Sheldon Inwentash Buys 600,000 Shares Of IDK

Summary

• Sheldon Inwentash bought 600,000 shares of IDK after other insiders sold at higher prices.
• SX CEO Frank Dumas held an interview on Sunday where he confirmed that SX Director Dr. Wei‐Tek Tsai presented at a meeting with Jack Ma, who was allegedly impressed.
• FTEC looks like it is getting closer to cash flow positive operations after announcing an increase to its call center revenue last week.
• I expect my other investments XMG, LVI, PKK and MIT to do well.

In my blog post on January 17, I confirmed that I had sold a part of my holdings in Global Cannabis Applications Corp. (OTCQB:OTCPK:FUAPF) (APP.C) and ThreeD Capital Inc. (OTCPK:BWSOF) (IDK.C), continuing my strategy of selling into strength and buying into weakness. That sell was well-timed as APP and especially IDK tanked along with a basket of Sheldon Inwentash-related stocks last Thursday. One company in particular, St-Georges Eco-Mining Corp. (OTCQB:SXOOF) (SX.C) had such a miserable week that it held an emergency Sunday afternoon Q&A conference call led by Agoracom. On Friday I bought SX for the first time as well as having loaded back up on IDK after its substantial dip. 

Sheldon Inwentash Buys 600,000 Shares Of IDK

Sheldon Inwentash understandably came under fire last week for a seemingly organized tank in stocks within his sphere of influence. Even if he was not at all involved in the heavy tank, some investors suspect that someone within his circle (even if an adversarial one) was responsible for it. Either as a short attack or a large, organized dump of shares. All one has to do is take a look at IDK's insider transactions to know that there has been heavy dumping by insiders at high prices over the last several days:

What is encouraging about this is that Inwentash himself actually purchased 600,000 shares on the open market on Friday, at an average cost of $0.313. The $188,000 he put into IDK is still small in comparison to the amount he sold on APP (which I discuss here), but at least he has put some more money on the line on IDK at a time when investor confidence has been shaken, and memories of Pinetree's blowup are still fresh in most veteran investors' minds. 

I am fairly confident that IDK will build on Friday's rebound, especially if IDK's investments continue to rise. 

SX CEO downplays Jack Ma rumours without really downplaying Jack Ma rumours

SX has had a roller coaster ride I have never seen happen so quick on the junior markets, going from around $0.50 to nearly $3.00 to less than $0.35 in a matter of DAYS. In line with my strategy of buying on dips, I figured there was no better dip to buy than the one on SX in the $0.30s and low-$0.40s Friday morning and so far this strategy has worked out. 

You can see the emergency meeting produced by Agoracom with SX CEO Frank Dumas here:

At around 39:30, the interviewer brings up the Jack Ma rumours. Dumas goes on a five minute rant that tries to downplay the rumours ("only believe what you read in a press release from us") without really downplaying the rumours. He starts off by saying that SX director Dr. Wei‐Tek Tsai (also a recent addition to IDK's Advisory Board) was invited by Jack Ma to meet with a group of investors. It might have been a good idea for him to have stopped there at the cold, hard facts. But then he went on to say that Jack Ma was very impressed with the presentation and that his people casually discussed valuation for Wei-Tek's ecosystem. Unless Dumas spoke with Ma personally, I'm not sure how he could know how Ma felt about this presentation. Mentioning a what-if scenario valuation discussion doesn't do him any favours if he is really trying to downplay the connection.

A company that has been in the presence of Jack Ma and has garnered a positive response should be worth well in excess of $50 million in market cap. If that is the case, then insiders should be buying hand-over-fist SX shares at these deeply discounted prices on the open market. It doesn't sound like insiders would be in a black out period given that Dumas doesn't expect any more material information to be disclosed on an upcoming investor presentation. So far all I see are insider dispositions on the open market from a month ago at lower prices than Friday's close:

Until I see some insider buying on this stock with someone on the payroll who has talked with Jack Ma, I will take SX only as a volatile trading vehicle rather than an investment. 

Fintech Select: Closing In On Cash Flow Positive Operations

Fintech Select Ltd. (OTCPK:SLXXF) (FTEC.V) has been another beat up Inwentash-related stock, though it has garnered less attention as its fall from over $0.60 has been more of a slow drip over the past month. It announced the following last week:

...it is expanding its call centre to handle the increased business coming mainly from its US customers.

As a result, the Company’s monthly revenue from this high margin division alone has increased by 20% since October 2017 with annual revenues now exceeding CDN$1.45M. There is also the possibility of a further increase due to more programs that have been awarded to the Company by an existing large US customer. These numbers are unaudited and will be included in the Company's year-end audited financial statements.

We continue to expand our physical reach of the Selectcoin Cryptocurrency solution across Canada, while we remain focused on building shareholders’ value by increasing revenues from all other legacy business, including our Pre-Paid Cards, Call Centre and Mobile Top Up divisions.

While the main focus of investors, including myself, has been the rollout of Selectcoin, this is a nice piece of news that may be overlooked by the market because of its small size. But this growth in the call center business is important because FTEC has been running a marginally cash flow negative business. Any increase in high margin business revenue gets FTEC closer to becoming consistently cash flow positive.

What we know from the release is that the call center business has increased by 20% and is now exceeding annual revenues of $1.45 million. What is unclear is if this is now an annual revenue run rate of $1.45 million after the increase, or if $1.45 million is for all of 2017 with the increase in October and therefore the run rate going forward is higher. I will assume the more conservative former assumption.

The call center business has grown from $1.2 million to $1.45 million annually, or from about $300,000 to about $360,000 per quarter, a $60,000 per quarter increase in revenue. This revenue is high-margin, so a lot of it should flow through to the bottom line. Gross margin has been around 60% recently as the low-margin legacy business has run its course. Revenue has also decreased from the previous year due to the City of Toronto contract running out in June 2017. 

The table above shows the first three quarters for 2017. Not shown here is that revenue has declined from 2016, but margins have stabilized or improved during that time as well. FTEC sometimes shows profitable quarters thanks to debt settlement for less than par value, but looking at operating income or cash flow from operations shows a marginally negative business for every quarter. That may soon change if FTEC can continue to grow this call center business.

The roadblock to profitability would be increased costs associated with the Selectcoin roll out. Selectcoin is up to 19 locations now which may be slower than what everybody wanted, but if the company is operating on a tight budget, that may be understandable. 

Other stocks to keep an eye on

Last week was an interesting week for a few of my other holdings that aren't related to Inwentash, at least to my knowledge.

MGX Minerals Inc. (OTC:MGXMF) (XMG.C) and XMG.WT.A:

XMG finished the week at a several month high of $1.75. A Bloomberg article mentioned MGX as a possible solution to the oil sands waste problem:

Vancouver-based MGX Minerals Inc. and PurLucid Treatment Solutions Inc. have teamed up to create a technology that filters tailings to produce lithium that could be sold for use in batteries. The Canadian government provided C$8 million to scale up a pilot. One challenge is scaling such technology to handle the massive flow of tailings, Wicklum said. Another is finding a solution that’s economical and energy efficient. “We don’t want to solve one problem and exacerbate another.”

XMG.WT.A, which has a strike price of $1.15 and expires in May 2019, closed at $0.49, which means its last trade took place at $0.11 below its intrinsic value of $0.60. Part of that may be that its less liquid than the stock; the warrants had a ask at close of $0.90. A Black-Scholes calculator shows that the fair value for the warrants assuming a volatility of 50% (fairly conservative for a stock like XMG) is $0.76. So there may be an opportunity for anyone who wants to take advantage of this leveraged upside. 

If an investor can get XMG.WT.A for a few cents above par value, they would be participating in the upside, pretty much penny for penny, with the stock. So if XMG was to double from $1.75 to $3.50, XMG.WT.A's intrinsic value would nearly quadruple from $0.60 to $2.35. 

Lightning Ventures Inc. (OTC:OTC:HMKTF) (LVI.C): announced that Pemex will be expanding the company's hot oil pilot programs. The news had a positive initial impact on the stock as it hit as high as $0.06 but closed at $0.045 for the week.

Peak Positioning Technologies (OTCPK:PKKFF) (PKK.C): PKK has seen some very heavy insider buying recently, a sign I believe that good things are to come:

Mint Corporation (OTCPK:OTCPK:MITJF)(MIT.V): I mentioned MIT briefly in my previous post. The stock has remained strong despite a very poor balance sheet - $4 million in assets against $68 million in liabilities in Q3 - and a recently completed financing at $0.20. Insider holdings are quite heavy, led by Gravitas Financial which owns over 100 million shares, the majority of the float: