Virtual assistant Software as a Service (Saas) company Flamingo AI (ASX: FGO) plans to offload its assets in a fire sale, after a high cash burn rate deterred any chance of a substantial capital raising to drive recovery.
The state of affairs is a far cry from two capital raisings worth more than $15 million in the second half of 2017 when the group changed its name from Cre8tek Limited to Flamingo AI, a business the ASX-listed entity acquired in June 2016.
In the wake of those placements FGO shares were trading at 8.5 cents each, translating to a market capitalisation of around $96 million.
But in that same half year the Sydney- and New York-based company only had $242,385 in revenue and ran at a $3.17 million loss.
It didn't take long for the share price to unravel as the company shuffled between whether its best bet was to try and boost sales with existing clients, or convert its sales pipeline of new customers.
Once the chatbot developer's FY18 results were released in August 2018, the loss had ballooned to $8.2 million and shares had lost 65 per cent of their value down to three cents each.
Today the company has just $1.8 million to its name, roughly enough to last through two quarters according to management estimates.
This comes after a false start earlier this year when Flamingo gained a patent approval for its semi-supervised question answering machine, but the rally was short lived.
Reports of "accelerated sales traction" for its technology during the COVID-19 pandemic, prompting "a need for large organisations to optimise information sharing in a remote working context", were also unable to turn the tide.
When Flamingo entered a trading halt on 18 May - which ultimately become a suspension from trading until its reinstatement today - its shares were worth just one tenth of a cent each, translating to a market capitalisation of $1.1 million.
Founded by Catriona Wallace, who announced her departure from the board and CEO role in February 2019 to become chief revenue officer, the company has had Olivier Cauderlier at the helm since July last year.
Now the group has reached a binding terms sheet with Rymamay Investments, a trustee of Craig Neil Investment Trust, to sell all its assets.
The consideration of the Transaction is comprised of:
- assumption by the Purchaser of the employment of certain employees and their accrued entitlements of approximately $200,000;
- nominal consideration of $100; and
- an entitlement to 20% of any research and development or other Australian government rebate for work undertaken by the Company up to 31 May 2020.
Rymamay will have exclusive due diligence rights until 31 May, and if all goes to plan a formal agreement should be reached with an effective sale date of 1 June, subject to shareholder approval that is due to take place in late June or early July.
"As previously announced, the Company has been working hard to reduce its cash burn rate whilst still servicing current clients in Australia and the US and executing its go-to-market strategy for its Intelligent Knowledge Sharing Hub," the company said.
"Given its rate of cash burn, in order to execute on the current strategy the Company would need to raise substantial capital, which it had been seeking.
"As it became evident that the prospects of raising substantial capital were unlikely, the Company engaged M&A Partners to seek potential buyers for the Flamingo Ai business. As a result of this process several proposals were received and the proposal from the Purchaser was accepted."
CEO Olivier Cauderlier has been given notice regarding cessation of employment with Flamingo AI, although it has proposed he will continue his employment with the purchaser in charge.
"Founder of Flamingo Ai and current Head of Business Development, Dr Catriona Wallace, has been given notice regarding the cessation of her employment with the Company as the Head of Business Development, however she will remain on the Company's Board," the company said.
"In addition, Bryn Hardcastle and Zane Lewis will also remain on the Board.
"The Board and key employees will support the Purchaser to ensure a smooth transition of the business and it is expected that the business will continue with key contracts and client responsibilities in both Australia and the US."
It is estimated the company will have approximately $1.4 million in cash once the transaction is completed.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
Business News Australia
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support