Tuesday, 20 February 2018

My Notes on the IDK AGM

I was at the ThreeD Capital (IDK) AGM earlier today. There was only a handful of people in attendance, including CEO Sheldon Inwentash and CFO Gerry Feldman. Mohammad Abuleil, CEO of Fintech Select (FTEC) was also in attendance. It looks like he was there for a meeting with Inwentash after the shareholder meeting. Though he may also be a shareholder in IDK. I did not ask.

Here are my bullet points to the meeting. Keep in mind this is just my interpretation and from memory a few hours after attending. So I might be slightly off on some details though I believe I got the gist of everything that was discussed:
  • This was a very informal AGM, completely different from what I am use to. Usually a formal vote of the motions laid out in the circular is done but Inwentash decided to skip all that because he said resolutions all passed with ~99% votes in favour of all motions. He preferred to go straight into a question and answer period. Throughout the meeting he was very confident (borderline arrogant) and casual. He did make mention that he would do things a little differently than at Pinetree, which I interpreted it as an admission that some mistakes were made there, a good sign in my opinion. 
  • His investment strategy will be focused around fewer companies for IDK, as opposed to Pinetree where a wider net was cast due to the hit-and-miss nature of exploration.
  • He is very passionate about his Blockchain and AI investments in IDK, and came off as less passionate about the mining projects, saying that he has geologists to take care of those.
  • In the roundtable of questions, the shareholder to my right asked Inwentash about his recent sell of IDK stock, beating me to the punch. Inwentash refused to comment on trading, though I believe he sold for tax planning purposes. He reiterated that he was very confident about IDK.
  • I asked him about the out-of-date NAV up on the website (as of September 30). When can we expect an update and can we start seeing a monthly report on NAV? Gerry Feldman led this conversation, though they were both on the same page that monthly NAV reporting is the goal. There are specific accounting challenges to this, namely, how to account for the ICO investments made. This is new grounds in the field of financial reporting. Feldman mentioned that he is working with Ernst & Young on this, and they don't have an answer yet. My interpretation is that this will be quite a task, and it could be months before we see monthly NAV reporting. 
  • December NAV will likely come in tandem with December financials, IDK's Q2. Deadline for that is the end of February.
  • Future NAV reporting will likely come in the form of one top line number, possibly with a chart to show % of portfolio in ICOs, public companies, mining versus tech etc. No definitive framework was discussed, but it will probably be less detailed than Pinetree's old data.
  • My interpretation is that the NAV as of September, and even my more recent estimates, are wildly incomplete. I tried estimating it myself based on publicly available data like IDK's recent private placement investments made in APP and FDM, among others, but the company has never publicly disclosed its ICO investments, which I am led to believe are substantial. We will just have to wait for the NAV update to get a clearer picture of exactly how much IDK is worth. I am more interested in March quarter-end than December quarter-end, since I think a lot of activity took place in January. With the market cap at around $20 million, there is the possibility that IDK is trading at a discount to NAV now, though that is just my wild guess.
  • IDK almost got into crypto-mining, but decided against closing some deals in that sector. The focus is on ICOs though crypto-mining operations remain a possibility. I get the feeling that Inwentash doesn't like mining as much, stating that businesses that are making 90% margins can't last forever and something will have to change, particularly with the power usage being dedicated to this kind of thing around the world. 
  • Inwentash made a qualitative statement about day traders, negative market forces and people who may dislike him, particularly because of the ending at Pinetree. He does not worry about people focused on short term moves, or any doubters against him. He is interested in the long-term moves building up the company. He appeared to be sincere with a bit of a chip on his shoulder when he said this. 
  • Inwentash was quite passionate in explaining his AI technology for mining, which he believes will greatly aid with drilling decisions made by explorers who use the technology. He plans to charge companies upfront for use of the technology, plus a royalty. There weren't any specifics mentioned with how this will work or why he is so confident. He did make mention that when they wiped a map clean in Quebec and applied their AI technology to it, they found 85% of the mines in the province with it. (I don't know what he meant by mine - the strict definition of a currently operating mine, or those that include past mines and ones being built as well, as well as untapped deposits).
  • My interpretation of the AI is that it might be an uphill battle to gain market acceptance and clients. Since it is new technology and I don't know if there is any third party data out there to prove that it works. My guess would be that they will use the technology on mining companies in which IDK holds a stake, as well as other Inwentash-related companies to collect anecdotal evidence. If the technology works, I think it could snowball as prospective clients will save millions in exploratory drilling costs before proving out a resource to go into the infrastructure building phase. 

Sheldon Inwentash: A gold bull's perspective on blockchain

Inwentash ended the meeting with a rant on blockchain from his perspective as a man who has been in the gold sector for over 25 years. It was fascinating listening to him apply principles and opinions learned from that industry to blockchain. First, he very strongly believes that blockchain will create "financial anarchy" and is not going away. It allows for financial transactions to occur in a trustless environment, eliminating the need for a financial intermediary. Central banks cannot control the flow of cryptocurrency, which is why so many authorities out there speak out against it. (This is the kind of "conspiracy" speak I often here from gold bugs as well, though I tend to agree with at least part of this thought process. Really, who knows if the bankers are actively seeking to destroy cryptocurrency because it is a threat to their positions of power, or if in their little T-Bill world, the volatility of these things gives them nightmares and they can't help but spread the joy to everyone else).

He said that the balance sheet of the United States and many other sovereign nations is basically bankrupt and the only way to pay off that massive debt is to devalue their fiat currencies to a fraction of what they are worth today. What would be the other side to that devaluation equation? All of the world's gold can't even fill up an Olympic-sized swimming pool, so he offered up cryptocurrencies as a potential benefactor as well to gold. He likes them because there cannot be any debt written against cryptocurrency like with fiat, and the limited supply.

He mentioned that he has been looking into blockchain and bitcoin since 2014 and wanted to buy some bitcoin back then, but couldn't figure out a way. He said even now it's a pain because you have to submit a copy of your passport among other things just to open an account. I haven't tried opening a crypto-trading account but I understand those similar pain points from opening FX accounts and sportbooks in the past. Inwentash then pointed at Mohammad Abuleil and mentioned that is why he likes what he is trying to do to bring bitcoin to the market. It wasn't clear if he meant FTEC or another project that Abuleil may be working on, since Inwentash never mentioned FTEC by name. Still, this is a very good sign as that has been a major part of my investment thesis on FTEC.

I mostly agree with what Inwentash said about blockchain. One point of contention I have is that he didn't mention the asset side of the balance sheet. While many sovereign nations are loaded up to the gills in debt, they also have access to land, natural resources and the tax base and economic output of their people as sources of paying off debt. While cryptocurrencies don't have debt, the assets/functionalities they are tied to are usually virtual ones, ones that do not carry nearly as much value as a large plot of land or the ability to set tax policy might today. That may change in the future as the world gets more computerized and virtual, though some virtual assets and services may turn out to be worth a lot while others turn out to be worthless. So an investor has to be careful with which altcoin they decided to invest/speculate in.

Thursday, 18 January 2018


I have created a Facebook group traders can join so we can discuss Inwentash investments:

Sheldon Inwentash Investment Tracking Group

From $0.35 to over $2.00 to $0.35 in DAYS. I have never seen anything like this. Yeah PEEK did that but at least that was over a period of over a year and based on various issues that the market didn't like over time. How the hell can something like this happen? Almost as bad as NNA except without actual news to justify the move. Glad I was never a part of that one, recommending it anywhere outside of its relationship to IDK.

Also glad that I sold a lot of IDK and APP shares high and mentioned that in my blog. A chance to buy back cheaper now which I took advantage today and I guess I will be doing tomorrow. Might even buy into SX since it looks like a very decent opportunity. Those Zeu guys will want to cash in their $1.00 warrants at some point in time.

A lesson can be learned from this situation. This is not a good start for Sheldon Inwentash if he is trying to reclaim his lost rep from the Pinetree debacle. Volatility can be a trader's friend and we know what we are getting into on the Venture/CSE, but if he wants his fund taken seriously it's going to need a little more stability than this. I have a very, very hard time believing that this crater in the Inwentash basket isn't due to some serious dumping by one or more individuals or entities that are known to him, even if that's completely out of his control. He needs to pay more mind to who he associates with in that case.

Can't blame the market either. US stocks like OSTK, RIOT, KODK and bitcoin and HIVE were all trading pretty well today and since bitcoin dipped under $10,000 yesterday. This is a distinctly Inwentash phenomenon.

Thursday, 11 January 2018

An Update on Sheldon Inwentash's Investment in Global Cannabis Apps

Sheldon Inwentash has been selling his stake in Global Cannabis Apps (FUAPF) (APP.C). Before we get into why he might be doing this, let's set the record straight on how much he has been selling and what he still owns, along with his fund ThreeD Capital (IDK.C).

Look at the activity flagged on CanadianInsider.com:

On December 27th he sold 150,000 shares. On January 2, 1,000,000 shares. On January 3, 800,000 shares. On January 4, 900,000 shares. That is a total of 2,850,000 shares. Brownstone Energy is the old name of ThreeD Capital. It sold 1,000,000 shares.

Let's have a look at the SEDI filing. There is no direct link to this report, but you can look it up yourself by going to the search link and looking up Global Cannabis:

If we refer to press releases on November 16 and November 29, we get the following total position disclosed, these private placements:

"Of this total, ThreeD held an aggregate of 4,000,000 of the Post-Closing Shares and 3,000,000 of the Post-Closing Convertible Securities (representing approximately 7.0% of the issued and outstanding common shares of the Company, or approximately 11.6% assuming exercise of such Post-Closing Convertible Securities only), and the Joint Actor held an aggregate of 1,850,000 of the Post-Closing Shares and 250,000 of the Post-Closing Convertible Securities, representing approximately 3.2% of the issued and outstanding common shares of the Company (or approximately 3.6% on a partially diluted basis, assuming exercise of such Post-Convertible Securities only)."

Here is a chart that summarizes the variance in position between what was disclosed on November 29 and what SEDI shows us today.

What are the facts we can gather from this?
  •  Inwentash sold all of his shares
  • IDK sold all of its shares not in lockup
  • The CanadianInsider report marks 2.85 million shares sold from Inwentash. Either he picked up a million more along the way and sold them, or the report is double counting the Brownstone sells which I would say is very likely given the duplicate volume and price of the transactions.
So lets go with IDK and Inwentash selling a combined 2.85 million shares, everything not in lockup. Inwentash has 250,000 warrants remaining but that is probably some kind of advisory fee bonus which would likely be in lock up too. Now why would they do this?

First, it's natural to take profits when you are in early and have a large position. I have done it on a part of my position and recommend that others should take some profits off the table so it would be hypocritical for me to blame him for doing the same. Second, look at the days he sold. On January 2, the stock went up 66% and hit a new 52-week high. On January 3, it rose 26% and hit its high of $0.99. Only on January 4 did it drop, 16% to $0.76. There is a good chance that he got filled on limit orders on January 2 and 3, in a similar way that I recommend people should sell - with numerous limit orders at different price levels. January 4 was the only transaction that could be considered a dump. We don't know his motivation for selling, but we do know that IDK has had a lot of activity going on with other stocks. His sell, rather than being a bearish outlook on APP, could just be him freeing up capital to fund other investments. He very well could think that APP will double from its current price but if he thinks other stocks will triple, that would suggest more capital should be allocated to those ones. If he had taken the cash and rode off into the sunset, that would be more alarming. But the way he has been talking (discussed before in my previous blogs) and how active IDK has been in the market, suggests to me it is merely capital allocation.

Now obviously, no matter how I spin this, it's not great news that he sold every share that he could. That is why I always recommend to sell into strength and buy on dips. I think I will have a dip buying opportunity over the next few days until APP can release some news and/or get on Fox Business TV. Now we see that Inwentash, an experienced trader, follows the same principle of selling into strength as I do. We'll see if he also buys on weakness like I plan to do.

Sunday, 7 January 2018

The People Who Trash Sheldon Inwentash Don't Understand This Market

With the rise of Sheldon Inwentash's new capital pool, ThreeD Capital Inc. (IDK.C) last week, I have seen his name come up a lot more often, and not always in a complementary way. I get it. I have written about the Pinetree saga a couple of months ago when first investing in IDK and relating his involvement with one of my top picks, FTEC. Let's keep in mind that although he was responsible for Pinetree's downfall, he was also equally responsible for its rise, making early investors a lot of money.

There is nothing wrong with being skeptical with an investment. But the people who relentlessly trash Inwentash for his involvement with Pinetree don't seem to understand that this is a millennial market. There are 25 year olds who have made more money on weed stocks in their first 1-2 years of investing than 55 year olds who have been trading the TSX and Venture for thirty years. This is a "what have you done for me lately" market. And what IDK has done for these young investors lately is double last week. So to the 55 year olds reading this, you can either avoid the play and act like a grouch online, or you can play the momentum and make some cash.

As far as the 25 year olds are concerned, I've met a few with beginner's luck who don't realize that they have beginner's luck and are acting like they are the next Warren Buffett. The market will eventually eat them alive if they don't learn some lessons before then. But until then, momentum stocks with buzzwords like weed and blockchain will be hot well before they have to come up with some kind of achievable business model. There is no point in fighting it by saying Inwentash blew up Pinetree a few years ago when his fund is making people money today.

There is a chance that IDK will blow up just like Pinetree. There is an equal that Inwentash learned some lessons from that hardship which he will now apply to IDK which will make it last. But either way I think early investors will make out like bandits just like they did up to 2007 with Pinetree.

Tuesday, 5 December 2017

FanLogic Signs Letter of Intent with Multi Award Winning Singaporean Blockchain Company

FanLogic (FLGC) has been a holding of mine for a few weeks now as I looked for blockchain opportunities. It has run quite a bit from around $0.10 to over $0.70, to the point where I have done some selling on strength so readers should keep that in mind. It has announced an LOI with Singaporean Blockchain Company Easter Egg Pte. Ltd. Of note:

"Easter Egg is best described as a peer to peer gift giving platform with plans to unify into diverse categories (Payments, Remittances, Gifting, Loyalty and Rewards) on one platform by having a standard fundamental unit of exchange, a colored coin utilizing "XFER" that can enable all these transactions on a single Blockchain."

This seems like an interesting match. FLGC needed something to ignite its stagnant business where revenue has been drying up and Easter Egg needed some international exposure and a place to access cash on the capital markets to develop its business.

One thing to be aware of is that FLGC has done two major pivots in less than two years. Tank Resources turned into Spriza Media in February 2016 and Spriza Media turned into FanLogic in February 2017. That is quite unusual to see two business changes so close together, though the second transaction appears to be more of a business combination than a change of business:

"Spriza offers a proven customer acquisition platform utilizing contests, competitions and lotteries. With the integration of Fanlogic's social gaming software, Spriza now offers its brands and agencies an even more immersive and interactive platform.

The platform is coupled with the Spriza subscriber network of millions of users which provides brands and agencies access to an active audience that consumes brand driven promotions and incentives in a single sign on environment.

The merger of Fanlogic's gamification software and expertise will enhance Spriza's incentive platform, providing agencies and brands a deeper offering; increasing Spriza's market relevance in social gaming for advertising and licensed revenue opportunities.

FLGC closed a 5 million share private placement at 5 cents a month ago for $250,000 and a second one for 1,816,666 Common Shares at $0.30 per Unit for total gross proceeds of $545,000 yesterday. These placements are substantially in the money already, but that has been the market for these hot blockchain stocks. Whoever these strategic investors are, they are making a ton of money in a very short time span (unfortunately not me), and investors should keep that in mind once the 4 month hold period expires in Q1 2018.

FLGC sits at a $40 million market (non-diluted, plus some warrants which will now be deep in the money so expect some dilution and more cash) and now has some cash in the till to help Easter Egg execute on its business plan. Unlike purely speculative blockchain companies which have technology but no business developments yet, Easter Egg already has an app out called Easter Egg Gifting which can be accessed on the Google Play store. It has 1,000-5,000 installs, so not a lot yet. But it has generated 98 reviews with a very high 4.8 rating with 91 of the 98 reviews being 5-stars. So this company has a history of developing a highly engaging app. Let's see this if this LOI can be finalized and if FLGC can leverage its assets acquired in the Spriza Media transaction to help accelerate Easter Egg's global growth.

Saturday, 2 December 2017

Fintech Select: The Balance Sheet Issue Can Be Solved Through Warrant Exercise

A common short attack on Fintech Select (FTEC) is that its balance sheet looks terrible. This is true and I laid that out as a risk in a previous article of mine. FTEC has been upfront about this and has been making steps in fixing this issue every quarter. After its Q3 filings, the company made note that its working capital deficit has been reduced by $6 million in the last 12 months. From Q2 to Q3 we can see continued improvement. The latest balance sheet shows:

  • Shareholder's deficit of $5.6 million, a $0.5 million improvement from Q2's deficit of $6.1 million.
  • Current assets of $1.5 million less liabilities of $7.6 million for a working capital deficit of $6.1 million. This is also a $0.5 million improvement over Q2 which had $1.7 million in current assets against $8.3 million in liabilities for a deficit of $6.6 million. 
  • Net loss for Q3 was $110,000 on $900,000 in revenue and the company has been toggling back and forth between profit and losses each quarter (profitable quarters are usually due to gain on settlements of debt). The loss from operations is a little over $100,000 per quarter on average, so it's not like FTEC is paddling upstream against a very strong current when trying to eliminate this working capital deficit. The company has marginally cash flow negative operations that could turn positive in the months after the cryptocurrency point-of-sales business goes live. 
 Even with this improvement, there is still a long way to go. However, looking at the warrants and options outstanding, FTEC has the ability to pay off the debts from the proceeds of exercise. Review the chart that I have compiled, based on information available in the Q3 financial statements on SEDAR:

Share count as of September 30, 2017 was 60.6 million.  FTEC has 24.4 million warrants and options outstanding for a total fully diluted share count of 85 million. What's great about this is that this is still a reasonable share float given what the company is doing. Glance Technologies (GET.C) has had no problems flying from pennies to over $3.00 on a share count of well over 100 million.

All the warrants and options are well in-the-money right now which means the $5.9 million proceeds from exercise will eventually happen, as long as FTEC continues to execute on its business plan which has caused it to spike over $0.50 in the first place. If we apply that $5.9 million in cash generated from exercise to the working capital deficit, it just about gets eliminated with a $200,000 deficit remaining. Review the income statement:

FTEC has been recording gains on settlement of debt or forgiveness of interest as part of its goal to improve the balance sheet. This could very well continue which would accelerate the reduction of debt, cover off the $200,000 shortfall after full exercise and cover any marginal operating cash outflow the company may still have going forward. 

The next issue of course is timing. These derivatives have up to three years before expiry so it could be a while before cash comes in. The options are in the hands of management who can control when they exercise and the $0.20 strike warrants have a provision where they can be called in within a month after FTEC stays at $0.50 or above for 10 consecutive trading days. So close to $4 million could come in within, say, the next couple of months. That would be a huge chunk, enough to pay off the statement of claim made against the company by Home Trust and eliminate that negative overhang on the company.

The current share count is 62.1 million, a 1.5 million increase from 60.6 million at the end of September. That means 1.5 million have been exercised during that time period. So expect continued balance sheet improvements going forward at the expense of reasonable dilution.

Thursday, 30 November 2017

Lightning Ventures: Management Confidence Amid Terrible Financials Foretells Good News To Come

Last night Lightning Ventures (LVI.C), among many other companies I follow, released financial results. It was the company's Q2 ended September 30. On September 14, LVI said that it expects to be cash flow positive for the balance of 2017 with significant revenue growth for 2018. Here is a snapshot of the balance sheet and income statement.

Nothing in last night's financials indicates a cash flow positive company. Revenue was only $38,000 with a loss of $670,000 but $248,000 of that was stock compensation which does not impact cash flow. The balance sheet looks in lousy shape as well. $2.5 million in liabilities against only $90,000 in current assets. The bulk of LVI's value sits in the long term assets under goodwill (the technology). This is what the company has to say about its balance sheet situation in the MD&A:

For a company that looks on the brink of needing capital infusion, it certainly has confidence of not needing any more capital:

"The Company has not pledged any of its assets as security for loans, or otherwise is not subject to any debt covenants. Based on current information, the Company anticipates that its working capital is sufficient to meet its expected ongoing obligations for the coming year."

The first sentence of the statement is important. Despite the note payable of $882,000, there is no lien on the company's assets. The second sentence is telling given all the information we have on the current state of affairs with the company. Despite having liquid assets that are a small fraction of Q2's burn rate, LVI thinks that its negative working capital position is fine for the coming year.

There can be only one reason that management thinks this way. The recent business announced, namely the tank cleaning services at Blue Marble:

Must be enough to cover off the current burn rate. Or there are substantially more contracts to come. The business with Blue Marble was announced and at least partially performed in November, several weeks after the close of Q2 statements with that paltry cash balance. So the company is able to perform its duties despite the working capital position. Perhaps it is taking on more debt or has a favourable agreement with Blue Marble where payment is upfront for the services.

I am very happy with my position in LVI. Either management is completely incompetent to think that it can operate with a -$2.5 million working capital deficiency over the next year or it knows a lot more than we do about its imminent revenue and cash flow prospects.

Q3 financials are due at the start of March. Luckily LVI's year end isn't December 31 so we don't have to wait until the end of April to see the next set of financials. The company's claim of being cash flow positive was in September and that next report will cover October to December so there should be no ambiguity the next time around.