Managed services provider, Tomizone (ASX:TOM) has defended its ability to continue operating after the Australian Securities Exchange (ASX) questioned its ability to keep trading following at least two quarters of losses.
The publicly-listed company, which acquired New Zealand IT services firms Bluesky Online Services and Ironman last year, released its latest quarterly results on 31 January.
While the company reported a “strong outlook” in terms of revenues, it reported a $692,000 net cash loss from operating activities for the three month period ending December 2017.
In October 2017, the company released its prior quarterly update, reporting a net cash loss from operating activities of $645,000, albeit while also flagging contracted future cashflow receivables of $3.5 million or more.
However, for at least two quarters in a row, the ASX – as part of its compliance activities – has sent Tomizone a letter querying the company’s ability to support itself financially going forward.
“It is possible to conclude, based on the information in the Appendix 4C, that if TOM were to continue to expend cash at the rate indicated by the Appendix 4C, [Tomizone] may not have sufficient cash to continue funding its operations,” ASX listing compliance senior advisor, Charlotte Hope, said in a letter to the company dated 1 February.
The ASX issued an essentially duplicate letter of query in early November last year, following the release of the company’s financials for the prior quarter.
In its responses to the earlier ASX query as well as the letter dated 1 February, Tomizone said that it does not expect to continue to have negative operating cash flows, and indeed has a plan to reach a cash positive position, as noted in its previous market announcements.
“As advised in previous ASX announcements, TOM completed two complementary acquisitions, being Bluesky Online Services Limited (Bluesky) and New Zealand based managed services company Ironman Group Limited (Ironman) in the December 2017 quarter,” Tomizone said in its response to the ASX.
“These two acquisitions have significantly increased TOM’s overall size, both from a revenue and cost perspective. During the December 2017 quarter TOM’s cash receipts began to increase, driven by increased revenues from these acquisitions.
“TOM’s cash receipts will continue to increase as revenues are converted into cash receipts over the coming months,” the company said.
Crucially, Tomizone confirmed that it does expect to be able to continue its operations and to meet its business objectives, stating that the restructuring of the company, including the acquisitions of Bluesky and Ironman, have substantially increased its recurring and reliable revenue streams, while also boosting contracted future revenues to around $3.5 million.
“TOM’s internal financial forecasts estimate cash receipts for the March 2018 quarter to be more than the estimated cash outflows set out in the Appendix 4C of $1,565,000,” Tomizone said.
Tomizone revealed its plans to purchase Bluesky Online in early September. Bluesky Online is an NZ-based managed services provider, and was bought for a combination of cash and shares, made up of NZ$142,500 in cash and 6.67 million Tomizone shares.
The acquisition of Ironman, an NZ company that provides a combination of hardware, software and Wi-Fi services, was announced later the same month.
The acquisitions saw the company effectively transform itself from a provider of connectivity, analytics, monetisation and location-based services into a full-scale managed services provider.
The company told shareholders on 31 January is now eyeing up new acquisition targets in both Australia and New Zealand following its purchase last year of the two Kiwi IT services firms.