E. Vranic's Canadian Smallcap Investment Blog

Wednesday, 10 May 2023

Q&A with Tenet Fintech Group Inc. Founder Johnson Joseph to Address Recent Developments at the Company

Johnson Joseph (JJ)

Edward Vranic (EV)

Introduction

Most Tenet Fintech Group Inc. (PKK.CN) shareholders and stakeholders were caught completely off guard when it was announced on April 28, 2023, that its founder and CEO Johnson Joseph had left. There has been a ton of speculation about what exactly happened, about the events that transpired since then, and about what it all means for the future of the Company and for its shareholders and stakeholders. Yesterday afternoon I spoke with Johnson to try to get some answers to those questions.

Hi Johnson, thanks for helping the Company’s shareholders make some sense out of all that’s happened over the past couple of weeks.

Absolutely Ed. I think we have the same objective here, which is to make sure that the Company’s stakeholders know what’s really going on with the Company rather than get caught up in online rumors and speculations. So, thank you for this opportunity.

1. Let’s start at the beginning of this whole thing. Can you comment on what led to your departure as the Company’s CEO?

First of all, I want to be very clear on this. I didn’t resign as the Company’s CEO. I would never walk away from something I spent more than ten years building with Golden and with the support of so many shareholders during that period. I was asked to resign as CEO and as a director by the independent members of the Company’s board of directors (the “Directors”). When I refused, they informed me that I was terminated and that they would vote me off the Board at the Company’s upcoming AGM in June.

As for what led to their decision, I believe they just panicked about the Company’s financial position due to their lack of experience being on the Board of a small-cap venture company such as Tenet. It’s well documented that our plan was to use the prospectus filed back in September to fund the Company’s operations in 2023. But when the prospectus review process took much longer than anyone expected and eventually expired, we had to find alternative ways to temporarily get money into the Company before we could refile the prospectus. So before the Company ran out of cash, we put in place a brokered private placement and were working on closing the first tranche of that private placement. There was a sense of urgency to get this done as quickly as possible, but the situation wasn’t alarming to our executive team. Given the Company’s history, we had a lot of experience managing the Company when its cash reserves were low. But unfortunately, the Directors had a completely different reaction to the situation and essentially began to panic. Rather than focus our efforts to getting money into the Company, they instead decided that we should lay off employees and essentially kill our Canadian operations. I strongly disagreed with their approach. We had other fundamental disagreements in terms of what we believe is the best course of action for the future of the Company, but I believe our view on the finances of the Company is what finally tipped the scale and led to them asking me to leave.

2. Why do you think the Directors decided to act on that specific day, while the Company was in the midst of such a critical financing?

I have to admit that that’s the part that I still don’t understand today. Despite our differences in opinion, given the fact that I was the only one at the Company working on bringing in capital, I never thought that they would terminate me when they did and put the very survival of the Company in jeopardy. But after they terminated me, I figured that they must have secured some funding or had a plan to quickly get access to funds to keep the Company running. But from what I’m hearing from people still at the Company, they have no funds, had no plans for funding when they terminated me, and still don’t have a viable plan today.

On the other hand, based on the discussions that I was having with prospective investors when I was let go by the Directors, I believe we were mere days away from reaching the minimum of $5M that would allow us to close the first tranche of the brokered private placement. There’s no doubt in my mind that as we are speaking today, we would have had that first tranche closed by now. In fact, we have a group of shareholders who are ready to fund the Company today on a short-term basis, and based on certain conditions, to ensure its survival until a long-term financing solution can be found. The Directors are aware of this, so let’s see if they’ll act in the best interest of all Tenet shareholders as they claim to be.

3. The Directors have made it a point to cut expenses as part of their goal to "streamline" operations. What do you say to those who say that Tenet’s burn rate in Canada is way too high?

What those people need to realize is that Tenet in Canada is actually a group of three companies. You have Tenet itself, the public entity with a total of 19 subsidiaries in China. Then you have Cubeler, the subsidiary responsible for the development, marketing, and operations of the Company’s Business Hub. Finally, you have Tenoris3, the analytics subsidiary considered to be the “brains” of the Tenet Group that’s responsible for developing the Company’s data-driven products and where most of the Company’s IP will reside. So, Tenet isn’t a start-up with just two guys developing software in a basement. It’s a publicly traded company with a complex structure and 12 departments trying to support three entities. Those departments include R&D, marketing, analytics, accounting, HR, business development, legal, operations, etc. We don’t have any departments that are not essential to helping the Company reach its objective, which is to launch our data-driven products as quickly as possible. With the massive layoffs that the Directors have done, we have essentially delayed the launch of our data-driven products by several months. The people who think that we can just continue to operate under the business model in China, where we charge fees for facilitating transactions, simply don’t understand the value of the data we’re accumulating through the Business Hub and why it’s so important to demonstrate the value of that data to the market as quickly as possible. I believe that until we do that, the Company’s true value will not be reflected.

So, for me, it comes down to a simple choice. Do we push to leverage our first mover advantage, capture SME data, and develop data-driven products this year that the capital markets have never seen before, or do we reduce our burn rate to the point where it’s going to take us another two years to get to the point where we can get those products to market, while in the interim some company with more financial means than Tenet catches on to what we’re doing and beats us to the punch? I think we just need to find the right financial partner or partners who understand the exceptional opportunity that we’ve created for ourselves and will work with us to ensure that we have the financial means to match our ambitions. We were in discussions with such partners until the rug was pulled from under me.

4. The delay in the prospectus offering appears to be central to the issues Tenet has faced recently. Can you shed some light on why it has taken so long that the prospectus actually expired before you got the green light from the OSC?

Let me first say something about the normal review process of a prospectus. It’s not like you receive questions and comments from the regulators one day, you answer the questions and comments the next day, and then the regulators come back with more questions and comments the following day. The first comment letter we received from the OSC contained about 90 questions and comments if I recall correctly. They touched on everything from our operations in China, to the AMF investigation, to our operations in Canada, our financial statements, and everything in between. So, it took us a while before we were able to get back to the OSC. Once we sent our response back to the OSC, it then took them a while before getting back to us with additional questions and comments. This went back and forth several times with gaps as long as six weeks between contacts with the OSC. At times there was confusion and misunderstanding as to what exactly the OSC wanted, which added to the delays. For example, there was one particular point about a question related to the AMF investigation that our lawyers felt would have violated client-attorney privilege but that the OSC insisted needed to be answered. Our lawyers and the OSC finally got on a call and came to an understanding as to how the point would be addressed in the prospectus, but that situation greatly contributed to the delay. That’s why I’m hopeful that once the Company refiles its prospectus that the review process will be much shorter than what we just went through.

5. So where does Tenet go from here? There are a lot of concerned shareholders out there, including me, who are wondering if the Company will survive this ordeal. Do you have a plan to get us out of this mess?

Right now I’m obviously very limited in terms of what I can do. But I’ve been working with some of the Company’s biggest shareholders to make sure the Company survives. Right now the Company is in real danger of going under since the Directors took control and have no plans to bring in the funds the Company needs to meet its immediate obligations. I’ve been told that they were trying to find a way to get money from our Chinese subsidiaries, but quickly realized that that wouldn’t be possible. Some of the Company’s shareholders, Golden and I have proposed to fund the Company for at least the next couple of months. But I was told that the Directors won’t even have a discussion with us about that. I think all Tenet shareholders need to remind the Directors that the Company belongs to its shareholders and not to them. If the two options on the table right now are either accepting funding from our group of shareholders or having the Company file for bankruptcy, then the Directors need to step aside and do what’s in the best interest of the Company’s shareholders. I would therefore highly encourage all Tenet shareholders who want to protect their investments and who care about the Company to contact the Directors and ask them to tell them how they’re going to get money into the Company by the end of next week. And if they can’t give you a credible answer, then ask them to resign so that the Company can survive. I am not trying to alarm anyone by saying this, but we’re quickly running out of time here.

We’ve been in a news release “blackout” period for the better part of 7 months now and haven’t been able to tell our shareholders and the markets what’s been going on at our Canadian operations. We’ve made a lot of progress on that front, so I would look to share that with the public as soon as we get some financial stability back in the Company. As I stated before, I was having discussions with groups in both the U.S. and Canada that could be long-term financial partners for Tenet. So, the plan would be to disclose as much as possible about our Canadian operations, Tenet’s global vision, and our planned data-driven products, all of which have led to my discussions with the aforementioned groups, and to work with them on a long-term financial plan. We would also refile the prospectus, which is still needed to allow the Company to regain its NASDAQ listing.

6. It sounds like you’re still very much committed to Tenet. Is part of the plan for you to return as the Company’s CEO?

My commitment to Tenet is not just about the time, energy, and money that Golden and I have put into building this Company. It’s also about where we are today and how people react when they realize how the Company is positioned to capitalize on a unique opportunity when it comes to how we plan on monetizing our data. You don’t just walk away from that. As for potentially returning as Tenet’s CEO, that’s up to the shareholders to decide. Like I said, the Company belongs to them and not to anyone else.

7. The Directors held a brief conference call yesterday, and they cited goals like increased transparency into the Company's operations and improved corporate governance. Both are righteous goals to have in order to allow Tenet to take the next steps and achieve important milestones like uplisting to the NASDAQ. If you are able to return as CEO, what would you do to facilitate these goals going forward?

Those initiatives were already being implemented long before the Directors came along. We’ve being working with E&Y in China and Richter in Canada on internal controls and SOX compliance for well over a year. Keep in mind that we achieved NASDAQ listing requirements and that the fact that we’re temporarily de-listed has nothing to do with transparency or corporate governance. Of course, we’ll continue with those initiatives.

8. Before we wrap up the interview, is there anything else you’d like to share with the Company’s shareholders?

As a shareholder, whether you’ve invested $5 or $5,000,000 in the Company, never lose sight of the fact that you are part owner of the Company and have power and a voice. You don’t have to stay on the sidelines and watch people who have not invested a single penny in the Company drive it into a brick wall. The Directors may think that they’re above everyone and can operate with complete impunity, but that’s not true. The Company belongs to you and the Directors answer to YOU.

On behalf of all Tenet shareholders, thank you for your time Johnson and for providing your perspective on the recent events at the Company.

Thanks again for the opportunity Ed. I really appreciate everything you’ve done to keep our fellow shareholders well-informed.

Disclaimer:

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Monday, 8 May 2023

If Johnson Joseph is Permanently Removed from PKK, the Stock will Crash and Burn

As an outspoken shareholder of Tenet Fintech Group Inc. (PKK.CN) since 2014, I think I can provide valuable insight to the company and its current situation. It's my opinion that if Johnson Joseph isn't reinstated as the CEO of PKK, that it will crash and burn. I know better than most how frustrating things can get with Johnson at the helm. It's often two steps forward, one step back with this company and recently felt like it's been several steps back. But PKK would have gotten absolutely nowhere without him and there is no one more ideally suited to run this company right now.

I have sold most of my shares at much higher prices though I still have half of the shares I got in the Cubeler deal in DRS with no plans to sell anytime soon. So I have my own biases and agenda. I recently bought a very small number of shares near the lows, though I am taking a cautious approach to it as I believe things are going to get worse before they get better. But in the long term, things will get better as long as Johnson is reinstated as CEO.

I have heard from people upset in the past that I sold based on some kind of "inside scoop" and reading this blog may stir up those sentiments again. Understand this, I didn't have any inside scoop. I had the correct amount of scoop required in order to make informed buy and sell decisions on a speculative startup and volatile stock. That was gathered through countless hours of research and otherwise thinking about PKK and the business model over the years, as well as getting to know and understand the strengths, weaknesses and personalities of the key players in charge. It's everyone else who may have had an insufficient amount of scoop to make an informed investment decision. Discord pumpers are not research. If you're not willing to put the amount of time and effort I put in to get familiar with PKK into your investing decisions, you shouldn't be investing in any penny stocks.

Why I sold over $10

My initial target on PKK for years ranged between $0.20 and $0.50, adjusted to $4.00 to $10.00 after the reverse splits. If you read this article I wrote back in 2015, you'll see that Johnson himself said that if the company wants to be valued like a large cap company, it has to act like one. There are certain things that PKK has done very well on this end. For instance, I think the multi-layered auditing process is excellent and exactly what a company like this needs. I warned Johnson about the short-seller firms that target Chinese operations and he responded in a prudent manner. Despite that short report from Grizzly being directionally correct, no one took that thing seriously. The "firm" tried to point fingers at fraud where there was none. When all that needed to be done was to question the company's guidance without throwing out any nonsense allegations and the report would have looked spot on.

While the auditing process has been put in place, there are certain things that the company has done that falls short of being deserving of large cap status. Namely the guidance. My blog here outlines the issues the company has had in announcing guidance then updating that guidance with numbers that fall well short of prior expectations. When Johnson has provided numbers in the past, going back to 2015 with LongKey then the "plastic bank" with Jiang Wang or Banlan, it was more like a market model or forecast or wishful thinking - if everything went to plan. I told him with more eyes on the company, he has to get more diligent with guidance. That did not occur. When PKK came out with very aggressive guidance, people were clamouring for me to upgrade my target. I preferred to take a wait and see approach while keeping my target price of $10. After years of seeing eye-popping three-year-out numbers that never pan out, I had learned what to expect here. Looking back, it was definitely the right move.

Johnson's personality traits that cause PKK harm

I've heard people say that Johnson is a scammer or a fraud or incompetent. He isn't any of that. What he is, is a dreamer. To a very high degree. As a bit of a political junkie, I followed the Trump saga in the U.S. closely. One term that popped up a lot with Trump that I think applies perfectly here is "toxic positivity".

Toxic positivity is defined as "the belief that no matter how dire or difficult a situation is, people should maintain a positive mindset. While there are benefits to being optimistic and engaging in positive thinking, toxic positivity rejects all difficult emotions in favor of a cheerful and often falsely-positive façade."

I think this term perfectly encapsulates Johnson's behaviour when it comes to running PKK. When Johnson speaks in those interviews that in retrospect seemed like pump pieces to some, I believe that he 100% believes every word that he is saying. The problem is those words aren't always grounded in reality. When Trump lost the 2020 election, it wasn't because he was racist or divisive or a liar or whatever negative trait his adversaries believe he has. He lost because of his shitty handling of COVID. If he took the disease seriously, didn't try to downplay it and was proactive in certain decisions instead of spreading toxic positivity all over it, he would have won that election. In good times, Trump was good for the economy. Same principle applies to Johnson. In good times, he managed to grow the company from nothing to $100 million in revenue. I can't stress enough how impressive of an accomplishment that is. Johnson has done more than 99% of all non-mining Venture/CSE listing CEOs. The problem is when things got tough, he went on a hiring and spending spree before accessing the needed capital, thinking PKK/Cubeler was somehow immune to the challenges of the broader market. And in particular, a junior international fintech and data analytics company like Tenet. It wasn't the AMF issue or his interviews that people think he sounds like a pumping buffoon that did him in. It was the lack of risk management and contingency planning as the funds were drying up.

As for the AMF issue, I am not that concerned by it. Reading the transcripts, I have seen much worse from Venture CEOs than some CFL-like locker room pep talk towards a couple of guys who allegedly ended up pumping the stock for their own benefit then pissed off regulators on an unrelated listing to PKK. I don't think it will result in any sanctions for Johnson and I also don't think he was canned because of it.

While Johnson needs to take responsibility for the predicament PKK is in, he is not nearly as clueless as some people think he is. He actually had a very definitive, well-thought out and self-aware plan that I really thought would work. Somewhere along the way he strayed from it and it completely fell off the wagon.

The Cubeler transaction is where it all fell apart

Back a few years ago (2017 or 2018 I don't remember exactly when and I don't want to go through my old transactions just for this blog) I got access to invest in Cubeler in a private equity transaction. $20,000 at a $3 million valuation. At the time I believe there was less than 20 shareholders, with Johnson and Golden holding the majority stake. I'll digress a little here. How did I get access to this deal? I'm a writer on Seeking Alpha. I gave free bullish public coverage by writing about this stock. I gave the CEO free advice and built up a rapport over the years through numerous phone calls and emails and several face-to-face meetings. If you want access to these types of deals, get off your ass and prove yourself to be a valued shareholder to a company and you'll get them. There are two ways to succeed in capitalism. Nepotism, and proving your worth to people. Sitting at home and yapping on Discord or the stock message boards isn't going to get you anywhere. That passive investor mindset might work when it comes to investing in stocks like Apple or Royal Bank or ETFs, but it will not work in a junior market where literally everyone is going to have superior information and connections compared to you unless you make it a point to get that information and connections yourself. Anyways...

Back when I first bought into Cubeler, I was asking Johnson about the possibility to merge it into PKK, with me in favour of it at the time. He worked me over hard to convince me that this wasn't going to be the plan. You know how parents supposedly love all of their kids equally, but you can tell that some may have a favourite? Well, Johnson loved his PKK and Cubeler babies, but as much as he might have tried to hide it, you could very clearly tell that Cubeler was his favourite. Cubeler and the Tenoris3 business model were meant to be a standalone from PKK. The plan was to go directly to the NASDAQ as an IPO. And if you think about it, especially in retrospect, that really would have been the right move.

There are reasons, both selfish and practical, in keeping them separate. First, PKK had a large float of around a billion shares before the splits and hundreds of shareholders. Keeping Cubeler separate meant all of the shares are in the hands of a few. Combining PKK with Cubeler meant that all of us Cubeler shareholders would now have to share the business model with the hundreds of PKK shareholders, massively diluting our interest in this very exciting speculative investment.

Second, the business model of PKK was meant to be focused in China with the goal to attain and maintain cash flow positivity, transfer funds over from China and pay a dividend. Looking at PKK's numbers in 2020, it was closing in on being consistently cash flow positive. As soon as the merger took place, the operating cash needs exploded thanks to the hiring and aggressive expansion in Canada. PKK was now not only not able to pay a dividend, but back to being a company that needed significant capital injections again.

Third, IPO'ing Cubeler exclusively removes the Chinese element to the IPO, except that the company has a small royalty with PKK for the use of Cubeler in China. Had they remained separate, Cubeler would have remained a private company until its IPO. The IPO would likely have gotten approved faster and if for some reason it didn't, it would remain a private company in the hands of a few private equity shareholders who understand the risks and have the patience for this type of setback. As for PKK, had it consistently shown cash flow positive results and started paying a dividend, it would likely have earned an upgrade to the TSX by now. As for the NASDAQ, who cares as long as it's on the big board in Canada and paying a dividend. All the funding needs that is turning PKK's stock price into a death spiral would have been confined to Cubeler had it IPO'd as a separate entity.

Fourth, Cubeler is primarily a data company with the goal of becoming global. PKK is a fintech company in China. China is very protective of its data leaving the country. Leaving these entities as two separate listings keeps that image intact.

Fifth, Johnson was very well aware of the optics of a conflict of interest surrounding the deal as CEO of PKK and majority holder of Cubeler. No matter the price, it would have looked like the CEO was just trying to cash out on the backs of retail PKK shareholders. If I recall correctly, the initial valuation was going to be around $25 million. I was absolutely livid when I had heard that. All those years of being sold on Cubeler and Tenoris3 and how my $20,000 will turn into multi-millions once the IPO occurs and the end result is not even a 10-bagger? When the valuation was revamped to over $100 million mostly with PKK shares at $9, I wasn't ecstatic, but at least appeased. Especially since I had just dumped a bunch of shares above $10 and felt like that was an easy way to recoup some of my position at a lower price.

PKK shareholders and market outsiders took a look at the deal and thought "wow that's quite a hefty price". Especially in retrospect and the optics around the CEO getting so many shares out of it. On the flip side, you had Cubeler shareholders like myself thinking that $100 million was low, but at least tolerably acceptable. I've had to watch PKK write off a ton of the value of Cubeler, listen to so many people complain about Cubeler's lack of revenue and potentially being vaporware while biting my tongue on my own missed opportunity. Yes, Cubeler was still very high risk and had a good chance of going nowhere while the $100 million payout was cash and liquid stock in hand. But I was sold a dream well beyond that and that $20,000 was my lotto ticket to that dream. Everyone who was a private investor in Cubeler was willing to wait until that dream panned out. When it was diluted with PKK, it was prematurely exposed to a shareholder base and general market that didn't have that same amount of patience. If necessary or perceived to be beneficial, PKK and Cubeler could have merged years from now when both companies were on stable ground. But once that merger took place, it would be impossible to reverse course.

Johnson is treated as some kind of rube or scammer for this deal when he was initially absolutely adamant at keeping these two companies separate. His first instincts that held firm for years were 100% right but he won't get any credit for that. Someone, somewhere along the way coerced him into thinking that the only way of moving forward was if these two entities were one. I can only speculate over the amount of arm-twisting and the size of the check that caused him to do a complete 180 like this. My guess is that one of the major financings for PKK corrupted that long term plan and has resulted in the stock being where it is today. That would have been fine for $100 million or more raised but $50 million or so was not enough to cover what a data analytics company needs before it has a product to sell. The stock was definitely hyped during a broader small cap market bull run and the shutdowns in China hurt revenue growth. But to me, the point where it all fell apart was when Cubeler merged with PKK. Both the stock price and the financials went to hell after that.

As Cubeler was the favoured child, that business model took precedence over the PKK one through toxic positivity and stubbornness. The company's name was changed to Tenet and is referred to now as primarily a data analytics company. I can understand why a board member witnessing all of this go down in real time may want to reign Johnson in and even think ousting him is the right way to go. Let me assure you, it's not. Because while Johnson should take his share of blame for shoving the Cubeler business model down PKK shareholder's throats even though the market sentiment wasn't there, there is a substantial amount for which he takes more than his fair share of the blame.

Johnson's relationship with Golden - more than just a typical friendship

Somebody might say that my rant about Johnson up to this point is all well and good, but what does any of this have to do with the thesis that this company will crash and burn if he is permanently removed from PKK? The key is his relationship with Golden. When I first posted on Facebook that I was planning to make this blog, one member made a long comment in favour of moving on from Johnson (at least as CEO, he could still be an advisor to the company) that was well thought out and received a lot of positive feedback. Then completely negated all of it by saying how valuable Golden was and hoped that he could move forward with the new board. People need to view Johnson and Golden as one entity. If you are upset at the performance of Johnson, you are also upset at the performance of Golden.

I've only met Golden and seen him interact with Johnson a handful of times so my impression in that limited sample size may be off. But this is not like a regular friendship. Johnson acts more like a mentor or big brother figure towards Golden, at least in terms of the capital markets and Canadian culture. I assume in China that Golden takes the alpha male role. But in terms of what investors actually see here in Canada, Johnson performs his duties as big brother, taking all of the heat when something goes awry. In reality, Johnson is highly dependant on Golden for the numbers that come out of China, particularly near term guidance. He is also very likely to take any input from Golden very seriously, sometimes maybe even against his better judgement. Now you can take my word for it, or you can use your common sense that someone with the title of "CEO, Tenet China" would have tremendous input on the numbers that came out of the country. When people point out Johnson's stuttering in an interview regarding 2022's $200 million revenue forecast that ended up coming in well short of that, they are thinking that he is lying or trying to cover something up. When I see him stuttering, I believe that he's thinking "I really hope Golden has those numbers right".

I compared Johnson to Trump above so I think it's only fair to say where the comparison ends. Where Trump would have hung Golden out to dry faster than Mike Pence on January 6, 2021, Johnson consistently covers for him and takes full public responsibility for the guidance. This is why Johnson is so hated and Golden still beloved. People think that Johnson is 100% at fault for the predicament PKK is in and zero percent Golden, while also giving Golden nearly full credit for the outstanding revenue growth in China. In reality, it should probably something more like 50-75% Johnson and 25-50% Golden shared blame with equally shared credit on the revenue side. Consider also that Johnson and Golden are co-founders of Cubeler, so any of the decisions made around that can't be 100% placed on Johnson. Perhaps a bonus 10% of blame should be given to whoever convinced these guys to roll Cubeler into PKK, completely against initial plans.

Johnson should get fair share of the blame for vocalizing guidance that did not pan out. But if you are celebrating his ousting for that while at the same time hopeful that Golden continues with the company, you don't understand how this company is structured. Give credit to both Johnson and Golden for the good things PKK has accomplished to this point and blame them both for any issues that you think has caused the company to go in the wrong direction. But don't assign full blame to one and full credit to the other. I have a feeling some people are doing this as a coping mechanism. They are hopeful that PKK can turn it around without Johnson, but have to do mental gymnastics to land in a reality where Golden is perfectly fine with all of this despite his friend and business partner for 30 years and co-founder for basically everything to do with PKK being unceremonially jettisoned behind his back. Hope is not an investment decision.

What I predict will happen if Johnson is not reinstated as CEO

Ideally people see a fair and balanced take with this blog post. I have given credit to Johnson for getting PKK to a point that most CSE-listed companies can only dream of. I have blasted him for what I view to be weaknesses in his personality that have caused problems for the company. I have also defended him in instances where I think he gets an unfair amount of blame. His tenure has been far from perfect, but he's the best (realistic) shot of turning the ship back around. At least far better than whatever is coming from the attempted coup from the Board.

I totally get the reasons behind the BOD wanting to change things up. My guess is that they want to stop Cubeler from bullying its sibling PKK and return the corporate entity to one that has a chance to pay out a dividend from existing operations rather than going down a dilution death spiral. Perfectly valid goal. And here's my prediction on how that's going to go down:

Let's say Golden does end up staying on at Tenet China CEO even without Johnson. The people in China - executives, employees and large clients - are going to be aware of the unexpected shakeup to the corporate structure. Anyone who has followed PKK for a while and understands how business works in China knows that connections are everything. Particularly to government officials and other people with influence. While Cubeler may be an effective service, in reality it's probably responsible for maybe 10% of client satisfaction while the other 90% was the connections and trust that Golden and Johnson built over the years. China is just getting back its economic footing and things in the global economy are in flux. The last thing the company needed was a perception of instability in an already shaken economic setting.

The ousting of Johnson likely hurts revenues if it's not immediately rectified. And if something bad in China happens like lower revenue or poorer margins, who do you think the next scapegoat will be? It won't be Carol Penhale, the other board members or the newly hired CEO, if made by then. It would be Golden. And if he goes, the entire revenue stream collapses. It would be nearly impossible to raise capital at any decent valuation and the company's solvency would be put at risk.

Some shareholders have stated their disbelief that the company can be so reliant on Johnson. Well, that's just how it is. That's how most startup companies are. Those who support his removal really haven't thought it out. Ideally he is reinstated and this is a wake up call that he needs to improve his behaviour and decision making as CEO.

Shilling two other picks with a lot of eyes on this blog

I expect quite a few eyeballs on this blog. A lot of which will be down substantially on PKK and looking for ways to recover some money. So I figure I might as well take this opportunity to shill for a couple of my other stocks, because that's what I do. Visionstate Corp. (VIS.V) and Sparta Capital Ltd. (SAY.V). I took large profits on PKK, but unfortunately used those profits to buy large positions on these two stocks (and others) at much higher prices than today. That being said, I have spoken extensively with both management teams over the last several months and think that both of these stocks are finally ready to make their moves. I have bought more shares on both of them to average down and I'm pretty happy with my investments even if they are both deep in the red right now. I suggest that risk-loving investors check both of these stocks out, but keep in mind the two off-topic rants I made within this blog about what it takes to be a good penny stock investor. Do you own research, and that includes phone conversations with members of the management teams.

Monday, 31 October 2022

If You Like Drone Delivery Canada, You Should Absolutely Love Volatus

Note: This post was intially meant for Seeking Alpha, but didn't make the grade because Volatus is too small and illiquid. I guess the site wants the stock to run first and THEN let authors write it up. Since as we all know buying higher is how you maximize investor returns.

Drone Delivery Canada Corp. (TAKOF) (FLT:CA) has had one of the strongest cult followings I have seen in the Canadian microcap space. Before it earned a penny in revenue, it was trading at over a $200 million valuation in early 2018 shortly after it listed. At the peak of the COVID hype and easy money in early 2021, it neared a half billion in market cap despite quarterly revenue in the low 6 digits.

I attribute FLT's popularity in Canada to the high demand for speculative investing in drone businesses, but the lack of choices when it comes to that particular sector. This is where Volatus Aerospace Corp. (VLTTF) (VOL:CA) comes in. Volatus is another company in the drone space, but unlike FLT, it has shown it can aggressively grow its revenue in multiple verticals within the drone sector.

Within the current investing climate, the Canadian small cap space has been particularly hard hit. That has led to some overlooked and undervalued opportunities, with Volatus being one of my top picks. The stock is currently trading at $0.37 CAD. I believe that it's only a matter of time before it eventually hits $5.00. With that stock price increase coming from a mix of continued revenue growth, an ability to achieve cash flow positive operations within two years and improved market sentiment leading to more aggressive valuation multiples. VOL is a thinly traded stock, and it won't take much to send it into rocket ship emoji mode.

Comparing VOL to FLT: There is no comparison

The chart below summarizes the financial performance of VOL and FLT over the last six quarters going back to the beginning of 2021:

In Q1 2021, the two companies had reasonably comparable revenue and gross margin figures. Since then, Volatus has achieved a very high rate of growth, a mixture between organic growth and growth through multiple acquisitions. In contrast, FLT has struggled to gain any momentum, with revenue in Q2 2022 being essentially the same as revenue in Q1 2021.

The bottom line numbers also show that Volatus is miles ahead of Drone Delivery. FLT has stayed consistently around the $3.5 million mark in net loss per quarter. Volatus saw its net loss grow while it was incurring substantial costs to aggressively expand, but now its gross margin has grown to the point where the net loss topped out in Q4 2021 and has come down over the last two quarters.

Despite VOL's far superior operating position, FLT has double the valuation:

The revenue multiple for Volatus is around 2x based on the trailing four quarters of revenue. The company has provided guidance of $38 million for 2022, so it's trading at around 1x of its 2022E revenue. Contrast that to FLT, which is trading at a 156 revenue multiple. Even when excluding its $19 million in net cash - a figure that will erode over $3 million per quarter based on current burn rate - the enterprise value to revenue figure is 118x.

While I think VOL can be a $5 stock eventually, if it was trading half as aggressively as FLT, it would be well over $5 stock right now. That's a testament to how these companies can't even compare when it comes to current operations. Anyone who bought into FLT because of the hype surrounding the drone industry and lack of investing options at the time should reconsider their position in the stock in favor of VOL.

If one considers that FLT is just an overvalued outlier, there are several companies that are involved in the drone space that could provide more realistic comparison points. These are AeroVironment, Inc. (AVAV), Draganfly Inc. (DPRO), AgEagle Aerial Systems, Inc. (UAVS) and Red Cat Holdings, Inc. (RCAT):

Source: Yahoo Finance

Other than AVAV, these companies all have similar market caps to Volatus. Considering that about half of RCAT's valuation is covered off in cash, a reasonable industry revenue multiple is 4x. Keep in mind that this number is based off the current market climate where speculative investments have come down considerably over the last 18 months. In a more favorable environment, small cap drone valuations could see north of 10x revenue once again some time down the road. But for the decision point of investing in Volatus at its current market cap, it doesn't really matter whether we look at highly aggressive valuation multiples or more tepid ones. Volatus sits at the very low end of these valuations right now.

Of the three above listed small caps, UAVS is the one that comes closest to VOL's growth trajectory. Reviewing the company's income statement, Q2 2022 results showed $2.6 million in gross profit on $5.3 million in revenues. Superior gross margins when compared to Volatus. However, operating income showed a $5.4 million loss despite these better margins. Volatus is a lot closer to becoming cash flow positive than UAVS as it is a leaner company. I get into greater details into when I think the company will approach cash flow positive results in the next section.

Deeper dive on the numbers

As I previously stated, Volatus has provided guidance of $38 million for 2022. My recent communications with the CFO confirmed that this is still the number for 2022E revenues. The company achieved $11.4 million in revenue for the first half of the year, so that means the second half must reach $26.6 million, or $13.3 million per quarter. Quite a big jump if it's indeed true. Q3 will be out in a couple of weeks, and I expect to see revenue at least in the $10 million range for 2022 guidance to be achievable.

The Q2 investor presentation broke down revenues by segment:

The company derives its revenues from sales of drone equipment, drones-as-a-service, drone trainings, and traditional crewed aircraft sales and services. The vast majority of revenue to-date has been from equipment sales. The services side has been growing, but the company said growth was tempered thanks to seasonality as cold and snowy Canadian winters aren't conducive to high levels of drone activity. With the recent expansion to Latin America and Europe to offset seasonality and participation in the defense of Ukraine - along with the Canadian summer - the company has been hinting at very strong results for the drone services and training segment in the upcoming quarter. We will find out soon enough as results are scheduled to be released on November 7.

The aviation services and sales revenue is likely all generated from the legacy business of Partner Jet, the company Volatus merged with in order to go public. I don't view this as core revenue, but more of a complimentary piece that Volatus can offer its clients should they need it. I think this can be a competitive advantage for the company as there will be material regulatory and commercial hurdles to mass acceptance of beyond visual line-of-sight (BVLOS) services. Volatus has the ability to offer both manned and unmanned solutions for its clients during this transitory period. Volatus explained the decline in crewed services due to a pilot shortage and maintenance of its citation X aircraft. So the company isn't intentionally trying to wind down this business as these numbers would imply.

Gross margins for the three segments were 50% for drone services and training activities, 26% for product sales and 14% for aviation sales and services. The company has also provided guidance on gross margin for the year of 31%. So for it to hit that number, drone services are going to have to take up a substantially greater proportion of revenue going forward. For instance, gross margins can improve from 28% seen in Q2 to 33% going forward (and therefore hit the overall 2022 guidance of 31%) if service revenues increase from 14% to 30% of revenues while keeping the same margin by segment.

Assuming that the company does hit guidance, this is where things get interesting. This is a chart for the first and second half of 2022, based on the guidance provided for the full year. The numbers in yellow are my estimates or calculations based off of those estimates:

As I already mentioned, revenue would have to average over $13 million for the final two quarters of 2022. But gross margin would grow even faster, averaging about $4.4 million per quarter. Operating expenses were $3.5 million for Q2, and have grown about $700,000 per quarter since Q3 2021. With more acquisitions, hiring and marketing to fuel growth, I do expect opex to continue to grow. But how fast is anyone's guess right now. If opex averages $5 million for the next two quarters, the operating loss could be down to $600,000 per quarter. There is an outside chance that Volatus could reach breakeven results over the second half of the year.

Risks and issues for Volatus

Like any small cap which supposedly has a greater than 10x upside, there are going to be risks to holding such a high upside investment. The most obvious risk after reading the previous section would be the company's inability to reach guidance. The company would take a credibility hit if it were to end 2022 nowhere near $38 million in revenue. The offset to this risk would be that the market is already pricing in missed guidance or is otherwise unaware of its existence. So the downside to the stock price would be minimal.

Missed guidance would lead into the next risk, and that is as it stands now, Volatus has negative cash flow from operations. Assuming a burn rate of $1.5 million per quarter, the company would have enough cash to last for a year, inclusive of the most recent capital raise. There is a substantial risk that Volatus will have to raise again sometime next year before it can fund operating and acquisition initiatives from internal sources of cash flow.

The major sector-related risk is around BVLOS regulations and commercial adoption. As Canada is Volatus' largest revenue source (with the United States a close second), potential investors should familiarize themselves with current Transport Canada policies on drones. The good news being that the government agency is well aware of the necessity and benefit of BVLOS drone usage due to the country's vast geography. The United States also has a sparsely populated geography in the "flyover states". So I do expect policies in North America to be relatively progressive compared to other regions of the world. Volatus is also completely dependent on its drone manufacturers' ability to create the needed technology at scale.

As a rather obscure and lightly traded stock on the TSX Venture, VOL has significant liquidity risk. Someone who buys into the stock needs to do so with money that they won't need any time soon as there is no guarantee that they can exit quickly and at a good price. Other than one large volume day this month, VLTTF seldom trades. The flip side to this is that unlike FLT or other small cap companies that have seen their stock prices erode, VOL won't have the amount of share overhang from retail traders looking for tax losses or just to get out at break even. One strong piece of news or financial result could result in the stock price doubling and maintaining that level, regardless of overall market sentiment for the microcap space.

The eventual march to $5.00

I believe that it's only a matter of time before VOL reaches $5.00. How much time? That's the question. This company is still in the very early stages of its life, so trying to make multi-year projections and slapping on a price target within a certain time frame is pure guesswork. Rather, I thought it would be worth it to analyze what would it take for Volatus to eventually have a fair value of $5.00 and let the reader determine how long it will take or if it can reach that level.

Volatus has 114 million shares outstanding. There are over 30 million warrants and options outstanding with exercise prices ranging between $0.50 and $0.60 that would certainly get exercised upon the stock price exceeding $1.00. So the fully diluted share count is 145 million. Those warrants and options would bring in $18 million upon exercise, mitigating any need to finance in the future. However, given this company's history of aggressive acquisition, I think there is a strong possibility of more share issuances to fund further deals, regardless of the company's ability to generate cash flows from operations. As a $5.00 target is a long-term endeavor, I am going to assume a 170 million share count by the time this target becomes a legitimate possibility. A $5.00 stock price implies an $850 million market cap.

The current multiple for the drone sector is 4x; however, that's after a massive shedding of investor funds from speculative technology plays. By the time Volatus threatens $5.00, the economy and investor sentiment should be in better shape. I will assume a 5x revenue multiple.

Therefore the math works out to $1 in revenue per share outstanding. $170 million in annual revenue in total. If guidance is indeed met for 2022, that would require $26 million in revenue for the final two quarters. Likely in the form of $10-11 million for Q3 and $15-16 million in Q4. Q4 would then become the jump off point for fiscal 2023. Assuming a seasonably weak Q1, 2023 numbers could plausibly look something like this:

This would lead to about $88 million in revenue for next year. That seems incredible for a company that just recorded $6.6 million in revenue for its last reported quarter. But in the context of its guidance, actually looks quite achievable. From there, the company would have a $30 million jump off point for fiscal 2024. Four quarters of modest growth would result in annual revenues of around $150 million, with $170 million being met or exceeded in 2025. Given the early stages of growth, readers can take this with a grain of salt but at least I illustrated the potential.

This estimate is predicated on Volatus meeting its guidance for 2022. If it's not met, $170 million in annual revenue could be stretched out to a significantly longer time frame, if at all. However, one doesn't need to see a $5.00 stock price in three years to make a case to buy the stock at $0.37 today. I am holding my position in Volatus in anticipation of the Q3 results that will be coming next week. A strong result could see a material move up in the stock price and bring clarity over the plausibility of the 2022 guidance being met.

Disclaimer:

This site is operated by Edward Vranic. I own a long position in Volatus.

Any articles, tweets, stocktalks or any other form of dissemination in person or online are all the sole product of my personal opinion. I may hold positions in securities I mention and reserve the right to open, close, or modify positions at any time without notice. The information provided herein is strictly for informational purposes only and should not be construed as a recommendation to buy or sell, or as a solicitation of an offer to buy or sell any securities. I am not a registered investment adviser nor I do not hold any licenses. Individuals are encouraged to consult with their personal financial adviser for financial advice.

There is no guarantee that any estimate, forecast or forward looking statement presented herein will materialize and actual results may vary. Investors are encouraged to do their own research and due diligence before making any investment decision with respect to any securities discussed herein, including, but not limited to, the suitability of any transaction to their risk tolerance and investment objectives.

You agree that by reading my material, you are acting at your own risk. In no event will I be liable for any direct or indirect trading losses caused by any information contained herein or in other dissemination methods. I make no representations, and specifically disclaim all warranties, express, implied, or statutory, regarding the accuracy, timeliness, or completeness of any material contained in this site. I do not guarantee that I am providing all of the information that may be available on any topic written. I recommend that you do your own due diligence and consult a registered financial adviser before buying or selling any security.

Trading in securities involves risk and volatility. Past results are not necessarily indicative of future performance. My conclusions are the result of my personal due diligence and have been wrong in the past and will be wrong again in the future.

Wednesday, 1 June 2022

PKK Margin And Guidance Analysis

I have been quiet on PKK recently, recognizing the sensitive spot I am in. As a long time shareholder, writer of numerous blogs about the company and creator of the Facebook investor's group, I know that my word holds a lot of influence. I touted a $0.20 to $0.50 price target on PKK for years, which after the two stock splits translated to a target in the $4.00 to $10.00 range. When it surpassed $10.00 I sold many of my shares and deployed that cash elsewhere. Because that's what you're supposed to do when a stock surpasses your price target. A 20-bagger is pretty good, no need to get greedy.

Now as I wait for my Petroteq tender money to come in, I have an opportunity to buy back every single share I ever sold on PKK as well as keep every position I purchased with PKK money other than PQE. Assuming the tender offer comes through without a hitch during the summer and PKK stays in this $2.00 range. So I have every incentive to see PKK's stock price as low as possible for the next couple of months. I am not the friend of any PKK longs right now, particularly not the "long and strong" types who obsess over and yap about the stock daily and are very obviously trying to flip for small gains or are looking for an opportunity to exit at a smaller loss. My remaining positon in PKK being in the dumps (shares acquired through the Cubeler deal valued at over $9.00) is well worth the buying opportunity once I have cash to deploy. That is, if I still feel there is a buying opportunity.

I'm very proud to say that after over seven long years of holding, PKK has turned from a shell and a dream into a company able to achieve over $100 million in annual revenue. Management deserves full credit for this. I don't think it can be stated how difficult this is. I got off a call with Visionstate earlier today and the CEO is as bullish as ever. Yet VIS revenue came in last quarter at just $90,000. VIS has been around longer than PKK has. FOBI was the hyped up back-to-normal COVID tracing story of the TSXV last year. And with its dozens of news releases and initiatives, could only pull in a pathetic $315,000 in revenue (and over $5 million net loss) last quarter. The vast, vast majority of companies on the CSE and TSXV will not come anywhere near the level of success that PKK has garnered so far. And keep in mind that PKK has done this focusing on a business plan in China, which usually has a negative sector bias to overcome. PKK hasn't been the beneficiary of crypto or cannabis or COVID sector hype, where money flows easily and capital raises at high prices can be had. It did benefit a bit from the general junior Canadian tech hype aided by Wall Street Reporter and the Discord promoters, but that wouldn't have worked without significant business developments and improving financials as a basis for the investment thesis.

However, PKK now has a market cap over $200 million, about ten times what it was back in the 2019 doldrums. The stock has already been rewarded for its revenue growth. It has also come back down from over $1 billion in valuation at its peak. I would say that's punishment for lackluster bottom line numbers. My last post on PKK was ripping apart that ridiculous Grizzly Research report. I will always be here to defend the company from lies and made up issues. But I won't give the company a free pass when I find issues myself. The irony with the Grizzly Report is that it was so poorly done that it still looks like a laughingstock even though the stock price has declined around 80% since it was released. Had the "researcher" used actual financial analysis to come to a conclusion of something along the lines of "I don't think this valuation is sustainable because the company hasn't been pulling in strong margins" he would have looked smart. Instead of pretending to be Sherlock Holmes with his German-level understanding of written Chinese languages trying to find fraud where there is none, ending up looking like a clown.

This is where I get to my major issue. The revenue growth has been great. PKK more often than not has exceeded revenue guidance. The problem is there has been absolutely no traction on the margins, despite repeated promises from management that this is perpetually just around the corner. Here is a breakdown of segmented revenues by quarter going back to the start of 2020:

These numbers were grabbed from segmented reporting in PKK's financials and press releases for the adjusted EBITDA. Some calculations were required for Q4 as only annual results were posted. I double checked these numbers but I encourage others to do a check themselves for accuracy. Still, even if there is a mistake in there somewhere, I don't think it will change the story much.

Some people will be familiar with this chart as I have shared it before. I also asked a couple of questions about the margins on the Q4 call but there was some miscommunication so they weren't answered very well. I wasn't on the Q1 call as it was close to 30 degrees and sunny over the past couple of days and I'm not anywhere near a computer under those conditions.

Revenues are up over 100% for all quarters. Great! The issue lies with the fact that nearly all of the growth is in the very low margin supply chain services. We see in 2020 that cost of sales ate up 98% of the margins in this revenue segment, leaving a gross margin of only 2%. When I and others had asked about this last year, management stated that once Gold River came online, some of the outsourced services would be brought in house and those margins would improve. We saw some minor improvement in Q3 2021 as COS % of Supply Chain Revenues dipped below 90%, but it was back up over this mark in Q4 and Q1 2022 again. 94% is better than 98% so there has been some movement in the right direction, but not enough to move the needle on overall company profitability.

The other half of this story is on the financial service and fees/sales from external revenues segments. This is the initial fintech business model of facilitating third party loans plus revenue from PKK's internal lending institution ASFC. These two segments have remained small with little traction on growth. ASFC was flat from 2020 to 2021, which is understandable given the impact of COVID on small business lending. However, the external fees segment was up 43% in 2021 and only 18% in Q1 2022. The lack of traction in these more high margin segments has resulted in overall gross margins (100%-COS % of Total Revenues in the chart above) declining year over year as the supply chain segment has grown to 95% of all revenues in Q1 2022 from 54% in Q1 2020.

Given the mediocre and stagnant gross margins, it didn't surprise me when PKK released its latest forecast:

Revenues for 2022 are projected to be about $210 million, down from $345 million from October's guidance. EBITDA is projected to be $6.5 million, down from $82 million from October's guidance. The issues surrounding the lowered guidance are well understood. Last year the company expected to be listed on a senior exchange by now and able to raise more funds for growth and global expansion. That hasn't happened yet so it has had to pump the brakes a bit on its aggressive growth. Which is still projected to double in revenue year-over-year.

The problematic pattern becomes more apparent when you look at July 2021 guidance, February 2020 guidance and October 2018 guidance. The guidance along with reported figures are summarized in the chart below:

PKK has a habit of forecasting large EBITDA numbers in outer years, then chopping those down once those outer years get close. Even if revenue is forecasted to increase. When PKK beat its guidance on both revenue and EBITDA figures in 2019, shareholders were understandably excited to see an updated forecast. So it came as a surprise that the guidance came in lower than 2018 projections. The February 2020 guidance was so poorly received by shareholders that the company released a letter later that day to explain it. The content of the letter can be summarized as follows:

Previous guidance assumed a need for capital investments. Company delayed that growth to avoid near term dilution.
The integration of Jinxiaoer and build out of the Cubeler network will lead to near term expenses that hurt profitability in the short run, but sets it up for stronger profits in the long run.

These are similar kinds of reasons being cited for the most recent decreases to guidance. This is not meant to be a slight on management. Trying to project a growing business accurately is very hard. Especially during this pandemic. But that's kind of the point of doing this analysis. Back in 2018 we were promised $56.6 million in EBITDA on 60% EBITDA margin in 2021. By February 2020 we were promised that figure on an improved EBITDA margin in 2022. That was increased to $82 million EBITDA - lower margin % number but much higher revenue - as recently as October 2021. And now once we are in 2022, that EBITDA number is slammed down to $7 million on $210 million in revenue, a mere 3% EBITDA margin. This ~$60 million in EBITDA that was promised to us by 2021 back in 2018 is now promised to us in 2023 on a revenue base of over $500 million.

Doing a skim over reported numbers versus previous guidance, we see how revenue numbers from 2019-2021 are pretty much bang on to a slight beat. 2019 EBITDA beat guidance, but both 2020 and 2021 saw a consistent pattern. 2020 EBITDA went from a forecasted $20 million down to $4 million and came in $6 million below that at -$2 million. 2021 EBITDA went from a forecasted $56.6 million to $22 million to $12.5 million to $11.3 million and came in at $2.5 million.

I think that management is honest and trying its best to give us realistic numbers to work with. But by now I have seen enough of a pattern to know not to give any credence to outer year numbers, especially on EBITDA and net income. PKK is repeatedly encountering issues that affect its ability to meet its projections on profitability and has been recycling similar types of excuses for why it keeps happening. When the market cap is $20 million, I can overlook these issues because the stock is already cheap. When it's over a $200 million valuation, that's when I need to hold the company to a higher standard.

My outlook: Hold

I am putting a hold target on PKK at around $2. With such low margins, a 1x forward revenue multiple is fair. I'm not going to sell what I have left at these low prices, but I'm also not in a rush to buy either. I understand the potential market impact my words will create. Just to stomp on any fires right there - I have absolutely no intent to buy any PKK shares until I get my payout on PQE. That's at least two weeks away and I am fully prepared for another month's delay. I'm not trying to trash the stock to pick up cheap shares. If you look at some of my older blogs, my investment thesis that justified my $4 to $10 target prices remained consistent. For instance, this blog I wrote in January of 2019 focusing on the third party lending business. I came up with an estimate of $70 million in revenue and $35 million in EBITDA, numbers that were generally in alignment to both the 2018 and 2020 forecasts for 2021. I had a reasonable basis to justify my investment thesis. It's not me who has changed. It's the company that has failed to deliver on improved margins it has promised several times already.

What would get me to buy more of the stock again? Simple. First, demonstrated margin improvment. Not promises of Jinxiaoer or Cubeler or Heartbeat integration, not the onboarding of Gold River, not the promises of moving into higher margin sectors or expansion into Canada. Demonstrated numbers on a financial filing that show something better than 10% gross margins and 2% EBITDA margins. If that means paying $5.00 or more some time next year for shares, that's fine. That's still well below my average sell price and gives me plenty of time to deploy that cash on other opportunities over the next year. Second, if the stock price continues to drop. If I believe that $2.00 represents a fair value to hold shares, then logic would dictate that something below $2.00 represents a speculative buy before the company can demonstrate improved margins. What that price level is, I don't know yet. I'll figure that out after I get my Petroteq money, fingers crossed.

*For those who are unfamiliar with the Petroteq offer, search for Viston $0.74 tender offer. Yes, it's trading at a 50% discount presumably a few weeks before the deal closes. No, I'm not going to explain why. Sick of talking about it. Just want my money. Do your own research.

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