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Thanks Bob, I appreciate the thoughtful reply. I'm definitely letting my position ride. It's a tiny portion of my portfolio but would provide a nice return even at a $15 million market cap.
A ton of capital is needed.
Sounds like the agreement with Oak Hill is to raise $35 million, $15 million to retire debt and $20 million to finish Hamilton and for opex. Then RNG facilities at Hamilton and Belleville will need $232 million in capex to build. Sounds to me like the plan is to raise the $35 million and then uplist to Nasdaq, where it should be easier to raise the capex. The plan is to do all this without dilution and without increasing the authorized share amount. We'll see.
My thoughts are whether settling cases can ever lead to significant paydays as the companies settling are essentially making a nuisance payment to make it go away and Quest likely has no leverage because the big boys being sued know that Quest doesn't have the funds to engage in an expensive and uncertain court battle.
Somebody has funded the company though like they think the settlements could bring big returns so I guess we'll see. Even $5-10 million in proceeds from the settlements would be huge for Quest and could ignite the share price.
23 million shares have been dished out in the last year and a half. The shares outstanding count has stayed the same from late September to the most recent reporting date of 12/5 so no evidence of notes being converted in that time but there were 3 million shares added from June to Sept so those could be it.
I think that's a good take on the situation.
It's taken me time to get up to speed. I didn't understand PTAB petitioning at first. I've linked the document history for the matter below and, while most of the docs aren't opening for me, it looks to me like Google may be trying to show how pervasive multimodal messages are and how long they've been around in an attempt to have patent 7929949 revoked.
https://portal.unifiedpatents.com/ptab/case/IPR2024-00056
Samsung's attorneys are involved.
Marc's got to get past the chicken and egg problem. In the past the financing depended on the uplist, which depended on the financing, which depended on the uplist....
There's a good chance the share price won't really go anywhere until a solid financing agreement is announced. It could, because OTC stocks do crazy things but if the share price continues to languish and financing depends on Nasdaq then do a 1 for 30 split if that's what it takes. There are plenty of Nasdaq listed companies with very low share counts and floats (although perhaps it's something Nasdaq frowns upon for initial listings because it doesn't provide room for another reverse split if the company eventually falls below the $1 minimum).
A struggling, stagnated company probably shouldn't be picky when it comes to financing options so doing whatever it takes to get the operation rolling may be the smart move.
Hopefully if there is a strategic financing a larger company won't be insistent on Nasdaq as pre-condition, as that requirement is not something I've seen before but Marc does seem to be still focused on the uplist so that makes me wonder.
Have you any docs from the Google filing, Bob?
It's not showing up as part of the Samsung case document history and I don't see anything with Google through a Multimodal search in the Texas district or nationally.
The only place I can find it is at the link below but it's a subscription and I can't see where it was filed. Maybe we'll have to wait for Pacer to catch up.
https://insight.rpxcorp.com/ptab/16675-google-v-multimodal-media-llc-ipr-of-949#overview
Great find, stone.
I wonder if it's Nasdaq or Cboe Canada that's targeted for the uplist. Peter Goldstein's website lists the NEO exchange, which is now Cboe Canada and which has listing standards that are more easily attained and provides the possibility of also listing on Cboe exchanges around the world, including the US, with Cboe's new holistic Global Listings program.
The Nasdaq would still be the better option if the financing and resulting share price movement upwards are enough but Cboe wouldn't be a bad back-up plan
It seems to me to boil down to how much credence you put into Bruce's comment in the offtake press release that the company is expecting strategic funding. Without near-term funding the company could realistically get swallowed by debt. Marc has shown that he can talk a detailed game but has not shown he can deliver and his last company never got off the ground. Bruce, however, has the experience. His Linkedin is impressive including being a Senior VP of Operations for a North American subsidiary that produced $9.8 billion in revenue last year.
But financing has to happen. A $138 million offtake is great but without facilities to generate product it means nothing. There are green economy companies right now with offtake agreements in the billions from major global corporations that can't find the funds needed to build their facilities. Granted, those are much more expensive facilities but it shows how hard it is to square the circle. If Bruce and Susglobal can find the funds, the company should be worth much more than it is today. If not, the future could be even rougher than the past.
There has been about 30% dilution in the last couple of years so there are more shares but not sure that the float has risen quite that much though. The outstanding shares count on the OTC Markets website hasn't been updated since 11/6 so we don't know if there have been note conversions since then that have then been sold into the market. If so, that could account for the selling or maybe it's been someone or someones else.
But it still comes down to financing. That's the press release that should really make a difference. I've seen many companies, including one I have a big stake in currently, have their shares prices drop waiting on a financing deal in the works but that is taking seemingly forever to finalize, because closing deals takes time. Then the price takes off when funding is secured. We'll see if that happens here.
What can he do right now?
Either the strategic financing that will allow the company to move toward fulfilling the offtake is being finalized and the company will have new life or debt could swamp the company. It seems like the last couple of years have led up to a make or break moment.
Bruce did say in the offtake press release on 10/3 that, "this investment grade 10-year agreement with a seasoned and experienced Offtaker is coming at a time of rapid growth, to be funded by strategic equity financing".
That sounds solid coming from Bruce and if there's one thing I know, it's that closing deals takes time but who knows whether a deal will actually materialize or not. Obviously the market thinks otherwise right now but that may or may not mean anything.
I probably could have been more clear.
The strategic financier will estimate what they think the company will be worth in the future minus debt and the capital needed to start producing RNG. Then they'll decide what percentage of that they'll be willing to pay today to get an attractive expected return on their investment.
If they want to buy 20% of the company, they can't buy 25 million shares on the open market and if they tried the price would shoot up so maybe that factors in to paying above or well above the current share price.
Given the offtake amount Susglobal has secured, the company should probably be worth more than the $18 million it's trading for today if there is a legitimate financing in the works. If not, debt could become overwhelming quickly.
I used the valuation model in the example I found in my last post to come up with $100 million as a very rough estimate because so much about the RNG business and what specifically could happen with a deal involving Susglobal is unknown to me.
And there's the question of what the company doing the financing is buying. Management, properties with mortgage payments, ECA's? The building at Hamilton is probably part of it because it seems like they'll need to have the waste dumped inside the building for odor control and a recent graphic produced by Suglobal shows the new property provides trucks a route out of the building. Something to watch is the very recent issuance of a Provincial Officer Order to Belleville for some unspecified violation of environmental regulations. That will have to be dealt with so the facility can operate normally again.
We'll just have to see what happens.
The question is what valuation will the company providing the strategic financing give Susglobal.
There are so many variables that's it's difficult to calculate but I found a case study of a landfill RNG facility, located at the landfill, and using that study adjusting for the numbers in Susglobal's offtake press release would give a NPV of $119 million for Susglobal. That was at a higher carbon credit price, but I'm not sure what percentage credits add to that NPV. A 15% discount for lower credit price would give a NPV of $100 million for Susglobal. Obviously debt will factor in as well, as my last post detailed and the $100 million valuation is just for RNG with no potential revenue from fertilizer added.
I'm not sure if that's for raw methane or if it's scrubbed, as methane from digesters has to be scrubbed before it can be injected into pipelines. A farm that Enbridge partnered with on a RNG project (but didn't finance) contracted a third company to run the scrubbers as they didn't have the expertise and it's unclear whether a portion will come out of the $20/mmbtu in the offtake for scrubbing. The farm expects a payback of less than 10 years (that's vague) according to a news report for their RNG facility that will produce 15% of what Susglobal has planned, maybe 6 years is reasonable but it could be sooner for a larger facility.
So maybe the company providing the financing will value the company at $70-100 million with the offtake in place. A financing at that valuation would obviously be a big boon for the share price but nothing is guaranteed and at this point the company's future definitely seems to depend on it. No financing and the company may not be able to continue operations so there is definitely a lot of risk to go with upside of maybe 2-3x after dilution in the relatively near term if things go well.
My caveat is that I'm just a guy on the internet using somebody else's model for a somewhat similar project so I could be off by a good bit. It all depends on what kind of cash flows the financing company eventually sees Susglobal generating.
Case study page 4
https://theicct.org/wp-content/uploads/2023/05/case-studies-california-rng-outlook-2030-may23.pdf
Enbridge invested $80 million in more mature RNG company, Divert, that has an offtake agreement not too much larger than Susglobal's but that investment only got them 10% of the company. They would need to buy a much larger percentage of Susglobal to cover current debt and provide working capital. They could do a joint venture but that would still leave Susglobal with all of the current debt. A JV plus an equity financing may be an option but that would really diminish current investors' percentage of the venture.
The debt as it currently stands:
There is $6.5 million in mortgage payments due by March 1, including $1.48 million for Hamilton that is 3 months late today, the 10Q says they are working on an extension with the lender, and another $3.84 due in two weeks on another mortgage for assets that partially secured the mortgage that's 3 months late. Plus the 10Q once again mentions a $6.75 million "commitment" to an architectural firm to complete Hamilton. I'm sure some portion of that has been paid, but probably not too much, and it's unclear how binding that commitment is but Marc keeps including descriptions of what is obviously the work of that architectural firm in press releases so paying them still seems to be the plan. Then there are the convertible notes, which have ballooned to $9.75 million with added interest and a weak Canadian dollar. And another $1.58 million mortgage was obviously taken on recently for the property adjoining Hamilton.
No matter what it, looks to me like the amount of shares authorized will likely need to be raised from the current 150 million as there are only 25 million left.
I don't think the situation is necessarily insurmountable and Bruce specifically mentioning a strategic financing in the recent press release gives me hope but it does seem to be do or die time for the company for real this time and the current share price seems to reflect that.
While I have been amused by the banter, I haven't read every post so apologies if this has already been mentioned but Cytodyn's complaint against Amarex admits that the MSA was not signed but asserts that there were more than 70 signed work orders that expressly incorporated the MSA and were signed by both parties.
Although neither Amarex nor CytoDyn signed the MSA, both parties understood
the MSA to be a complete embodiment of their agreement and both parties acted accordingly.
Since 2014, both Amarex and CytoDyn have treated the MSA as a binding agreement governing
their relationship. Amarex and CytoDyn have each signed over 70 project work orders obligating
Amarex to conduct clinical trial management on all but two of CytoDyn’s studies. Those fully
executed project work orders expressly incorporate the MSA.
page 4 Case 8:21-cv-02533-PJM Document 1 Filed 10/04/21
With the market cap and float so tiny even a few million in revenue could be a nice catalyst but will we get anything after the financiers take their cut.
Bruce was quoted in the offtake PR as saying that funding through strategic equity financing is on the horizon. If Marc had said it, I would have taken it with a big grain of salt but coming from Bruce I'd like to put more stock in it actually happening. That was just a month ago, which isn't long considering that almost everything in business takes longer than expected. It's not a certainty until a deal is signed though.
If your order was for less than 5000 shares, the order size could have been the issue because for OTC stocks trading between $0.10 and $0.1999 FINRA requires a minimum order size of 5000 shares to get quoted .
What this means is that you can get filled if your order for less than 5000 shares is at the ask price or higher but if it's below the ask nobody will see it because it won't get quoted, so it won't get filled. It won't show up on level 2 or on level 1 if it's the high bid.
If your order was for more than 5000 shares I don't know what happened..
https://www.finra.org/rules-guidance/rulebooks/finra-rules/6433
I think it's possible that the equity financing could come from Enbridge, as earlier this year they invested $80 million to give them a 10% stake in Divert, an ambitious organic waste to RNG company. That seems to be a direct investment, not a joint venture.
https://divertinc.com/1-billion-infrastructure-development-agreement-with-enbridge-inc-announced/
And Divert's 10yr $175 million offtake agreement with BP is characterized as one of the largest in the US. Obviously the $138 million for Susglobal is not far off that.
I guess the question is whether the equity stake the strategic partner takes will be in Susglobal or in the project.
You may be right, Stone. Strategic equity financing implies a buy-in to the project. Veolia?
And it does seem probable that the plan is to borrow against this agreement and the combined Hamilton property to raise money. Thus the term "investment grade" being used by Bruce about the offtake agreement in this press release and the past press release about the combined Hamilton property getting a $14.2 million appraisal.
From what Flash has said it's likely Tidal/Enbridge.
https://www.enbridge.com/about-us/energy-marketing
Probably because there's no financing component.
In the current interest rate environment, the market isn't valuing offtake agreements without financing. Look at ORGN and GEVO. ORGN has $9+ billion in offtake agreements with very prominent companies but only has a market cap of $166 million because they haven't been able to finance a facility that could satisfy those agreements. Same type of thing with GEVO . They have billions in binding take or pay agreements for sustainable aviation fuel, which are only binding if they can build their facility, which requires financing that they've struggled to get.
The problem with Susglobal is that, according to the last 10Q, there is $6.5 million in mortgage payments due by March 2 (including the $1.5 million due Aug 17 that may have been extended to some unknown date) plus money needed for the purchase of the land adjacent to Hamilton, money needed to finish Hamilton construction (it's unclear if what's the large part of $6.9 million still committed to the architectural firm is a binding commitment) and money to build this RNG facility. Plus there are millions of dollars worth of convertible notes way past due.
I think over time the share price could easily appreciate on this news and securing funding is not an insurmountable task with juggling of the debt but the market has been in show me the money mode recently.
Greatly appreciate your keeping a sharp eye on what's going on Bob. Maybe you should contact Jon and offer to do public relations for the company.
Still a black box with the settlements and would be really nice to have an idea of whether settling cases can lead to significant returns or only miniscule amounts those willing to settle are paying to make a nuisance disappear.
There were some relatively big buys this morning. Also noticed that the shares outstanding gradually increased by 3.46 million shares over the last three months so maybe some of the selling pressure was from those being unloaded.
My guess is that the volatility in volume is probably the biggest driver of the share price. The lowest daily volume this month is less than 2% of the highest, which is crazy. And there have been no shares traded so far today after an average of 200k for each of the last two days. I wouldn't be surprised if these swings have been driven largely by one person (probably not the same person) deciding to buy or sell big chunks on a given day.
Yes he's adding to his massive holdings and you always want a CEO and founder to have a lot of skin in the game but he's just getting paid in shares, not outright buying them as Bruce did a few months ago.
I don't think that's a possibility and we didn't see Marc dumping shares at highs. Lord knows he's got enough of them where he could have made a pretty penny.
You know as well as anybody, Horsin, that it's always been about the financing and raising enough cash has always been contingent on either Nasdaq or now likely being able to borrow against a couple of assets that Marc doesn't fully own and another that is a future promise contingent itself on a biogas facility being financed and completed (and we don't know if the offtake is a binding take or pay agreement or not). There's a big difference between doing a typical offering to raise money and having it being so dependent on other variables, especially when we're talking about raising in total more than the current market cap of the company.
Cytodyn can be classified as a smaller reporting company and a smaller reporting company with a public float of $75 million or more and revenues of less than $100 million is a non-accelerated filer.
https://www.sec.gov/education/smallbusiness/goingpublic/SRC
Non-Accelerated Filers:
10-K: Due Tuesday, August 29, 2023 for Fiscal Year Ended 05/31/23
The 10K is due on the 29th.
https://www.securexfilings.com/sec-deadlines/
Hammering out long-term deals takes time. Maybe we'll get an announcement soon but I wouldn't be surprised if it takes longer. We don't know how far along the partner is in its due diligence including analyzing the GHGenius report to make sure that the inputs used in Susglobal's report correlates with what they would use.
Plus Flash has stated that Veolia could possibly provide some portion of the financing so getting that aligned may take time as well.
I know the price action sucks but a little more patience may be necessary.
Thanks Bob.
Fidelity is the best broker I've found for OTC stocks. You can trade everything not expert market with no commissions.
Just remember that there are FINRA rules for quoting bids or asks. If the stock price is below 20 cents, you'll have to enter an order for at least 5000 shares for your order to be quoted and show up on level 2. Anything less and nobody will see your buy order so it won't be filled unless you hit the ask price and vice versa for sells. You can always buy less than 5000 shares at the ask price but a bid for any lower won't be seen so it won't be filled.
If the share price is between 20 cents and 51 cents the minimum amount to get quoted is 2500 shares and 1000 shares for 51 cents to a dollar.
https://www.finra.org/rules-guidance/rulebooks/finra-rules/6433
And I hope folks considered it useless considering what happened to ORGN in the last few days (the stock got decimated due to management miscalculating debt they could take on and thus had to radically change their business plan and projections).
Speculating on capital intensive lower carbon tech ain't easy.
Bruce must have felt very bullish to put $100k into a private placement at 33 cents. Marc got shares for services and as repayment of a $100k loan he gave the company.
Funding obviously still has to be secured and there's the question of whether Veolia will be directly involved in that (any hints Flash?) or whether it's just up to Marc to borrow money against an offtake to buy equipment and expertise from Veolia. And of course it sounds like the plan is to borrow against the combined property to pay off the purchase of the new lot and likely to pay the upcoming mortgage due so that has to be accomplished as well.
But it does seem like Bruce has been invaluable in getting the company on what could be a very successful path.
Download the waste brochures:
https://www.watertechnologies.com/products/biowaste