Questions are being raised as to why Melbourne based CE and appliance distributor Directed Electronics recently bought into struggling toy Company Toy’s R US with the purchase of 18.9% of the Companies shares.
Auditors for Toys R US are now warning that the Company is struggling claiming thar there is a clear “material uncertainty which may cast significant doubt as to whether the group will continue as a going concern”.
RSM Australia Partners have revealed that sales at the retailer fell to $3.1 million compared to $5.9 million in the same period a year earlier as retailers including Myer, Big W Kmart and Target strip share away from the toy listed retailer.
This is not the first time that Toys R US has found themselves in trouble with the business placed into administration back in in 2018 owing creditors about $95 million.44 stores were closed down and 700 staff sacked.
Earlier this month Channel News exclusively reported that Directed Electronics had secured a 3 year contract with an and the option to extend for two additional 12 month periods with Toy’s R Us paying Directed an annual fee of $1.2 million, via the through the issuance of options convertible to ordinary shares in the Company, and cash if they can’t allocate shares.
TOY will own all rights to materials developed under this agreement.
The only problem is that TRU are struggling to pay creditors and that if the Company fails Directed will have invested in a questionable Company.
As part of the deal Directed will undertake market analysis and product development; sourcing and manufacturing assistance; quality control and testing; packaging design and development; marketing and website design support; and supply of goods to TRU.
TOY will own all rights to materials developed under this agreement.
The only problem is that TRU are struggling to pay creditors and that if the company fails Directed will have invested in a questionable company.
According to the AFR Toys R Us’ directors are in talks with its lenders to restructure the terms of its term loans because of its $12.8 million gap between what the company owes and the total value of its assets, according to the newly filed accounts.
The company has been without a permanent chief executive since Penny Cox resigned in the middle of last month, with Kelly Humphries now acting CEO.
Toys R Us claims it can continue to operate because it could still draw an extra $1.215 million from American hedge fund Mercer Street Capital Partners, which had extended a $5 million line of credit.
The company also said it had $2.7 million returned after surrendering a warehouse lease in Melbourne’s southeast.
It will save around $1 million a year from the sublease of a smaller warehouse.
Toys R Us now has a market capitalisation of just $5 million.
The company’s largest shareholder is former Funtastic chief executive Nir Pizmony, who owns about 34 per cent. According to the AFR, Toys R Us’ directors are in talks with its lenders to restructure the terms of its term loans due to a $12.8 million gap between what the company owes and the total value of its assets, as per newly filed accounts.
