Annual Financial Statements Released As required by law, the annual financial statements for this TSX listed venture company are now public. Revenues went down from Q2 $12 million to Q3 $8 million to Q4 $7 million. You can cleary see that revenues began to drop right after the FDA declared the company's product not a fibre. The company reports an end of year profit but to get to that result there must have been some good financial engineering taken place in the background. Take note that the company changed auditors earlier this year.
If you look deeper at the statements you will see some real red flags:
On the balance sheet you will notice that inventories now sit at $12 million. That’s up from $6 million the year before. That is a result of product that the company can’t sell because of the crushing FDA fibre ruling. It looks like the company is stuck with this nventory. It will have to write it off at some point.
Finished goods is reported to be $16 million and raw materials and work in progress are basically non-existent at around $500K. This is a clear sign that nothing is being produced at the supposed Canadian plant. It’s also a sign that this company doesn’t produce its own product abroad either. Looks like the company is just a middleman, a buyer and reseller, with no actual production facilities of their own. It’s not a very exciting business model to invest in. But what should worry investors is that the company has a reported $14 million invested into property, plant and equipment. That’s a lot of money for a plant that doesn’t produce anything or generate any revenues.
Accounts receivable sits around $4.5 million. That’s up $1.5 million from the year before. This would nornally be seen as a good sign but the rate of increase of receivables is outpacing the growth rate of revenues. So this should be a concern. Speaking of accounts receivables, as explained in the statements, the company reported is being sued for $1.3 million USD as it is “seeking for various compensations and damages resulting from alleged mislabeling caused by the Company”. You can safely connect the dots and come to the conclusion that this is a direct result of last year's FDA fibre ruling. You can expect other former buyers to sue the company over its false fiber and nutritonal claims.
Accounts payable and accrued liabilities is are a reported $12 million. This doubled from 2017! Clearly they can’t sell the product anymore. They are stuck with inventories that have lost value because of the FDA fibre problem. How will they pay for this debt if they can't sell product?
The company reported a foreign exchange gain of $1.6 million. That represents over half of the reported net income. It’s not a good sign that a majority the profits were earned simply because of a favorable exchange rates.
And Jon Havelock resigned from the Board of Directors after only being on the board for 6 months or so. I wonder why he jumped ship? Must have seen some bad stuff to want to abort so quickly. He was Alberta's former justice minister and attorney general. I guess he doesn't want his reputation ruined by being associated with this company.