As an investor in Sparta Capital Ltd. (SCAXF) (SAY.V) since 2021, I have been excessively patient. I have held the opinion that this stock should trade in the $0.30-$0.50 range (~$100 million valuation) based on the potential of its technology and existing operations. Recycling tech and AI usage in the industry is way overlooked on Wall Street/Bay Street, and Sparta's e-recycling part-owned subsidiary ERS is on the cutting edge when it comes to this industry. Just the neosort.ai website and name alone would be enough to pump a stock from $1 to $30 if it were trading on the NASDAQ and enough Wallstreetbets dummies fell in love with the story. Close to 50% of the world’s top bitcoin miners have become customers under Sparta's Carbon Credit program. That combination of buzzwords which imply actual business is taking place would then take the NASDAQ listed stock from $30 to $100. This doesn't even consider Sparta's potential in healthcare AI.
One of these days, Sparta is going to blow up. Just like quantum did and took QNC with it. That's if the company can stop tripping over its own shoelaces. Back when I attended the company's AGM in early 2024, I was given a story about how John O'Bireck was a great person and brilliant mind, but was also a bit of a bottleneck when it came to making Sparta a success on Bay Street. Well, fast forward a year and a half. Not only has Sparta gained exactly zero traction on the market with a stock price of $0.015, it has been halted for delinquent financial reporting since February. The company's financials haven't even been delinquent since the filing of the annual report on April 28th and it's STILL halted. The company's financials were late in the past but the stock was never in a CTO while I was a shareholder and John O'Bireck was leading the company. So I have to conclude that using him as a convenient scapegoat for Sparta's failings as a publicly traded company isn't accurate. Plus, if he was indeed a bottleneck, he was just one man. Where was the rest of the leadership term in all of this for all these years to try to reign him in?
As part of my desire to be an activist shareholder, I introduced John O'Bireck to a business associate of mine with valuable connections. After John's passing and Tony Peticca took over the role as Sparta's President, those talks continued with him. We helped to foster a potential relationship which in my opinion would have been shockingly lucrative to a company of Sparta's size and status had it gone through. All parties engaged in good faith, including Tony as a representative of Sparta. It was Sparta's legacy members that completely bungled any hopes of a potential deal, in my opinion.
It's one thing if the company was doing well and had its own vision that didn't include any potential deals brought forth by outsiders. But this isn't the case, far from it. Sparta has been a listed company for longer than Google. It existed before Facebook was a thing. The current generation of its leadership team has been around since 2014, before Shopify's IPO. What does Sparta have to show for it for all this time while other companies have developed into multi-billion or trillion dollar entities? Not even a two cent stock price and an indefinite halt. The leadership team should be ashamed over this absolutely pathetic performance. They should be thankful and jumping on any opportunity that came their way to potentially accelerate Sparta's success. Not snubbing their noses at it.
In addition to speaking with Tony, the only other member of Sparta management I had some positive engagements with outside of the AGM has been Shawn Leon. He took over as CEO. It's too early to tell if this move will bear fruit. But so far he has been CEO of Sparta while it's been a publicly listed company in good regulatory standing for exactly zero days. Joseph Cimorelli was also appointed to the BOD. I don't know him personally, but I view it as a positive step simply because he looks like he's under the age of 50. Sparta doesn't need any more old men and "no-men" (people who say no to everything) running this company into the ground. It needs young people and people who enthusiastically say yes and will do what it takes to back up that yes with action, like Tony.
One of the excuses I have heard was that Sparta doesn't have any money. Looking at past financial statements, that appeared to be a legitimate excuse. One thing I will give the company credit for is that it finally got its act together with two extremely positive quarters in a row. This chart from the Q2 MD&A summarizes this trend well:
The company generated $1.4 million in net income over the past two quarters. Assets and liabilities are basically equivalent now as the company has wiped away nearly all of the $1.3 million in shareholder's deficit it had back in 2023. Even still, the company can't help but embarrass itself with obvious administrative errors. The EPS line item shows 0.3 cents for Q2 and 0.1 cents for Q1 despite Q1 having a larger net income amount. This isn't a matter of comprehensive versus net income or some other accounting trickery either. The income statement on the Q2 financial statements show 0.6 cents EPS for the first six months of the year, correctly implying a 0.3 cents EPS for Q1 as well. If there was an adjustment to be made, it would be in Q2, where $250,000 of the $631,000 in net profit is due to a gain on sale of part of the ERS subsidiary.
Revenue for Q2 was over $3 million, a 50% increase compared to last year. On the balance sheet, cash increased to $1.5 million. The company had a working capital deficit of about $500,000 at the end of March, but that is a massive improvement from the working capital deficit of $2.4 million seen at the end of its fiscal year, September 30, 2024. Whatever cash issue it had, Sparta has taken steps to solve it. It should no longer be such a strong excuse to not pursue lucrative business opportunities.
Even when considering the one-time gain from the sale of the subsidiary, Sparta is on pace to generate about $0.01 EPS for its fiscal year. Assuming the last two quarters weren't a fluke and will be repeated for Q3 and Q4. There is no reason for the stock to be trading below $0.02 anymore. This is not just me and my personal opinion about how I think the stock should be trading around $100 million valuation. Basic fundamental principles of investing would suggest that it trades at least around $0.10, for a 10 P/E multiple. Anything less than this is an indictment of the utter failure Sparta's management team and BOD have been for shareholders. Both in terms of managing the company and presenting a compelling investment thesis to Bay Street. It's long overdue for them to start performing. They can start by at least getting the stock trading again.
