Valens GroWorks Mysterious Five Million Dollar Asset-Less Purchase

Valens GroWorks (TSXV: VGW) released its second quarter earnings after the bell yesterday, reporting revenues of $8.8 million for the quarter with a gross profit of $5.1 million. Overall, Valens posted a net loss of $10.5 million, or $0.10 per share.

While the firm currently boasts a solid balance sheet, with only $1.5 million in liabilities versus $112.3 million in assets, Valens still needs to demonstrate that it can reduce its expenses relative to gross revenues. The firm had $6.7 million in expenses for the quarter, including $2.1 million in share based compensation, and $1.2 million in management and consulting fees.

Of particular interest however, is an acquisition that occurred April 23, 2019, for the purchase of Straight Fire Consulting LLC, a firm that Valens has used historically for undisclosed consulting purposes. The entity was acquired for a total fee of $5,945,000 effectively, through the issuance of shares for service. The consultant appears to have been involved in the failed sale of Supra THC Services, Valen’s wholly-owned subsidiary, to that of RotoGro International, which was effectively the sale of Dealer’s License. While the deal has been cancelled due to RotoGro’s inability to complete the transaction, the consultant will still be receiving all shares of RotoGro that Valen’s has acquired. Additionally, the consultant will be receiving 3,800,000 shares of Valen’s GroWorks for the sale of the entity to the firm.

While a portion of the total Valens shares issued to the consultant is the result of a shares for service agreement to the tune of 2,350,000 common shares, the remainder is being issued as a “termination fee” for ending the current consulting agreement in place. The fee is taking the form of an asset purchase as a means of terminating said agreement. All other obligations owed to the company as a result of the original agreement will cease to exist following the asset purchase, except for a provision related to change of control, wherein the consultant would be entitled to 3,000,000 common shares for Valens should the firm be purchased within two years.

Even more interesting, is the fact that Valens will wind down the entity upon receiving it and that it had no assets or liabilities.

On the date of acquisition, Straight Fire Consulting LLC did not have any assets or liabilities. The Company is in the process of dissolving Straight Fire Consulting LLC.

The entity, which is registered in Wyoming, appears to have been owned by a Michael Annechino, who has worked as a consultant previously for Valens GroWorks. While his role for the company is somewhat unclear, by all appearances it seems he was effectively an employee of the firm based on the fact that company filings show him as having a corporate email address.

Aside from the shares issued for the purchase of Straight Fire Consulting LLC, Annechino has also been the recipient of options in the company on two separate occasions. Listed as a consultant, Annechino most recently received options on February 27, 2018, wherein he acquired the right to purchase 1,000,000 shares of Valens at a price of $2.50 for a period of five years. The associated filing indicated that Annechino had also received 1,000,000 options over the previous 12 months, however a filing could not be found for this initial issuance.

With respect to the purchase of the Straight Fire Consulting entity, the only mention from Valens outside of financial filings related to the purchase, is within the news release for the first quarter 2019 results. Within, the company states, “Subsequent to February 28, 2019, the Company entered into an agreement to acquire all of the shares of Straight Fire Consulting LLC (“Agreement”), an entity through which a consultant had been providing services to the Company.” What the firm fails to identify, is that the agreement was signed the day before the news release was issued, as well as what benefit shareholders see from the purchase of an entity with zero assets or liabilities.

Lastly, it appears Annechino converted his remaining options on July 3, electing to exercise them without cash and netting himself 397,590 shares – or roughly $1.7 million based on yesterdays closing price.

Valens GroWorks closed yesterdays session at $4.32, up $0.13, or 3.10%.

Information for this briefing was found via Sedar and Valens GroWorks. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.