Cord Blood America, Inc. (CBAI)

The last few days have been nuts. The VIX briefly over 50, the DOW down 1,600 points intraday, XIV crashing from over $100 to single digits. The funny thing is, all of this volatility had almost no effect on the hundreds of OTC stocks I watch. They’re in a different universe.

Let me introduce you to Cord Blood America (ticker: CBAI). The company “provides cord blood and cord tissue stem cell services.” I’ve owned it for a bit. I originally bought it because its operations are marginally profitable and the valuation was pretty cheap. Today, I got a nice surprise: the company announced the sale of substantially all of its assets for $15.5 million (excluding cash and “certain other excluded assets”). The sale is subject to approval by shareholders; Red Oak Partners, which owns 30% of CBAI, is going to vote in favor. If the sale closes, CBAI wants to distribute a portion of the sales proceeds, but cautions that “total proceeds paid out to shareholders are expected to be significantly less than the gross purchase price.”

As of September 30, 2017 (most recent info), there were 1,272,066,146 shares outstanding, so $15.5 million is approximately $0.012 per share. The current stock price is $0.00398. The September 30th financial statements show cash of $959,534 and liabilities of $1,687,468. The assets in the sale were on the books for far less than $15.5 million, so the tax liability here will be significant.

Do your own math – with tiny companies, it can be hard to estimate how much cash they’re going to burn through after a sale like this – but I think this might be an interesting play.

Disclosure: Long CBAI

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Profit Planners Management (PPMT)

Profit Planners Management (ticker: PPMT) is a company that provides “management, financial and marketing services and business solutions to public and private micro-cap companies.” And it is, itself, a micro-cap stock with a market cap of only $277k. In August, PPMT decided to stop filing with the SEC, so the most recent numbers are from February, 2017.

  • 5,430,279 shares outstanding. Last trade at $0.0511.
  • Revenues of $476,500 for the quarter vs. $393,892 in the same quarter in 2016. Net income of $67,585 ($0.01/share) vs. $18,824.
  • For the nine months, revenues of $1,054,277 vs. $1,004,917. Net income of $111,083  ($0.02/share) vs. $82,332 ($0.02/share).
  • Negative book value of $425,411. Cash of $386,011. Deferred executive compensation is the biggest liability.

Revenue growth + super low PE? Seems like a good bet to me.

Disclosure: Long PPMT

Special Situation Story – China Clean Energy (CCGY)

Story time!

The OTC markets are notoriously inefficient, and that provides a lot of opportunities for a guy like me. China Clean Energy (ticker: CCGY) is a great example. The company announced a dividend of $0.06 with a pay date of Monday, January 8th. Before this announcement, the stock was trading at well under $0.01, so the dividend qualified as a special dividend – meaning that you can buy the stock on the pay date and still receive the dividend.

So on Monday morning, I walk into my office and, unfortunately, don’t check the dividend list on OTC Markets until around 10:30am EST. Stupid, stupid, stupid. Usually, companies announce dividends well in advance, but not in this case. CCGY’s dividend wasn’t announced until Monday morning (or maybe on Saturday/Sunday, but I don’t look at dividends over the weekend). So anyway, I rush over to my other screen, type in the symbol, and look at the quotes, chart, and price history. “Fuck! Fuck! Fuck!” I could have gotten a ton of shares under $0.02. Now it’s $0.04. Still potentially a good price, but I gotta do some due diligence first. Back on OTC Markets, I find that the company has been dark for years – no financial statements or press releases. And there’s that word that scares every experienced OTC value investor: China.

Bleh. After yelling at myself for awhile longer – “Why didn’t you check the dividends at 9:00, you idiot!?” – I end up buying some shares at $0.045.

The next morning, January 9th, I wake up and find that the company has issued a press release announcing the settlement of a lawsuit – no numbers, though. I check my quotes and the stock is at $0.05…awesome news! I held the stock through the pay date, so I get the $0.06 dividend AND can sell my stock for $0.05.

(Quick tip: Learn how special dividends work. I can’t count how many times I’ve seen people confuse the record, pay, and ex dates and lose lots of money.)

I sell my shares for $0.05 and receive my $0.06 a few days later. After I sold, the stock fell from $0.05 to where to it sits today…$0.011. Looks like another case of special dividend confusion. There haven’t been any other press releases about the lawsuit, but I plan to keep an eye on the stock to see how it plays out.

I made a nice profit here, but this trade could have made my month if I had just checked the dividend list an hour earlier. At <$0.02, I would have purchased more shares – even with the China issue, the risk/reward would have been incredible – and done well for myself. But oh well.

There’s a lesson here – even in OTC land, where delayed reactions to news stories are common, you still need to stay on top of things and get the news as quickly as possible. Maybe the missed profits here will help me learn this lesson…

 

 

Impreso Inc. (ZCOM)

Impreso (ticker: ZCOM) is a diversified company based in Coppell, Texas. A brief summary from Impreso’s website:

Impreso is the holding company of the following subsidiaries: (i) TST/Impreso, Inc. (“TST”), a manufacturer and distributor to dealers and other resellers of various paper and film products for commercial and home use in domestic and international markets, (ii) HotSheet.com, Inc., the owner of Hotsheet.com®, an online web reference directory, and (iii) Alexa Springs, Inc. (“Alexa Springs”), the Company’s natural spring water bottling subsidiary.

Back in the day, my grandfather used Hotsheet.com often; if I remember correctly, he even set it as his home page for a while. I browsed Hotsheet.com from time to time as well. As an investor, it’s always interesting to find public companies whose products you’ve used.

Anyway, Impreso is a Pink No Information stock, but the company publishes quarterly reports on its website. Here’s some basic information:

  • 4,021,263 shares outstanding, last trade at $0.731.
  • Tangible book value (after taking out prepaid expenses, deferred income tax assets, and other assets) is about $3.30 per share.
  • Assets are mostly in AR, inventory, and PP&E.
  • Revenues have been flat for years. The company is marginally profitable, earning $94,555 in fiscal 2017 and $115,779 in 2016.

The financial reports are all 4 pages long and offer no commentary whatsoever. The last financial report filed with the SEC was back in 2006. This provides some insight into the company’s real estate holdings, which I have a feeling might be over-depreciated.

So this is a pretty simple situation – company trades for 75%+ discount to tangible book value, makes a little money, and might have some hidden value. To me, that’s a stock worth having a small position in. Only downsides are that the average volume is very low and that the stock has barely budged in years. But, as every OTC investor knows, one news story can change that in an instant. For example, in a buyout, Impreso could sell for many times its current price. So, I’ll be patient.

Disclosure: Long ZCOM

Horizon Group Properties (HGPI)

Horizon Group Properties (ticker: HGPI) is pretty similar to the company in my previous post. Owns retail developments, not too many shares, OTC stock that very few investors know about. Horizon releases financial statements annually on its website. Some accounting/change of control stuff happened during 2016, and I’m not going to address any of that here, so definitely give the latest annual report a good read.

Here are the basics:

  • Trading at $3.75/share.
  • Tangible book value is several times that.
  • The company just sold a property in Oklahoma; management notes that “this sale and the income derived during our ownership was an extremely profitable venture.”
  • Profitable.

The market’s closed, it’s time to relax for the holidays, so that’s all I’m going to say about Horizon. Check this one out – you won’t be disappointed. Happy holidays!

Disclosure: Long HGPI

First Hartford Corporation (FHRT)

It’s difficult to determine the exact value of a company – especially when it comes to OTC stocks that don’t provide a lot of information and haven’t been analysed in dozens of articles and reports. So, when looking for cheap stocks, value investors must look for signals of undervaluation. These signals don’t prove that the stock is undervalued, but they can point us in the right direction and help us form an opinion. This is an art, not a science.

Owns real estate, lots of accumulated depreciation, highly levered, very few shares, relatively unknown OTC stock. To me, these are important signals. If a company has all five of these characteristics, I’m interested. Very interested.

First Hartford (ticker: FHRT) owns real estate, mostly retail developments, primarily located in Texas and the Northeast. Check. As of July 31st, the company had $48,685,410 in accumulated depreciation on $238,883,938 in properties; at this time, the company had $235,670,436 in total assets and $237,038,191 in total liabilities. Check and check. First Hartford has approximately 2.3 million shares outstanding. Check. The average volume on this stock is only 33 shares a day, per OTC Markets, and very few in the investing community know that First Hartford even exists. Check.

Here are some other interesting facts. During the past few years, First Hartford has sold over $80 million in real estate for about $18 million above cost. Not bad. The company bought back and retired 88,791 shares between May 1, 2016 and May 31, 2017 for an average price of $2.78 (current stock price is $2.50). First Hartford is now trying to “Go Dark” if its shareholder count falls below 300 – this is item 2 in the proxy statement, and the Board is recommending a “yes” vote.

There’s a lot more that could be said about First Hartford, but that’s the gist of the situation. I don’t know what this company’s properties are really worth, and I’m not going to hire an appraiser to find out. But, considering the above information, I’m willing to take a chance on this stock at the current market cap of well under $10 million.

Disclosure: Long FHRT

 

InVitro International (IVRO)

InVitro International (ticker: IVRO) is a California-based company founded in 1985 that develops “non-animal testing alternatives for irritation and skin toxicity testing.” Here are the basics:

  • 21,953,976 shares issued and outstanding. Simple capital structure – no preferred shares or anything.
  • Last price: $0.04. Market cap is a little under $900k.
  • OTC Pink reporting.
  • Recently resumed releasing audited financial statements on OTC Markets (older financial info can be found on the company’s website). Annual report came out on December 12th.
  • Cash and investments (ETFs and mutual funds) of $856,750, or about $0.04/share. Total assets of $1,160,675 and total liabilities of $74,110, so book value is just under $0.05/share. Very clean balance sheet – no long-term debt and no goodwill/intangibles.
  • Revenues down slightly for the year ($855,615 vs. $884,245).
  • Earnings of $0.002/share for the year vs. $0.007/share last year. Small profits in previous years too.
  • The stock has been under $0.10 for basically 2 decades.

InVitro is a simple company that’s well-run and trades for the price of a small shack in Silicon Valley. There’s a good margin of safety here, thanks to InVitro’s profitability and clean balance sheet.

The downside seems to be small. Now let’s move on to the potential upside.

On November 15th, InVitro announced that one of the company’s in vitro test methods “received final OECD Expert Group on Skin and Eye Irritation Test Methods acceptance.” Sounds positive to me.

Frankly, I’m not much of a science person. I like the business – global concern for animal rights is growing, so non-animal testing should become increasingly popular. But other than that, I can’t say much about the company’s prospects with the OECD, etc. Personally, I don’t really care, though – the downside is limited thanks to the asset value, track record of profitability, and ultra-small market cap. The company is in an interesting field and seems to be making progress with the OECD, so who knows – maybe there’s great upside here.

We’ll see what happens.

Disclosure: Long IVRO