000 plus inventory and receivables balances outstanding by November 14.
Brainytoys said if payment is not made it will result in the forfeiture of all amount paid for Mashmallow and a write-down of nearly $A4.5 million.
However Brainytoys said it has accepted a proposal from a US capital provider, Blackwater, for a $US3.8 million facility which will be used to pay for the Marhmallow agreement.
"The proposal is subject to confirmatory due diligence and the directors have no reason to believe or are not currently aware of any reason why the facility will not be settled prior to 14th November 2008," Brainytoys said.
The company said it was also considering further capital raising alternatives as back-up for the Blackwater facility, and has engaged a Pitt Capital Partners to raise capital.
"The Directors and senior management have prepared a cash flow forecast for the ensuing year to satisfy them that the Group will have adequate resources for the foreseeable future," Brainytoys said.
"Thereafter, in the event cash flow contribution from product sales and/or sufficient capital raising at an amount and timing necessary to meet the future budgeted operational and investing activities of the Group is unfavourable, the Directors believe (in the absence of unforeseen circumstances) that they will be able to contain the operating and investment activities sufficiently to ensure that the Group can meet its debts as and when they become due and payable."
Over the 2008 financial year, Brainytoys achieved revenue of $4.8 million while basic earnings per share were a loss of 4.9 cents, down from the previous year's 4.4 cents.
Last year the company reported a full year net loss of $1.8 million. At the end of the 2008 financial year, Brainytoys had $54,867 in cash and cash equivalents.
In August the company had expected a net loss of $3.4 million.
Below is an excerpt of the financial report:
Going Concern
The accounts have been prepared on a going concern basis.
The consolidated entity incurred a net loss of $4,023,544 and had a working capital deficiency of $1,174,521 for the year ended 30 June 2008. As noted within the Directors' Report, the ability of the Group to continue as a going concern is dependent upon the Group achieving significant cash flow arising from product sales and/or raising significant additional funding (in accordance with a number of alternative arrangements currently in hand) in order to continue to sustain the Group businesses.
Brainytoys Limited and Brainytoys, Inc ("BRT") entered into a Settlement Agreement on 28th August 2008 with the vendor and licensor of the Marshmallow Fun Assets requiring the payment by BRT of US$926,000 plus inventory and receivables balances outstanding (at settlement date) on or before 14th November 2008, which if not paid will result in the forfeiture of all amounts paid for the Marshmallow Fun Assets, with the adverse consequences (including termination of product license, filing of a default judgment, return of tooling items, return of records and notification of customers and suppliers) and a write-down of the carrying value as at 30th June 2008 of A$4,454,230 (US$ 4,000,000). In addition the intercompany receivable as disclosed in Note 16 from Brainytoys Limited to Brainytoys, Inc may be impaired.
BRT has accepted a proposal from Blackwater, a US based mezzanine capital provider, for a US$ 3.8 million facility (after fees) for Brainytoys, Inc (a wholly owned subsidiary) for the purpose of satisfying amounts due under the Marshmallow Fun Company settlement agreement, working and additional acquisition capital. The proposal is subject to confirmatory due diligence and the directors have no reason to believe or are not currently aware of any reason why the facility will not be settled prior to 14th November 2008. Brainytoys Limited is also considering further capital raising alternatives as backup arrangements to the Blackwater facility. In this context, the Company has engaged Pitt Capital Partners with effect from 30th September 2008, to raise capital for the above and a proposed Australian acquisition introduced by them.
The Directors and senior management have prepared a cash flow forecast for the ensuing year to satisfy them that the Group will have adequate resources for the foreseeable future. Thereafter, in the event cash flow contribution from
product sales and/or sufficient capital raising at an amount and timing necessary to meet the future budgeted operational and investing activities of the Group is unfavourable, the Directors believe (in the absence of unforeseen circumstances) that they will be able to contain the operating and investment activities sufficiently to ensure that the Group can meet its debts as and when they become due and payable.
In relation to Group assets, in the unlikely event that the events referred to above result in a negative outcome, then the going concern basis of accounting may not be appropriate with the result that the Group may have to realise its assets and extinguish its liabilities other than in the normal course of business and in amounts different from that stated in the financial report.
The financial report does not include any adjustments relating to the recoverability or classification of recorded asset amounts or classification of liabilities that might be necessary should the Group not be able to continue as going concern.
On 5 August 2008 the Company announced the execution of certain financing agreements relating to factoring and purchase order/Letter of credit facilities. Whilst the factoring facility is operating satisfactorily regrettably the PO/LC facility is yet to be activated thereby causing delays in the marshmallow product supply line from Chinese factories flowing through to sales deliveries.
In order to meet the purchase payment schedules to the factories it is estimated that an additional cash injection of US$1.5-2 million is required in the short term. To address this situation the Company has entered into a further agreement with the Marshmallow Fun Company LLC ("MFC"), the vendor to BRT of the Marshmallow product business involving this additional inventory financing in addition to forbearance provisions relating to the retirement of the MFC inventory financing and other amounts due to MFC.
In relation to Group assets, in the unlikely event that the events referred to above result in a negative outcome, then the going concern basis of accounting may not be appropriate with the result that the Group may have to realise its assets and extinguish its liabilities other than in the normal course of business and in amounts different from that stated in the financial report.
The financial report does not include any adjustments relating to the recoverability or classification of recorded asset.
