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Why did this happen?
ETF Movers: Includes ETFs & ETNs with volume of at least 50,000. Sources: FactSet, Dow Jones
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During the year ended March 31, 2018, the Company, the Company paid $10,092,046 for consulting and acquisition advisory fees to a company controlled by a relative of the director in combination of cash and 1,822,237 common shares of the Company. (F2018 Q4 FS)
During the year ended March 31, 2018, the Company’s subsidiary, ISO International LLC, paid $289,435 for consulting fees, $63,725 for finder’s fees, and $1,083,325 for acquisition advisory fees, and issued 500,000 common shares with a fair value of $750,000 to a company controlled by the President of ISO International LLC.
This is a hard question to answer, and it took us a while and lots of digging to get a sense of what’s going on at the company. For a detailed investigation of the management and some troubling backgrounds for some people involved with Isodiol, we recommend you to take a look at the research done by fellow SA contributor Grumpy Bear. If that wasn’t enough to give you chills, then we have some more sobering findings for you.
In the most recent quarterly filing of Liberty Health, it has already recognized a loss of $619k on its $1 million investment in Isodiol. The warrants are also deeply out of the money with a $10 exercise price.
A Horrible Investment for Liberty Health
80% in a little over six months. What went wrong with this investment?
In fact, the company has had a history of paying lavish consulting and advisory fees. In the most recent quarterly filings below, the company paid $635k in consulting fees to current CEO (isn’t his very job to run the company?), former CFO, and current directors. Seems like there are a lot of fees being paid to existing and former insiders that are already taking out lavish salaries. For the year ended on March 31, 2018, the company reported sales of C$19 million but management paid themselves C$4.3 million and handed out consulting fees of $13 million and advisory fees of $12 million!
Clearly, the reason for the lack of profitability at Isodiol was a direct result of the tens of millions of fees paid to insiders. The magnitude of these fees and insider nature gave us pause in thinking whether the management has put shareholders in the second place when making these decisions.
(All amounts in C$ unless otherwise noted)
Isodiol has repeatedly engaged in acquisitions that were funded through large equity issuances. Management has also repeatedly used reverse split, or share consolidation, to artificially increase the share price while creating a false impression of rising share prices and leaving behind a large share count that is not sustainable. In the meantime, management pays out massive consulting and advisory fees and pays themselves millions of cash and stock in compensation when the company has barely made any progress in its core business activities, excluding the expensive and dilutive acquisitions.