I also need to point out that the previous review for their Q3 should be ignored, given their Q3 and YTD numbers were revised after auditor intervention. More on that later. Let’s get into it - this could be a doozy.

Balance Sheet:

We begin with the worst shape FOBI’s balance sheet has even been in since I’ve been posting reviews, and that feels like an eternity. A balance sheet with a current ratio of under 1 is concerning, FOBI’s Q1 is .49 and that is after removing deferred revenue from current liabilities. As of Sept 30th, they had $161k in cash, $325k in receivables, $305k in prepaids against $1.64M in current liabilities due over the course of the next twelve months. No long term debt with $107k in deferred taxes. A very, very rough looking start.

Cash Flow:

After making some strides during the first three quarters of 2023 in terms of operational cash burn, they have regressed backwards in a big way, and at an inopportune time given what I previously said about the state of their balance sheet. In Q4 of 2023, they burned $1M via operations, and in Q1 of their new fiscal year, burned a staggering $1.75M. That is their worst operational cash burn of their last five quarters, and $60k more operational cash burn than the comparable quarter from last year.

During the quarter they raised $1.5M via their failed PP, and received $293k of funds through options being exercised. These were all exercised by the CEO while they were out of the money.

Post financials the company received $172k via exercised options, and $150k from exercised warrants. These transactions do not appear on SEDI, so one would have to assume they were not exercised by an insider.

So the cash listed on the balance sheet, the post financial warrants and options, and heck lets throw in the A/R too, amounts to $808k. Their accounts payable are $1.6M, and over the last six months of results have burned $458k a month. This math is very dire and that is information from four months ago.

Share Capital:

• 174.1M shares outstanding, with approximately 15% dilution occurring during their 2023 fiscal year

• 17.9M options and 6.9M warrants outstanding, all significantly out of the money

• 20% insider ownership (per yahoo finance)

• $366k of SBC during the quarter, a fraction of the $12.2M awarded during the previous two years - about 3x the amount of revenue the company generated during the same time frame

Income Statement:

This may get complicated, this is a Q1 review but we need to revisit their 2023 annuals first.

In early May, when the company released their Q3 results, they reported $2.29M of revenue through three quarters. As of their audited year end income statement, they reported $2.02M, a .6% decrease against the $2.03M they achieved in 2022. But Wolf, the results after 12 months were $270k less than their revenues after 9 months - how can that be? Well, as suspected, it appears that the auditors had issue with revenue recognition from their much talked about Bevworks transaction. At the time of that big announcement, they reported a $10M deal over 5 years, which worked out to $500k per quarter. That was removed from Q3 revenues. I will rant more about this later. So that revision would mean that their Q3 was actually $750k instead of the $1.25M. Clearly not ideal. What is more concerning is their Q4 revenue only came in at $234k. While that is modestly up over Q4 of 2022, it is by far their worst quarter of the year revenue performance wise.

To finish up their 2023 P&L, they generated $15.4M in total operating expenses on those $2M in revenues, resulting in a loss of $13.4M before other items. Their 2023 payroll alone of $4.35M was more than double their revenue.

Let’s not move away from this revenue line just yet though.

I mentioned my concerns many times of the PulseIR segment of their business and there are additional disclosures in their audited financials, and I’ve attached the notes related to it.

In 2023, FOBI entered into agreements with $NARA, $PKG, and $EPW, not exactly the class of the CSE. The original deals were for a total of $360k, but turned into $294k due to Empower Clinics being Empower Clinics. Of this, about $69k was recorded as revenue in 2023, with $156k going into deferred which will be recognized in 2024. Don’t expect any actual cash to come in for those sales which will be recognized through 2024 though. Of that initially announced $360k, they sold shares for $102k, taking losses on the rest not including Empower, which will likely never trade again.

So how did Q1 look. Well revenue came in at $733k, 38% better than the $532k achieved in Q1 last year. Operating expenses were over 4x those revenues unfortunately, at $3M, resulting in a loss before other items of over $2.27M.

Overall:

So, where to begin? Let’s just start with what investors were told over the past year, and I will try to be as straightforward for some of the longs who are a couple of figures to the left on the human evolutionary chart.

Revenues:

FOBI was projecting their Q4 at $1.5M. They delivered $234k. They missed their sales projection by 84%. Their year ended June 30th. This projection was discussed during their conference call in mid May, and that slide (image) was still available in their investor deck at least well into October, a full 3.5 months after their fiscal year ended. Even if you remove the $500k from Bevworks, they still missed this target by over 75%. How did they not know their April - June revenue numbers by mid October and miss them by that much? These projections were also included in analysts write ups from Echelon.

Bevworks:

Announced in March of last year, was a $10M contract “The largest in company history” with a company called Bevworks over a five year term. Never heard of them? It’s ok because nobody else had either. From the press release we were told Bevworks is “a Canadian beverage manufacturer that specializes in in-house production across various markets, including alcohol, beer, RTD (ready-to-drink) liquor, and alcohol replacement. With proven success in the craft brewery and hospitality industries, BevWorks disrupts beverage manufacturing through strategic M&As.”

But outside of webpages and social media accounts (created around the same time as the press release), a lot of questions arose on Bevworks and how viable a deal this actually was and if FOBI would ever see a penny from it (See my Q3 review).

FOBI’s IR partner, Agoracom had a hard to be ignored 15 second promo where they called it a “Monster Artificial Intelligence deal” (see video)

Three months later, the next press release announced a “Receipt of Payment” in regards to the deal. It turned out that the one time payment was an issuance of shares for 50% of the company. The release also stated that revenue would be recognized over the five year term per IFRS policies.

It turns out that the auditors needed to school FOBI on IFRS policies, as that will not be recognized as revenue after all, as I had suspected for some time.

The auditors do not even define it as a typical subsidiary, instead an “Investment in Associate”. The auditors determined the value of Bevworks to be $0 consisting of $47k in cash with $105k in non current liabilities (As of Q1). That is the extent of their balance sheet. Oddly missing from Bevworks balance sheet is any equipment that would be required to perhaps, you know, make some fucking beverages. In fact, FOBI’s partial ownership of Bevworks is valued at negative $29k.

It’s hard to describe just how foul the stench is with this - what the initial news release purported it to be, and how much of a gong show it has turned out to be.

Positive Cash Flow:

How often did we hear that the company’s goal was to be “cash flow positive in 2023”? From the CEO, a couple of times for sure, but FOBI bulls ran with this like they were in Pamplona in July.

To be honest, during my last review I gave them credit for making strides in that regard. In Q1 of last year, they burned $1.69M, in Q2. $1.26 and $1M in their 3rd quarter. But Q4 was another $1M, and their most recent quarter was their worst in the last five coming in at $1.75M.

Recurring Revenue:

I have always questioned their former CFO’s statement of recurring revenues of 70-75%. If this were the case, how do revenues bounce around as much as they did during the course of the last five quarters. Recurring revenues bring stability, and predictability. Their five recent quarters from oldest to current were $532k, $501k, $755k, $234k and most recently $733k. Their best quarter ever was EIGHT quarters ago at $922k. This is far from what I would expect from a company with a high percentage of recurring revenues. It is also worth noting that their North American revenues, which would include PulseIR numbers was down 16%.

In conclusion, FOBI’s biggest problem right now is their cash position. Their liquid assets are half of their current accounts payable, and this does not include many other amounts included in their monthly cash burn. Options and warrants are way too far out of the money to think there could be any assistance to the treasury, and their last PP was disastrous, unable to close 50% of what they initially wanted to. Debt? I don’t think so. So where is the next wave of funds going to come from? It’s going to have to come from insiders again in my view as if they couldn’t complete a raise in September, they sure as hell aren’t going to be able to after these results. With the share price as it is, to fund what they appear they need to make it through 2024 would come with serious dilution.

The company has lost over 70% of it’s market cap value since my last review eight months ago, and their current $18.6M valuation feels about 70% too high again. Coupons, wallet passes and hobnobbing once a year with Hollywood’s elite at the Oscar’s isn’t saving this very sick puppy and these financials give the appearance that someone needs to take FOBI out behind the barn.

Absolutely brutal from top to bottom, and as a result will receive just my sixth ever zero star rating.

Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

A former four star darling way back in January of 2022, and downgraded twice since then with my last review coming last June.

The stock is down 35% from that raving review over two years ago now, but has since stabilized and actually caught a bounce from it's low of 25 cents at the beginning of the year, up almost 50%. If you caught the dip after tax loss season you're a happy camper, if you've been in since my initial review, not so much.

Balance Sheet:

Current ratio remains very strong at 2.8, and that consists of $1.45M in cash, $8.85M in receivables, $4.7M in contract assets and $2.5M in other current assets against $6.2M in liabilities due over the next twelve months. BLM has $700k of debt, with the vast majority scheduled to be paid off in the next twelve months at a very attractive 3.28%

Their accounts receivables have gone up by 38% during the year, and that is on declining revenues. Anticipated credit losses have increased by 33% and while the total number isn't overly concerning, they do not provide any A/R aging to make me feel better about it.

In terms of comparisons to the last time I reviewed their financials thee quarters ago, it isn't as good.

Cash Flow:

$1.2M in operational cash burn for their first quarter of the year, which is more than double than their burn rate a year ago. Almost all of this is due to the growth in the accounts receivables already mentioned. I don't know that there is a problem with their AR collections but all indications point to the potential for one and providing no aging reports isn't going to make me feel better. Due to this (mainly) their overall cash has depleted by over 50% during the quarter. Something to definitely keep your eye on next quarter.

Share Capital:

Still at 29.4M shares which is unchanged over the last five quarters

13% insider ownership (per Yahoo finance)

Some small recent insider buying

Income Statement:

$8.5M in revenue during the quarter, a terrible 18.6% decline from their first quarter of last year. The excellent news is they were able to beat gross profit dollars on much fewer sales growing their GP rate to 42% from 32.4%. Nearly 1000 bps is no joke but sadly this is just due to movement of expenses from cost of goods to SG&A costs as those costs grew by 20% on 19% less business. That excitement was short lived. So at the bottom they still managed to pull out positive earnings of $245k, missing last years bottom line result by 47%.

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Overall:

A terrible result when comparing to last years Q1, but they were still profitable so to see the share price way down here and only at a $10M MC is surprising, in the neighbourhood of .3 MC to Revenue. The burn rate may be an aberration, but the state of the A/R may have some underlying problems as well and until more could be known about that, I'd be cautious. It's almost worthy of another downgrade based on that, but with the share price and market cap showing some potential value if it's a nothingburger, I'm sticking with three stars.

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

After an encouraging 3.5 stars for their Q1 eleven months ago, I have not had a chance to get back to this one until now. Stock is up 25% since that review but considerably down from their peak of $2.46/share back in early February. Share price gapped up on these latest earnings and swiftly retreated again. Let's see if we can find any clues as to why that is.

Balance Sheet:

Strong current ratio of 2.9 that consists of $15.7M in cash, $10.4M in receivables and inventory valued at $30.6M against $20.5M in liabilities due over the course of the next twelve months. MCB is now debt free after paying off their remaining $4.5M during the year. The inventory making up more than half of their current assets is notable and I'm guessing the 40% increase to last year is going to impact their OCF in the next section. A/R aging looks ok with no significant provisions for write-offs. Some slippage in the current ratio from my last review with less efficiency in inventory turnover, but the elimination of debt offsets that in my view. Overall, strong start.

Cash Flow:

$6.7M of operational cash flow generated during 2023, 134% better than 2022. They utilized $4.5M adding equipment assets, completely paid off their $4.5M of debt, bought back $2.6M worth of stock and paid out $555k in dividends. Overall, their cash did deplete by 27% during their fiscal year, but it was great utilization of their strong cash position, which is still very good. The only minor concern here so far is the significant increase in inventory which had a $9M adjustment to their OCF. But overall we are looking very good so far.

Share Capital:

• Tidy float of just less than 27M shares outstanding, DOWN from 28.4M a year ago

• Purchased 1.74M shares under their NCIB

• 1.4M options outstanding about 1M of which are ITM

• 826k DSU's, DPSU;s and RSU's

• About 50% owned between insiders, funds and tutes with the remainder in retail.

• One of their largest shareholders, Cannell Capital has sold approx 1.2M shares between Oct -

• March

• Doubled their quarterly dividend in March, taking their yield to over 4%

Income Statement:

Revenues were up by 33% during the year to $69.7M, up from $52.4M. A very nice increase in gross profit of 280 basis points from 30% to 32.8% which drove 45% more gross profit dollars on 33% more business. Total expenses were a different story however which grew by 97% which negatively impacted their bottom line, as earnings before income taxes slid by 9%, down to $7.1M from $7.9M. Add in $1.4M of increased taxes and their net earnings get even worse on a year over year comparison, decreasing by 25.5% to $6.5M. Now, we may finally be seeing the rationale for the share price erosion of 23% from it's high. But is it warranted?

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Overall:

A year ago, the company had a one time gain of $4.1M on an asset disposal and as previously mentioned had a $1.4M additional tax bill. The company didn't get any traction on their controllable expenses though. The combination of G&A, product development and marketing costs rose by the same rate of sales.

If you remove that one time gain, then their net earnings is up by 39% over last year, even with the additional tax burden. If you look at their last eight quarters their most recent is by far the smallest revenue increase quarter over quarter at just shy of 8%, so perhaps investors are concerned about growth slowing, but I'm not sure they got enough credit for the previous seven. The company has also provided some caution on their first couple of quarters expecting their back half to be better and overall having a successful 2024. In terms of valuation, McCoy continues to be disrespected in my opinion with their EV/EBITDA, P/E, and P/S ratios on the low side. I don't have a position here yet, but that might not be the case for long.

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

First look, requested via email to thewolf@wolfofoakville.com by Pete, a couple of weeks back. I must admit that the first glance caught my eye given the $6M market cap and seemingly great performance. Will the deep dive live up to my first look?

Balance Sheet:

Pretty solid current ratio out of the gates of 1.9 that consists of $621k in cash, $1.1M in accounts receivables and $1.9M worth of inventory against $1.9M liabilities due in the next year with only $89k of long term debt related to a CEBA loan. They also have access to a $1M LOC with TD with nothing currently drawn against. Pretty good start here. The inventory makes up more than half of their current assets which feels high given their current volume and sadly do not provide any aging for their accounts receivable.

Cash Flow:

Through six months have generated $662k in operational cash flow, almost all of it occurring during the most recent quarter. That's more than 5x greater than where they were a year ago. After paying off their previously mentioned LOC, payments on their small long term debt and lease obligations, ended the first half of the year with 167% more cash than they started the year with. $6M market cap you say - I'm still waiting for the shoe to drop.

Share Capital:

• 31.1M shares outstanding so a surprisingly small float

• 4.5M of dilution occurring this year to settle debt

• 1.1M options outstanding, all ITM and not expiring until 2027

• Unfortunately, I see here that we have a 20% option plan. This will always keep me on the sidelines as a long term investor but I will say they have barely rewarded themselves with much share based comp within the last two and a half years. (Tip: Kill this at your next annual meeting and go to a 10% plan and I'll trust you more)

• Simply Wall Street claims insider ownership of 30%, with 5% private company ownership (Conversance Inc) and 2% tutes

• CEO, Steve Smith (I'm assuming not the former NFL wide receiver) has been selling in the open market. One or two sales before Christmas isn't going to raise my eyebrow, but it's continued into 2024. I also see that he was paid 2.875M shares for compensation for services at the end of last year, so now it makes a little more sense even though he sold at a much discounted SP compared to where the stock sits today. It looks like maybe he wasn't being paid for sometime and this was done to clean up the payables. IDK, now that your CF+ Steve maybe you can take home an actual paycheck.

Income Statement:

Revenue for their Q2 was $2.46M, up 115% from last year and through two quarters stand at $4.34M, up 88% from their mid point of last year. Gross margin is substantially better than a year ago, at 39.6% vs 22.3% in the quarter and 37.4% vs 24.6% through six months. An incredible leap putting 185% more on the GP dollar line with an 88% revenue increase. They also run the business very lean with SG&A expenses at 18.8% of revenues YTD and only 17.3% in the quarter. All of this translates to a very healthy $676K in net income which is 15.5% of revenues.

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Overall:

Ok, you have my attention at a $6.5M market cap. This latest quarter trends out to $10M annually so under 1 MC to sales ratio and somewhere in the neighborhood of 4 EV/EBITDA on their YTD trend. Sexy, and in the AI space as well. Clearly some further due diligence is in order here, including their subsidiary Permatech, and their 25% stake in pre revenue Canadian tech company, Conversance (valued at $1).

Unfortunately, trying to do additional due diligence last night with the TSA crew proved mostly unfruitful with an aging, un-updated website, and no investor deck. Good news is the CEO reached out to me last night and said he would have an investor deck this weekend.

3.25 cautious initial stars with the ability to upgrade real quick if this performance trends.

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

Wasn't sure I was going to review this one, but I certainly wouldn't want to disappoint the bulls and let them think I've forgotten about them.

Last review for Verses was back in February for their Q3 and I gave them yet another poor .5 star rating. The stock is down 34% from then, and is now off of it's $3.72 ATH by 73%. It's been about a week since they dropped their annuals and the share price has pretty much treaded water since. Will their changed valuation change my mind? Will we see any improvements from last quarter? Let's dive in.

Balance Sheet:

We begin with a dreadful looking current ratio of .38, and when you are looking for anything above 1 being acceptable, this is a bad looking start. They ended March with just $892k in cash, $100k in receivables, unbilled revenue of $1.25M, $800k in prepaids and nearly $1M of current amounts due from related parties (yellow flag). These current assets of under $5M are up against $11.75M worth of liabilities due within the next twelve months. More than half of these liabilities, $6.3M is a provision for a legal claim which Verses lost their arbitration decision on post financials. That amount does not include another $3.6M that the CEO, President and one of their subsidiaries owe as part of this judgement as well. Clearly not a good look. It's also never a good look for a company with a historical cash burn rate like Verses to be giving out unsecured, interest free loans to insiders but we have $1.87M of those here, which is $1M higher than it was a year ago. The company raised nearly $45M in the previous two years, so I find it truly distasteful to utilize some of those funds to provide interest free loans to top management. Will they issue more loans to settle the personal legal claims against them too? How would this make you feel if you bought Verses over three bucks?

Of course this heap of dogshit disguised as a balance sheet was from three months ago and lots of events have occurred since. They raised $10M through a special warrant raise in May, and then in June, raised another $10M through G42 in a complex convertible debenture raise. They also received $1.6M (CAD) via options and warrants post financials and all of these transactions certainly improves their cash position. To determine how long this may be the case, let's review their cash flow statement.

Cash Flow:

Through their 2024 fiscal year, Verses burned $29.4M via operations which was 76% more cash than they burned in 2023, a staggering $2.45M per month. Their Q4 was just as bad as the first nine months as well so there is certainly no sign yet of this burn rate slowing down. Their investing activities involved $185k worth of equipment purchases and $1.07M in loans to insiders. Yes you read that correctly, this AI tech company issued 6x more in insider loans than it did buying equipment. During their fiscal year they raised $29.2M through various financing activities and paid out $1.7M in PP related costs. Overall their cash position depleted by 80% from where they began the year.

If you figure they had somewhere in the neighbourhood of $22M after all of that post financials activity, that would give them a cash runway of approximately nine months but that wouldn't include current payables which may include the legal judgements against them. Assuming that is paid out then you're likely looking at a cash runway of six to seven months. Since these financials were from the end of March, one could expect them to be at the financing trough again by the end of summer. Their Q1 financials due shortly should provide more clarity. It should also be noted that the current $2M promissory note was settled via special warrants which may actually mean they only received $8M back in that May raise if I'm reading things correctly.

Share Capital:

• With the conversion of class B shares post financials, current float sits at approximately 149M shares, 55% dilution in the past year and 114% over two

• 23.7M warrants at the time of these financials, with only about 3.4M currently ITM

• 6.9M warrants to G42 and 10M special warrants from the May financing.

• 14.6M options, about 4.6M ITM along with 650k RSU's

• Approx 42% insider ownership with insiders appearing allergic to participating in the open market

Income Statement:

Revenues increased by 22% to $1.96M but sadly those revenues only came with a 13.5% gross profit compared to 29.2% GP last year so overall they brought 43% less dollars to the gross profit line than they did in 2023. Expenses more than doubled in 2024 to over $40.4M. Tack on the legal claim and interest expenses and it resulted in an overall net loss of $46.6M, 139% greater than the loss they experienced last year.

Their gross profit rate and level of expenses results in a break even point of over $343M. They did under $2M so safe to say they have a ways to go.

Overall:

I don't think anyone who is bullish on Verses would try to argue that these are absolutely brutal financials. Bulls are locked in on hopium and it's tough to debate anyone breathing in the noxious fumes of their own bullshit. Their beta preview seemed to go over like a lead balloon but luckily they had they G42 investment to keep their stream of bullishitness moving which was announced on the same day. Do they have the goods to compete with the US behemoths in this space? It's hard to imagine they can keep up but time will tell. Is G42 the LIV golf of AI? One thing is for certain, Verses is an organization with an incredibly high burn rate which has blown through $100M in raised capital over three or so years with less than $6M in assets to show for it. One that spent $7M in IR and marketing, awarded themselves over $10.5M in SBC over two years, has a 20% SBC plan, provides themselves with interest free loans and loses legal claims with former contractors is not someone I'm about to hitch my wagon to. You do you, but another .5 stars and the only reason it isn't a zero yet is their continued ability to raise capital.

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

Balance Sheet:

Extremely solid 3.7 current ratio with $1.65M in cash, $340k in A/R overtop of $590k in liabilities due over the next twelve months. The strengthening of the balance sheet QoQ is mainly due to the recent $2M debenture raise which now sits as it's main long term liability outside of a couple small CEBA and small business loans. The debenture isn't cheap at 12 points, but does convert at double the share price when it was entered into.

Cash Flows:

$1.2M of cash burn through nine months against $3.7M a year ago, and only $128k burned in Q3 alone somewhat aided by higher AR collections in the quarter. With these improvements would suggest they easily have 12+ months of cash runway here with the only risk for a near term raise likely being additional acquisitions.

Share Capital:

• No real changes to the float since last covered. Previous review here: https://wolfofoakville.com/fins-reviews/f/plantco-happy-belly-food-group-vegnc-25-5-stars

• What is both old and new is the relentless insider buying from Shawn, and newly added Sean has been right there regularly on the bid as well. It is extremely encouraging to see this much regular insider participation.

Income Statement:

Excellent revenue move in the quarter, up 170% over last year with $794k, upping their YTD gains to nearly 90% to $1.74M. Big margin improvements in the quarter as well, gaining over 700 basis points to 45%. YTD numbers are on par with last year at 43%. Total expenses rose by 33%, which is nice conversion on a 170% revenue increase, but the additional GP dollars were not enough to offset them, so we have a similar operational loss in the quarter of $637k against $606k in Q3 of 2021. On a YTD basis their total losses are dramatically improved, even when the large impairments and stock based compensation is removed.

I really like the amount of disclosure in HBFG's financials statements, particularly when it comes to their segmented information, and I wish more small and micro caps did this as it gives investors a much better glimpse into the company. Kudos for that.

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Overall:

The revenue star of the show is the non comp addition of their new Heal brand, contributing 53% of their total revenue in the quarter and close to break even, and most likely cash flow positive on it's own already. Post financials they added two more brands, Lettuce Love and Pirho (LOI), in what appear to be very financially attractive deals, and putting them in the hands and direction of well versed QSR SME's can only improve their performance throughout the P&L. If I have concerns, it's with their legacy brands. Yamchops down 11% YTD and losing 80 cents for every dollar of revenue. Much improved over last year but that's a big hill to climb. Maybe they cut bait with this one as the new QSR brands come online and grow? Holy Crap, which I'm a regular consumer of is faring better, up about 16% YTD, probably shows a lot more potential of the two, given the amount of new doors that have been added this year.

I think we're at two, 2.5 star reviews in a row. They have taken some very big strides forward this year. Upgrading to 3 stars on better financials and the potential of much better ones in the future, not to mention that $8-9M MC should be challenged big time in the next few quarters if these improvements continue.

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

Ever had that one that got away? That's how I feel about Cematrix. Wasn't overly excited about them during my first couple of reviews. Then you take your eye of the ball and nobody requests a review when they turn the corner. Had I reviewed their Q3 of 2023 this is a play that likely would have been a contender for a 2024 selection of the year. I was only able to review their annuals however and it received one of the largest upgrades I've ever given from two stars back in May of 2023 to the 3.75 stars I gave them last month and their run has continued up 26% since then and an incredible 115% since dropping those Q3 fins. Let's see how they started their 2024 year. After a couple days, market was not all that impressed, dropping about 13%.

Balance Sheet:

Very strong start with a current ratio over 3.8 which consists of $7.9M in cash, $4.5M in receivables and $876k worth of inventory against just $3.6M of liabilities due over the next year. Receivables are in very good shape aging wise and they had quite the collections quarter which will also show up in their cash flow. Cematrix has about $2M of debt of which half is due in the next twelve months.

Cash Flow:

Massive turnaround in operational cash flow in Q1 generating $4.8M against burning $238k in the same period last year. But here's the thing, most of that turnaround was in working capital changes. They collected extremely well on receivables and utilized that to pay down a substantial amount of payables as well. Problem is their Q1 revenue was no where near the previous two quarters so don't expect their operational cash flow to trend as good as this. Nothing notable in their investing and financing activities during the quarter so overall their cash position improved by a whopping 140%.

Share Capital:

• 135.3M shares outstanding with only 1% dilution during this past year

• 0 warrants left after 24M expired unexercised in 2023

• 4.7M options outstanding, with about 3M currently ITM. I wish their breakdown in the notes had more clarity

• 151k RSU's with 1.3M exercised in 2023

• Very minimal insider ownership of 3% (per YF)

• One director with insider buying late last year and a former member of the mgmt team dumped all of his 1.3M shares back in Dec leaving about 40% of upside on the table. Sucks to be you Patrick

Income Statement:

Looking like the story here isn't going to be what Cematrix did compared to Q1 of last year but rather what they did against the previous two quarters. Revenue improved by 17.5% to $8.4M against $7.2 last years Q1. Margins were substantially better from the piddly 10.4% they achieved in Q1 of last year all the way up to 30.2% this quarter, and their SG&A expenses rose slightly less than their rate of revenue increase at 15.7% so they achieved a little bit of conversion there as well. That all amounts to a net income of $350k in the quarter vs a loss of $1.67M a year ago. That is a $2M bottom line improvement on only $8.44M in revenue so if you're just looking at last years Q1, it's pretty impressive. The problem here might be a story of what have you done for me lately.

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Overall:

While there is some significant seasonality to consider with Cematrix, revenue was down in Q1 compared to the previous two quarters by over 55%. This is what I imagine the rationale for the big drop in share price in the last two days of last week as well as the slippage of their back log number from $100M to $84M the scope reduction relating to one large project. Does this create a dip opportunity or is the market just factoring in more risk?

Their TTM EV/EBITDA ratio of under 8 and Rev/MC ratio of under 1 all the while improving their margins and bottom line suggest there is still opportunity, but the two strong quarters of Q3 & Q4 are likely making investors a little uneasy. I don't blame themI would expect them to have a strong Q2 with some risk in the back half if they can't beat those two monster quarters, particularly as some of the lost backlog was likely to hit the back half of the year. Minor downgrade to 3.25 stars but I still think there is a lot to like here.

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

Intended to review their annuals about six weeks ago but didn't like the fact that the company did not restate their financials for a comparable 12 month vs 12 month look. Multiple discord and email requests to take another look so here we go.

Balance Sheet:

We start out with a very strong current ratio of over six with $3.5M in cash, $6.6M in receivables and $8.85M worth of inventory and a handful of other short term assets against just $3.25M worth of liabilities due over the next twelve months. The near $4M write off for an aging receivable dating back to 2020 is a massive eyesore sadly, and even though they won an arbitration case to get this deposit back, you would have to think them seeing these funds again out of China are extremely slim. Given this, I find it very disturbing that the company does not provide an aging report on the rest of their accounts receivables. Let's face it, prepaying $2.9M USD during the height of Covid was a boner of a move, so do me a favour and provide an aging report so I can properly gauge your A/R. Inventory turnover improved with a slight uplift in revenue on 7% less inventory. No significant amount of debt to speak of here but they do have a $6.75M facility available at a strong prime +.75%. Never like to see amounts due from related parties and while the amount is small ($48k), the company treasury should not be treated as a bank to loan executives money to buy a house. This should have been paid back by May 7th, but it is not noted within subsequent items.

Cash Flow:

$1.06M generated from operating activities during their first quarter against burning $900k a year ago. Much of this difference is within working capital changes, collecting better on receivables and less inventory purchases. While a good number, I'm going to suggest it's not quite as good as it looks, just as last years burn wasn't as bad as it looked. Nothing significant within the rest of the cash flow statement so overall the company more than doubled it's cash position during Q1.

Share Capital:

• Nice tight float of 30.3M shares outstanding with just 475k shares of dilution over the past 15 months from options

• 1.03M options, all currently out of the money, not including the 600k options awarded post financials under their 10% SBC plan

• 2/3rds insider ownership, which would make the available float on a daily basis somewhere around 10M shares making it prime candidate for big swings

• Some small insider buying previously this year under $1/share

Income Statement:

$6.75M of revenue generated in Q1, slightly up by 2% over the $6.64M from the same quarter last year. iFabric experienced a 380 basis point gain in gross profit rate to 43.8% turning the modest 2% revenue increase into a much more impressive 11% gain in gross profit dollars. G&A costs were well controlled increasing by the same rate of revenue while selling costs increased by 9.5% which cuts into those gross profit gains. Bottom line earnings before taxes were up an impressive 16% to $694k vs $598k last year.

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Overall:

A pretty solid quarter and solid looking company overall but nothing in here is really getting my juices flowing making me think I need to go out and slap the ask personally.

I have some concerns with some of their segmented data as well. While their intelligent fabrics business had a nice increase, their intimate apparel business was down 6.5%. Their Canadian business was down 15.7% and was non existent in the UK after having nearly $400k of revenue in the same quarter last year. This raises some concerns and the MD&A doesn't tell me any commentary that I couldn't figure out on my own. Why is it down and what are you doing to mitigate is what I want to see here and they didn't tell me anything. Maybe this was raised by the company in another format, but I quite frankly don't have the time to search and this is what the MD&A is for.

At a $24M TTM revenue figure with $1.5M of EBITDA during the same timeframe puts it at about a 1.55 MC/Rev multiple and a rather pricey 24 EV/EBITDA ratio. You'd have to grow at a much better rate than 2% to get my attention at that kind of multiple. While the company has some potentially exciting catalysts in the future, it looks like it's already trading with those baked in here. Meh. Decent looking company with good financials but the minimal growth this quarter, the valuation, and lack of commentary that would alleviate some of my concerns comes with some slight deductions. 3.25 stars.

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

Balance Sheet:

Stellar looking balance sheet with a current ratio of 6.75 (deferred revenue removed) consisting of $3.1M in cash, a quarter million of receivables and a half million worth of inventory against just $600k of liabilities due within the next twelve months. AirIQ had zero debt, in fact have zero long term liabilities. We are off to a fantastic start here.

Cash Flow:

During their fiscal year produced $1.65M of operational cash flow, which is a 54% improvement over what they did a year ago. They spent $656k in asset purchases and repurchased $51k worth of stock under their NCIB. Overall they were able to improve their cash position by nearly 44% during their year. Pretty impressive cash flow given their volume.

Share Capital:

• Pretty small float of 29.5M shares, down about 200k shares over the last two years

• 2.9M options outstanding with about 2.4M currently ITM. Outside of 600k expiring this year, the remainder do not expire for some time (2.5 - 10 years)

• Buybacks continue post financials. Not earth shattering amounts and not nearly enough to maximize their current 5% NCIB which they renewed at the end of June

• 38% insider ownership (per Yahoo Finance)

• Five different insiders purchased shares on the open market so far this year.

Income Statement:

Revenue increased by 9.2% during their fiscal year - 10.5% in the all important recurring revenue segment and a 4.4% increase in hardware. Recurring revenue also make up nearly 80% of their business. Gross profit improved by 70 basis points to a solid 60.8%. They converted slightly within their controllable expenses which grew at 8.9% giving them income before other expenses of $1.3M, which was 13% better than last year. The only negative within their P&L is a $160k bogey in foreign exchange (can hardly fault them for this) but that did wipe out all of their improvements during the year, as their net income was only $6k greater than a year ago, coming in at $869k, but still impressive coming in at nearly 16% net income to revenue.

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Overall:

Solid financials and have the earmarks of a very well run organization, but at $5.5M in annual revenue we're looking at very small potatoes and a 10% increase on small potatoes isn't going to make it crowded in my pants if you know what I'm saying. The company has also been publicly traded for longer than my kids have been around and since one of them is allowed to drive this year and the other one able to drink - that's a long freaking time. So why now?

That's the big question for me and to be honest, the company itself isn't exactly doing a great job of trying to win over retail shareholders. Incorrect email address on their website and making their investor deck difficult to come by. Thanks to Cameron from Common Sense Investing who was able to track one down prior to covering the company in a video he put out a few months ago which can be viewed here. Their IR has to be better.

Their growth in recurring revenue is nice but 102% over seven years works out to about 10% ARR. It's a nice number but lacking the quantum leap type of gains needed to make this stock really appreciate in value.

Speaking of value, it does look relatively cheap with a price to sales ratio of around two but even more so with an EV/EBITDA ratio of under 6. With any type of growth, a real winner could be lurking here.

They may be poised for some more aggressive growth as well. They have made two acquisitions recently, one in mid March which would have had little impact on these financials and one in mid May. These will add $570k in recurring revenues with high margins and they did so with very little cash outlay and on paper look like excellent additions. These two acquisitions combined are a 13% increase in recurring revenue to what they did in 2023, so on the top line are already slated to have a better top line excluding any organic growth they can get.

The stock itself is down YTD, and perhaps investors are punishing them for a flat bottom line on 9% more business in 2023 after a 50% increase in the bottom line the year prior. They also had a much weaker back half of 2023 than their first two quarters with both Q3 and Q4 down to their comparable quarters in 2022. 

From a peer point of view the easy comp right now is BeWhere Holdings. They are about double the volume at about 4x the market cap. BEW also drivesless margins and less profitability as a percentage of revenue and are at a much more expensive looking 27 EV/EBITDA ratio. If you like their long term prospects better this variation can easily be justified, but it is worth pointing out.

Going to do a little more DD digging on this one as it intrigues me. These are 4 star financials, but the back half of 2023 is enough for me to give it a slight downgrade to 3.75. Could be worth a flyer down here given what appears to be minimal downside given this current valuation.

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

Plenty of interest from the TSA discord asking for a review. Cool logo, amazing ticker, but the company name sure is a mouthful and a half and I must say their font and colour usage within their investor deck makes me want to reach for an edible. Don't know much about these guys yet but when SmallCapDiscoveries is a fan and involved in a recent financing, it makes you sit up in your chair and take notice (sadly this phrase has been somewhat ruined by a Roaring Kitty meme).

Despite spending several years as a stoner, this has never been a sector I've favoured. and I've never put any serious money into it. Is this the one? I'm always a skeptic, but going to dig in.

Balance Sheet:

Solid current ratio of over 1.6, but one of the more illiquid balance sheets you'll see with that good of a ratio. It consists of only $135k of cash, $1.11M of receivables and a staggering $9.5M worth of inventory against $6.6M worth of liabilities due over the next twelve months. SSC has no debt and their only long term liabilities are lease related. It's also notable that their current ratio worsened over the last three months from 1.8. Their A/R jumped by 110% within the last three months. That outpaces their revenue increase QoQ, and although the company is not accounting for a significant credit loss, I always like to see an aging report and SSC does not disclose one. Inventory makes up for 88% of their current assets at over $9.5M and with under $10M in net revenue (extrapolated) equates to an absolutely terrible turnover ratio. Their main competitors (using the ones they mention in their investor deck) range between 2.4 & 3.1 while they are at 1.05. Now they are a young company and allegedly did add some inventory with the Lamplighter acquisition, so I wouldn't get too excited about this yet, but it is something to monitor in future financials. 

Cash Flow:

Positive cash flow from operations of $208k vs a cash burn of $188k in the comparable quarter last year. Much going on within their working capital changes including big spikes in A/R, accrued liabilities and the previously mentioned inventory on hand. Not a lot occurring within the other sections of their cash flow statement, so while their cash position improved by 68% in the last three months, it still ended at a rather paltry $135k. Based on everything I've said so far including their lack of liquidity, it's not shocking that the company raised $800k post financials at 15 cents/share.

Share Capital:

• 48.5M shares outstanding as of March 31, with 38% dilution since the beginning of 2023

• An additional 11% dilution post financials bringing current share count to approx 53.8M

• 26.1M warrants outstanding including the 5.3M post financials. All are ITM at .20 expiring between Aug '26 and Apr '27

• 3.9M options, all ITM between .19 &.25

• Fully diluted float of approx 84M

• Per YF, 28% insider ownership

• Some small activity from insiders in the open market, but insiders did participate for $100k in their most recent raise

Income Statement:

$2.3M of net revenue achieved in Q1, 28% better than Q1 of last year. Gross profit took an absolute shit kicking however with their GP eroding by a rarely seen rate of well over 2000 basis points from 70.3% to a much leaner 48.6%. I've included the company (image) comments from their MD&A here. In what fucking universe is going from 70% to 49% a slight decrease? Their Q1 margin is actually much higher than the 37% margin they produced in Q4 of last year, but this is very extreme margin lumpiness here, and I'm going to suggest if you discuss your mix of branded product to other product in your margin rationale, you should also provide some additional segmented revenue disclosure. So on 28% more revenue, they brought 11% less dollars to the GP line. Not good. 

Cash burning expenses within their SG&A rose by 83% on 28% more revenue including payroll which rose by 350% and Office and general expenses by 140%. I think I'm willing to excuse this a little more than their margin miss as they are scaling and 16% SG&A to gross revenue still seems relatively lean. 

But at the end of the day we're here for the bottom line of the P&L and when your expenses outpace your revenue increase and bring less margin dollars to the table it's going to add up to a big hit on the bottom line and that's what we have here with $502k in Net income, a 34% decrease in profitability to last year.

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Overall:

I think it is safe to say I was expecting to like this better. Do I like them better than any of the other giant shitco's in this sector? Certainly, but I'm not sure that's the bar that I want to measure them by. They've also only been publicly trading for six months so whatever determination I make on them here isn't going to be my last or final say either. I don't like the liquidity of their balance sheet, even with adding $800k post financials, their inventory turnover compared to their peers is terrible, but most of all I'm uncomfortable with their margin lumpiness ranging from 37 - 70% over the past five quarters. I also find their disclosures lacking. There is no segmented breakdown by type of product, no A/R aging and absolutely no breakdown of their acquisition within the financial notes that occurred during the quarter. I don't think I have ever seen that. 

With that said, even with all of those concerns, they still produced 22% of net income as a percentage of net revenues, which is a fantastic number. They have a market cap of $15M, but with nearly 60% of near guaranteed dilution with ITM warrants and options, the implied valuation is much higher. Should they hit their $20M 2024 revenue target with the net income and EBITDA rates they have done in Q1,  there could be some pretty good value here. I feel like I shit on it more than I intended overall , but it is what it is. Don't think I'd be ready to pull the trigger here myself just yet but this is more than watchlist worthy. A quite positive initial 3.5 stars and looking forward to see what they can do in Q2. 

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

Fins just dropped and at a first glance there looked like there could be something here. Market approves, up 11.1% so far this morning, but let's see if this gets my approval as well.

Balance Sheet:

An ok current ratio just shy of 1.2 that consists of $164k in cash, $1.2M of receivables against $1.23M in liabilities due over the next year. Not mind blowingly impressive, but what I am impressed by is the one year turnaround of the state of their overall balance sheet. One year ago, their balance sheet could be described as dogshit with a current ratio of just .43 and negative shareholder equity of over $2.5M. They don't have much in non-current assets, $23k which could be a couple of PC's and a depreciated Toyota Camry, but the negative equity was reduced by $1.9M. I wouldn't call their current balance sheet fantastic, but I'd no longer refer to it as dogshit either. They have $888k in long term secured debentures - secured against their A/R I would assume and those debentures were significantly reduced in 2023 as well. We'll look at these debentures more in the share capital section.

Cash Flow:

Operational cash flow generated in 2023 was $58k on the positive side of the ledger after a significant $3.33M operational burn the year prior. This years number includes a hit of $1.4M in working capital adjustments. Almost half of these adjustments come from increases in accounts receivables and the other, a big reduction in payables. About 20% of the companies A/R is overdue and they wrote of $166k in 2023 and anticipate taking another $43 in credit losses this year. Combined that's about 5% of revenue which can make a big difference on the bottom line. Their A/R aging is certainly something to look at going forward. Reklaim's A/P also decreased by $800k, but $620k of that was through issuance of shares to settle that A/P. Another deep dive for the share capital section.

Share Capital:

• 114.4M shares outstanding with 23% dilution in the past year and 83% over the last two

• 26.2M warrants, all at a dime and ITM. This will raise $2.6M to the treasury in the next two years but is another 23% dilutionary measure in the future

• 9.3M options outstanding, again all ITM, so we're now up to 31% nearly guaranteed dilution between options and warrants

• 117k RSU's issued during 2023. It's a minor amount but RSU's given where the company is at is questionable

• That $620k of payables reduction was settled for issuance of 17.25M at an average of 3.6 cents a share. Pretty good looking deal for the debtors in hindsight. 

• CEO contributed 30% towards those debentures and received 8.33M shares in addition to "bonus shares". 

• Those debentures carry an interest rate of 12% and the remaining balance would result in another 6.6M shares at yesterday's close and that's prior to future interest.

• 35% insider ownership per company investor deck

• Only 1 open market buy in the previous year by insiders

• Company completed a 5:1 reverse split in 2021 under their previous name, Killi Ltd.

Income Statement:

Revenue was strong with a 74% revenue increase to $4.11M. A dramatic turn of events within their gross profit going from a negative 5.5% GP to an extremely sexy 77.3%. The COGS breakdown is bizarre. The fact that they reduced their hosting fees to $90k is great, but what moron in procurement figured $1.7M was ok to sign off on in 2022 and are they still with the organization? The MD&A doesn't tell us much.

In addition to reducing their COGS by 62% on 74% growth, they also reduced operating expenses by 38%. Tack on a one time gain of $446k related to their complicated A/P story and that drove a net income of $910k, a earth shattering $5M turnaround compared to the $4.15M they lost in 2022.

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Overall:

A tremendous turnaround in a lot of areas, but it's clouded by a clusterfuck of a float that has diluted by 83% in two years and set to go up by another 37% when you include warrants, options and debenture conversions. This from a company who reverse split three years ago this month, so that doesn't give me confidence in managing this much better going forward. Their net income isn't as good as it looks as half is made up of a one time gain. With that said, it's still 11% of revenue and you can't diminish the turnaround from that gag inducing 2022. They're now up to a $16M MC, so they're at 4x revenues and a 22x EV/EBITDA when you take that one time gain out, so the bargain that once was doesn't seem to be there anymore IMO. Congrats if you've been swinging this, but I don't see a lot of rope left here, as it's already trading on some futures. 2.75 initial stars.

Paid subscribers have priority status to request financial reviews of stocks they have interest in. Request via DM or email me at thewolf@wolfofoakville.com

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.

Another ticker that I thought had a great chance in 2023. It started off well, nearly tripling from late December lows to it's YTD high in May from 19 to 56 cents, but I must say I've been pretty lukewarm on it since they started reporting financials in May. Sold my position after their annuals and took a smaller position after their Q1. Their last five set of financials have seen ratings in the 2 - 2.5 range. Let's see how Q2 fared.

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Balance Sheet:

Due to not meeting financial covenants on their largest loan relating back to their acquisition of PureKanna (PK), their balance sheet has looked like trash for over a year now. After a slight improvement in their current ratio in Q1, their current ratio has regressed back closer to where it was at the end of 2022, to a worrisome .67 that consists of $3.94M in cash, $2.18M in receivables, $4.54M in prepaids and $3.35M worth of inventory over a gigantic $21.5M in liabilities (deferred revenue excluded) due over the course of the next year. In fairness, the total of the $10.37M PK loan will not actually be due within the next twelve months, but they are indeed on the hook for 15% of the amount owning at the end of the year, and YTD has incurred more interest than principal paid. Long term debts of just over $1M from a combination of pricey promissory and convertible debentures.

Cash Flow:

After achieving a nice milestone in Q1 with $1M of operational cash flow, Q2 went the other way where they burned about $300k, so their OCF through six months sits at just over $700k. I think it is not as good as it looks due to working capital adjustments, as there is $1M in deferred revenue and they have over collected on A/R YTD by over $2.3M which will not continue to trend this way. During the year, they received nearly $5M through their PP and paid down their net debt by $3.86M. Overall through 2023, they have improved their cash position by 68%. 

Share Capital:

• 71.7M shares outstanding, 129% dilution from the same time last year

• 2.3M warrants, with 1.8M just ITM

• 1.37M options, about half just ITM

• 18.5% insider ownership (per Yahoo Finance)

• No open market buying since Feb, but with the amount of RSU's being handed out, I don't foresee any

Income Statement:

Revenue of $23.56M, up 39.5% from last year but more importantly, down 4.3% QoQ. The shine is starting to come off early here. Through six months, revenues are up 66% to $48.2M. Gross profit as expected is down significantly due to the balance of sale shift within their product lines, down 1100 basis points in the quarter and roughly the same YTD. 57% vs 67.8%. On over $48M of sales, that's over a $5M hit to the GP line.

During a quarter where the company went backwards QoQ by over 4% in revenue, total expenses were up by over 24%, and on a YTD basis are up 38%. This one is pretty unforgivable IMO, and what makes it worse is they spent over $3M more or 29% QoQ in marketing costs to deliver 4% less revenue. When I was a junior VP with a modest (compared to my peers) marketing budget, I asked for additional dollars and I was told "Marketing is a drug", by a senior VP whom I needed to approve those dollars. That statement which I didn't think much of then surely rings true with these guys. SBBC's marketing expense in Q2 of 2022 made up 70.6% of their gross profit dollars, and I called it out THEN for being ridiculously high and wondered myself how they would get themselves off of that "drug". This latest quarter, marketing spend was over 98% of gross profit dollars. That's grotesque. Now a big chunk of the increase is related to national promotions with Costco for TruBar, but you need to find that expense from elsewhere, and instead it appears they doubled down and spent more on online advertising for PK as well. So with all of that said, Total expenses were through $33.2M two quarters , over $9M more than last year. Losses before other items was up 33% to $5.7M vs $4.3M. Tack on a more than doubling of finance expense due to their debt and a loss on remeasured warrants, and their Net loss grew by 66% to $9M, up from $5.4M.

Overall:

After some encouraging metrics in Q1, this is a pretty big step backwards for me. QoQ sales erosion, monumental drop in GP rate, and a major increase in spending is the trifecta of shitting the bed. Simply has some really attractive brands, but management appears inept at being able to grow these brands profitably. If you dig deep, there are some potentially encouraging things within the MD&A, but as long as their marketing expense is this much of a percentage of gross profit dollars, it doesn't matter. Add in their debt issues and it's an even bigger factor that they are running the business this poorly. The $700k in OCF YTD, I think is a bit of a mirage - it's not as good as it looks. Tack on the fact that there is lump sum principal payments due on their largest loan, and it wouldn't shock me to see another raise by the end of the year. Stock price has slid as a result of these financials, and I believe deservedly so. As of yet, the company has not come off of their $80M sales projection for the year, which would mean a significant drop from where they are today. After you just experienced your first QoQ sales decline in years, you think you would get on that if you believed you would do better. At a sub $20M MC, the potential is there, but I'm starting to think the potential is in a buyout, not with these guys running the show. Downgrading to 2 stars.

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My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

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