COMMENT: Are JB Hi Fi & Best Buy Facing The Lights Being Turned Off On LIFX
Are JB Hi Fi, Best Buy, Apple & Amazon being dragged into an ugly fight between an Australian smart technology Company and regulators who are questioning the viability and claims made to shareholders, by Buddy Technology (BUD) the manufacturer of LIFX products?
Basically, Buddy Technology are struggling to survive with the company admitting that they only have $1.3 million in cash, and $24.7 million in liabilities, with negative working capital of $7.1 million and a net liability position of $6.4 million.
So, what happens if there is a recall or a warranty problem with stock they are selling to these retailers as there appears to be little money in the kitty.
The future for Buddy looks grim, as a potential takeover target their position is hampered by the high level of debt which for an overseas Company could be impacted by a rising Australian dollar.
While they have a good product portfolio, distribution and relationships with global Companies, it’s the financial liability of the Company that is a major problem with banks and borrowers refusing to lend the Company money.
The other big issue is how the Company is being run and how it’s been run in the past, resulting in a past delisting by the ASX, who last week raised several questions about the Companies performance, viability and whether they are actually complying with listing rules.
BUD claims its level of operations is sufficient to warrant continued quotation of its securities on ASX as required under listing rules.
answering this question, please explain the basis for this conclusion. In answering this
question, please comment on the nature of BUD’s current business activities.
The business recently announced a new vendor program agreement with major U.S. consumer electronics retailer, Best Buy, to better address what they describe as the changing retail environment. The details of the program have not been revealed.
Currently the business is working to sell down existing inventory, they are also trying to cut deals with Apple, Amazon, Google and Samsung claiming that they have new SmartHouse technology to offer these companies.
They claim that one of the products that these brands should be carrying is the new LIFX Downlight which they anticipate will extend BUD’s reach to new customers outside of the typical consumer electronics retail channel.
ChannelNews understands that the business is currently talking to electrical distributors in Australia. The product is also set to be ranged at Bunnings.
The Company is claiming that they have sufficient financial capabilities to continue financing the current business however the ASX and several industry executives are questioning their capability based on past decision making and the fact that they have a negative working capital of $7,074,435 and net liability position of $6,397,024.
Because of their bad trading record BUD is having to pay for goods upfront.
Currently 90% of the inventory that is sitting BUD warehouse are fully paid for, the issue now is what marketing dollars do they have to pay retailers to market their product or conduct external marketing.
While the business was cash flow positive in January 2022, they still only had A$1.3 million available as of 31 January 2022 resulting on the business relying on the fast sell through of products that are in their warehouses or at retail stores before they can reorder stock.
During the past 8 months the business has reduced their operating expenses by more than 30%, they have also lifted the price of their products resulting in a “substantially higher” margin.
Back in June the business was achieving a 30% margin, now they are getting 43%.
The nightmare that is unfolding for the Company is that revenues decreased for the period ending 31 December 2021 and are down running into 2022 according to retail sources.
The business has admitted that they have “ongoing trading difficulties” including critical component shortages, manufacturing delays and the COVID-19 pandemic which is currently sweeping China with cities such as Shanghai and Shenzhen closed down.
Currently the business has financial borrowing from Partners for Growth of $16,098,518 but with interest this rises to $16,511,969. The maturity dates for these loans are December 2023 and May 2024.
Since March 2021, BUD has failed monthly financial testing covenants as part of its financing arrangements with PFG.
In a letter to the ASX directors claimed that the board is of the view that the Company’s financial records have been properly maintained and the financial statements have been prepared in accordance with the appropriate accounting standards and give a true and fair view of the financial position and performance of BUD.
The Directors also consider that BUD is still a going concern, based on the fact that their A$16,098,518 borrowings “whilst classified as current liabilities is not due and payable until December 2023 and May 2024.