In the small cap market, there are some good practices, some bad practices and then there is Functional Technologies Corp. (TSXV-FEB).

Functional Technologies a development stage company recently hired two investor relations (IR) firms, one in Quebec and one in California, to represent the Company to investors for a reported combined cost of $10,500/month plus expenses and a bucket load of options.

The hiring of two IR firms intrigued me to research the Company. For fiscal 2011, Functional Technologies reported $4.8 million in losses on a paltry $200 thousand in sales.

It appears that the leadership at Functional Technologies has an appetite for hiring different IR firms. They did so in 2010, 2009 and 2008. Consistent throughout these years: the Company continued to meander in the commercialization of its bio-health technology, reported little in revenue and big losses.

I have nothing against investor relations services for small cap companies; in fact, I have provided IR services. But when the equivalent of half of this Company's 2011 revenues are expected to be absorbed by investor relations fees, is the management and board of Functional dedicated to maximizing shareholder value?

This is a good question for investors to put to Functional`s senior management and directors.

Part of the problem is that the Company has seen its share of management and directors change over the past few years. Last week Functional appointed an "interim” Chief Financial Officer and a new Chief Operating Officer. In 2011, the Company's Chief Business Officer stayed on the job for 6 weeks. I am not even sure what a Chief Business Officer does, but it appears that Functional has not rehired one since.

Strangely, given past developments, Functional has a market valuation of over $25 million. Therefore, I hope for investors that the Company's management and directors have a clear plan to achieve profitability in 2012 to continue to afford paying its two IR firms.

In a June 2011 edition of the Financial Post, the buy & sell column quoted a small cap fund manager and holder of Functional stock as being bullish on the Company's share price. When fund managers talk up the potential of concept stocks their fund owns through the media, usually this is the kiss of death for new investors who buy in from this advice. 

The stock price of Functional Technologies is down 37% since June.

Disclosure: TSXV: FEB - No position

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