Failed dental group propped up revenue with Bartercard ‘dollars’

Failed dental group Smiles Inclusive used Bartercard dollars to make help boost revenue projections ahead of its $35m stock market listing in 2018.

Smiles Inclusive under the spotlight

Failed dental group Smiles Inclusive used Bartercard “trade dollars” to help boost revenue projections ahead of its $35m initial public offering in 2018.

A Federal Court public examination into the $91m failure of the Gold Coast-based firm heard that Smiles had inked an agreement with Bartercard to provide up to $3.8m in contractual revenue through its non-cash vouchers.

That promised revenue failed to materialise with only about $300,000 worth of Bartercard’s non-fiat “dollars” used following the IPO in April 2018.

At one stage, the firm had less than a $100 in its bank accounts.

The court heard that Smiles Inclusive shared a building with Bartercard, with founding Smiles chief executive Mike Timoney experienced with the Bartercard system.

Bartercard uses an alternative, electronic currency (known as trade dollars) that is exchanged between companies to pay for goods and services, instead of paying cash.

Companies can then use these trade dollars to offset cash expenses within their business

Examining barrister Vicki Bell asked former Smiles Inclusive chief financial officer Paul Innes whether he recalled advising the board on the risks of using Bartercard to lift revenue assumptions.

Ms Bell said that in February 2018 just before the stock market listing, Mr Innes had advised that there were risks related to liquidity and redemption of Bartercard vouchers.

“Given these risks and the fact it was an unusual type of system do you think the Bartercard revenue should have been included in the prospectus?” Ms Bell said.

Former chairman David Usasz was on asked about discrepancies in revenue figures.

Mr Innes conceded that there were risks associated with Bartercard but they were correctly identified in the prospectus.

He later advised the board that there was “very little certainty” that the promised Bartercard value could be achieved despite it being included in budget assumptions. He said in time both Smiles and Bartercard had planned to extract more value from the arrangement. Mr Innes denied that he should have pursued more robust interrogation of assumptions in the company’s financial reports.

He said he did not recall how a forecast of practice revenue of between $80-$100m was generated prior to the IPO. The actual revenue achieved was $52m.

He also said he was surprised that a year after the company listed its major bank appointed insolvency advisers to look at its operations.

“I believed the business was coming out of its weaker trading performance,” Mr Innes said.

Emma Corcoran, who replaced Mr Innes as chief financial officer in 2019, told the court that a substantial amount of work needed to be done on the company’s operations when she joined.

Ms Corcoran conceded that Smiles Inclusive was facing a cash crunch with one director propping up the company with direct deposits into its bank account.

Although the IPO was an oversubscribed success story, Smiles swiftly fell victim to board infighting, the departure of key executives, profit downgrades and a crippling debt burden.

Among the company’s many troubles was court action by ASIC, lawsuits, suspension from the ASX and the sudden death of a dentist.

Former chairman David Usasz, a former PwC partner, was on Monday asked about discrepancies in revenue figures given to the board’s due diligence committee compared with marketing material provided to investors.

The committee was told Smiles would have revenue of $65m and 61 clinics.

However, investors were promised revenue of $110m with 95 clinics.

Morgans executives Philip Lee, Brian Sheahan and Tim Crommelin are due to appear before rhe public examination on Wednesday.

The Brisbane-based stockbroking firm underwrote the Smiles IPO and its clients subscribed to the majority of the $35m capital raising.

Shares issued at $1 in 2018 plummeted to 4.8c by early 2020.