Is GTEC Holdings Essentially Bankrupt?

GTEC Holdings (TSXV: GTEC) released its second quarter 2019 financial results this morning, reporting $109,000 in revenue for the period ended May 31, 2019. The company lost $2.3 million over the quarter, or $0.02 per share.

Several major issues have arisen for shareholders as a result of the filed financials. First of which, is the looming convertible debenture coming due next year to the tune of $5 million, due on June 11, 2020. While the cut off for the debt to be marked as current was missed by just under two weeks, the company will have to find a path to raising its equity price if it wishes to get above the $1.50 conversion price. Two additional converts are due on October 17, 2020 to the tune of $2.5 million collectively.

The second issue, is that of the current cash position exhibited in the financials. As of May 31, GTEC Holdings had roughly $2.3m cash on hand, with an additional $866,000 in receivables. With payables sitting at a comparable $839,000, and a burn rate of just under $2 million per month, the company is strapped for cash.

Yet, they just announced that they intend to purchase a facility in Kelowna from Canopy Growth for $13 million on July 22. Without conducting a financing at a significant discount to the last raise, GTEC Holdings has few options on how to actually pay for the facility. The firm is expected to advance $500,000 for the purchase by August 15, provided it is satisfied with the due diligence it has conducted, which is in addition to $250,000 which has already been advanced. The transaction is expected to close by October 15, 2019.

Finally, upon receiving its cultivation license Grey Bruce Farms shareholders were issued a $250,000 cash milestone payment as part of the condition of the asset purchase. When combined with the current burn rate of GTEC Holdings, it reveals that the company is currently running on fumes when it comes to its cash position. It’s not even certain that the company has $500,000 to advance to Canopy by August 15 at the current point in time.

GTEC Holdings as a result will likely be required to raise capital in the very near term to continue its operations. The raise at current market prices will undoubtedly put strain on the companys ability to convert its current debt in a years time, resulting in the company having to likely seek additional funds at a later date to cover debt as it comes due.

The saving grace for the company may be that it recently received its own sales license on July 26, reducing its reliance on Namaste Technologies’ CannMart to generate sales for the firm and thus opening provincial distribution lines.

GTEC Holdings is currently trading at $0.39, down 2.50% on the day.

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Information for this briefing was found via Sedar and GTEC Holdings. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.