Y Ventures debut with a hot IPO on the Catalist Board in early July 2017 with 35 million placement shares at $0.22 each. The stock opened on July 11, 2017 at S$0.27, and closed the day at $0.255. Fast forward to today, and post earnings restatement, the stock currently trades at $0.080 as of 8 February 2019. What happened to the stock and are there any red flags?

Misstatements

Management had put out a securities filing on 30 January 2019 noting the following misstatements to its half-year 1H18 ending 30 June 2018:

  1. US$1,453,873 being erroneously recorded as “Inventories”
  2. US$20,453 being erroneously recorded as “Property, Plant and Equipment”.
  3. US$172,238 being erroneously omitted from “Trade and other receivable”, and
  4. US$196,869 being erroneously omitted from “Administrative expenses”.

These accounting misstatements resulted in the company revising to a net loss of US$1.2 million, from a net profit of US$0.1 million originally.

It is clear that the accounting misstatements are not acceptable given that the audit committee, accounting staff, internal and external auditors are involved in vetting and making sure that the financial statements are free from materiality, fair and reasonable.

Management’s Responses

The management has put out a detailed response to the various questions by SGX regarding the systematic failures in the accounting oversight of Y Ventures. Management has tried to address them carefully with detailed explanations, including verification of the various controls that were in place during the listing, and how the auditors were brought in to verify the internal systems.  The management has also reiterated that the discrepancies were free from fraud and malice in the overall preparation of the accounts.

Should Investors Avoid The Counter?

Y Ventures

Source: Yahoo! Finance

Looking back at the past four financial years, revenue more than doubled to US$14.1 million, but the company fell into negative operating loss of US$0.8m in FY17.

Taking a look at the Group’s balance sheet as of FY17, the Group apparently held cash and cash equivalents of US$0.8 million, and almost no significant interest bearing debt. The Group has also not paid any dividends to shareholders.

The net cash from operating activities (net OCF) as of FY17 showed a negative US$3.2 million, while latest 1H18 results showed a negative US$3.2 million.

Looking at the Group’s lagging profit growth, along with several potential red flags regarding its cash flow position, no dividend payouts, and negative net OCF, both shareholders and potential investors turned south on the counter.

Technical Chart

 Y Ventures 2

 Source: Yahoo! Finance (February 01, 2019)

According to the one-year daily chart with the 50-day (blue), 100-day (orange), and 200-day (brown) moving averages shown, the stock price of Y-Ventures appears to show a precipitous decline since August 2018 when the chart  first showed up a ‘Death Cross’ (50-day MA line cutting below the 200-day MA line) formation at around $0.38.

Following the death cross formation seen in August last year, the counter has not moved up or showed any signs of upward trajectory. The percentage decline from that August ‘Death Cross’ formation till start of February 2019 was about 78.7 percent

Should Shareholders Attempt To Redeem?

There are clear signs of a potential breakdown in the overall internal controls of Y Ventures following the disclosures of the accounting misstatements. Apart from this issue, there has not been any follow-up on news regarding their partnership with Singapore Post (Singpost).

Investors might recall in early 2018, Y Ventures entered into a memorandum of understanding (MOU) agreement with Singpost to jointly explore the development of an e-commerce buying platform which will focus on cross-border purchases for consumers, facilitate consolidated deliveries and logistics-related technology to enhance the efficiency across the vertical logistics chain.

The lack of follow-up announcements of the concrete developments of their business plans, along with the latest accounting misstatement issue, will leave investors unnerved. While investors’ would welcome the management to improve transparency and openness of their overall management of the business and internal controls, it remains to be seen whether the various disclosures and explanations of their latest accounting mishaps are reassuring enough.

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