It appears the impossible is happening. FOBI is coming back from the dead after approximately 21 months from the cease trade order issued in November of 2024 for failing to file financial statements.
Note that a portion of this article will be excerpts from previous articles.
It’s possible I’ve written about FOBI just as much as any other stock since I started writing FINS reviews six years ago. Ironically it was also one of my larger wins in the last several years, entering around 30 cents and selling most of those shares in the $3 to $3.85 range.
So yes, I bought into the initial hype. Thankfully I was one of the first to see significant problems with the company, and I’ve spent a lot of time since trying to convince others including the regulators on the TSXV and CIRO.
At the start, the hype did have some merit. They had pilots with the likes of Sobey’s and Pharmassist which had the potential of their devices being part of tens of thousands of registers, terminals and checkouts across the country. There were “involvements” or “partnerships” with Shopify, Wynn Resorts, the WBO (World Boxing Organization), ski resorts, planned Vegas hotels and a host of others that I’ve likely forgotten about. Heck, their software was even used at the Oscars during the pandemic and once had a partnership with Canadian golfer, Adam Hadwin.
FOBI50 became a hashtag referencing the potential for the stock to get to $50 one day. The CEO himself latched on with pictures of FOBI 50 cakes and even leaving a $50 tip on a $35 bar bill.
Of course the stock never traded above $3.85 and when the CTO occurred in early November 2024, it sat at $0.04, 99% down from it’s peak.
Despite all of the warning signs along the way (yes, even now), FOBI bulls continued and STILL continue to hold out hope. They are the type of investors who wouldn’t heed the “Don’t Eat The Big White Mint” graffiti warning above a truck stop urinal.
The company is trying to reinvent themselves as FOBI 3.0 - driven around the hot theme of the day - artificial intelligence. When rumours first surfaced about their resurrection in late January, they were quite active on their Twitter feed for a two week period. That ended on Feb 3rd and they haven’t posted since.
I wanted to download their most recent investor deck to re-acquaint myself with 3.0 but this is the condition of their investor website:
They still refer to Passcreator (sold) and Bevworks (defunct) on their customer facing website, so clearly their focus has been elsewhere.
Their CEO has never seen a camera he doesn’t like. He has done a series of recent interviews with their long term promotional partner, Agoracom. Here is the latest from a few weeks ago (I have not watched it).
As you can see, the reactions were mixed between the urinal cake munchers and those that have likely been burned in the past.
So while I cannot tell you exactly how FOBI intends to transform itself this time around, it appears to be set around AI agents, an extremely competitive market to say the least. What I can confidently tell you about is their problematic history. I referred to this before as my top five reasons to avoid them like the plague.
1. Historical Financial Performance:
This one is pretty simple. Since 2019 FOBI generated $5.4M (USD) in revenues and $55.8M in net income losses. During that same time frame the company burned through $25.2M of operational cash flow, sporting a return on invested capital (ROIC) of -3770%.
2. Best Performing Historical Asset is Gone
Since FOBI has never provided systematic breakdowns of their revenues, this is a subjective guesstimate, but all clues point to the fact that Passcreator, now sold represented perhaps as much as 90% of their recently reported revenues.
3. Guidance Lacks a GPS Signal:
In 2023 the company provided guidance for the first time. It did not go well.
The actual reported totals were $2.02M in 2023 and $2.92M in 2024 compared to $3.79M and $13.6M forecasted. Even the YTD figure in 2023 turned out to be incorrect when auditors disagreed with their definition of revenue recognition. That $1.5M Q4 forecast was made during Q4 and their actuals came in at $234k. Therefore they missed that virtually real time forecast by 84% and then their 2024 forecast by 78%.
4. When Revenue Isn’t Revenue:
Two examples to speak of here. The first was PulseIR - an investor relations platform that was meant to improve communication with investors via a mobile wallet app.
By my count, they signed three contracts for $120k each, and all had some form of previous relationship with FOBI. None of the three I would consider a quality investment. These all ended up being service for share transactions (not disclosed as such) and FOBI ended up selling those shares at significant losses where they were able.
What I believe to be the biggest spectacle in the history of the company was BevWorks. This was initially announced as a five year, $10M contract.
In the first press release in March of 2023 investors were told this about BevWorks:
“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.”
Some of FOBI’s biggest cheerleaders (the Big White Mint Eaters) were gushing upon this announcement.
This is how it was reported by their Investor Relations partner. A monster AI deal worth $10M over five years. “Back in Black” turned out to do nothing but keep them in the red.
Questions from skeptics immediately began to occur as Bevworks had only been registered as a business for a very short time and their social media pages on Twitter and LinkedIn only launched days prior to this news release. In the first review following this announcement, I said this, “Colour me skeptical, but will FOBI get ten bucks from these guys, never mind $10M over five years.”
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% ownership of the Bevworks, thereby valuing this company at $20M. 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 those amounts were never recognized as revenue.
The auditors didn’t even define it as a typical subsidiary, instead as 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. That was the extent of their balance sheet. Oddly missing from Bevworks balance sheet was any equipment that would be required to perhaps make some, you know, actual beverages. Instead of owning half of a $20M business, FOBI’s partial ownership of Bevworks was then valued at negative $29k.
The company’s first social media post came on the same day as the press release. They have not posted since August of 2023, and the bevworks.ca domain is now available. I’m considering buying it as a souvenir.
The original announcement caused the stock to trade at 3x of its average volume at the time. A $10M historic revenue contract for a company that barely existed, and as far as I can tell never owned any beverage equipment or ended up producing a drop of booze.
5. Insider Filings:
One of the reasons the stock received the attention it did in the early days was the CEO putting his money where his mouth was, or at least so we thought. He very often purchased shares in the open market and exercised warrants and options - sometimes even out of the money.
When I did my analysis on the CEO’s personal and indirect ownership (through a company called FOBISuite) I counted 85 total transactions dating back to 2020 where he added to his share count either through open market buys or exercising options/warrants. With a few exceptions, all of these were reported to SEDI within the required five day window.
During that same time period, 225 transactions occurred with selling in the open market. Zero of those 225 transactions were reported on time. Over 200 of those transactions were filed and released to the market on March 12th of 2024, all of them between five and fifteen months late.
There are numerous examples of SEDI filings with open market buys that correlate to increased volume and a spike in share price. At the same time the market was not made aware of the open market selling. The CEO even went on podcasts and complained about market manipulation while the market was unaware of him selling stock.
According to my analysis at the time, the CEO had a $2.38M net gain on trades of FOBI securities.
So that is the history of FOBI, or at least my relationship covering the stock over the past five years. What do their most recently filed financials tell us? To their credit and my surprise, they have fully caught up on their filings for the last two years. Although, they did have some difficulties with their latest ones as noted in last night’s presser.
When you take out their accounting error, FOBI ended last quarter with a current ratio of just .21 consisting of just $619k in cash and $300k in other short term assets against $4.3M in liabilities due over the next twelve months, $15k in lease costs with the remainder in accounts payable.
These statements were as of the end of March, and at the time were burning $210k per month in operational cash flow. That left them with three months of cash runway and we are now more than four months later. Therefore if they do trade again soon, I would expect to see another attempt at a capital raise very shortly thereafter.
Since FOBI botched the balance sheet as noted above, that would mean their share capital section from their latest FINS are inaccurate as well.
Their more accurate current share picture would be about 255.6M shares. 15M well out of money options and about 78.5M warrants. Again all out of the money with 44.7M at 14 cents and the most recent 30M at a dime. Expect this float to get bigger and likely very quickly.
Through nine months they have contributed $632k in revenue with $2.04M in operating expenses resulting in a $1.45M YTD net loss.
You can get all of the above at a $10.2M valuation (market cap). Sorry, but Bevworks is not included.
What may be fascinating to watch (from the outside of course) is that if they start to trade shortly it will be between their Q3 financials and their Q4 financials. Annual filings would be due at the end of November of this year. Two years after receiving a CTO for failing to file their annual financials.
Considering the state of their balance sheet, the requirements for audited statements, history of changing auditors and problems paying them, I would think the chances are better than 50/50 of another CTO happening once again.
Lastly, I’m really torn about this. On the one hand some 30,000 (FOBI’s number) individual shareholders have had their money held up for nearly two years in this dumpster fire. They will now have the ability to do something with those shares, even if it’s selling them for pennies on the dollar. But I also think CIRO and the regulators are letting the retail investing public down here by letting them trade again.
This is not a situation for Rick Grimes. It’s a situation for Negan and his baseball bat.
FOBI and companies like them are what give the TSXV a bad name. The Vulture index needs a lot of work, and regulators need to do better. I have little faith that they will.
I’ll continue pointing out their shortcoming’s.
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.