Our last look at 1933 Industries was at the end of 2021. I’d largely ignored them over calendar 2021, for various (and plentiful) reasons which were detailed then.
This thing has barely had a pulse since the start of the year. We’d documented $TGIF’s front office <ahem> ‘activities’ of almost 2 years ago – when debt-holders were dared to pull the trigger on the company. They balked.
And so – some 20 months later – they’re staring at a lump of a business that’s demonstrated nothing other than a smallish core operation with little/no demonstrated ability to materially increase revenue:
Meh. Let’s have a quick pass and see if anything is happening.
To the financials!
- Cash down to $800k this Q ($3.1MM prior). Inventory up by $1.4MM to ~=$6MM.
- Revenue to $3.2MM, margin at 35%. More below.
- Seems $TGIF has extended an interest free LOC to someone for ‘up to’ $640k (Note 7). $350k of it has been drawn down by the counter-party. I can’t find anything specific on it, might have something to do with $TGIF’s buy of a beverage company….
- ‘Day One’ is a beverage company that was acquired on January 18 of this year by $TGIF. Bought for 55MM shares (and another 27MM possible), I’m guessing this is supposed to help within their CBD division.
- That CBD division (‘Infused’) is doing ok right now, putting up $1MM in sales/Q with a 65% margin. Woot.
- $TGIF doesn’t mention it was doing $10MM/yr in sales 3 years ago. There was also a $300k forgivable loan issued to Day One. Perhaps an inducement, perhaps to pay their current bills….
- Either or, in 2022…..$TGIF’s core THC business is losing some $600k/quarter – and that’s before $6MM/yr in corporate overhead is applied.
- $TGIF sold some land holdings they’d sported for $1.27MM. Originally earmarked for expansion, this asset was supposed to take $TGIF into a heavier weight class. That $1.27MM is earmarked for ‘working capital’.
Ok. Not much change in anything here. It’s still a mutt burning $600k in cash per month.
Well, at least sales advanced this quarter. As we saw from fiscal 2021 last time, seasonality is apparent . Q1 2022 and Q2 2022 saw $2.4MM and $3.2MM of revenue respectively (for 2021, Q1 and Q2 were $2.7MM and $3.4MM). Given the tourist based economy of Nevada, one would expect $TGIF’s revenue to peak in their Q3 & Q4. YoY though, they’re down sequentially.
Gross margin has improved this quarter (a lot), but the company remains operationally at a loss. $TGIF attributes this improvement to ‘aggressive cost cutting‘ – yet it sounds much more like they’re still trying to figure out how to run a grow show. And these relatively flat sales levels need to support a metastatic share count – which is how $TGIF’s been staying afloat for so long:
Mercifully, another 90MM in warrants & options are pretty far out of the money, and currently gathering dust.
Recalling that showdown in mid-2020 with debenture holders (referenced above), the last bit of the convertible tranche ($4.3MM) is now sitting in current liabilities. Given their operational prowess (or lack of it), something’s gonna have to happen. Either a raise, another renegotiation….something. Perhaps an angel investor will come in to save the day. Either or, their cash position and operations simply aren’t going to internally finance the obligation. Long time readers will recall the whack $TGIF laid onto the convertibles – repricing them to a dime from their previous $0.45:
That $TGIF’s share price is languishing at half a dime, it’s not a good position to be in.
It’s easy enough to muse about the ‘why’ in $TGIF. As in: why can’t they expand sales? Why can’t they establish a stable and efficient grow op? Why is margin so variable? Answers to those questions aren’t directly answered in the financials, but not hard to approach.
Despite 5+ years of operations: they’ve been price takers; they’ve needed to restart the grow op twice (at least) while competing grows/internal supply has been expanding.
Something I’ll look at in outfits that are ‘restructuring’ or creating ‘operational efficiencies’ is PP&E and infrastructure spending. In the case of $TGIF – it can be summed up as a total of $14k. That $14,000 dollars is the total amount of cash they’ve spent on PP&E’ since July 2021:
I’ve seen this sort of capital deferral before in distressed companies. Whether this is the case here I honestly can’t tell you. But I will say I’ve not seen this little CAPEX spent over 18 months in any dope company I can recall.
Seriously: there’s lights and electronic controls and watering systems that are very much a part of a grow op. These attract costs I’d expect to be continually depreciated…..and new expenses capitalized on replacement. If there is a deferral of capital spending here, look for a hard miss on revenue targets (or a horrible gross margin) to be reported in the next couple of quarters. One can only defer capital spending for so long before it becomes apparent.
That’s it for this thing. $TGIF sums its’ priorities up simply: “It is the priority of the Company’s executive management to continue to reduce costs, with the goal of maintaining consistent profitability in the near future.”
That line has now appeared in their last 4 sets of financials. Should they last (an open question, albeit they’ve been to the brink before), expect it to be around for a good long while.
The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $TGIF