Credit Analysis: STARGAGE LIMITED

1. Credit Opinion: DECLINE

Reasoning: While the company shows improving profitability on paper, the underlying credit quality is fundamentally compromised by severe liquidity constraints and related party exposure that renders the balance sheet misleading. Cash reserves of £86 against an overdraft of £79,015 indicate the business is operating entirely within its bank facility. More critically, £618,586 (82% of current assets) represents a loan to the Stargage Employee Ownership Trust—a related party—making these assets effectively illiquid and non-arm's length. Stripping out this related party balance reveals a true working capital deficit of approximately £241,000, leaving insufficient realizable assets to service obligations. The fixed and floating charge over all assets further subordinates any new unsecured creditor.

2. Financial Strength

Balance Sheet Summary (October 2024):

Key Concerns:

• Asset Quality Distortion: Debtors of £720,905 include £618,586 owed by the Stargage Employee Ownership Trust (EOT). This related party balance represents capital extracted from the operating company to fund the ownership structure. It is unlikely to be repaid in the normal course of business and should be treated as quasi-equity or irrecoverable for credit analysis purposes.

• Adjusted Asset Position: Excluding the EOT loan, total assets fall to approximately £102,978, against liabilities of £343,475—a true net liability position of roughly £240,497.

• Historical Collapse: Between 2019 and 2022, net assets fell from £3.5M to £7,487, representing a 99.8% erosion. While recovery has occurred since, the magnitude of the prior decline suggests significant business model disruption or prior financial distress.

• Intangible Assets: Development costs of £194,760 and other intangibles of £100,000 are fully amortised, offering no residual asset value.

3. Cash Flow Assessment

Liquidity Position:

*Adjusted current ratio excludes EOT loan from current assets

Assessment:

The company is entirely reliant on its overdraft facility for day-to-day liquidity. The stated current ratio of 2.10x is misleading; the adjusted ratio of 0.30x reveals the true position—the company cannot meet its current liabilities from realizable, arm's-length assets.

The reduction in the overdraft from £144,208 to £79,015 is positive, but the facility remains fully utilised with minimal headroom. Trade debtors have decreased significantly (£150,237 to £54,799), which may indicate lower revenue or improved collections, but without a profit & loss account, revenue trends cannot be confirmed.

Profitability Indication: The P&L reserve increased from £128,218 to £328,089, suggesting retained profit of approximately £199,871 for the year. Corporation tax of £68,211 (up from £49,047) corroborates profitability. However, profit is being absorbed by the EOT loan rather than strengthening the operating balance sheet.

4. Monitoring Points

Additional Risk Factors:

• Corporate Structure Complexity: 100% ownership by Tie Holdings Limited, which is owned by the Stargage Employee Ownership Trust, creates potential for conflicts between employee/owner interests and creditor protection. The EOT structure can incentivise profit extraction to benefit employee-beneficiaries rather than strengthening the company's balance sheet.

• Multiple Name Changes: Four previous names (AV Promotions, AV Corporation, Avinity, Extonare) suggest significant business pivots, which may indicate strategic instability.

• Director Profile: Directors listed (Sorace, Binnington) differ from the PSC (Marc Rupert Poulson), suggesting potential separation between operational management and beneficial ownership—worth clarifying for covenant enforcement purposes.

• Secured Creditor Priority: The fixed and floating charge dated 29/11/2018 covering all property and undertaking means the existing bank creditor has priority over all assets, leaving nothing for unsecured creditors in a distress scenario.