Smiles Inclusive Limited

ASX Questions and Outstanding Audit

References:-

1. Preliminary Financial Report to 30 June 2019 released to the ASX after close of business on the last day of reporting for companies having a 30 June 2019 balance dates ie. 30 August 2019.
2. Response to ASX Compliance Pty Ltd Aware Query of the company on 2 September 2019.
3. Response to ASX Compliance Pty Ltd Aware Query of 16 September 2019.
4. Pause in stock market trading 20 September 2019.

We note that SIL has not yet produced a set of audited financials suggesting that its auditors are having to take extreme care and may be having difficulty in signing off.

We note that ASX Compliance Pty Ltd has asked SIL:-

“Does SIL consider that its financial condition is sufficient to warrant continued listing on ASX …..”.

In response to the ASX concerning cash flow SIL has indicated that it:-

Had EBITDA in July of $36,019.  We note that EBITDA differs from cash as EBITDA includes a substantial interest cost.

SIL has stated that its cash and “cash equivalents” at 13 September 2019 are reported as $323,344.  Cash equivalent would probably include money owed to SIL, but if cash is slow arriving it can create problems in meeting its financial obligations in a timely manner.  SIL also reported that it had “$1.191 million Bartercard trade dollars”.  However, it is unlikely that its bankers, interest payments, its dental supplier’s accounts or its staff wages and superannuation payments can be paid with Bartercard.

The current share price is 4.3 cents indicating that the stock market as a whole has a severe doubt as to the viability of this company.

Possible Outcomes

1. If its bankers determine that the company can no longer meet its ongoing obligations to them at some point there is a significant risk that their major lender would appoint administrators to the company which would effectively remove it from ASX listing.
2. If the auditors cannot satisfy the ASX concerning its financial condition it is likely to be delisted.
3. If its directors decide that there is a significant risk of the company not being able to meet its ongoing obligations then they are obliged to consider their own positions and in those situations it is sometimes directors who appoint administrators or liquidators.

If the company was to have its listing on the ASX suspended the market on which shareholders can buy or sell its shares effectively disappears to a private grey market which would involve individual buyers and sellers trying to find each other.

Shareholders may be considering whether to take a loss and hopefully carry forward that loss in the hope that they may be able to offset it against some future capital gain – please note, individual accounting advice should be taken.

If the company was placed into administration then the administration could progress to liquidation.  In such an event the insolvency trustee would secure the company’s assets and determine what could be sold and to whom in order to realise as much value as possible for its creditors.  Its major creditor would of course be its bankers.

OR

SIL might claw itself back from the financial brink; its auditors might satisfy the ASX as to its viability and it might be able to continue its listing.  It then might over an extended period – probably some years be able to claw back its losses and become profitable.  From the present situation that does appear to be a mountain to climb but dentists who have tied their fortunes to the company through part sale of practices may cling to a thread of hope.

The company’s various statements to the ASX, as well as the underlying ASX queries, can be viewed on the company’s ASX website – go to ASX All Ords and enter the company code SIL and follow the prompts.

SIL has just announced a pause in trading opportunities on the ASX at early afternoon 20 September 2019 pending an announcement.  Prior to the pause its last price traded at was 4.3 cents.

https://www.marketindex.com.au/asx/sil

Best wishes to all Dentists,

GRAHAM MIDDLETON