Generation Next Franchise Brands Is A House Made Of Frozen Yogurt That’s About To Melt
- Generation Next Franchise Brands’ (VEND) $130M market cap is based on the potential success of its sole product, a frozen yogurt vending machine called “Reis & Irvy’s” or “Froyo Robot”.
- As the company has only just begun delivering Froyos, its revenues are miniscule. The company also loses a lot of money, reporting a $5M loss in quarter ended 3/31/18, a $3.8M loss in 12/31/17, and a $4M loss in 9/30/17.
- We conducted in-field research on the company’s new Froyo installation in Philadelphia. In the day we were there, we witnessed it made considerably less sales than the company is claiming it does.
- Upcoming catalysts: 12.8 million VEND shares sold in a private placement at $0.50 apiece on January 2nd will have a lockup expiry on July 2nd. This will double the float. We believe most of these shares will be sold. Another negative catalyst is VEND has been trying for months to get investors involved in their next private placement at $1.50 per share. This private placement will happen any day now as the company is almost broke and has a negative shareholders equity.
- The Froyo is not “the future of frozen yogurt” like the company claims. It was created in 2007 and has already been tried and commercially failed. There are several YouTube videos that are 5+ years old of almost the exact same Froyo robot as VEND is marketing today. VEND acquired Reis & Irvy’s intellectual property assets from its creator, Robofusion, in December, 2016. There are also many other frozen yogurt vending machines being sold today.
- VEND’s healthy snacks vending machine business has commercially failed and was discontinued by the company in 2016. We believe the Froyo is an even worse vending machine idea and will also fail commercially.
- VEND management was tried and convicted of fraud in regards to statements made to customers about their last vending machine.
- VEND has only just begun delivering Froyos this month, despite having reportedly booked 1,000 units aggregating $41 million in deferred revenues, dating back to 2016.
- In its 10-Q for quarter ended 3/31/18, VEND reported $36.3M in customer advances and deferred revenues in its current liabilities. Even though the company received $23M in cash received on the Froyo orders, the company has instead spent that cash on operating expenses as it’s almost broke. The company reported a stockholders deficit of ($17.7M).
- VEND reported unrestricted cash of only $5.3M in quarter ended 3/31/18. At a $4M+ loss per quarter, not counting cash coming in from new orders, that would put the cash balance at a little over $1M by 6/30/18.
- VEND has recently spent more than normal on R&D. It spent $1.7M last quarter, compared to $435K on quarter ended 3/31/17.
- In the latest 10-Q it states: “Given our current cash position, we may be forced to curtail our plans by delaying or suspending the production and purchase of frozen yogurt robots until such time that we may be able to prepay for the robots.” What that means is if they can’t raise the money to purchase the robots that their customers pre-ordered from them, then the company will either have to raise more money, or declare bankruptcy and not fulfill their obligations.
- The total amount of daily and monthly expenses to maintain a Froyo are very high, and make it a bad investment at almost any type of location. Additionally, 12% of franchisee revenues go to VEND as a franchise fee. We break down the expenses per Froyo in the report. In order to break even, each Froyo will have to generate $2,840 per month. At $6 per cup of frozen yogurt, that’s 15 cups sold every day. Not a realistic number in almost any location.
- The company has a list of possible locations for the Froyo however most do not have the needed foot traffic of prospective customers to make it a suitable location.
- There’s no institutional ownership in VEND. Just a bunch of scattered retail investors.
- VEND’s only competitor, the Frobot, is the only other frozen yogurt vending machine company, has the same number of employees as VEND, about 43, and an estimated annual revenue of only $4.5M. VEND will likely not have significantly higher revenues than that over the long term, making the stock significantly overvalued today.
