You are using an older browser version. Please use a supported version for the best MSN experience.

Auditor's warning on Seadragon's future

NZN 30/06/2016 Edwin Mitson

Seadragon's auditor has warned the fish oil extractor may not have sufficient cash reserves to meet its obligations if it fails to achieve its forecast cash flow and doesn't receive continued support from investors and financiers.

In a note to the company's audited financial accounts, PwC indicates an uncertainty that casts doubt on the Nelson-based company's ability to continue as a going concern.

In a statement published with its annual report, Seadragon said it had breached an agreement with one of its lenders because it wrote down the value of its Omega-2 fish oil stocks.

The fish oil extractor agreed to sell its Omega-2 inventory to what it describes a major international food and fine chemicals company for about $2.5 million. As a result, it wrote down the value of its inventory by a further $600,000, bringing the total writedown of inventory for the year to $4.3m.

Seadragon said the writedown meant that the company did not comply with one of its lending covenants with Heartland Bank. It breached an agreement that covers the ratio of working capital it must hold compared to its debt.

Heartland Bank agreed to waive compliance and is in discussions with Seadragon about using some of the $2.5m raised from the sale of the Omega-2 stocks to repay some of its debt.

The announcement was made as Seadragon published its audited financial results for the year to the end of March.

Sales fell to $5.6m from $6.2m a year earlier while the net loss almost doubled to $5.5m from $2.8m a year earlier. It had previously flagged an unaudited net loss of $4.9m.

Chairman Colin Graves said the results reflected the downturn in the Omega-2 market.

"Recent weakness meant we were unable to meet sales targets for the last financial year and led to our Omega-2 inventory levels being much higher than usual at year end," he said.

Seadragon is taking a number of steps to try to preserve its cash position - it is cutting its operating costs, exiting office leases where they are not fully used and looking to speed up the sale of stocks that are selling slowly or are not seen as crucial to the business. It is also looking to ramp up sales of its Omega-3 products.

Mr Graves said the company was reviewing the terms of their relationship with its bankers and looking at options to raise additional capital "if needed".

image beaconimage beaconimage beacon