MGM Wireless share price drops 7% as new contract hits a snag

The MGM Wireless Limited (ASX: MWR) share price had a gloomy day on the market on Thursday after shares resumed trading for the first time since late May.

MGM Wireless is a micro-cap ASX tech share that designs and develops technology, software and wearable devices to enhance communication between families, schools, and society.

The company’s multichannel communication solutions enable schools to communicate with parents and caregivers using their preferred medium. These solutions are used by more than 1,400 schools and 1.7 million parents.

What’s going on with MGM Wireless shares?

MGM Wireless requested the voluntary suspension of its shares in late May pending an announcement of a significant new customer contract and capital raising.

The company revealed details of the capital raising last week on 5 June, announcing its intention to raise up to $1.5 million via a share purchase plan (SPP).

The SPP will be priced at 10.75 cents, representing a 23.2% discount to the last trading price of MGM shares on 22 May.

MGM Wireless will use the capital raised from the SPP primarily to accelerate the growth of its Spacetalk business.

Spacetalk is a children’s smartwatch sold in Australia, New Zealand and the UK through leading retailers like Officeworks, JB Hi-Fi Limited (ASX: JBH) and Kogan.com Ltd (ASX: KGN). 

MGM Wireless is aiming to scale-up growth and progress towards potential “company-changing deals” for Spacetalk and new product releases.

With this, the company detailed two new products set to be released this month: a new model watch specifically for seniors and a new model children’s watch.

MGM Wireless believes the revenue growth for its seniors watch could match or exceed the growth it has experienced with Spacetalk. In this way, the seniors watch creates the opportunity to double the rate of the company’s overall revenue growth.

New customer contract update

As we touched on earlier, MGM Wireless requested its shares be suspended pending the announcement of two developments: the capital raising and a “significant new customer contract”.

While the capital raising was announced last week, details of the contract came today, allowing MGM Wireless shares to resume trading.

The company advised that the contract is currently progressing through the final stages of the customer’s authorisation and contract execution process.

However, the requirements of these final stages and COVID-19 logistical issues have reportedly caused the sign-off to take longer than expected.

MGM Wireless noted it will inform the market immediately once it is in a position to make an announcement regarding the outcome of this customer contract.

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Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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