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2 IR firms and big losses lead to bankruptcy
Posted by: Gerry Wimmer

Functional Technologies (TSXV-FEB) - extreme spending on investor relations contributes to its demise. 

Last year in our blog post (See: 2 IR firms and big losses) we asked this question:  Why did Functional Technologies Corp. (TSXV-FEB), a small cap stock, hire two investor relations (IR) firms, to represent the Company to investors for a reported combined cost of $10,500/month plus expenses and a bucket load of options? At the time, Functional Technologies reported $4.8 million in annual losses on a paltry $200 thousand in sales.

One year later (from our post) nothing had changed. The Company still had two IR representatives and continued to report huge financial losses. That was until April 17, 2013: Functional Technologies filed for bankruptcy protection. Today the stock remains halted and the shares traded last for under a penny. Our initial blog post served as an early warning to small cap investors about the bad management practices occurring at Functional Technologies by the excessive spending on investor relations activities.

Right we were!

Coming from an investor relations background, this might sound strange but this blog writer has become very sceptical about third-party investor relations programs for small cap companies. 


The majority of small cap companies that hire IR firms are losing money and management has failed to execute on a business plan to produce profits. They use investor relations activities to mask the poor financial fundamentals; to buy time with existing shareholders with the hope of raising more capital from new investors to fund losing operations. In many cases the money spend on investor relations activities just adds to the company’s cash drain and, like in case of Functional Technologies, leads to their early demise.

My point is that investors should always exercise caution should they choose to invest in small cap companies that are not yet profitable. More importantly investors ought to avoid investing in the unprofitable small cap company that spend money on expensive investor relations programs because management too often is trying to disguise the reality of the financial fundamentals of their business. 

For shareholders of Functional Technologies this lesson is too late.

Author’s Ownership Disclosure: TSXV: FEB – No

Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Posted by: Neil Milton
Gerry - 100% bang on. Invest in unrecognized performance. Over time, the market will recognize the performance and value will surface. Heavy spending on IR is always a big red flag. It usually means management is focused on image rather than results, and more often than not, that is because management is incapable of producing results; IR spending is negatively correlated to results for small cap value investors. The best management teams of small caps focus 100%


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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.