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FastForward Innovations: Another disappointing Lorne deal – disgraceful non-disclosure

By Cynical Bear | Sunday 9 July 2017


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Tom covered the key headlines on the year-end results of Jim Mellon's FastForward Innovations (FFWD) on Friday but I wanted to focus in on a couple of points, most notably the exorbitant amount Lorne Abony, CEO, gets paid considering the despicable way in which he treats his shareholders and the shocking performance, and non-disclosure, of one of the investments that he brought to the table, namely Vemo.

Let’s start with the basic facts with the extract of Lorne’s remuneration from the annual report:

“Lorne Abony is entitled to an annual salary of £250,000, payable monthly in arrears, and a discretionary bonus. In addition, the Company will pay Mr Abony’s rental expense for an office amounting to up to US$30,000 per annum, a personal assistant amounting to up to US$60,000 per annum and health insurance. The Company has also granted Mr Abony. Options over 9% of the issued shares (on a fully diluted basis) at 20 pence per share.”

£250,000 plus an office and a PA – that’s a pretty good gig for running a small investment company. The costs for Lorne alone come to more than 3% of the assets under management which is astonishing. For completeness, the results state that his total remumeration for the year was £278,000.

For that I would expect dedication to the task so I find it absolutely dispiriting that he didn’t attend all the Board meetings in the year. There were only five of them! What was your $60,000 PA doing? Couldn’t she find a time in your hectic schedule to slot in a Board meeting? This is just disrespectful to shareholders.

To be fair, he could have been busy with his EdTech investments, Schoold and Vemo, in which he is a major shareholder. I’ve previously discussed the disappointing potential Schoold deal which values it at less than the current book value but now see that Vemo appears to have performed even worse not that shareholders have been told.

Vemo is involved in facilitating the provision of finance to cover college tuition fees in the US. This was one of Lorne’s babies and FastForward invested as part of the related party shenanigans in early 2016 when Lorne joined FastForward as CEO.

In November 2015, FastForward acquired 1 million shares in Vemo for $1 million. It then announced in January 2016 that it had increased its stake to 12.5% by acquiring a further 527,059 shares directly from Lorne Abony. The announcement at the time was as follows:

“The shares in VEMO have been acquired from VEMO founder, Mr Lorne Abony.  The Company has paid Mr Abony US$1.00 per share, for an aggregate consideration of US$527,059 (the "Purchase Price").  The Purchase Price has been settled by the issue of 4,328,425 new shares of FastForward, each issued at an implied price of £0.08 (eight pence) (having a total implied value of £346,274).”

So total consideration of about $1.5 million for about 1.5 million shares – all straightforward enough.

However, there are two odd pieces in the latest results.

First, there is a “donation” of a further two million shares in Vemo by Lorne (the non-exec Chairman of Vemo) to FastForward. The shares were valued at £159,000 but Lorne gave them for free in March 2017 apparently although this is the first shareholders have heard about it. One would think that that was incredibly generous until one looks at the latest investment valuations.

Including these new shares, the total valuation of FastForward’s stake in Vemo is now £287,000 and FastForward’s equity stake has been reduced to 6.5%.

What the hell happened here?

So before the donation, the valuation of this investment had moved from $1.5 million to £128,000. That’s quite literally a decimation in value and the equity stake has been massively diluted. There has clearly been some form of rescue financing here which Lorne felt so bad about that he gave some more of his shares away; however, the total stake is still now worth less that FastForward paid to Lorne for his 500,000 shares!

This is massively material and price-sensitive and yet there is no mention of this anywhere previously as far as I can see. In fact, the couple of paragraphs on Vemo in the annual report sound quite encouraging.

What happened Lorne?

Stop counting your money in your swanky office with your expensive PA and do some bloody work and start by providing full disclosure on this related party investment.

 

 


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