Yahoo Finance
Filing
2. Management
Filing
Oct. 22, 2021
June. 30, 2021 Data
June. 30, 2021 Data
Price: $0.38. Shares: 58m, options+warrants: 8m, Cap: $21.4m.
1. Business
(1) History
(1) History
The company was originally called Zedcor Oilfield Rental Ltd. It was founded by Dean Swanberg and Todd Ziniuk around 2009. It rent oilfield-related equipment to oil exploration companies. It seems did very well before the oil price crash in 2014. In 2016, it merged with a similar rental business public company called CERF Inc. The owner was paid 3m shares valued at $0.70/share. $5m loan at 5%( later changed to 7%, also $2.5m loan was converted to 10m shares at $0.25/share). $3m preferred shares (5% interest, later changed to 10%). After the merger, CERF Inc. was changed to Zedcore Energy Inc.
The company was still struggling with the rental business after that. It also has a lot of high-interest debt. By 2019, its annual interest expense is over $3.6m which became a big burden to the company. The company started to sell its underutilized rental asset to deleverage. By Q2 2021, it had fully divested its rental segment.
However, started in 2018, the company started a sideline business that provides security surveillance services for remote pipelines and construction sites, etc. The subsidiary soon grew to over $10m in revenue in 2020.
In Sept. 2020, the company changed its name again to Zedcor Inc. which reflects its focus on the security business.
(2) Major business
1) Solar & Diesel hybrid watchtower: Currently it has around 150 units. Those watchtowers can be deployed in remote areas that lack electricity. Originally, this product is just a lighting tower for remote areas without access to electricity. The added camera seems a very good value creation for this product. One unit might cause $70k to $90k which generates around $70k rental revenue per year.
2) Electronic powered watchtower: Currently, it has around 38 units. It can be used with the supply of electricity. Obviously, it should be much cheaper than the Solar & Diesel watchtower.
3) The company also provides a centralized operation center that monitors sites for its customers and charges monthly fees for the service.
Generally, the company generates over 50% gross margin on the watchtower rental and surveillance service after the depreciation of the rental device.
(3) Industry
Competitors:
Stealth monitoring: This company seems mostly focused on fixed while not much remote. It doesn't have the diesel generator version nor the solar hybrid version. It is a US-based private company. Canada's head office is in Toronto. Lots of videos on Youtube. 1000 employees.
Radius Security: 50-200 employees. It seems to do home and industrial both. It has a separate website in Vancouver. Pretty weird.
(1) Management
Dean Swanberg: He is the major owner of Zedcor Oilfield Rental and currently he owns 16m shares of the company. $2.5m debt at 7%. $3m preferred shares at 10%.
Todd Ziniuk: He was the general manager in Zedcor Oilfield Rental from 2010 to 2016. After joined CERF, he became the COO of the company. In 2018, he was promoted to CEO of the company.
(2) Ownership and compensation
Dean Swanberg: 16m shares 28%. Around 10m was from the conversion of the $2.5m debt. Rest was purchased after the merger. He is also the owner of the $2.5m debt and the 4.4m preferred shares.
Dean Shillington: 6.4m 11%. He is from Maynbridge Capital which is the provider of the 12.75% debt.
Todd Ziniuk: 1.3m shares. It is from the merger in 2016, didn't change that much through the years.
The CEO and CFO compensation is around 200k which is quite reasonable.
3. Financial data
Notes:
Notes:
(1) In Q2 2021, it has a loss of over $600k on sales of leasing equipment. Very concerning. Also, its leasing assets are $5m which is $2.4m less than its leasing liability($7.4m). In Q2 2021, leasing depreciation is around $100k, interest on leasing is just around $50k while leasing payment is around $500k.
Notes: Debt and cash
(1) As Q2 2021, $4m debt at 12.75%, $1m at $7%. $3m loan at 7%. $2.9m preferred shares at 10%(4.4m at 0.70/share). Total $11m. annual interest run rate $1.1m. Plus the leasing finance, it should be around $1.5m per year.
In Oct. 2020, it has been able to refinance its $5m 12.75% debt into 5% debt. However, the remaining 3m loan and the preferred shares are still the same. I estimate its interest payment should be still around 1.2m per year.
Notes: Share information
As of Q2 2021, 3.2m options are outstanding, mostly at $0.15/share. Also, there are 4.7m warrants outstanding at $0.12/share. They are mainly from debt modification. The current shares count is 58m.
4. Valuation and comments
(1) The security segment was doing really well since its creation. It has a quite good gross margin. Currently, it generates over $1.5m gross margins a quarter after depreciation which is around 50%. Current SG&A is around $800k per quarter. Assuming real interest expense is around 300k and leasing payment of $500k. It just made even if assuming the debt has been refinanced in Q2. However, since it records less depreciation+interest for leasing, it would be shown as a profitable quarter.
(1) The security segment was doing really well since its creation. It has a quite good gross margin. Currently, it generates over $1.5m gross margins a quarter after depreciation which is around 50%. Current SG&A is around $800k per quarter. Assuming real interest expense is around 300k and leasing payment of $500k. It just made even if assuming the debt has been refinanced in Q2. However, since it records less depreciation+interest for leasing, it would be shown as a profitable quarter.
5. Risk
(1) The company wasn't managed very well in the past. It lost a lot of money during the last several years. It might not be able to put its expense under control as the new business is ramping up.
(1) The company wasn't managed very well in the past. It lost a lot of money during the last several years. It might not be able to put its expense under control as the new business is ramping up.
(2) There a legacy accounting items like leasing and sub-leasing. Don't really understand those items.
(3) It is hard to tell the management's intention as the major shareholder still holds the 6m of high-interest debt and preferred shares. I would like to see those get converted to lower interest debt as well.
6. Conclusion
Overall, the company has a quite messy history and there is still some concern about it. However, there is a potential for the new security business to take off. The current price is acceptable but not that cheap. Should not heavily invest.
