Mighty Kingdom raises capital to stay warm
Price at posting: $0.038
Mighty Kingdom Limited (ASX:MKL)
WHEN IT COMES to reckless incineration with little regard for the future, planet Earth’s use of fossil fuels appears conservative next to video game developer MKL’s use of capital.
In a tried and tested act of investor relations trickery, MKL released its quarterly cash flow report on Friday afternoon after the market had closed, when there would be the fewest eyeballs on the report. It gave investors no time to respond and gave the share price no time to reflect the new information.
Indeed, the report was not good news. It advised that the company only had enough cash to continue operations for a further 1.1 quarters as of 30 June 2022. That is to say that if the company continued to burn cash at its current rate, it would be game over sometime in October 2022.
This would be only 18 months after MKL’s IPO in April 2021 where the company raised $18 million at 30 cents a share. Just 8 months after the IPO, the company took in another gulp of capital raising $5 million at 14.5 cents a share. The company has also been the recipient of millions of dollars in government subsidies. A share in the company last traded at 3.8 cents.
There is little doubt that the company saw anything to be positive about in the report. If it had, it would likely have released the report during market hours in the hope of increasing the share price before announcing the capital raise on the following Monday morning and plunging the company into a trading halt.
The report conceded that the management team would need to be streamlined and that the company would be ‘making decisive changes in the business to focus on revenue generation and cost reduction.’
Details of the raise
The AFR is reporting that MKL is seeking to raise $7 million at 3.5 cents a share. This is an 8.6 percent discount to the last close and a 20 percent discount to the five-day volume-weighted average price.
This does not show the whole picture though. While the offer price may be at an 8.6 percent discount to the last closing price, the market was not given an opportunity to respond to Friday’s disappointing quarterly cash flow report before the capital raising was announced pre-open on Monday. This raises the question of whether the offer price may actually be at a premium to where the share price would have been but for the convenient timing of the release of the cash flow report.
Should the company pull it off, this will be a mightily dilutive raise for current shareholders with MKL’s market capitalisation currently sitting at $6.9 million which is below the amount it is seeking to raise. Any shareholder that does not participate in the raise will own about half as much of the company in percentage terms as they did before the raise.
Friday’s report also mentioned that the company was targeting cash flow break even in Q2 of FY23. This seems a tall order given how little the company has collected from customers relative to its expenses. If it can complete this raise, it might make it long enough to be around for the introduction of the Digital Games Tax Offset, a government subsidy for game developer wages, which would make the prospect of reaching break even easier.
The promises in the quarterly cash flow report and term sheet read like MKL’s own version of the Paris Agreement. Whether MKL can really cease its cash burn before the stroke of midnight on the doomsday clock remains to be seen.