Ammeridge Struggles to Raise Funds Through Rights Offering and CB Issuance Amid Sharp Earnings Decline

Issuance of 7.5 Billion KRW Convertible Bonds for Operating Funds
Advance Payments and Tangible Assets Written Off... Large-Scale Losses Last Year

KOSDAQ-listed company Ameritz recently announced it will issue convertible bonds (CB) following a rights offering. This move is analyzed as an effort to raise operating funds after a sharp decline in performance due to the write-off of tangible assets and advance payments last year.

According to the Financial Supervisory Service's electronic disclosure system on the 30th, Ameritz disclosed on the 27th that it will issue the 29th series of CB worth 7.5 billion KRW.

The bonds carry a nominal interest rate of 2% and a maturity interest rate of 5%. The conversion price is set at 1,537 KRW per share, and if converted into shares in the future, approximately 10.37% of the current total shares will be released into the market. Ameritz stated that the funds raised through this CB will be used for purchasing goods and promoting new business initiatives.

The issuance target is ‘LB Corporation.’ LB Corporation is a newly established entity with a capital of 10 million KRW as of the end of last year. The largest shareholder and CEO is Lee Sang-yeop. CEO Lee previously served as team leader at SC First Bank’s Quant Investment Advisory, and as director at United Partners Asset Management.

Earlier last month, Ameritz also raised funds. On the 15th of last month, Ameritz conducted a third-party allotment rights offering worth 4 billion KRW. LB Corporation, the current CB investor, invested 2 billion KRW, and former Ameritz CEO Seo Yong-nam invested the other 2 billion KRW. The purpose of the fundraising was operating capital.

The background for raising approximately 11.5 billion KRW, equivalent to about 20% of the company’s market capitalization, within a short period is analyzed to be due to poor performance and deteriorating financial structure.

Ameritz, formerly known as ‘NewPride,’ was a stock that experienced volatile price swings on the KOSDAQ market, driven by themes. The stock price rode a rollercoaster as the company claimed to operate duty-free shops in China and businesses related to the Korean Wave, but ultimately trading was suspended in March 2020 after receiving a disclaimer of opinion from auditors. Trading resumed only in September 2022 after capital reduction and fundraising efforts.

Currently, Ameritz operates clothing distribution and cannabis businesses. Last year, on a separate basis, it recorded sales of 34.7 billion KRW and an operating loss of 9.3 billion KRW. Sales decreased by 34.3% compared to the previous year, and operating profit turned negative.

Sales plummeted across all business units. Ameritz sells clothing and accessories under the ‘Papaya’ brand through clothing stores in various U.S. states and operates a clothing wholesale business through ‘dba EK Line.’ Sales from this business unit, which accounts for 90% of Ameritz’s total sales, decreased by 34.4% last year. The company attributed the decline to a slump in the low-priced clothing market.

Until 2021, sales were in the 30 billion KRW range, but sales from the cannabis business sharply shrank to 2.6 billion KRW. Ameritz sells cannabis products under the brand ‘Royal Greens’ in the United States.

In particular, Ameritz recorded a large net loss, increasing accumulated deficits. The company posted a net loss of 36.7 billion KRW last year, equivalent to 60% of its total equity.

The net loss was mainly due to losses related to tangible assets and bad debt write-offs. Ameritz reflected a disposal loss of tangible assets of 5.6 billion KRW and impairment losses of 7.4 billion KRW last year. These losses are analyzed to have occurred as the company disposed of underperforming clothing stores. Additionally, it recorded 7.9 billion KRW in other bad debt write-offs. Of this, 1.5 billion KRW was written off from a loan of 25.6 billion KRW extended to its Hong Kong subsidiary. Ameritz sets aside bad debt provisions annually for this loan, with 18.9 billion KRW accumulated as provisions by the end of last year. It also recorded 300 million KRW in bad debt write-offs for loans extended to its China subsidiary.

Furthermore, out of 8.4 billion KRW in advance payments, 4.8 billion KRW was immediately set aside as bad debt provisions. Advance payments are funds paid in advance to business partners. Since the money was paid, the company should have received goods or a refund, but it treated this amount as unrecoverable.

Meanwhile, attempts to contact the company for inquiries about the reasons behind such a large net loss were unsuccessful.