Monday, 16 October 2017

DGLT and Urban FT: The Ridiculous Saga Continues

Digiliti Money Group (DGLT) looked like is was turning a corner, up to an $0.80 close. I knew there had to be something amiss because the previous two days saw last minute closes in the low $0.50's on very low volume, purposefully cutting the stock price's rise on the day despite most of the volume going through in the $0.70 to $0.75 range. This time around it was pushed up to a day high. Then after hours we got this tweet from Kasey Kaplan:



You can see my comment in response to this development. So what does this mean?

He's likely telling the exact truth, but a truth that would benefit the cause of Urban FT. This wouldn't be the first time DGLT balked at an offer only to come back to the table later. So far about 90% of the information we have gotten about this proposed deal is from Urban FT through various articles and social media circles. Based on that I can only surmise that Urban FT is acting in good faith and putting forth a fair deal and DGLT management, or what's left of it, is acting like a bunch of incompetent rubes. It would be nice to see an 8-K from DGLT management so shareholders can get an official update on the story and hear DGLT's side of it. Until then, Urban FT can play these tweeting games which the firm obviously knows will impact the stock price but Kasey and team can likely get away with it if they are posting factual and timely information. All in the name of providing market transparency when there is none on DGLT's side.

I think the term supportive is particularly important in this instance. I think that this implies that the loan between UFT and DGLT is still active and that there is no imminent danger of the company going bankrupt, despite DGLT management playing with matches while it is teetering on the edge of insolvency. Or that's what we have been led to believe. But with only getting Urban FT's side of the story in the media and without properly audited financials or recent quarterly results, who really knows about DGLT's cash situation.

What will happen tomorrow? Who knows. Gut instinct is that there will be a sell off because this will be seen as bad news and cause a knee-jerk reaction. We don't know if Kaplan's tweet is merely being as diplomatic as possible because Urban FT must know it is under a microscope for price manipulation that may have at least partially led to the T12 halt. Or if he is being completely honest and Urban FT remains in hot pursuit of DGLT.

It could also be Kaplan trying to lobby retail shareholders behind Urban FT. Although there is a lot of anger directed Kaplan and Urban FT, some of it deserved, this is the only side we have been able to rely on for information. In my eyes, and others, these prospective buyers are trying to act in good faith even if they originally goofed up by yapping on Twitter about this buyout offer. It's DGLT management dropping the ball. That's where all anger should be directed except that there is seemingly no one answering DGLT's calls and emails in which to direct anger towards.

So instead of a drop, perhaps there is a rise tomorrow? Someone has been buying up large blocks of shares in the $0.70 to $0.75 region over the last few days. This wouldn't be a retail day trader trying to load up on a grey market stock. Someone is buying to accumulate shares. Possibly for a hostile takeover by Urban FT? Another entity buying up shares for whatever reason? The main reason to buy on the open market other than the obvious that one thinks the stock will go up would be to secure votes in a hostile takeover bid or to try to deny that bid.

I might put up some asks tomorrow at higher prices to see if they get taken out (not my entire holding, just a part of it). I suggest other shareholders do the same. A substantial block of shares up for sale at a reasonable price (say, anywhere between $0.75 to $1.50) could get taken out if my thesis about the big buyer is correct. I think it is wise to start offloading this position given the nonsense surrounding it, but I don't want to sell too much too soon and give a potential bidder cheap shares. Tomorrow should be an interesting day.

Monday, 18 September 2017

Hive Blockchain's Hot Debut Gives Hope To Fintech Select Investors

Hive Blockchain Technologies (HIVE) made its debut on the Venture today and is trading at $0.90, up 200% from the price of the financing that took place during the reverse takeover transition from Leeta Gold. I have not purchased this stock today as I have exhausted all cash resources, but it does look interesting.

I recommend reading the registration statement filed on SEDAR:

http://www.sedar.com/GetFile.do?lang=EN&docClass=13&issuerNo=00004998&issuerType=03&projectNo=02675521&docId=4181847

It's 134 pages and I have just skimmed through it quickly, but it appears to provide a detailed risk-reward profile of investing in blockchain and cryptocurrency. I think this is a valuable source for Fintech Select (FTEC), formerly Selectcore (SCG), investors such as myself.

HIVE has 226,584,760 shares outstanding, about 250 million fully diluted. So at $0.90 the fully diluted market cap is $225 million.

FTEC has 60.6 million shares outstanding and another 26.7 million in warrants. The fully diluted market cap at $0.20 is $17.5 million. Clearly there is large upside and investment demand for FTEC based on what I have seen with HIVE today if it can achieve some of the initiatives stated in the AGM several weeks ago. I am taking a wait and see approach for the remainder of 2017 to see what this company can do.

Wednesday, 13 September 2017

Talks Between Urban FT And Digiliti Continue: My Guess Is A Reverse Takeover

An 8-K filed by Digiliti (DGLT) last week showed that the company came to an official agreement with Urban FT's financing wing UFT Equities for a Secured Promissory Note. People have asked my opinion on it so here it is. Why have I decided to post this on my personal blog instead of Seeking Alpha? Seeking Alpha qualified my first write up on DGLT as an article. That means I get paid for it. My next two write ups didn't qualify for whatever reason and I had to post them as blogs. Seeking Alpha puts ads up on blog posts but doesn't pay out for them so I figure instead of giving the site content and traffic for free I might as well offer readers an ad free experience and expand the reach for my personal blog. Here are some of my recent Canadian small cap picks if interested:

Mission Ready Services Signs $400 Million Deal The Military
Seven Other Stocks I'm Watching Closely for the Rest of 2017

In addition to the 8-K, there was an attachment disclosing the details of the note. It's long and filled with legalese, but the main takeaway that shareholders will want to know from this is:

"If a definitive agreement with respect to the Proposed Merger is not entered into on or prior to September 30, 2017 or such later date as agreed upon by the parties in writing, the obligations of the Noteholder to make future advances pursuant to this Note shall terminate with immediate effect."

As in other words, if there is no deal made by the end of September, DGLT is in major trouble. But the hurt would be much larger for insiders and management who own a heap of shares compared to us retail investors who bought up shares the few days leading up to the halt. Urban FT has also gone on public record practically salivating over DGLT's client base and business (not so much the business model itself which is what has led DGLT down this path to destruction).  So I believe that both sides are working hard to get a deal done. Ideally September 30th would be a hard deadline, but it wouldn't surprise me if talks continued beyond that. Just by looking at Urban FT's news page on its website tells you all you need to know about the company's mindset.

So what do I think will happen? The language in the 8-K has me leaning to a reverse takeover as my best guess. It makes sense as Urban FT has been trying to increase its public profile recently. A reverse merger by definition means that Urban FT interests would come away with the bulk of the shares. My experience has been that reverse takeover deals result between 50% to 90% of the newly created float going to the new owner. That would mean DGLT would have a minimum of 20 million shares and up to 100 million shares outstanding post-merger. However, the float itself would remain unchanged as Urban FT would own all of the newly formed shares and there would presumably be a lock-up period or some kind of disincentive to immediately dumping millions of shares.

Another article about the deal released today has Urban FT CEO Richard Steggall reiterating that the closing price of DGLT's stock of $1.05 represents a "fair market value". So a reverse takeover would likely value Urban FT around $1.05 for hypothetical "UFT" stock. There isn't a lot of information surrounding Urban FT available, but the company did complete a $3 million seed round at an undisclosed valuation in 2012 as well as two follow up rounds of undisclosed amounts.

Urban FT acquired Wipit in 2015 and iParse in 2017. Wipit is a mobile payments solution provider for the underbanked. It has an active partnership with Sprint (see website, as well read the fine print at the bottom of the page referencing Urban FT as the operator of this program) and has signed a deal with H&R Block back in 2012, but I haven't seen anything that suggests it's particularly active or lucrative. The iParse acquisition seems to have been mostly for its technology, allowing Urban FT to white label its mobile banking solution to all banks and credit unions, regardless of size. The article I am referencing from mid-July made note that the plug-in made possible by the iParse acquisition would be deployed in 60 days - or right around now as the DGLT deal looks to get done.

Richard Steggall and Urban FT's President Kasey Kaplan are the two faces of the company. They disseminate and promote Urban FT's activity in the FinTech space as well as opine on various trends in the industry. Both have active social media profiles. They have made missteps yapping about the DGLT offer too early and often which greatly impacted the stock price before it was halted on 8/16, but seem to have learned their lessons from the mistake and have acted more responsibly since then. Both of these men would make pretty good stewards for a publicly traded company, able to disclose Urban FT's business in a functional but not overly promotional way. This would serve well in, for instance, analyst conference calls.

What I am trying to get to is that on the surface, Urban FT looks to be at an ideal time to go public. It has enough interesting deals going on like the one with Sprint and this new iParse offering in addition to whatever synergies it may pick up from merging with DGLT. The management team appears capable. The FinTech space is hot. So no matter what valuation this proposed reverse takeover may entail, the stock has a significant chance of going higher as the market may love this deal. 

Short interest as of 8/31 was 845,643 which is actually less than what I originally guessed, but is still a high enough amount on a stock with 10 million shares outstanding and is currently halted pending some kind of deal. This is ripe for a short squeeze if/when it opens.


While my patience has been wearing thin, what I can say as a long is that I am much more confident about my position once it opens than what those 800,000+ shares short should be. Today's article mentioned the following about the possible timing of DGLT re-opening for trading:

"Once DGLT appoints new auditors and they complete an audit review of 2016 and 2017 earnings to date, Steggall anticipates that the stock will resume trading. He expects a new firm will be appointed later this week."

So perhaps if the new firm is hired by the end of this week and is immediately deployed to review the books, could we see the halt lifted as well as news of the M&A deal by the end of this month?



Thursday, 7 September 2017

Mission Ready Services: Bought Shares On $400 Million Deal With U.S. Military

Mission Ready Services (MRS) announced a distribution agreement to supply its products to a foreign military, with all signs pointing to that foreign military being the United States.

The Material Terms of the Agreement include:
  • Minimum Purchases (USD): Year 1 (2018), $50MM; Year 2 (2019), $50MM; Year 3 (2020), $100MM; Year 4 (2021), $100MM; Year 5 (2022), $100MM.
  • Advance Payments: Distributor agrees to pay Mission Ready (the “Manufacturer”) a down payment equal to forty percent (40%) of the purchase order amount within 10-days of submitting the purchase order.
  • Exclusivity: Manufacturer appoints Distributor, on an exclusive basis, as its sole distributor for the defined territory.
The total minimum guaranteed amount for this contract is $400 million over the next 5 years. The press release implies that the contract will start in 2018 but the material change report shows that the first $50 million could occur any time between now and the end of 2018. This is the largest deal I have ever seen relative to market cap in the Canadian junior world. While it's portrayed as something much more definite than an LOI, the caveat is that the anonymous distributor (possibly Federal Resources Supply Company, a distributor that MRS signed an agreement with in Q2 2017) isn't subject to a very strict punishment for not adhering to the minimum purchase volumes. Once the purchase order comes and the 40% down payment is sent to MRS, that's when we can be assured of the distributor's dedication to this deal.

With that being said, the risk-to-reward trade off from this deal is way out of whack. At 20 cents, the fully diluted market cap (~127M shares) is $25 million CAD. As soon as the stock opened yesterday at 11:30 I bought 200,000 shares with the intent to ride it for a short period of time since I thought it would take off. Instead the stock pulled back to 16 cents which allowed me to load up, really load up. That includes clearing out my U.S. account (well not DGLT) and using credit card debt. Not something that I wanted to do but when I was given this opportunity I took it. The pullback could be from profit takers as well as a significant amount of warrants at the 15 cent level. I get it. I was lambasted for selling a few hundred thousand of my six million shares/warrants of PKK when it hit 20 cents before buying that all back and then some as it seeped back down. So I won't fault others for taking huge profits. If you own a stock that is 10% of your portfolio and it suddenly triples, it has grown to become 25% of your portfolio. Selling parts of your holdings isn't being a weak hand, it's showing prudent portfolio management. The 30M+ volume on the sell side allowed me to become a participant in the 30M+ of the volume on the buy side relatively easily and at good prices. I thank the sellers.

I'd like to share a relevant link:

https://www.defense.gov/News/Contracts/

This is the U.S. Department of Defense contract announcement page. I have skimmed through the contract announcements over the past couple of days and haven't seen anything that could match the terms of the contract as announced by MRS. It's tricky though, as the contract name could be awarded to the anonymous distributor and it will likely be for more than $400M as that is only the cut to MRS as the role of manufacturer.  The announcement might still be to come. So investors should keep their eyes peeled and also have a look at the contract announcements over the past several days. The search function on the site is completely useless. So several more pairs of eyes might pick up something that I missed. It also means that I won't have to scour the website  - delegation of tasks to other shareholders with a large stake in this stock.

 I'm certainly not suggesting that the contract is bogus. I wouldn't load up if I thought it was, plus with the day long halt the Venture Exchange likely went through this deal quite carefully. The company has undertaken steps to put all its resources into fulfilling this deal, namely reneging on the Wild Things acquisition. But if this contract does show up on the DoD website that would be a huge boost to its credibility and basically assure us that the minimum threshold will be met. After all, if the distributor can sign a deal for $400 million plus markup with the U.S. Government, why wouldn't they fulfill their duty to MRS? That would be throwing away middle-man profits. MRS is the one sacked with the tough job of actually producing the goods.

Speaking of tough jobs, one of the prime causes for the stock not immediately spiking over 50 cents is likely the market's worry that MRS is going to have to finance through equity to garner some cash to fulfill its end of the deal. I don't share this view, particularly by reading this paragraph in the release:

"MediaTech Capital Partner’s Porter Bibb, who recently partnered with Mission Ready (see Company’s news release dated August 2, 2017), states, “Mission Ready’s impressive new management team has delivered on its promise to put Mission Ready on a fast track to rapid growth and significant profitability as a market leader in the burgeoning military and public safety tactical equipment sector.” MediaTech will assist the Company with obtaining bridge loan capital for raw materials, as required, and will help to facilitate the rapid expansion of the Company’s manufacturing and sales divisions."

It explicitly states that MediaTech and MRS will seek to obtain bridge loan financing. It makes sense to go with PO financing rather than equity with the new stage the company is about to enter as a major manufacturer. If equity financing is needed at a large scale (small financing for working capital requirements is acceptable) then the company and its capital partner completely dropped the ball on this one. Military spending is about as safe of an industry as you can be in with the current political climate in the Unites States. Interest rates are still very low in historical terms and the stock market is high. There should be firms lining up to finance this deal, seeking some alpha return on an investment that should result in an 8-12% coupon for a bridge loan.

Valuation

How much is MRS worth right now?  Not the easiest question to answer at this early stage but I think most people will answer "far higher than a $25 million market cap". The company hasn't given any EBITDA guidance on this deal yet so I think the most straightforward method to use is a revenue multiplier. Axon Enterprise, Inc. (AAXN), formerly Taser, is the first company that I can think of that manufacturers equipment for the law enforcement and defense industry. It has a Price/Sales ratio of 3.7x.

If we were to apply that 3.7x revenue multiple to the $50 million in revenue guaranteed by that contract in 2018, that would be a $185 million valuation or about $1.45 per fully diluted share US, which translates to to about $1.80 CAD. Now obviously there are a couple of issues with comparing AAXN's already existing revenue to MRS' supposed future revenue stream:
  • AAXN's revenue is multiple is based on past, audited results. The MRS contract is not yet 100% guaranteed.
  • AAXN is profitable at its current level of revenue. We don't know the gross margins on the MRS contract nor if this will be enough to get the company to profitability.
  • AAXN has an existing manufacturing process that can handle large volumes. MRS has yet to prove that it can do this (though it looks like the company brought in new CEO Jeff Schwartz specifically to tackle this issue).
There are also a couple of advantages:
  • We know that the revenue stream on this deal will double by 2021. AAXN will be challenged to double revenue by then.
  • This is just one contract and the $50 million is referred to as a minimum commitment. The revenue stream from this contract will be added to the existing marginal revenue stream as well as any other contracts signed in the near future. Revenue could be substantially higher than $50 million in 2018.
Rather than saying that MRS is definitely worth X price, I'll look at it from the perspective of how big of a discount the market is valuing MRS relative to AAXN and where I think it should be. If $1.80 is the price MRS is assuming all goes well with the contract, the manufacturing and the financial audit between now and 18 months from now, $0.20 means that the market is giving an 89% discount. That means it is giving MRS an 11% chance of success (or say, a 22% chance of getting half way there). I personally think that's way too low.

What's a reasonable target price in my opinion? Well, $0.50 is a nice round number that has a realistic shot based on MRS' current breakout and that would imply about a 28% chance of success. I think if everyone looks at it from this perspective, they'll figure out a comfortable level in which to take profits. That doesn't mean I would dump all my shares at exactly 50 cents nor would I recommend anyone else do that.

Offloading small lots from 25 to 75 cents would result in the same 50 cent average sell price and provide an opportunity to trade spikes and dips. You can never accurately predict when to sell or what will happen. Just look at DGLT as an example. Had I not starting selling in lots between $0.75 and $1.00 I'd be stuck with 100% of my money in a stock that has been halted for three weeks, even if I am technically up over 300%. At least in that case I recovered my original investment and then some and whatever ends up happening to that stock is gravy.

Final Note

Not only do I think MRS will move up, I think for the health of the Venture Exchange, it HAS to move up. If we can't make money trading a $25 million CAD market cap stock that has just signed a $400 million US contract to provide protective gear to the U.S. military, what chance do we have to make money on PKK, FGD, PEEK or any other stock not being chased by weed dreamers? This contract is the Holy Grail for junior investors. There are stocks on the NASDAQ with 5 to 10 times the market cap that would double if they announced a $400 million contract with the United States military. MRS should make all of us good money. If it doesn't, this market is completely broken.




Tuesday, 15 August 2017

Seven Stocks I'm Watching Closely for the Rest of 2017

As I have been in summer mode, I haven't written much about the stocks in my portfolio lately. Here is an update on seven stocks that I am watching closely for the rest of 2017.

First Global Data (FGD)

I'm surprised at the extreme pullback, but I have taken the opportunity to buy more shares. I hold more FGD shares now than ever before. However, thanks to the tank in the stock price, FGD has slipped to the third largest holding in my portfolio. Despite the negative move, I'm not too upset about it. If FGD was doing poorly I would be but I know that business is going very well.

FGD is the one stock I tell people I know to buy, even those who are unfamiliar with the stock market or who only buy very conservative stocks. Why? For two reasons:

1. FGD has been consistently profitable since Q1 2016. Four of the past five quarters showed positive net income while Q4 2016 only showed a loss because of the stock compensation expense booked in that quarter. The threat of bankruptcy is as about as minimal as it can be for a junior stock and while FGD seems to be battling dilution issues right now, those issues will be in the rear view mirror soon enough. It is extremely unlikely that the company will need to finance to maintain operations in the future, yet possesses a very high speculative upside upon continued traction of the business. I strongly believe that FGD will be a $5.00 stock soon enough, which is more than a 15x upside from current prices. I can see a strategic investment being a possible dilutive event in the future, but that would only be a net positive for existing shareholders.

2. There is plenty of verifiable third party evidence that suggests that business is booming:
  • The Android stats for VPayQwik in the Google Play store showed that the app surpassed 100,000 downloads in January and 500,000 downloads in June.
  • The CEO of Vijaya Bank (FGD's operating partner for VPayQwik) stated that he wants to see more than a million users on this app.
  • The Alexa web traffic stats for firstglobalmoney.com have been on a consistent uptrend. It entered into the top million rank in September 2016 and top 400,000 in June. It sits around 370,000 now after hitting as high as 350,000 at the end of July.
  • The partnership with LianLian to bring remittance services to WeChat is already live. Website link. Note the "Powered by First Global Money Inc." message on the service's interface.
Check my previous articles for links and analysis that back up these points. Points one and three show strong growth in usage of the company's existing payments services which has so far been highly correlated to increased revenues in each quarter since Q3 2016. The WeChat service will not likely impact Q2 but we may see material revenue from the deal as early as Q3 based on the progress made early in the quarter.


Peak Positioning Technologies (PKK)

Like FGD, I have also been buying PKK shares and hold more shares now than ever before. Though for this one I can understand why there might have been such a pullback. The company will not be making original financial projections made for 2017, which may have turned off some investors as Q1 looked weak and I am expecting much the same for Q2. However, rather than this being due to a screw up, this delay in revenue is largely due to the opportunity to pivot into the much higher margin Chinese B2B lending space through Cubeler, ASDS and ASFC. Rather than accepting a small margin on large amounts of revenue-generating transactions processed through Gold River, PKK has the opportunity to increase the margin on these transactions by offering lending and other financial services to its customers. Three press releases in August show that the company has achieved major milestones in getting to this point. I expect marginal revenue from these initiatives in Q3 with a ramp-up in Q4.

Another issue that could be negatively impacting the stock is the discount-to-market financing deal that PKK signed with GEM. Many people were suspicious that GEM was responsible for the recent tank. That may not have been the case, but the July progress report showed that PKK financed through GEM with the investment firm getting 3.3 million shares at an average of a little over 6 cents.

I have stated my concerns to PKK's CEO about GEM, and this was his response:



I was quite encouraged to know that he is aware of the issues surrounding GEM and is using this as a test case. I look forward to hearing more business developments that will encourage the stock price to return and surpass the 52-week highs made a couple of months ago, hopefully before the year is up. Even at 6 cents PKK is still my largest holding, reflecting the large amount of shares I own and the even more severe pullback on FGD. However, the next stock could take over as my largest holding if it continues towards new 52-week highs.


Selectcore (SCG)

I was a reluctant buyer of SCG shares recently. Having seen what happened to FGD since the free trading of shares, I was worried about the impact of SCG's private placement coming due, particularly since the stock price has been so strong since the addition of a Blockchain/Cryptocurrency Strategist to the Advisory Board. So far, so good, as Monday didn't generate much selling. However, there could be a risk of weakness in the short term if anyone does decide to sell their shares. If there is not, I will take that as a very good sign and a precursor to more buying as potential buyers see that sellers aren't blinking and will blink first. Thanks to FGD tanking and SCG remaining near 52-week highs, it's now the second largest holding in my portfolio.

I was at the AGM where CEO Mohammad Abuleil and new Chairman (and CEO of FGD) Andre Itwaru explained the current state of the company and plans for the near future. In addition to leveraging the JV with FGD and existing government relationships, SCG is planning to dive in head-first to several leading-edge fintech solutions. This includes a peer-to-peer lending and microfinancing (getting into the GoFundMe type of space) and possibly creating its own cryptocurrency. While the creation of the currency certainly sounds intriguing, that sounds like something that is far down the road and will have a lot of hurdles to overcome. I'm more interested in the near-term plans.

The initiative that I found to be more realistic, achievable and profitable in the short term (possibly before the end of 2017) is the integration of a cryptocurrency solution into SCG's existing point-of-sale platform. Basically, SCG wants to sell Bitcoin and similar kinds of online currencies the same way that it used to sell prepaid phone cards. I asked at the AGM if SCG plans to get into the cryptocurrency dealer space - it does not. Which is what I prefer because I don't want SCG getting caught up with the volatile nature of these things.

SCG once achieved $100 million in annual revenue selling prepaid cards. So the company doesn't have an issue with reach. The problem was that this business was extremely low margin and became obsolete as the carriers improved their web services where customers could easily top-up their balances online. If a cryptocurrency sales solution catches on, it could be a cash cow for years, similar to how businesses like Thomas Cook have made money dealing in physical foreign currencies at kiosks. This is still in the concept phase but I am willing to wait to see how much progress can be made on this in 2017.

Like FGD and PKK, SCG's financials are due in two weeks. The income statement has been up and down since 2016, but still greatly improved over previous years. I looks forward to seeing Q2 2017. The balance sheet should also look the best it has in years.


Assure Holdings (IOM)

I recently sold all of my shares in IOM above $3.00 to purchase more of the three aforementioned stocks. This quick triple has saved my portfolio this summer and allowed me to redeploy more cash into the other stocks as well as the final two on this list. This was slightly below my planned $4.00 target but considering the tank in FGD and PKK I decided to sell a little bit lower and looks like I timed it well as the stock has pulled back to $2.50. This is a price that I would seriously consider buying back in if not for the fact that FGD and PKK are still outstandingly low.

Why did I sell my IOM shares when the company had such a strong Q1 and is trading at an annualized P/E ratio of well less than 10? Keep in mind a couple of the risk factors I outlined in my Seeking Alpha article. First, the stock has moved a lot so insiders or owners of the old shell that existed prior to the RTO might be encouraged to take their profits. Second, the accounts receivable balance is high and has been growing which is always a concern when it comes to businesses that bill Medicaid and the insurance companies in the U.S. Q1 showed positive operating cash flow so the company is collecting on at least part of its invoices. I'll continue to monitor the A/R balance closely when reviewing Q2 and beyond should I decide to buy back in.


Peeks Social (PEEK)

As I stated a few weeks ago, I sold out of my position in PEEK to buy FGD and PKK. I suppose it worked out since PEEK has dropped from the $0.80's to the $0.50's while FGD has dropped from $0.40 to $0.29 and PKK has stayed flat at 6 cents. I still have no plans to buy back in at this moment, but continue to follow the situation.

Recall my article from last October outlining the risks and opportunities that I see in PEEK. I guess the first elephant in the room that I have to acknowledge is that leveraging the old Keek user base wasn't nearly as lucrative as I had hoped. So Mark Itwaru is trying to find other ways to grow the user base to scale. Marketing expense was $1 million in Q1. Assuming the 30/70 split between PEEK and Personas applies to marketing costs as well, that means Peeks Social spent $3 million in advertising for the quarter. There are no details around the marketing expense, so I can only guess at the split between the Caribana sponsorship and what might be paid as an upfront signing bonus to celebrities like Scott Disick.

Maybe the strategic spending Mark is doing will be successful in bringing users onto the Peeks platform and encouraging revenue growth. However, having been burned by this business model before with other investments, I'll continue to sit on the sidelines until I see this strategy gaining traction or the stock becomes too irresistibly cheap to pass up a buying opportunity. My opinion on this is that YouTube helped to make Justin Bieber much more than Justin Bieber ever made YouTube. The Peeks platform is a great opportunity for people to get noticed and earn an income. In my opinion, Peeks needs to find its own stars to make rather than try to recruit existing stars to the platform (except in the case where the offer box is used for e-commerce initiatives).

With that being said, I noticed that the Mayor of Toronto John Tory gave a shout out to Peeks' Twitter account during the Carnival, and it has 230,000 followers. Clearly there is some boost in the Peeks brand name from this sponsorship deal. The next challenge is converting those followers into Peeks users who create content and/or tip others for their content.

There were several large investors in PEEK and even employees of the company present at the SCG AGM. That just goes to show you how incredibly stupid it is to try to gain traction in one of these stocks (PEEK, FGD, SCG) by trashing another. I firmly believe that the Itwaru brothers will help each other out. 


Lightning Ventures (LVI) and MGX Minerals (XMG)

Both of these companies are new to me and are in the oil/mineral extraction and technology space. I've known some of these "water into wine" type of companies before and they generally don't work out. However, trusted associates of mine who are shareholders and close to the management teams are quite bullish on each company. I expect to be talking with management along with writing more detailed reports on both of these stocks and in the case of XMG I have already once spoken with management.

Both companies have the typical risk associated with pre-revenue businesses that are trying to showcase new technology - financing/dilution/insolvency risks before things get off the ground and the risk that someone comes along and builds a better mousetrap if things do get off the ground. But for now I am fairly confident that both companies have a reasonable chance to become revenue-generating in 2017 along with signing (more) contracts with oil and gas players. At least confident enough to make both of these picks public. I'll give them both to the end of the year before re-evaluating my investment. For now I am slowly adding to my position while they are in a quiet period.

I own several other small positions, many of them I have already disclosed in other write ups. I'm also buying and selling other stocks to pass the time, but these seven are the ones I am watching the closest for the rest of 2017.

Thursday, 29 June 2017

I Have Sold Out of PEEK, Bought More FGD and PKK

In a world where I have limited resources and opportunity costs, I have made a difficult decision today. I have sold my PEEK shares in favour of buying more FGD and PKK. As I have mentioned in the past I have flipped some PEEK shares for FGD before, but today was the final trade. With the trades made today I believe I have more shares and warrants in FGD and PKK than I ever have before, or at least very close to that.

PEEK's financials came out yesterday and they were within my expectations for a startup mobile app company in its second, third and fourth month of operations. The revenue came in a bit lower than I expected and expenses higher, but nothing egregiously bad. This has much more to do with FGD and PKK tanking than anything PEEK has done.

Like I said in a world where I have limited resources I have to take into account opportunity costs. My reasoning for selling PEEK shares to buy FGD and PKK is as simple as this:

My target on PEEK is $3.00 versus a stock price of $0.88. That's 3.4x upside.
My target on PKK is $0.50 versus a stock price of $0.06. That's 8.3x upside.
My target on FGD is $5.00 versus a stock price of $0.41. That's 12.2x upside.


PEEK could very well go to $3 and as long as the other two follow suit on my targets I make money and I am happy. One could argue that since I am most bullish on FGD that I should put every penny into there. I still need some diversification. Some people might say "why don't you take out a loan to buy more of these stocks if you're so confident". I've already done that and in fact recently got an increase to my line of credit.

Another factor that weighed into my decision is that FGD and PKK are consistently communicating with shareholders. I have voiced my concern before about companies needing to release press releases detailing their financial results. Both management teams at FGD and PKK have taken to my advice. PEEK has some good KPI metrics but they are buried in its MD&A filed on SEDAR. It's not my responsibility as a shareholder nor any other shareholder's responsibility to push how great these metrics are to other potential investors.

I'd like to semi-apologize to anyone who read my stuff on PEEK and my $3 target and bought in at a higher price. I say semi-apologize because I am not nor should anyone else be responsible for your own trading decisions, and I believe I fairly qualified the risks. Also, there is nothing to suggest that at this very early stage PEEK cannot get to $3 upon further business execution. I didn't sell because I think it's going to zero. I sold because PKK and FGD have headed towards zero much faster than I ever would have thought and I'm taking full advantage of the situation. So you can either hold out to make some money, try your luck with PKK or FGD which I think have higher upside at this stage or sell and buy something else and never listen to my advice again.

Still, it sucks if you bought in at something like $2 and are holding a 50% or higher loss. I have been there before so I can understand your misery. In an ideal world all three of these stocks would have hit my targets on them by now and we'd all be celebrating.

I fully intend to get back into PEEK at some point in time. If FGD or PKK rise so the upside ratio between these three stocks becomes more aligned, I will reverse the trades I've done today. I still hold IOM which has been saving my portfolio over the summer so far. If that stock moves over $5 in short order that may be where the source of cash comes to reload on PEEK (or conversely, if these stocks continue to tank for no good reason and IOM stays where it is or higher). Good luck to those who continue to hold.

By the way, I wasn't the one who sold down to 83 cents. While I was writing this blog I saw it tank and thought to myself "ah shit, people are going to blame me for that".

EDIT: Yes I still hold SCG as well.

Monday, 29 May 2017

PKK Releases Q1 Results: Holding My Target Steady at $0.50

Peak Positioning Technologies (PKK.C) (PKKFF) released Q1 results. They were nothing to write home about with $7.3 million in revenue and a net loss of $661K. However, the company had already prepared us for a weak Q1 as it is in the midst of another pivot into the much more lucrative lending opportunity. This has delayed transactions on the Gold River platform that require lending which caused revenue and margin to fall far short of original expectations.

While the company will be challenged to meet previous EBITDA and revenue targets, I remain bullish with my $0.50 target as I like the direction the business is headed. PKK management is trying to be as transparent as possible while some shareholders are still a little confused. I believe we will get clarity soon enough as PKK has promised an updated presentation on ASFC which should be coming in the next few days and advances on the ASFC business by the end of June.

Here is the outlook for 2017 from the Q1 MD&A:

































Key points:

  • Margins are expected to increase drastically once the lending business is live. While the raw materials transactions are expected to earn margins of 0.5% to 2%, the interest revenue expected by financing these transactions range from 9% to 24%.
  • Two major milestones need to be achieved in 2017 - the launch of ASFC and Cubeler. 
  • Cubeler will be a service available to lenders outside of ASFC.
  • ASDS has been in discussion with potential lending partners. 
  • Peak expects to announce ASDS' first lender platform agreements by the end of June. This leaves open for the potential of a "name drop" that could move the stock price. Although it is just as likely that any deals signed will be with an obscure Chinese firm that will be very important for business development but won't be the source of a news release fueled pop. 
PKK remains consistent with a lot of promises made in a short time frame. I remain cautiously optimistic that the company will adhere to these timelines and that we will hear a lot of about ASFC over the summer.