Jerash Holdings (US), Inc. (JRSH)

Website
Yahoo Finance
Filing

Dec. 04, 2020
2021 Q2 Data, Year-end: Mar. 31
Price: $5.4 Shares:11.3m, Cap: $61m

1.Business
(1) History 

The company was founded by 3 Hongkongers mainly Samuel(Lin Hung) Choi in the year 2000 in Jordan. Early that year, Jordan and the US signed a free trading agreement that enables Jordan companies to sell to the US duty-free. The company opened its first cloth factory in Jordan which produces a Jacket for the North Face brand.  It had just 2m in sales at the beginning. It has grown very well over the years. 

By the fiscal year 2018, it had 70m in revenue and close to 10m net income for 3 years in a row. It has 3 factories and 3000 workers with a capacity of around 5.9m pieces/year. It applied IPO in the same years which raised $10m at around $7/share.

Since then the company continues to grow its business in fiscal 2019 with 85m in revenue. However, its margin was down from over 25% to 22%. also, its SG&A raised from $6m to $9m mainly caused by going public, etc.  As a result, its real profit was down to $8m in 2019.

In fiscal 2020, the company started to utilize an acquired paramount facility which added 1000 workers in that year. It generated 93m in sales in 2020 which didn't meet its projection. The new factory seems dragged the business quite a bit. Margin contracted to19.3%, also SG&A raised another $1m to $10m which mainly caused by boarding these new workers. 

In the first 2 quarters of fiscal 2021, the company's revenue was down at around 10% vs last year. It generates around $3.8m in real income vs $5.4m last year. The share price was down from the $7 range at the time of IPO to the current $5 range. 

(2) Major business

The company manufactures jackets and T-shirts etc for some very known brands like North Face, New Balance, Walmart, etc. North Face so far is still its major customer with counted around 80% of its total revenue. Also, it has the highest margin which should be above 25%. It is likely that the company has lowered its margin for North Face products in the past several years. 

Revenue from other customers than North Face had also grown nicely from 7m in fiscal 2016 to over 20m in fiscal 2020. These apparels like T-Shirts have a much lower margin, maybe just around 15%. 

Its most profit is usually earned during the first half of the fiscal year. In the second half, North Face usually will reduce order size significantly. The company will tend to use the spare capacity for other customers which has a much lower margin. Q4 is the lowest season which usually incurs losses. 

Currently, it has 5 factories with around 4000 workers. As required by the Jordan law, 75% of these workers are foreign workers from Bangladesh, and Srilanka, etc. The first 3 factories mainly are for the North Face brand. The 4th one is for new customers. The 5th is jointed owned by the company and the Jordan government. It is working on PPE stuff currently.   

(3) Debt and cash
At the end of fiscal Q2 2021,  it has around $27m in cash and a very small line of credit balance. 

(4) Industry
Jordan's annual export to the US is just about 2B/year. Among which half are from apparels. The industry is very supported by the Jordan government.  Because of the zero-tariff to the US, apparel companies in Jordan can focus on qualities while in other countries they might try to avoid higher tariffs by using different materials which leads to lower product quality. 

2. Management

Samuel(Lin Hung) Choi: He is the original founder of the company. Previously he worked in the bank and textile industry from 1987 to 2000.  He is still holding 4.6m shares around 40%. His compensation was low before the IPO. Raised to 300k for the latest two years. The other two original founder holds another 36%. In total, probably less than 25% of the total shares are in the float. 

3. Financial data

4. Valuation and comments
(1) The company is currently trading less than 12 times in P/E besides a large cash balance. The market is expecting the company will continue to go downward in profitability. 

(2) The SG&A raise in the past 3 years should be stabilized at the current level.  

(3) It seems like the company has no problem finding new customers whenever it has extra capacity caused by North Face reduced its order from them. However, the replacement usually has a lower margin. In the latest two quarters, revenue from North Face has reduced to 75%. The trend is likely to continue. 

(4) The company is still looking to expand its capacity either by acquisition or by building its own new facilities. 

(5) Currently, the company is paying a 20c/year dividend which is close to 4%.

  

5. Risk
(1) The North Face sales concentration by far is the biggest risk for the company. Although it is trying to diversify from it. It seems not successful so far with North Face's revenue still counts close to 80%. This year, North Face has temporarily reduced its order by around 20%. It will likely continue to reduce orders from JRSH for the next one year.  However, as indicated by the company, revenue from other customers will likely offset quite some of it. For the second half of 2021, it is expected to at least keep the same revenue level as last year. 

(2)  North Face's order so far has the highest margin for the company. It is very likely that the company will increase revenue from other customers who have lower revenue. Overall, its margin will have downward pressure. It would be a challenge for the company to achieve a 20% margin going forward.

(3) Its SG&A raised quite a bit following the IPO. It is possible that the company won't be able to stabilize it at the current $10m levels. 

6. Conclusion

Overall, the company is managed quite well with quite good growth potential. Currently, it is kind of experiencing a hiccup in growth. The current price is good if the company can keep its current business stable.  However, it is hard to tell when it can grow its profit again. 

7.Links

Lorne Park Capital Partners Inc. (LPC.V)

Website

BellWether
Yahoo Finance
Filing

Nov. 03, 2020
2020 Q3 Data
Price: $0.60 Shares:52m, Cap: $31m
1.Business
(1) History 
The company was found by Robert Sewell in 2009 as Bellwether Investment Management which is a boutique investment management company for high net worth personals. Previous to that he had worked over 15 years in different positions related to investment management.  In 2011, Steve Meehan joined the company as chairman who has also a similar experience to Sewell. 

In 2013, it IPOed through a reverse merger. Since then it had been able to grow its AUM(Asset Under Management) nicely both organically and through acquisitions.

In 2015, it acquired 35m in AUM by purchasing a book of business for $790k 

In 2016, it acquired Index Wealth Management Inc. for $2.1m,  which added 126m in AUM. 

In 2017, it acquired Crestridge Asset Management Inc. for $1.35m,  which added 120m in AUM. It was able to achieve cash positive this year. 

In 2018, it acquired Adaptive Asset Management Ltd. for $350k, which added $129m in AUM. 

In 2019,  it invested 2.9m into Benlark LP to secure 130m AUM that has already been managed by LPC. It also invested 1.1m into another partnership to secure $62m AUM that it has been managed.  As a result, it logged around $8.7m addition in intangible assets and logged $4.7m in minority interest.  

To date, it is managing around $1.5B in assets. 

(2) Major business

It is running several funds and offers boutique investment management for wealthy families and organizations. The management fee is around 1.2% on average. 

Funds list: US Stock, Canadian Performance, Canadian Stock pooled funds, Alternative Income pooled fund. 

Its cost of goods sold is actually the fees paid to the fund managers which gives it a pretty stable margin of around 20%. 

The administration and marketing fees etc are more fixed than the fees paid to fund managers. Thus the more the AUM, the more net profit margin will be expected. 

The company is trying to acquire other funds by allowing fund managers to continue their investment while taking care of administrative tasks. 

(3) Debt and cash
At the end of Q3 2020,  it has around $6.5m in cash, $6.3m in debt with an 8% interest rate. Roughly cash even.

(4) Industry

2. Management

Robert Sewell: Over 15 years in investment managing experience mainly for banks. 

Stephen Meehan: Similiar experience as Sewell. However, he seems more aggressive about growing business than Sewell. Currently, he is also managing his own investment firm Glen Road Capital Partners.

By the time after IPO in 2013, there are 30m shares outstanding, both Meehan and Sewell hold over 11m shares which are around 37% both. 

From 2016 to 2018, mainly in 2018, the company issued around 10m more shares mostly at $0.40/share.  In 2019, it issued other 10m shares at $0.40/share. Raised total shares outstanding to 51m by end of 2019. By the time Meehan holds 12m shares and Sewell holds 14m shares. Together they still hold around 51% of the company. 

3. Financial data

Notes:

1. The minority interest refers to the intangible assets owned by the partnerships it invested in. As the result, the company will over depreciate the intangible assets it supposes to in the income statement but adds them back from the minority interest line. Overall, both should be just removed from the calculation of its real income. 

4. Valuation and comments
(1) Currently it has a run rate of around $2m in real income which gives a P/E of 15. Considering the high growth profile in the past, this is actually quite a cheap price. 

(2) From 2019 to current, it seems the growth has slowed down. However, I do expect it will resume the growth of AUM in the future. 

  

5. Risk
(1) A stock market crash will inevitably affect the company a lot. Its AUM might shrink by both the devaluation of the portfolio and by its customers pulling out of the stock market. 

(2) It is not clear how its relations to the acquired fund. They could discontinue the management contract with the company in the future.  

6. Conclusion
Overall, the company is managed quite well and has very high growth potential. The current price is also very reasonable. 

7.Links

The LGL Group, Inc. (LGL)

Website

Yahoo Finance
Filing

Sept. 08, 2020
2020 Q2 Data
Price: $8.5 Shares:5.2m, Cap: $44m
1.Business
(1) History 
The company has a very long history. It was called Lynch Corporation which originally was a glass manufacturer. Since 1985, the famous value investor Mario Gabelli gained control over in this company. Later, it did some acquisitions and spin-offs. 

By the year 2004, Mario's son Marc Gabelli replaced him and became the new chair of the company. The company wasn't doing very well until 2014, it hired Michael Ferrantino who was retired at that time, as the new CEO. The company started to regain revenues and profitability. By 2019, it generated over $3m in net income. 

At Jan. 2020, Ferrantino retired again, and now Ivan Arteaga replaced him as the new CEO.

In 2017, the company issued 2m shares for around $10m, and again in Q1 2020, it issued 300k shares for around $3.5m. As a result, it now has $22m in cash including $5.5m in the mutual fund which is managed by Marc Gabelli. 

In 2019, the company invested around $3.3m into a sponsor corp which formed a SPAC company called LGL Systems Acquisition Corp(DFNS). It was IPOed in 2019 and is aimed to make an acquisition by Nov. 2021. If not, the money will be returned to the shareholders. LGL holds around 43.5% of the sponsor corp while the sponsor corp holds 5.2m warrants of DFNS at $11.50 per share and 4.3m of class B share of DFNS.  In effect, LGL holds 1.87m of DFNS class B shares and 2.3m warrants. In the event of acquisition is made by DFNS, the class B shares will be converted to the class A shares on a one to one basis. The class A share is currently traded at $10/share. In the case of no acquisition is made, LGL will loss all the invested $3.3m. 

(2) Major business

Crystal oscillator: A electronic component widely used in many electronic products from satellites to personal computers. The company's main focus is on the aerospace and defense market which generally requires higher quality and faces less competition.

Domestic revenue is around 75% of the total revenue. The rest is from Malaysia and some Asia regions.     

The company have 3 production facilities in the U.S. and one production facilities in India. 

(3) Debt and cash
At the end of Q2 2020,  it has around $16m in cash, $5.5m in mutual fund, and $3.2m in DFNS investment. 

(4) Industry
The crystal oscillator market is a very niche market and highly commoditized.  There is not much growth potential here. However, in the aerospace and defense industry, it seems to have less competition and a higher profit. 

2. Management
Michael Ferrantino: He did a great job turning the company around. Mainly by exit the less profitable business in the Telecom sector. Before 2014, it counts close to 30% of its total revenue. Currently, it counts for less than 10%. 

Ivan Arteaga: He is from Mario's fund and was a money manager. 

3. Financial data


4. Valuation and comments
(1) Currently, around half of its $44 market cap is cash, and its operational part generates over $3m per year. The share price is quite cheap.

(2) If the DFNS acquisition gets done by Nov. 2021, It should add around $20m in book value to LGL immediately. I think it is very possible as the management is highly incentivized to make that happens. 

(3) Its cash and mutual fund holding could generate 400k to 500k in return each year. 

  

5. Risk
(1) The company was doing poorly for many years in the past. It only generated over 3m in 2019. It might not be able to continue the good trend. 

(2) The new management might not be able to continue the good work for the past 6 years.  

(3) Its product is very commoditized.  

(4) The DFNS acquisition might not get done. 

6. Conclusion
Overall, the company had made a good turned around and has some growth potential. The DFNS holding has a very good hidden value. The current price is very acceptable. 

7.Links

Eltek Ltd. (ELTK)

Website

Yahoo Finance
Filing

Aug. 12, 2020
2020 Q2 Data
Price: $4.65 Shares:4.4m, Cap: $20m
1.Business
(1) History 
The company was founded around 1970 in Israel. It was a PCB board manufacturer and still is. At around 1988 Joseph Maiman, a well-known Israel businessman, bought into the business and became CEO of the company. Fast forward to 2013, the company's revenue grew to around 50m. However, it still can't make much profit. Also, it faces tough competition from cheaper suppliers from china. 

At the end of 2013, Mainman sold all his shares to Nistec, a company controlled by Yitzhak Nissan. The company also issues some new shares to Nistec. As a result, Nistec bought into 50.5% of the company which is around 5m for $6.5m. Also, Nissan became the new CEO of the company. 

For the next two, Nissan was able to cut SG&A expenses from $6.7m to $5m in 2015 and made $1m in profit. However, from 2016 to 2018, the company suffered both revenue drop from Israel and margin contracted from over 15% to a single digit. As a result, it lost several million in these years. In 2017, it did a 5 for 1 stock reverse split. Since 2017, Nistec injected over $5m of cheap debt into the company. In 2019, the company issued 1.3m new shares over $3.4m, most of them came from Nistec and Nissan. After that, Nissan sold 200k shares. By 2019, Nissan controlled 2.86m share which is around 65%. 

In middle 2018, the company hired a new CEO Eli Yaffe who has previously had turned around a similar company.  Since Q1 2019 to current Q2 2020, the company has increased margin back to 15% and over. At the same time, it is able to maintain the same revenue level. It generated $1.6m real income in 2019. 

(2) Major business
It is main focused on the Rigid-Flex PCB board which seems to have a higher margin than the rigid PCB or the flex PCB. 

1) Defense and aerospace: Now counts over 55% of its total revenue. It still has some growth potential. This segment usually requires high quality and has a barrier to entry. It should face less competition from China supplier. 

2) Medical equipment: Counts around 10% of its revenue. 

Israel customers count around 60% of its revenue while US customer counts less than 20%. 

Its top 2 groups of customers count around 20% and 10% of its revenue in 2019. 

(3) Debt
By 2019, it has $2.5m debt from bank at around 4% interest. It also has a 3.5m loan from Nistec.

(4) Industry
The PCB industry seems quite fragmented and very competitive. In a sense, it feels like a commodity. However, in the defense and aerospace segment, it seems to have a higher quality requirement and margin seems higher. 

2. Management
Eli Yaffe: He did an excellent job turning the company around. 

Yitzhak Nissan: Chairman, 65% of shares. 

3. Financial data


4. Valuation and comments
(1) Currently, the company can generate over $2m in annual income. It is just traded around 10 times P/E which is quite cheap. 

(2) The US-China tension will likely help its business, especially for the defense and aerospace industry. It will likely have more opportunities in those areas.   

(3) Nistec has supported the company quite strongly in the past. In case there is a hardship, it is likely to support it again. 

(4) The company's floating shares are around 30% which are just around 1.8m shares. 

5. Risk
(1) Historically, it has been up and down quite often, it is hard to tell whether this won't happen again. 

(2) The top 2 customers count 30% of its revenue. It has some revenue concentration risk. 

6. Conclusion
Overall, the company had made an impressive turned around and has some growth potential in the near future. The current price is very acceptable. 

7.Links

Update:

Mar. 26, 2022

Price 4.2. Shares 5.8m. Caps: 25m

1. The company's year 2021 is very bumpy with Q1 being bad because of the shortage of raw material. Now, this is totally solved by the management comments in Q4 earnings. Q3 was also bad caused by what the management says "the holiday issue". It's probably just partially true. However, in Q4, this does not happen again. Despite all this, the company made around $2m in real cash vs $3m last year & $2.5m in 2019. The company's CapX is $1.5m in 2021 vs $1m in 2020 and $0.9m in 2019. If using $1m as maintenance CapX, it should also generate 2.5m cash in 2021. 

2. In the Q4 conference, the management intends to accelerate the 5-year CapX plan to 2 years. That is quite positive. 

3. Overall, the company still makes $2 to $2.5 per year with a market cap of $25m. The price is very acceptable with some good upside potential. It might take a while for it to be shown though. 

Adcore Inc. (ADCO.V)

Website
Yahoo Finance
Filing

July. 10, 2020
2020 Q1 Data
Price: $0.61 Shares:55m, Cap: $34m, Options+warrents: 10m
1.Business
(1) History 
This is an Israeli company founded by Omri Brill in 2006. It was also known as Podium Advertising Technologies. It is an AdTech company focusing on online advertisement management, optimization and etc. It slowly grew its revenue to 1.1m in 2011. By 2019, it generated over 11m in revenue. It IPOed in the middle of 2019 through a reverse merger.  

(2) Major business

The company's main products include a serial of software that manages different aspects of online ads including reporting, auditing, optimization, auto biding, etc. It has two main segments of customers. 

1. Indirect customer: These customers are mainly ad agents. The company provides software and service for them to manage their ad account. This segment has a very high gross margin. 

2. Direct customer: It manages the customer's ad campaign directly. It also pays the media cost for the customer. This segment has a much lower gross profit. 

Since 2018, the company has intentionally tried to grow more of its indirect business over the direct business. 

(3) Debt
$3.7m cash and no debt.

(4) Industry
Currently, google accounts for 40% of total online advertising and Facebook accounts for another 20%. 

The Adtech industry has quite a lot of competition. Most of them are private companies. It is really hard to compare them without in-depth knowledge of online advertising.  


2. Management
(1) Key person
Omri Brill is the founder and is the current CEO. He has a tech background and is the original creator of the Adcore software. So far the company has been managed pretty well. 

(2) Insider ownership & Compensation

Omri Brill originally owns all shares of Adcore. After the IPO, his shares had been converted into 40m new Adcore shares. Which is over 72%.  On a diluted basis, he still owns over 60%. 

3. Financial data(in USD$)

4. Valuation and comments
(1) Currently, the company is traded above 2 times its annual revenue. It has generated over 2m in income since 2018. It has been traded less than 15 times P/E.  It is quite cheap. 

5. Risk
(1) The company is a new public company. 

(2) The online advertising business is quite dynamic and subject to quick changes. 

(3) It is hard to tell how the company compares to other companies. What are its competitive advantages? 

6. Conclusion
Overall, the company seems very profitable, grow very well, and is managed well. However, since it is new and in a very dynamic industry. Shouldn't invest heavily in the near term. 

7.Links

Dec. 13, 2021

2021 Q3 Data

Price: 0.65, shares 63.5m. Market Cap: 41m.  around 7m options < $0.65/share

1. Since Q4 2020, the company's US revenue dried out while APAC area revenue has been picked up. It had generated over US$30m in revenue for the TTM. However, the majority of those revenues are direct revenue which has a much lower margin. 

2. In July 2021, the company started a new live online tutorial marketplace website called Amphy. It is still in a very early stage. During Q2 and Q3, the company had spent over USD$1m launching this service. 

3. For the first 3Q 2021, real income is around USD$-500k. If added back the cost of Amphy, the real income could be around USD$0.5m.

4. Currently, the company has around USD$12m in cash and no debt. Most of the cash was from the options and warrants exercise. 

5. The company's profit has been down quite a bit after the IPO. Currently, it probably generates just around USD$1m in annual income excluding the expense for Amphy. If removing the USD$12m cash from the cap, its market cap is around USD$20m which is around 20 P/E. However, as indicated by the management, it is intended to sacrifice profit for growth in the near term. The margin might pick up if it can grow its revenue. Also, there are two potential catalysts, 1) If Israel tourism recovers from the pandemic, it will resume Ad spending with Adcore. 2) The Amphy service might be worked out. 

6. Overall, it might be worth the current price. However, the company still has lots of uncertainty, shouldn't invest heavily. 

RIWI Corp. (RIW.CN)

Website
Yahoo Finance
Filing

June. 30, 2020
2020 Q1 Data
Price: $2.6 Shares:18m, Cap: $47m
1.Business
(1) History 
The company was founded by Neil Seeman in 2009 at a University of Toronto dormitory when he is researching a new way for an unbiased survey method over the internet. He found a way to use misspelled domain names to capture the unexpected internet user to engage in a non-incentivized survey.  He applied and awarded a US patent for it. The company started to commercialize the product it is has been quite successful. It was able to grow revenue from 0.8m in 2015 to over 3m in 2019. 

(2) Major business
It is major business is still the survey part which includes short-form survey and message testing, although it started to sell the old data it had collected through the years. 

There are three segments it generates revenue from: The US government for security. NGO's of G7 organizations, big fortune 500 companies. I think most of its revenue is from the first to segments while it truly likes to generate more from the third one. 

Its major strength is the survey in China and other similar areas in which its competitors are not good at surveying. Also, its method seems pretty accurate. 

The business has a super high margin and pretty low fixed expense expect the payroll. It is highly scalable which can support higher revenue without incurring the same amount of expenses. It became more profitable when revenue grows higher. 

(3) Debt
no

(4) Industry
There are many bigger companies in this industry. Its main competitors are those survey websites. However, those websites generally use incentivized registered users which is very different than RIW's model. 


2. Management
(1) Key person
Neil Seeman is the founder and CEO of the company since the beginning. He is super focused on revenue growth and profitability. 

(2) Insider ownership & Compensation

Neil Seeman and his brother control 5.7m shares through their family trust. He also owns 430k shares by himself. 

BP Capital: Controlled by Robert Pirooz, One of the directors and early investors, owns 2.4m. Since Nov 2019, BP Capital started to unload its RIW shares. Shares decreased from 2,775,400 shares to 2,436,150 shares by June 29, 2020.  Price range from $2.15 to $4.61. 

3. Financial data


4. Valuation and comments
(1) Currently, the company is traded over 10 times of revenue and 30 times of earning which is quite expensive. However, there is a high expectation that the company can grow both its revenue and income quite a bit. 

(2) The company is targeting to achieve 30m in revenue by 2024 which implies a 60% annual growth rate. I cut it into 20m which implies a little below 50% growth rate. It is very hard to guess how much income it can generate by then. But I put a 50% net income ratio if it can achieve the higher revenue. Using a 20 p/e ratio, it can support a market cap of US$200m by then. 

(3) There is a very detailed analysis by the following investor wrote in 2019 when it was just in $1.50. 
http://veritasvatillum.com/2019/02/19/riwi-corp/

5. Risk
(1) There is not much assurance that it can achieve high revenue growth despite it had done it in the past. Since it is still contract based, it is very hard to predict what will happen. 

(3) The insiders seem not really interested in keeping the shares. Lately, there is quite a bit of insider selling in the open market which I would argue is the main reason cause the price down from $5 to below $3. 

6. Conclusion
The company is a very ideal investment except the price is a little high. 

7.Links
https://microcap-connection.tribe.so/topic/riwc-riwi-corp

NexgenRx Inc. (NXG.V)

Website
Yahoo Finance
Filing

May. 20, 2020
2020 Q1 Data
Price: $0.18 Shares:70m, Cap: $12.5m
1.Business
(1) History 
The company was founded by Ronald Loucks in 2003. It was aiming to create a service for companies who want to manage their health benefit in house.  It was IPOed in 2006. It invested heavily in its system to grow its revenue. 

By 2012 which it turned into profit with $4.4m in revenue., it had incurred over $20m in losses. 

In late 2013, it lost one 20% revenue customer which cost 2014 and 2015 in red again.  It turned a profit in 2016 briefly and then in loss again when pursuing growth.

In 2018, it acquired two small companies in related business for 4m. Currently, it has a 10m annual revenue run-rate with positive earnings.

(2) Major business

It has only one business which is managing health care claims including medical, dental, extended medical care, etc. It charges fees per transaction. The transaction fees account for around 50% of total revenue lately. It also charges admin fees based on monthly members' enrollments. This counts for around 30% of its revenue. Rest is just consulting fees and etc.

Its main product is web-based and it has a mobile app for submitting claims. It also created a website for the extended medical servicer to submit a claim to any company. 

(3) Debt
Currently, it has 3.2m in debt mainly from the 2018 acquisition. Including 0.8m payable to the previous owner of these businesses. The rest are from current shareholders. Most debt carries an 8% interest. 

(4) Industry

2. Management
(1) Key person
Ronald Loucks is the CEO from the beginning. Previously he was working for Bell and Mercer for 18 years. Both positions were healthcare-related. 

(2) Insider ownership & Compensation
Loucks owns around 15% of the company at the time of IPO. Now he owns 7.3m shares, around 10.5%. His annual compensation is quite low at around 180k.


3. Financial data


4. Valuation and comments
(1)The current lock-down will have quite a bit negative for the company. It might lose 1/3 to 1/2 of its revenue in Q2. However, I expect it can fully recover its revenue once this is over. 

(2) Based on the trend from last year to Q1 2020, it is capable to generate 1m to 2m in the near future, which could support $40c in the share price. 

(3) The company had tripled its revenue in the last 10 years. Pretty good growth. However,  both the company's management and product are not so strong. Its profit basically added up as zero from 2012 to 2019. 

(4) The new acquisitions in 2018 seem not too bad.

5. Risk
(1) It might need to issues shares at a low price in the near future if it needs to fund operating losses or force to pay down debt. 

(2) The company historically didn't care too much about generating profit. It might stay like this for quite a long in the future.  

6. Conclusion
The company is in a good industry and has grown quite well in the past. Its product and management are less ideal. The current price is quite cheap, but it is uncertain how it will turn out.  Shouldn't be heavily invested.

7.Links

Manitex Capital Inc. (MNX.V)

Website
Yahoo Finance
Filing

Mar. 3, 2020
2019 Data, Year-end: Oct. 31.
Price: $0.23 Shares:12.6m, Cap: $2.9m
1.Business
(1) History 
The company was founded by Steven Saviuk and went public before 1997. Raised over $5.6m for 12.4m shares over the years. Steven owns 2.9m shares by 2007. In the beginning, it invested in some public and private tech companies. By 2007 it just made even from investing.

In 2003 it bought Hywood Pharmachemical which generates very small profit each year. After many years this was devested.

The company founded Valeo Pharma in 2003 as a subsidiary with other parties and owns around 50% of it. Valeo Pharma acquires and market specialty drugs. In 2008, the company's interest in Valeo decreased to 41%.

The investment in Valeo was quite small. By the year 2010, it generated $5.8m in revenue and just made even for most of the years. In 2011 it generated $8.5m in revenue and 700k in profit. In 2012 revenue was 8.2m  and profit was 500k.  In 2013 revenue was 7.5m with 200k loss.

In 2014 the company sold most of its drug in Valeo to Valeant for $25m including $7m earn-out payment. By the end of 2014, it has $16m cash in its balance sheet and a book value of $20m. The stock was traded as high of $0.70 at one point. However, among the $20m book value, $10m belongs to third party interest owned to other Valeo shareholders. It also includes $6m in earn-out payment which it hasn't received yet. By the end of 2015,  after paid cash to the 3rd party and $3m invested again in Valeo for new drugs, it only has 3.5m cash and 4.5m investments on its balance sheet.

From 2014 to 2019, the company continued to invest in Valeo to acquires new drugs. Around $16m was lost by Valeo operation during those years.

On Feb. 15, 2019, Valeo was IPOed in CSE (Ticker: CSE:VPH) and was traded between $0.40 to $0.80 since then. Currently, the company still holds around 21.8m shares of Valeo which around 38%.

(2) Major business
1. Valeo pharma: 21.8 shares. 38% of the total shares of VPH.  Book value $8.6m. Around $0.40/share. Since Valeo's IPO on CSE, it seems MNX doesn't need to put more money in it. However, in accounting, Valeo's value is booked using the equity method. So future loss from Valeo will be logged as loss in MNX as well.

2. Investments.
The company has invested in private and public companies since the beginning. It did not disclose its public holdings while shows the private companies. It seems not really making any money from those investments.

(3) Debt
n/a

(4) Industry
n/a

2. Management
(1) Key person
Steven Saviuk is the founder and CEO of both companies. He seems to do well in the pharma business while it is not known in the investment part.


(2) Insider ownership & Compensation
Steven Saviuk owns 6m of MNX through Simcor Canada Holdings Inc. He also directly holds 1m shares. Totally he owns 55.5% of MNX.
Since MNX holds 21.8m shares of VPH. He is holding 12m of VPH through MNX. He also owns 4,214,145 Shares of VPH through Simcor Canada Holdings Inc. In total, he holds 16.2m of VPH, which is around 16.2/57=28.4%.

3. Financials


4. Valuation and comments
(1) Currently, its book value is around 16m while it is trading around 3m which is less than 20% of its book value. Even after removing VPH(8.6m) from the book, it is still trading less than half of the book value. Also, it is holding 4.75m shares of Ortho Regenerative(ticker: CSE:ORTH) which is $1m over book value.

(2) I think the main reason for the stock is so cheaply traded is that in 2014 after it sold its drugs to Valeant, there are lots of cash in its book but soon disappeared in the next year. There was some misunderstanding of its book and management intention.  First, there was a 10m third party interest that claimed most of its cash on balance. Second, it intended to invest more money into Valeo after the sale which is totally OK for me.

(3) After the VPH IPO last year, the company does not need to fund Valeo anymore. Its regular SG&A expense should be less than 500k/year. Also, it seems to be able to generate around 100k in interest income. On the investment part, it is really hard to tell how it will perform.

(4) It is possible that the company might distribute some of its VPH or ORTH holdings to shareholders in the future. 

(5) The stock is extremely illiquid. Also, the ask/bid spread is huge.

5. Risk
(1) Currently, VPH is still losing quite a lot of money each year. It could go to zero or be diluted if it can't make money in the long run.

(2) The investment part might continue to lose quite some money.

(3) SG&A expenses might go up.

6. Conclusion
Overall the stock is very cheap and the risk is quite small. However, it is very hard to purchase the stock without marking up the price. Also, it might take quite a long time to unlock the value.

7.Links

BQE Water Inc. (BQE.V)

Website
Yahoo Finance
Filing

Jan. 17, 2020
2019 Q3 Data
Price: $9.00 Shares:1.2m, Cap: $11m
1.Business Information
(1) History 
The company was originally called Bioteq environmental technologies. It was found in 1997 by Bradley Marchant and some others. It mainly focuses on wastewater processing for the mining company. In 2000, it IPOed through a reverse merger. For the next 10 years, it had raised over $60m to build main projects in different places globally. However, it went pretty bad with heave losses and some customers withdrew from the contract with the company.  In 2011, Jonathan Wilkinson, another major shareholder replaced Brad as CEO for a brief time. He wasn't able to turn things around.

In early 2014, the company brought back its formal CTO David Kratochvil as the new CEO and elected Peter Gleeson as executive chairman.  From 2014 to 2019, they worked together and gradually improved the business. The company exited many problematic projects and leave only 2 major projects which both generate recurring revenue. Also, it was able to cut costs through the years.  Lately, they started new projects again intending to generate recurring revenue.

(2) Major business.

Bioteq-JCC joint venture:
JCC is the largest copper mine in China with a $40B annual revenue. JCC and Bioteq formed a joint venture which both owns 50% in 2006. The first water processing plant was starting operation since 2008. The plant generates copper from raw material that contains less than 0.3% of copper.  Gradually it built 3 other plants. In 2010, it generates over $3.2m proportion revenue for Bioteq and $1.3m in income. From 2010 to 2018, the joint venture generated $6.4 profit for the company and distributed $6.9m cash to the company.


It seems the profit of the JCC joint venture is highly attached to the copper price. For the last 20 years, copper prices fluctuated quite a bit. From 2006 to now, it was traded between $2/lb to $4/lb with an average of around $3. The JCC Joint venture was profitable since 2010. When the copper price is below $2.5/lb in 2015 and 2016, the company was barely profitable. When it is trading around $2.8/lb, it generates over $1m profit for the company.  Currently, it is around $2.8/lb.

Raglan mine project:
Mining water processing project for Glencore Canada. Starting operation since 2003. Mainly to reduce nickel and other metal before discharge. It usually processing close to 1m cubic meters of water/year. The company generates recurring service revenue based on water quantity. The revenue has been pretty stable over the years. The current operating contract will expire at the end of 2020.

(3) Debt and Credit Facility.
As of Q3 2019, no debt and $1m in cash $3m cash in China joint venture. As stated in the Q3 statement, it has received the 2019 distribution from China in Nov. I guess it should be over $1m.

(4) Industry comparison.


(5) Major events

2. Management
(1) Key person
David Kratochvil: 
David was with the company since 2001. Beginning as manager of engineering. Later promoted to COO in 2008. In July 2011, with the retirement of  Bradley Marchant, he assumed the CEO role briefly until Oct. 2011, when Jonathan Wilkinson was selected as the new CEO instead of him. Soon in Feb. 2012, David's title was changed from COO to CTO. In Oct. 2013, he left the company but soon was back in Mar 2014 as intern-CEO. At the same time, Jonathan stepped down from the CEO role. It seems had quite some stories there.

David has a chemical education background and is a doctor of philosophy.

(2) Insider ownership & Compensation
David Kratochvil : 13k shares +14k options. 2018 compensation $280k.
Peter Gleeson: 44k shares +6k options. 2018 compensation $144k.


3. Financial data.


4. Valuation and comments
(1) The JCC joint venture is its main cash generator. Currently, it is expected to generate over $1m/year in profit. That alone would put the company $12m to $15m in value. Also, it seems more stable and profitable than in the early year.

(2) Besides the JCC joint venture, the company has clearly shown improvement in cost control which should be close to profitable in 2019. It was able to do so with overall the downturn of the mining industry since 2015.

(3) Currently, the company should have 2m in cash and other 2m cash in JCC joint venture. There are several ongoing projects which are likely been able to fuel future growth if doing correctly.

5. Risk
(1)The profitability of the JCC joint venture is highly attached to copper prices. It was estimated that when the copper price dropped by 10%, it will affect the company's before-tax income around $550k.

(2) The mining industry has been suffered a downturn for the past several years. It is a very circular industry that is very unpredictable.

6. Conclusion
Overall, the current management did a great job of turning around the company for the last 6 years. Also, there is a very high growth potential. The current price is quite cheap as just the fair value of the JCC joint venture while the rest is valued as zero. Although not making money yet. It is very likely to be able to do well in the near future.

7.Links
https://www.youtube.com/watch?v=Ec5Q6cvrWHI

http://wsw.com/webcast/gateway/bqe.v/index.aspx