Small Cap Value Report (29 Dec 2016) - NKTN

Good afternoon!

There's hardly anything to report on today.

Nektan (LON:NKTN)

Share price: 28.5p (down 12.3% today)
No. shares: 24.1m
Market cap: £6.9m

Results for year ended 30 Jun 2016 - these figures are being filed just in the nick of time - as AIM companies have 6 months to publish audited annual accounts. Here are the AIM rules, which are quite straightforward, and worth familiarising yourself with. It's also good for a laugh, as reading through them, I can think of numerous examples where companies have completely ignored AIM rules, with no consequences.

There's an emphasis of matter from the auditors, regarding the company's ability to continue as a going concern:

Statutory accounts for the year ended 30 June 2016 will be filed with Companies House Gibraltar following the Company's Annual General Meeting. The audit report for the year ended 30 June 2016 includes an emphasis of matter.

The auditors draw attention to the fact that in forming their opinion on the financial statements, which is not modified, that they have considered the adequacy of the disclosures made in note 1 to the financial statements concerning the Group and the Company's ability to continue as a going concern.

The report states that this is dependent on the ability of the directors to successfully raise further funds, the put option held by the Nektan Marketing Services joint venture partner not being exercised as well as other material uncertainties.

Revenues for the year ended 30 Jun 2016 rose over 10-fold on the prior year.

However, the loss before tax rose from £8.1m to £10.5m this year.

Cashflow was also dire, with the company being propped up by issuing more shares, and convertible loans.

Balance sheet - it's basically insolvent, with negative net assets of £6.2m

Fundraising - an additional £2.275m is being raised, although that looks nowhere near enough to keep the company going. So expect more dilution. Warrants are being issued to protect the new investors from further dilution, so that in itself will dilute everyone else even more.

My opinion - this looks a complete car crash, one of the worst set of accounts I've ever seen. That said, turnover is growing fast, so maybe investors here believe the company might grow its way out of financial trouble?

Total bargepole job for me though. The trouble with this type of jam tomorrow share, is that they're usually under-funded from the start. That then leads to round after round of lower & lower priced equity raises. So the share price chart inevitably ends up looking like this:

It's not just private investors invested here, there are some institutions too. What on earth were they thinking?

Fundraising - a separate RNS has just come out, giving details of the current fundraising round. Although it points out this is only short term funding, and more will be needed.

This is priced at 27.5p, hence the fall in share price today. There is an open offer too, which is helpful, if people wish to pour their money down the drain.

That's it, as there are no other announcements of interest in my universe of stocks.

Graham's covering any relevant news in the morning, so I shall bid everyone a very happy new year - let's hope it brings health, happiness, and decent investment returns too!

It's been a pleasure interacting with you here, so thanks for all the input from readers in the comments section.

Kind regards, Paul.