mm2 Asia’s going concern flagged as auditor notes current liabilities

THE auditor of mm2 Asia has flagged a material uncertainty that may cast significant doubt on the entertainment company’s ability to continue as a going concern, the group reported in bourse filings on Wednesday (Jul 13) night.

In its report on the financial statements of mm2 Asia for the financial year ended Mar 31, 2022, Nexia TS Public Accounting Corporation noted that the group incurred a net loss for the financial year, and its current liabilities exceeded its current assets.

mm2 Asia incurred a net loss of S$42.1 million for FY2022, according to its auditor’s report. As at Mar 31, 2022, its current liabilities exceeded its current assets by S$76.3 million. Its auditor also noted that the group has borrowings amounting to $154.4 million which are due within the next 12 months from the end of the financial year.

These conditions “indicate that a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern,” Nexia TS said.

However, mm2 Asia’s financial statements have been prepared on a going concern basis, with the assumption that the group “will be able to meet its liabilities as and when they fall due”.

The entertainment company’s board is of the opinion that there are no concerns on the group’s ability to operate as a going concern basis and have taken steps to address it, mm2 Asia said in a Wednesday press statement.

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As at Jul 13, 2022, it has issued 390 million placement shares in the capital of the company at S$0.05 per share to raise S$19.5 million in new share placement completed on Apr 4.

Its wholly-owned subsidiary mm Connect on May 12 and Jun 22 also entered into agreements to issue unsecured convertible bonds in an aggregate of S$12 million carrying a 5 per cent per annum coupon rate. The bonds mature 2 years from their respective dates of issue.

The group also on Jun 16 entered into a term sheet with UOB Kay Hian as arranger in relation to a proposed issue of exchangeable bonds with a principal amount of S$54 million, coupled with detachable warrants by the group. This remains subject to entry into the definitive agreements after negotiations between the parties.

As at Jul 13, the transaction is in progress.

The bonds will carry a coupon rate of 5 per cent per annum and a tenure of 2 years from the issue date, which will automatically be extended for 1 year in the event the exchange right is not exercised at the end of the tenure.

They will be issued together with 250 million warrants, each carrying the right for a period of 5 years from the issue date to subscribe for one new ordinary share in the company at an exercise price of $0.065 per new share.

The consideration from issuance of the warrants, if fully exercised, will be S$16.25 million, mm2 Asia said, with expected total funds raised from the proposed issuance amounting to S$70.25 million.

mm2 Asia added that it is in ongoing negotiations with various lenders, which it has been engaging with since the previous financial year, to obtain letters of waiver on certain compliances in facility agreements, refinancing of its existing loans and/or to extend existing loans tenure.

These refinancing exercises would allow the group to preserve sufficient working capital to sustain its Covid-19 recovery, it said.

Shares of mm2 Asia closed flat at S$0.053 on Wednesday, before the bourse filings.