Missfresh Misses Out on Fresh Capital, Business Collapses

(CapitalWatch, July 29, New York) The founder of failed Chinese grocery chain Missfresh Ltd. (Nasdaq: MF) has surfaced in local news Friday, denying that he has fled the scene. Instead, as China Entrepreneur reported, company executives are said to be gathered in Beijing – scrambling for financing.

At the markets' close on Friday, Missfresh traded hands at 12 cents per share – that was a 15% loss on the day and a 60% plunge since Wednesday, when the company officially announced that it has not received the funding pledged to it by Shanxi Donghui Group.

"As a result, the Company has to adopt significant adjustments to its business strategy for sustainability, including a temporary shutdown of its on-demand Distributed Mini Warehouse (DMW) service and staff optimization. It is expected that these significant adjustments will have a material and adverse impact on the Company's financial performance," Missfresh said in the statement.

At that point, even the most loyal penny stock traders began unloading their holdings in MF, leading the company's market valuation to drop to $26 million by Friday. And that's no surprise: the aforementioned DMW service had contributed 85% of Missfresh's revenue, according to the same statement.

But the bells were ringing long before this week. Apparently, the cash-strapped company has not paid its employees for two months – and had simply left them stranded, dismissing more than 1,000 this week. Neither has it paid its suppliers – who took to the company's headquarters to protest.

Further, its long-time investors were also left with losses. Among the backers of Missfresh have been tech giant Tencent (OTC: TCEHY; HKEX: 0700) and Tiger Global – looks like Shanxi Donghui has closely avoided the same fate.

Missfresh executives are quoted by local media as saying that the brand remains the company's top value even as its business is failing. Earlier this month, Bloomberg reported on a behind-the-scenes sale arrangement of a services unit worth up to $100 million. It is unclear whether that deal also fell through.

And while in the latest statements Missfresh executives have said that they will try to keep their non-DMW businesses running – which would be next-day delivery and cloud service – some experts foretell the company's complete shutdown. As quoted by Forbes, iiMedia Group's chief analyst Yi Zhang has pointed out: "A grocery-delivery startup needs to buy from suppliers on a daily basis. But as this crisis of confidence spreads, upstream suppliers will get increasingly worried and wouldn't dare to sell to the firm."

Looking at the company's financials – other than the mounting losses and the threat of bankruptcy as its liabilities come due over the next months, there are other glaring concerns. Missfresh has yet to release its 2021 financial report as an internal investigation has been ongoing. Earlier this month, the company made a statement on the results of the review of certain transactions in its next-day delivery unit.

The findings, Missfresh wrote, showed "characteristics of questionable transactions, such as undisclosed relationships between suppliers and customers, different customers or suppliers sharing the same contact information, and/or lack of supporting logistics information.  As a result, certain revenue associated with these reporting periods in 2021 may have been inaccurately recorded in the Company's financial statements."

Missfresh noted that the business unit's individual employees involved had resigned, while the top executives were not found to have been involved in the fraud. Further, the company said it will carry out a remediation plan, including disciplinary actions and enhancement of internal controls. Apparently, the disciplinary action included withholding salaries.

In early June, Missfresh announced the receipt of a warning from Nasdaq, threatening to delist the company should it fail to regain compliance with the minimum bid requirements. At this course of events, it's possible the company wouldn't last in public trading those 180 days the Nasdaq generously gives the flagging firms to regain compliance.

At this stage, even the 200 million yuan in funding pledged (but withheld) by Shanxi Donghui probably wouldn't have made much difference.

Year-to-date, Missfresh has lost 98% of its market value – in early January, the stock was worth $5 per share. The company has been U.S.-listed for just over a year – it celebrated its $273 million IPO in June 2021.