The two largest shareholders of troubled Facedrive Inc. are locked in battle in public and in court, with one claiming the company is considering creditor protection and the other accusing his counterpart of sinking the share price.
Imran Khan, who co-founded Facedrive as a ride-hailing service in 2016 but no longer has a management role, issued a news release on Monday night claiming the company is considering filing for creditor protection. According to Mr. Khan, the company’s legal counsel contacted his lawyer about scheduling an “initial hearing in a liquidating proceeding” under the Companies’ Creditors Arrangement Act (CCAA). Facedrive’s board has not made a final decision about a CCAA filing, Mr. Khan said.
“I am disclosing the information that I received, so that it is available to all shareholders and prospective shareholders of Facedrive,” Mr. Khan said in his statement.
Facedrive said there is no material information it has not already disclosed, but added it anticipates putting out an update on Wednesday to address Mr. Khan’s allegations.
Facedrive’s former CEO and largest shareholder, Sayan Navaratnam, is currently suing Mr. Khan. He is asking an Ontario court to force Mr. Khan to disgorge his stake in the company and place it in a trust, alleging he misrepresented the functionality of Facedrive’s software to secure investment and had no role in the company’s “success.”
Facedrive’s wild ride on the TSX Venture Exchange has puzzled market watchers. Its share price soared 2,800 per cent to a high in February and the company hit a valuation of more than $5-billion, briefly giving it a market value greater than SNC-Lavalin and CI Financial. Its share price has since cratered 96 per cent. Facedrive started in ride-hailing, but later branched into COVID-19 contact tracing, food delivery, online retail and a subscription service to drive electric cars.
Some of those business lines are intensely competitive and dominated by much larger players, and Facedrive has consistently bled money. During the first half of the year, it lost $13.4-million on just $9.7-million in revenue. Its contact tracing technology, which received a $2.5-million grant from the Ontario government in February, made just over $50,000 in sales in the second quarter.
Facedrive has relied on equity financing to fund itself, but has recently faced challenges. The company said earlier this month it postponed a private placement and ceased pursuing an acquisition partly as a result of its share price performance. The company burned through nearly $11-million in cash in the first half of the year and has just over $12.2-million remaining on its balance sheet.
Mr. Navaratnam blames Mr. Khan for the company’s stock market woes. Mr. Khan owns roughly 25 per cent of Facedrive’s shares and had been restricted from selling any part of stake owing to share lockup provisions for insiders.
Mr. Navaratnam launched his lawsuit against Mr. Khan two days before those sale prohibitions expired earlier this year. Mr. Khan has since sold about 1.2 million of his 29 million shares, regulatory filings show.
“Naturally, this has had a dramatic impact on the stock value and has caused it to trend negatively almost every day thereafter,” Mr. Navaratnam claimed in his own news release issued on Sept. 4. Facedrive’s shares began falling before Mr. Khan’s disclosed his intention to sell shares, plummeting 76 per cent from a high in February to the end of June.
“I cannot, in good conscience, allow hundreds of employees to work tirelessly, investors to patiently hold their positions, and management to continue building the business, while the one person least responsible for it all cashes out,” Mr. Navaratnam said in his statement.
In March, Mr. Navaratnam and other Facedrive executives agreed to extend their lockup provisions and hold onto shares as a long-term commitment to the company. On Sept. 1, however, Facedrive reversed course and said it would allow early investors and some senior management to sell a portion of their shares. The company said that given Mr. Khan’s divestiture and the falling stock price, the change was necessary to ensure “fairness” for all shareholders.
Facedrive’s stock price dropped more than 50 per cent over the next two days, while trading volume surged. The number of Facedrive shares traded daily has rarely exceeded 200,000 recently, but almost 3.7 million shares were exchanged on Sept. 2 and 3, according to data from S&P Capital IQ.
Mr. Khan said that as his own lockup restrictions were set to expire, he came “under pressure” by Mr. Navaratnam not to sell. He has since been “publicly and privately criticized” by Mr. Navaratnam for doing so. “While I believe my early efforts set Facedrive on a course for later success, public company shareholders are entitled to sell,” Mr. Khan said in his statement.
Mr. Navaratnam resigned from the company on Sept. 1, along with Facedrive’s chief financial officer.
Earlier this year, The Globe and Mail reported on Mr. Navaratnam’s involvement in two other publicly traded companies before he joined Facedrive.
In 2004, he took a technology company public that intended to capitalize on the boom in security spending after the terrorist attacks of Sept. 11, 2001. The company’s share price surged more than 500 per cent, but it was heavily indebted and soon lost 70 per cent of its value.
Later, Mr. Navaratnam served as a director of a biofuels company called PetroAlgae Inc. Shares hit a high of US$26.75 after going public in 2008. The company never reported any sales, and its stock price fell to 85 US cents over the next four years. Regulatory filings show no sign he sold shares in either company.
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