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Independent Reviews for Venture Investors

GDNP.V - Correction.


Good Natured Products Inc (GDNP.V) produces and distributes one of North America's widest assortments of better everyday products® made from the highest possible percentage of renewable, plant-based materials and no BPAs, phthalates or other chemicals of concern potentially harmful to human health and the environment.

GDNP.V offers over 400 products and services through wholesale and retail channels, including e-commerce stores. From plant-based home organization products to compostable food containers, bioplastic industrial supplies and medical packaging, we're focused on delivering a great customer experience to make more plant-based products readily accessible to more people as the path to deliver meaningful environmental and social impact..

Coverage began on November 2018 with notes on June 2019. April 2020. November 2020, July 2021. and April 2022.


News Releases


Apr. 14 - Termination of Market Making Agreement: Terminated its market making services agreement with Questrade INC., IIROC dealer #124, originally announced on December 18, 2018.


Apr. 27 - Announces Preliminary Unaudited Results for the First Quarter Ended March 31, 2022: Preliminary revenue for Q1 2022 is anticipated at $24.0M to $26.0M, an 200% to 230% increase, compared to $7.9M for Q1 2021.


May 2 - Announces Year Ended December 31, 2021 Audited Financial Results


May 4 - Acquisition of Houston-based FormTex Plastics and Concurrent $8 Million Bought Deal Equity Offering: Signed a definitive asset purchase agreement to acquire FormTex Plastics Corporation, a manufacturer of high quality custom plastic packaging headquartered in Houston, Texas, for cash consideration of $4.8 million USD.


Bought deal offering: 20M units at $0.40 cents (Warrant $0.52 cents) to raise aggregate gross proceeds of $8M.


Financing Details: The Company anticipates arranging the following financing to complete the Acquisition and related integration costs: i) Up to a $1.8 million USD term loan ii) $3.0 million USD in cash from net proceeds of the Offering.


May 5 - Announces Upsize to Bought Deal Offering: for aggregate gross proceeds to the Company of $9,000,000.


May 9 - Requests 5-Day Extension of Bought Deal Offering: Seeking a 5 business day extension of the time period to file the prospectus supplement for its previously announced bought deal offering of units described in the Company's press releases of May 4, 2022 and May 5, 2022, pending resolution of an issue described further below.


On Friday, May 6, 2022, the Company was made aware that for the fourth quarter of 2021, the Company has not met its fixed charge coverage ratio ("FCCR") covenant under the senior credit agreement dated October 28, 2021 between the Company and its primary lender. As of the date of this press release, the Company is of the view that, based on interpretation, there may not be a breach of the FCCR covenant.


May 10 - Provides Update on Investor Webcast Due to the unforeseen circumstances outlined in the Company’s press release date May 9, 2022, the investor webcast scheduled for May 12, 2022 will be postponed.

May 12 - Provides Update Regarding Previously Announced Offering: the Company, and Beacon Securities Limited and National Bank Financial Inc., the co-lead underwriters for the previously announced bought deal offering of units (the “Offering”) of the Company as described in the Company’s press releases of May 4, 2022 and May 5, 2022, have mutually agreed to terminate the Offering.


The Company remains in discussions with its primary lender regarding a plan to resolve an apparent breach of its fixed charge coverage ratio (FCCR) covenant for the period ended December 31, 2021. A confirmed breach of the FCCR covenant would impact the classification of debt obligations in the Company’s financial statements for the year ended December 31, 2021 as filed on May 2, 2022.


May 17 - Announces up to $6 Million Private Placement of Special Warrants with Strategic Investors: A non-brokered private placement of 15,000,000 of special warrants at a price of $0.40 cents (warrant $0.52 cents) for aggregate gross proceeds up to $6 million. The Company expects the Offering to be fully subscribed by strategic investors.

The net proceeds of the Offering are expected to be used by the Company to fund the acquisition of FormTex Plastics Inc., announced in a press release dated May 4, 2022, working capital to support organic growth initiatives of the Company, and initiatives to improve the Company's operational efficiency.


May 19 - Files Restated Annual Financial Statements and MD&A for the Fiscal Year Ended December 31, 2021: Further to the Company's press releases dated May 9, 2022 and May 12, 2022, subsequent to the filing of its audited year end documents, the Company was made aware of an apparent breach of its fixed charge coverage ratio ("FCCR") covenant under the senior credit agreement dated October 28, 2021 between the Company and its primary lender. Although the Company continues to consider this a matter of interpretation, it has accepted the interpretation of its primary lender and remains engaged in discussions with the primary lender regarding a plan to remedy the default. Accordingly, the Company has made the determination to file Restated Documents to reflect the default. The restatement solely impacted the consolidated statement of financial position as at December 31, 2021 and had no impact on the consolidated statements of net loss and comprehensive loss, changes in shareholders' equity (deficiency) and cash flow for the years ended December 31, 2021 and December 31, 2020.


International Financial Reporting Standards ("IFRS") requires the Company to reclassify the Senior Credit Facility and other long-term debt. Accordingly, the statement of financial position as at December 31, 2021 has been restated to reclassify $36,631 of debt associated with the Senior Credit Facility, the Company's 2021 convertible debentures and a mortgage from long-term debt to current portion of long-term debt. For clarity, the Company is not in breach of its obligations under the 2021 convertible debentures and the above-mentioned mortgage.


May 20 - Adds U.S. Market Presence with OTCQX Trading and DTC Eligibility: The Company’s common shares will commence trading on the OTCQX under the symbol “GDNPF” at the open on May 20, 2022 and will continue to trade on the Canadian TSX Venture Exchange under the symbol “GDNP”. The Company is also pleased to announce that its common shares have been approved for book entry and depository services through the Depository Trust Company (“DTC”) in the United States, which will facilitate electronic clearing and settlement of transfers of common shares.


May 31 - Quarterly Financial Results for the Three Months Ended March 31, 2022:


May 31 - Announces Upsize to Private Placement of Special Warrants: Under the amended term of the Offering, the Company intends to issue up to 16,500,000 of special warrants ($0.40, Warrant 0.52 cents)for up to $6.6M.


June 1 - Announces Closing of $6.56 Million Private Placement of Special Warrants: Each unit will consist of one common share of the Company and one half of one common share purchase warrant of the Company.


June 14 - GDNP and Gourmet Fresh Produce Company, Girl & Dug Farm, are Rooted in Sustainability:


June 15 - Annual General Meeting and Update Regarding Omnibus Incentive Plan: The Company also announced that on June 13, 2022, pursuant to the Company's current omnibus equity compensating plan as amended and restated on July 23, 2021, it has granted 139,091 stock options (the "Options"), 464,696 performance share units (the "PSUs") and 285,000 restricted share units (the "RSUs" and together with the Options, and PSUs, the "Equity Incentives") to Paul Antoniadis, the Company's Chief Executive Officer, and Executive Chair.


Mr. Antoniadis was not issued equity-based awards in February 2022 and so the granting of the Equity Incentives to Mr. Antoniadis brings his equity-based compensation awards in line with other members of management and further align his interests with shareholders of the Company. The Options were granted with an exercise price of $0.66 per common share. Each PSU and RSU entitles the holder thereof to receive either one common share, the cash equivalent of one common share or a combination of cash and common shares, as determined by the Company.


June 29 - Extension Agreement with Primary Lender & Refinancing with Major U.S. Bank and Canadian Lender: The Extension Agreement relates to the breach of the fixed charge coverage ratio covenant ("FCCR") under the Senior Credit Facility as previously announced in the Company's press releases dated May 9, 2022 and May 12, 2022.


The Company is pursuing a refinancing of the Senior Credit Facility during the 60-day period. The Company has signed a non-binding letter of intent with a major U.S. bank and non-binding term sheet with a major Canadian lender with respect to the Refinancing and is currently in due diligence and further negotiations with both entities.


July 4 - Announces the Closing of its Acquisition of Houston-based FormTex Plastics: Closed the acquisition of all the business and operating assets of FormTex Plastics Corporation for cash consideration of USD $4.8M.


July 12- Signs Multi-Year Contract with Large U.S. Food Producer: Signed a multi-year commercial contract with the large U.S. food producer previously referenced in a press release dated October 12, 2021. The contract outlines a three-year agreement whereby good natured® will supply the customer with multiple packaging designs using Bio-PET-based material and recycled content being produced at the Company's in-house manufacturing facilities.


July 19 - Announces Preliminary Unaudited Results for the Second Quarter Ended June 30, 2022: Preliminary revenue for Q2 2022 is anticipated at $24M to $26.M, a 95% to 110% increase compared to $12.4M for Q2 2021.


The growth in revenue in Q2 2022 was driven by strong organic growth with new customer additions, including a National U.S. food producer announced in October 2021, increases in average selling price per unit and contribution from the Ex-Tech Plastics acquisition completed in May 2021.


July 22 - Announces AGM Results


Aug. 26 - Announces up to USD $55M Credit Facility with Wells Fargo and CAD $6.6M with BDC: through its wholly owned subsidiary Wells Fargo Capital Finance Corporation Canada, consisting of a USD $30M asset-based revolving credit facility with a 4-year term and an uncommitted USD $25M revolving facility, available at the discretion of Wells Fargo. In addition, the Company has closed a CAD $6.6M financing (Mortgage Refinancing) with BDC.


The initial draw on the Senior Credit Facility was used to retire CAD $13.7M of outstanding credit facility debt with National Bank of Canada referenced previously in a press release dated June 29, 2022 as the “primary lender”. This consisted of approximately CAD $11.2M on the CAD $15M revolving working capital credit facility and CAD $2.5M on the CAD $4M revolving term capital expenditure credit facility. Proceeds from the Mortgage Refinancing was used to retire CAD $6.6M of outstanding non-revolving term credit facility with National Bank of Canada.


Aug. 30 - Announces Quarterly Financial Results for the Three and Six Months Ended June 30, 2022:


Sep. 7 - Announces the Purchase of the Land and Buildings at Its Ayr, Ontario Facility: The purchase, which is scheduled to close on September 30, 2022, subject to satisfaction of customary closing conditions, will be for cash consideration of approximately $9.4M. The Ayr Purchase will be principally funded by a $6.5 million of non-revolving capital loan from a Canadian Chartered Bank. In addition, the Company is drawing $2.9M from the $3.9M second tranche mortgage financing with Business Development Bank of Canada (BDC) announced on August 24, 2022.


Oct. 3 - Announces the Closing of its Purchase of the Ayr, Ontario Facility.


Oct. 27 - Announces Preliminary Unaudited Results for the Third Quarter Ended September 30, 2022:


Preliminary revenue for Q3 2022 is anticipated to be $25M to $27M, an increase of between 40% to 50% compared to $18M for the three months ended September 30, 2021 (Q3 2021). Revenue in Q3 2022 was driven by strong organic growth in the Company's Packaging business group, increases in average selling price, and contribution from the recent acquisition of FormTex Plastics based in Houston, Texas. Revenue growth was partially offset by a reduction in gross revenue from third-party industrial thermoformers, as the Company used more of its industrial rollstock production capacity to satisfy the requirements of its own thermoformed packaging manufacturing facilities. This is in line with the Company's strategy to drive a higher percentage of revenue from its Packaging business group, which is designed to deliver more robust gross margin. In addition, later in the quarter, there was a general reduction in demand for products from the Company's Industrial customers, as softening macro-economic conditions led to lower order volumes as these customers work through inventory that was built up to avoid widespread supply chain disruptions.


Nov. 4 - Suspends Short Form Base Shelf Prospectus: This decision will eliminate the professional fees and costs associated with keeping the Base Shelf active during this period of macroeconomic uncertainty.


Nov. 16 - Named to Fastest Growing Clean Tech List for 2nd Year Running


Nov. 22 - Announces Financial Results for the Three and Nine Months Ended September 30, 2022


Nov. 29 - Texas based L&L Farms and Good Natured providing the Fuel to Sustainability Minded Grocers.


Dec. 13 - Appoints New Board Member: Keith Spencer to the good natured® board of directors, effective December 13, 2022. Mr. Michael Thomson will retire from the Company's board of directors on or about December 31, 2022.


Summary


Selected Milestones

One of the highlight of the last period is the completion of a three-year commercial contract with the large U.S. food producer (July 2022). Good natured® will supply the customer with multiple packaging designs using Bio-PET-based material and recycled content being produced at the Company's in-house manufacturing facilities.


The Company continues to anticipate revenue of approximately USD $13 million in the first year based on the terms of the agreement. Volumes in the first year are expected to fluctuate on a quarterly basis to match product seasonality, as well as the rollout timing of new products to the producer's retail customers.


Acquisitions

FormTex Plastics Corporation, a manufacturer of high quality custom plastic packaging headquartered in Houston, Texas, was purchased for $4.8 million USD in May 2022; the transaction officially closed in July 2022.


FormTex produces custom plastic packaging for the medical, food, electronic, industrial, and retail end markets. FormTex is ISO 9001:2015 certified in the design and manufacture of thermoplastic molded components and operates seven different thermoforming machines in a leased 51,000 square foot facility on 1.9 acres of land.


In addition, the land and building of the Ayr, Ontario Facility was purchased for $9.4M (September 2022).


Financing

A bought deal 20M unit at $0.40 cents (Warrant $0.52 cents) for $8M was announced in May 2022 in conjunction with the acquisition of Form Tex Plastics. It was raised to $9M but had to be eventually cancelled due to an issue with its primary lender related to the senior credit agreement (The primary lender reported that GDNP did not meet its Fixed Charged Coverage Ratio (FCCR) which also lead to the refiling of financials for a negligible amount).


As a result, a non-brokered private placement of Special Warrants with Strategic Investor was announced with similar terms; $0.40 cents (warrant $0.52 cents) for $6M. It was upsized to $6.6M of which $6.56M eventually closed.


June 2022, an extension with the primary lender at the time was reached.


Under the Extension Agreement, the Company's primary lender has agreed to forbear from exercising its enforcement rights with respect to past breaches of the FCCR as at December 31, 2021 and March 31, 2022 for a period of 60 days from the date of the Extension Agreement and has provided a waiver of the FCCR covenant as at June 30, 2022.


August 2022, an up to USD $55M Credit Facility with Wells Fargo and CAD $6.6M with BDC was announced. Well Fargo: a USD $30M asset-based revolving credit facility with a 4-year term and an uncommitted USD $25M revolving facility, available at the discretion of Wells Fargo. A $13.7M draw was used to retire the primary lender.


The Senior Credit Facility will bear interest at the U.S. Secured Overnight Financing Rate (“SOFR”) plus 2.50 – 3.00% subject to certain operating benchmarks. The Senior Credit Facility is secured by a general security interest over the assets of all existing and future subsidiaries of the Company.


As a result, the Short Form Based Shelf Prospectus was suspended and "allowed to go dormant".


Earnings

GDNP.V continues to deliver. Thus far, Year to Date (YTD) revenue exceed $75M doubling YTD 2021.


Moreover, Net Losses are lower than YTD 2021, This shows that Good Natured is able to scale effectively.

In three quarters (YTD 2022), GDNP has already exceeded revenue for FY2021.


Appointments

Keith Spencer to the good natured® board of directors, effective December 13, 2022. Mr. Michael Thomson will retire from the Company's board of directors on or about December 31, 2022.


In short

Year to Date GDNP.V double its revenue from 2021 and managed to deliver lower net loss which confirms it can scale effectively but somehow the stock has lost more than two thirds of its valuation from a year ago!


This does not seem logical. Its a fact that macro-economic trends including inflationary pressures on costs such as energy, materials, logistics and human resources could be headwinds on future earnings. However, the rate at which the market has reduced GDNP.V's multiples does not seems to be proportional to its performance.


In the past year, brokerages have been lowering their price targets along with the decline in valuation.

Overall, the current consensus - a price target of $0.75 cents - is much more rewarding than a year ago because current valuation is much lower. Also the June 2022 targets were based on the following assumptions: Beacon: $1.40 (on $102M for FY2022); National Bank $1.25 (on $101.3M); Raymond James $1.00 (on $106M). Likely for FY2022?


Otherwise, looking at the outstanding share data (Q3 2022), there's still not much to be concerned with.

Options, Other Equity Incentives, Warrants and Convertible Debentures seems manageable.


The majority of the outstanding warrants are at $0.40 cents which still is much higher than the current price.














In addition, the new credit facility from Wells Fargo may actually reduce the likelihood or extent for which GDNP.V may need go to the market for future acquisitions. Also, the rate obtained on the deal was exceptional..


The Senior Credit Facility will bear interest at the U.S. Secured Overnight Financing Rate (“SOFR”) plus 2.50 – 3.00% subject to certain operating benchmarks. The Senior Credit Facility is secured by a general security interest over the assets of all existing and future subsidiaries of the Company.


Debt? Current Ratio is at 1.74 as of Q3 2022.


And the current portion of the long-term debt has significantly declined from a year ago.


























Furthermore, the undiscounted repayment commitment for the next four years looks manageable.













It is a fact that multiples are down across the venture market, However, GDNP.V has delivered exceptional earnings performance thus far in FY2022. Hence, the current multiple assigned seems inaccurate. Market are forward looking. Perhaps there are questions regarding whether the current growth rate is sustainable but history suggests otherwise.


Of late, the chart shows a positive "green' Chaikin Money Flow (CMF). With R1 ($0.29 cents) and R2 ($0.325 cents) thresholds, investors will be on the lookout to determine if this is the beginning of a much anticipated correction.


DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The content of rally is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions - rally cannot take responsibility for your investment decisions.

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