from iii16 May 2015 13:24
It is always disappointing when a company that appears to have a potentially good business cannot raise cash to keep going, but it is even more bemusing when companies which have never shown much sign of achieving success can continually tap the market for millions of pounds despite being money pits.
Two examples of the latter are internet personalisation technology provider Phorm Corporation (PHRM) and digital TV technology company Motive Television (MTV). They have tapped investors for money on a regular basis, at reducing share prices, and are valued at less than the money they have raised.
When it comes to pharma and cutting edge technology developers it is understandable that it can take years and years - and many ups and downs - to develop a product. At times, persuading customers to buy a product can be a long process. However, in other cases there seem to be companies which are never quite in the right place at the right time. So, even if there is demand for a product or service it never warrants the millions poured into its development.
Phorm
Singapore-based Phorm is beginning to grow its revenues, but from a very low base, and moving into new markets will help to accelerate growth. Customers include internet service providers, which can generate revenues from their data, while web publishers can generate more income from their advertising space. Advertisers can be provided with more cost-effective advertising opportunities.
Phorm is involved in an enormous online advertising market, but revenues were still modest at $1.58 million in 2014 and that is a significant improvement on previous years. However, this is a fraction of the bloated cost base, which is being reduced, but even quadrupled revenues would barely cover R&D spending, which has been running at around $6 million-$7 million a year. This is why cash flows out of the company so rapidly.
Phorm has moved into the US market so there is scope for rapid growth, but it is difficult to see the company reaching breakeven for a few years. That means that it will continue to require cash from investors.
Between 2004 and 2013, Phorm generated total revenues of just over $11 million, although this includes four years with no revenues. However, total directors' remuneration over the same period was nearly $11.8 million. Phorm boss Kent Ertugrul received just over half of that, although it is difficult to be exact because in 2008 he was not the highest paid director due to a former director receiving a large pay off. Even excluding 2008, Kent Ertugrul earned $5.74 million and the 2008 payment is likely to take him over $6 million - he was paid $0.63 million in 2007 and $0.74 million in 2009.
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