Why is Vemma going into liquidation?
News broke yesterday that Vemma had entered into voluntary liquidation in Europe and Australia.
The move left us scratching our heads, as it was only late last month the decision to permit Vemma to restart business operations was met with much gusto.
Now, through filings in an ongoing dispute between Vemma and the former court-appointed Temporary Receiver, some insight is gleaned into why Vemma has abandoned these markets.
To put it bluntly, the financial situation Vemma is currently in is dire.
The Receiver took possession and control of Vemma’s operations in Tempe on August 24, 2015.
Because the Receiver determined that it was critical to make payroll for Vemma’s 105-person staff, as well as to pay employee benefits and insurance premiums, it was crucial that the Receiver attempt to access Vemma’s cash as soon as possible.
However, the receivership estate faced an acute cash flow crisis. At the same time, it faced a myriad of responsibilities and began undertaking the operational analysis needed to determine whether and the extent to which the Receivership Defendants could be operated profitably and lawfully as required by the Temporary Restraining Order.
On the first day of the receivership, Vemma’s accounting staff provided the Receiver with its financial records demonstrating that it had cash balances totaling only $625,513.38 as of August 24, 2015.
Of this sum, $166,412.46 was in accounts held at Wells Fargo Bank, which could not be accessed by the Receiver because they were subject to a perfected security interest in favor of Wells Fargo Bank.
Most of Vemma’s funds were held at BMO Harris Bank (“BMO Bank”), but the Receiver had difficulty getting BMO Bank to promptly turn over the funds.
With just $600,000 in the kitty, an accounting of Vemma’s outgoing expenses painted a bleak picture going forward.
Vemma’s financial disability was far more severe than its illiquidity.
Vemma’s own consolidated income statement for the period from January 1, 2015 through June 30, 2015 evidenced a loss of approximately $1.4 million before depreciation and amortization expense.
In 2014, the consolidated financial report reviewed by Vemma’s outside accountants showed a loss before depreciation of approximately $2.2 million.
Including the net income and losses of the European operations, the Vemma worldwide operations incurred a net loss of $4.1 million for the six months ended June 30, 2015.
The losses in Europe are likely behind the recent liquidation.
And while we don’t know the financials of Vemma’s Australian operations, it’s likely that heavy ongoing losses are behind that liquidation too.
Oh, and all of that’s before we get into Vemma’s debt.
Although this fact was not disclosed by Vemma from the Court in its most recent emergency motion to obtain return of funds held by the Receiver, Vemma also provided the Receiver with an accounts payable aging showing that, as of August 24, 2015, it owed $3,832,678.29, with $2,976,653.52 past due.
Brad Wayment admitted that a $1.3 million cash infusion from the shareholders (defendant Benson Boreyko and two of his immediate family members) was going to be made on the day the receivership commenced and that a further cash infusion was planned within 45 days thereafter.
Wayment Declaration in opposition to preliminary injunction also testified that Vemma was working on establishing a private line of credit of $3-$4 million.
No doubt business accounting experience rises and falls, but when was the last time Vemma actually turned a profit?
If it was during the Alex Morton #YPR affiliate recruitment era a few years back, what does that say about the viability of a non-recruitment orientated Vemma going forward?
Will there even be a Vemma left to defend by the time the FTC case goes to trial?
Footnote: A copy of the Vemma Monitor’s October 8th response filing comes courtesy of Truth In Advertising (“Temporary Receiver’s Reply to Vemma’s Objection to Payment of Fees and Expenses of Temporary Receiver and its Counsel”).
Update 10th October 2015 – The Vemma website is now live, with visitors only able to select “Canada” or “USA” as their country of origin.