InfinitiAI $IAI.C (2 / 5)
Q3 2024 FINS Review
Was initially going to pass on this request via the TSA discord as it's quite the look back considering their Q3 ended March 31st, but it's a slow time and I was potentially disturbed at first glance so wanted to do a deeper dive to confirm those initial feelings. Digging in.
Balance Sheet:
Initial current ratio looks poor at first glance, but with deferred revenue removed and assume the outstanding convertible notes convert as they should then it's not so terrible. We are looking at an extremely small player here though with $1M of total assets over about $1.8M of total liabilities with deferred revenue removed. At the end of March they had $300k in cash, $642k in receivables against $440k of payables due within twelve months and about $1.35M in debt and convertible notes. How do you run an AI company with $1,800 worth of equipment? When a 1984 Toyota Corolla has more tangible value than a company's long term assets, it's not the greatest start to a review.
$642k in accounts receivables feels awfully high for a company that has done $1.55M in YTD revenue and $2.3M TTM. Included in their net A/R is $125k from a related party (a number that has grown since LY) and estimated write-offs of $22k. The $125k is due from two separate related parties from $155k in revenue. The financial statements, nor the MD&A provides any A/R aging, so I'm looking at this whole receivables story as a yellow flag to start.
Cash Flow:
$650k of operational cash burn through their first three quarters. $72k per month isn't gross, but when your cash position is only $300k and your receivables look a little questionable, it's far from a strong position. They raised $500k through a PP and debentures this fiscal year already and even with that are in a 37% worse cash position than they started the year with. Post financials and quite recently, raised a little over $1M in new convertible debentures, led by ThreeD Capital. That makes the hair on my neck AND my ass stand up.
Share Capital:
129.4M shares outstanding, just 2.4% dilution over the past seven quarters
Principal component of outstanding convertible debentures would be 35.5M shares or 27%
23M warrants outstanding including the last debenture raise, all at 10 cents
17.9M options outstanding including a grotesque 17.4M options awarded during their last fiscal year under their 20% Omnibus SBC plan. Immediate yellow flag for me - I do not invest in companies with a 20% SBC plan.
If the above wasn't concerning enough, awarded 4.72M DSU's which vested immediately. DSU/PSU/RSU's should not be awarded for cash burning organizations. I will die on this hill.
Minimal insider ownership per YF of just over 1%, but ThreeD and Mr. Inwentash are much bigger players here although it has been quite the moving target
Income Statement:
Decent revenue performance of $675k in the quarter, 14% up from last year and through three quarters $1.78M, 15.7% better than a year ago. At first glance it would appear they have made significant strides in reducing operating expenses as their total expenses decreased by 55% in the quarter and are 42% less on a YTD basis. The previously mentioned SBC made up 58% of their expenses last year however. Their actual cash burning expenses were roughly flat to this year. That's actually pretty good when your revenue is up by 16% but it's not the dramatic reduction in spending like it may appear. Overall, they lost $188k in the quarter and their YTD losses grew to just shy of $800k
Overall:
Their P&L really isn't that bad and one can easily look at this and potentially see that the company could be approaching a break even point in the near future. But once you tack on the related party A/R, SBC compensation plan and other factors, it becomes an immediate pass from me. Nothing personal against ThreeD or Sheldon, but they never seem to be in it for the long haul. I'm surprised Mr. Inwentash has kids as his pull out game is so strong.
It's in the AI space, so potentially always good for a trade but this company doesn't spend much on IR like others do. For me, it's a hard pass right now. Two 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 and I do so without compensation. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements.
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.