&nbsp;Ashford Inc. ($15.6M market-cap)&nbsp;<a target="_blank" class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.prnewswire.com/news-releases/ashford-incs-board-of-directors-approves-plan-to-terminate-registration-of-its-common-stock-302105048.html">announced</a> this morning that the board has approved a plan to terminate the registration of the Company's common stock following a reverse stock split transaction, immediately followed by a forward stock split transaction and to delist its shares of common stock from trading on the NYSE American.&nbsp;&nbsp;Ashford noted it is taking these steps to avoid the substantial cost and expense of being a public reporting company and to focus the Company's resources on enhancing long-term stockholder value. The Company anticipates savings exceeding $2.5M on an annual basis as a result of the transaction. From the announcement:&nbsp;&nbsp;<blockquote>The proposed reverse stock split is a 1-for-10,000 split, in which holders of less than 10,000 shares of the Company's common stock in any one account immediately prior to the reverse stock split would be cashed out at a price of $5.00 per each pre reverse stock split share.</blockquote>&nbsp;This means that at current share price (~$4.50), purchasing 9999 shares presents an arbitrage opportunity of roughly 11% in a few months. Assuming the transaction closes in July, this gives an IRR of 36.7%.&nbsp;&nbsp;Granted that the transaction is subject to a vote, it&rsquo;s fair to assume that the it is pretty much secured since the CEO Monty J. Bennett owns roughly 65% of the company (assuming full conversion of preferred stock). The company currently expects to cash out 31% of all shareholders for $6M but also expects $7M in transaction expenses. They have the cash, and it seems like they&rsquo;ll be happy to pay out even if minority shareholding goes over 31%.&nbsp;This one&rsquo;s a rather straightforward arbitrage opportunity.&nbsp;Disclosure: I own shares of AINC

(AINC) Ashford Inc. board approves stock delisting, going private

&nbsp;Eliem Therapeutics ($77.5M market-cap)&nbsp; is a shell biotech company previously focused on building treatments for major depressive disorders. On Feb. 9th, 2023&nbsp;<a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.sec.gov/Archives/edgar/data/1768446/000119312523036503/d452795dex991.htm" target="_blank" rel="noopener">they announced</a>&nbsp;stopping all clinical trials amidst a challenging capital environment citing a 55% reduction in workforce.&nbsp;Later on July 20th, 2023&nbsp;<a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.sec.gov/Archives/edgar/data/1768446/000119312523190074/d485991dex991.htm" target="_blank" rel="noopener">they announced</a>&nbsp;plans to explore strategic alternatives and shared a $102.6M approx. cash balance. The company has exercised expense discipline and the cash burn has been minimal since.&nbsp;On March 18th,&nbsp;<a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.sec.gov/Archives/edgar/data/1346824/000110465924035606/tm249128d1_ex99-2.htm" target="_blank" rel="noopener">the company announced</a>&nbsp;that it will acquire 100% of the outstanding equity interests of Tango on a fully diluted basis, as a tax-free reorg. The announcement reads:&nbsp;<blockquote><div>At the closing of the Transaction (the &ldquo;Closing&rdquo;), each outstanding share of Tango capital stock will be exchanged for newly issued shares of Eliem common stock (the &ldquo;Stock Consideration&rdquo;) based on an exchange ratio of Eliem shares to be issued based upon the following: (i) an initial valuation for Tango of $20.0 million (&ldquo;Tango Valuation&rdquo;); and (ii) an initial valuation for Eliem of $110.0 million at the time of Closing (&ldquo;Eliem Valuation&rdquo;). It is anticipated that, subject to applicable diligence, the Stock Consideration will be issued under an exemption from the registration requirements under applicable securities laws.</div><div>&nbsp;</div>Based on the foregoing and subject to further due diligence, it is anticipated that as of immediately after giving effect to the Closing (but before giving effect to the Concurrent Investment), (i) the equity holders of Tango immediately prior to the Closing (including all options, convertible securities and warrants) will own 15.4% of the equity of Eliem on a fully diluted basis and (ii) the equity holders of Eliem (including all outstanding equity awards) will own 84.6% of the equity of Eliem on a fully diluted basis. The fully diluted equity of Eliem will be calculated via the treasury stock method.</blockquote>&nbsp;Pro-forma, this assigns a valuation of $93.06M to Eliem as compared to the current market-cap of $77.5M. Further, RA Capital roughly owns 49% of the company and retains a board seat that probably influenced this decision. Biotech reverse-mergers have been on a rip lately, and I remain optimistic about this one as well.&nbsp;Disclosure: I own shares of ELYM

(ELYM) Eliem Therapeutics announces reverse-merger

&nbsp;ARCA Bio. ($23M market-cap) is a biotech company dedicated to developing genetically and other targeted therapies for cardiovascular diseases.&nbsp; They were developing rNAPc2, a tissue factor inhibitor to potentially treat hospitalized Covid-19 patients. After unsatisfactory clinical trials, the company decided to pursue a <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://arcabio.com/2022/04/" target="_blank" rel="noopener">strategic review</a> of the business back in May 2022. Just a month after, Jacob Ma-Weaver from Cable Car Capital joined the board of directors and the fund now owns around 30% of the company. A company director, Christopher Ozeroff, also owns 30% of the company.&nbsp;While the review process has been slow, last week two of the 8 company directors <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/907654/000095017024011737/abio-20240202.htm" target="_blank" rel="noopener">resigned from the board</a>, interestingly both had a medical background. Now the company has just 5 employees, 4 fulltime. On top of this, the company has one lease obligation for approximately 5,200 square feet of office facilities in Westminster, Colorado which serves as the Company&rsquo;s primary business office that ends on April 1st, 2024. While they do have a renewal option for another 36 months, it remains unlikely that they will exercise it.&nbsp;The management has been conservative with capital since the strategic review announcement. The company burned just $1M in R&amp;D expenses in all of 2023 and just $1M in total expenses in Q4 2023. The company also has no outstanding preferred or warrants. Based on the numbers from the <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/907654/000095017024009809/abio-20231231.htm" target="_blank" rel="noopener">latest 8-K</a>, here&rsquo;s a rough swag estimate excluding any IP:&nbsp;<img style="display: block; margin-left: auto; margin-right: auto;" src="https://lh7-us.googleusercontent.com/66wYgkwg8DiS11WOApm2cPbDw6ED0DLf65sexFl0uGyLUmc5Yc-fM8_XrNfjwK4kA9HrBZli8_qeotMRlB8B1xkNGsn4Hmn0lrSl22VwPHdisgQl7VZl2S8ZXaBWHiX4ZMpHNEM_G54aHQgLiQn2JXU" width="450" height="230">&nbsp;I&rsquo;m accounting for 4Q worth of G&amp;A expenses in 2024 but given the sharp drop from 2022 to 2023, I think this is a conservative estimate.&nbsp;Disclosure: I own shares of ABIO&nbsp;

(ABIO) ARCA Biopharma: Pending Strategic Review, Cable Car Capital on-board

&nbsp;October, 2022 marked a special time since the euphoric market highs during the pandemic. The S&amp;P 500 index was down by about 25% and it was a particularly scary time to be in the equity markets. The technology sector was hit extremely hard&ndash;&ndash;the rising interest rates acted like gravity and the entire sector saw a sharp pullback to seemingly real valuations.&nbsp;On a Monday morning, I ran my screener to look for companies trading below net cash. On top of this list was an obscure company that designs and manufactures cleaning equipment for chip wafers, ACM Research. Although the company was based out of Fremont, CA, the production and majority sales were in China and Taiwan. At the time, the entire market cap of the company (roughly $480M or $6.50/share) was less than the total liabilities subtracted from the cash on hand. This must be because the company is losing money through the nose, I thought almost immediately. But much to my surprise, the company was crushing revenue and growth estimates quarter after quarter, with 48% revenue growth since 2017 and 59% net income growth over the same time. A profitable tech enterprise selling at almost classic Buffett cigar-butt levels? There must be something I&rsquo;m missing, or so I thought. I sat through the next earnings call and the management sounded very optimistic about growth while preserving capital in a tough financing environment and posted a net-profit once again, with a 14% YoY growth compared to 2021. Moreover, the team looked exceptional and very skilled in their field. One of the board members, for example, is <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://eecs.berkeley.edu/news/chenming-hu-honored-president-barack-obama-white-house/">Chenming Hu</a>, a TSMC Distinguished Professor Emeritus at UC Berkeley and a recipient of the National Medal of Technology and Innovation by President Obama. The only reasonable explanation for the price decline was general market sell-off combined with excessive fear due to geo-political tension between US and China along with probable trade restrictions. It almost seemed too good to be true.&nbsp;At this point, the price had already moved around 40% since I first ran my screener. However, I still couldn&rsquo;t build enough conviction and trust my own findings. I kept an eye on the company for the following months, hoping for a better bargain to find a good entry point. Little did I know, my thesis for the sharp discount was indeed correct and the stock never saw the same price levels again. As of writing, the company trades for $1.2B or $18.7/share. Had I bought the company when I first looked into it, it could&rsquo;ve been my best performing stock in 2023, a potential 3x bagger and blown past all the broken biotechs (which in all fairness, also did pretty well) where I was mostly focused throughout the year.&nbsp;I don&rsquo;t own this company and this post is slightly different from what I normally write but it&rsquo;s a helpful reminder to take action when you&rsquo;ve found something good. It might not be around forever.

(ACMR) ACM Research: A story about a missed 3x bagger

&nbsp;I&rsquo;ll preface this post by saying that this is one of the more complex businesses that I&rsquo;ve got involved with. The debt structure of this company is complex and there are significant risks involved. I&rsquo;ll suggest to size the position accordingly.&nbsp;Qurate Retail ($352.95M market-cap) is the holding company for QVC, HSN, Ballard Designs, Frontgate, Garnet Hill, and Grandin Road - all dedicated to providing consumer products through televised shopping and via their online apps. Qurate Retail Group is the largest player in video commerce, which includes video-driven shopping across linear TV, ecommerce sites, digital streaming, and social platforms. It&rsquo;s also part of John Malone&rsquo;s larger Liberty Media empire.&nbsp;Qurate, however, is saddled in debt. The series A common stock has been decimated, losing 94% of its value from the covid highs of 2021. Qurate also has a rather complex capital structure; it has $590M of common equity (QRTEA &amp; QRTEB), $1.27B of preferred stock yielding 8% (QRTEP), and another $3.51B of bonds. Here&rsquo;s the maturity schedule on the debt/RCF: <img style="display: block; margin-left: auto; margin-right: auto;" src="https://lh7-us.googleusercontent.com/4ErMhorEeRhYjhkFMCskZ9djc_N3a6mgO91On6FGSgyak6SqB_J9Qibp4_myUBTcYN_0SZ1Do0zvTcrOZJEa-dS0PkPVzzwx0hmOtV0-mwSNQhBhgF3FXO9SxIMfD1AaC6HTNMLCZm6gz5o0aSstMF8" width="904" height="218">&nbsp; The bonds also trade for a significant discount to face value, signaling strong bankruptcy fears priced in. In addition, a major concern is Qurate&rsquo;s dropping user count. From the latest earnings report: &nbsp;<img style="display: block; margin-left: auto; margin-right: auto;" src="https://lh7-us.googleusercontent.com/95ygw-PrU4IIbCOJEwY63oeWiWjpfwHzDBaWKktWzQFS17W70smCj5O76HTm5MnRNCplxIDA9y0yL1lQRP67C8Moe4wYEDZ8RWILH7gYAJ4qQxDH1fEpRTWF0bysiUaEZI3UffGb1zdvN0stOvR_GSs" width="723" height="568">&nbsp;Management cited cord cutting as a big reason for this drop, since users are spending more time outdoors post-covid resulting in drop of cable TV usage. To add to the misery, a fire in December 2021 destroyed the company's second largest logistics center in Rocky Mountain, NC, from which 25-30% of customer orders were shipped. All in all, Qurate finds itself in a grim situation. Customers are leaving, the company is facing one round of layoffs after another, and debt is mounting.&nbsp;In 2022, to address these concerns, the new CEO David Rawlinson launched a three year growth plan called <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.qurateretailgroup.com/newsroom/happenings/qurate-retail-group-announces-three-year-growth-plan-project-athens/">Project Athens</a>. The five-point plan includes actions intended to strengthen customer relationships, improve execution, reduce costs, optimize the brand portfolio, and grow faster in streaming. Management&rsquo;s projection is to reach $300M-$500M free cash flow by 2025 and the operating history of the company definitely suggests that it could be possible.&nbsp;The good news is that since then, the management has indeed executed on many of these said points and the return-to-growth plan looks currently on track. Among other things, as revealed from their latest earnings&ndash;the company raised liquidity by closing sale of some real estate and leasebacks for UK/Germany warehouses, divested the money losing segment Zulily to simplify portfolio and improve liquidity, finalize $660M in insurance proceeds from Rocky Mountain fire (of which $280M received YTD), reduced $741M YTD in debt, repurchased $177m 2024 QVC notes and $15m 2025 QVC Notes at a discount.&nbsp;With shares trading at such depressed prices, a buyback could be extremely accretive but the management has committed to using FCF to reduce debt which has the potential to magnify returns from current valuation.&nbsp;In the plausible scenario of the recovery plan staying the course, Qurate should continue to reduce debt covenants, and with over $4B of bonds and preferred not due until 2030 or later, Qurate can continue buying back more debt at discounts, refinance near term maturities, and get back to stock repurchases with any residual cash. Qurate currently trades for 4.5 EV/EBITDA, which is far lower than other retailers like Walmart, TJMaxx etc. which hover in the lower teens. Considering a $5B EV on top of a ~$500 FCF, if Project Athens continues as planned, this could be a potential multibagger.&nbsp;The downside here is more obvious, that Qurate yields under the mountain of debt, files for bankruptcy with the common and preferred holders likely left with nothing. The bonds, however, could see some recovery based on the proceeds post-bankruptcy.&nbsp; Disclosure: I own shares of QRTEA

(QRTEA) Qurate Retail: A Turnaround Story

&nbsp;Theseus Pharmaceuticals ($139M market-cap) is a company focused on improving the lives of cancer patients through the discovery, development and commercialization of transformative targeted therapies.&nbsp;Earlier this week, <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.sec.gov/Archives/edgar/data/1745020/000174502023000073/thrx-20231113xexx991.htm">they announced</a> that the company is exploring strategic alternatives. As part of this, they are laying off 72% of the workforce while retaining the head of R&D, William C. Shakespeare in a consulting capacity. Note that Mr. William will not receive any salary but his grant will vest as usual till the termination of his consulting contract. Based on <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.bamsec.com/filing/174502023000060?cik=1745020">the most recent filing</a>, it appears that he owns 639,408 shares worth around $2M, so he seems well incentivized to be aligned with the common shareholders.&nbsp;From OpenInsider, it also looks like the company has good institutional ownership, with Orbimed Advisors LLC owning roughly 40% of the company. What&rsquo;s also interesting is that the company has a very clean balance sheet with very minimal debt. This is the rough back-of-the-envelope liquidation value I got to:&nbsp;<img style="display: block; margin-left: auto; margin-right: auto;" src="https://lh7-us.googleusercontent.com/u5-74AE9wxS309O03HIe-NE_2xBoS6VIMWg5EFuHlKe-fN--v84ZvZwVEmUcYjFLnqyMKWKBSEsm5X5YRO51yto3Dw5VzjADyN5_-jBMk4VfmgQ4BpbnWU8eZAqYYxqO2R0Gjtp4Fbn9tnmNmQOUo_g" width="418" height="213">&nbsp;Note that I&rsquo;ve marked down the IP to 0 but there might be some more juice to squeeze from potential sale of their IPs.&nbsp;Disclosure: I own shares of THRX

(THRX) Theseus Pharmaceuticals Explores Strategic Alternatives

&nbsp;This is a retrospective post for a position I built before I started this blog.&nbsp;On January 19th &lsquo;23, Cytier Therapeutics ($94M market cap) <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.businesswire.com/news/home/20230119005876/en/Cyteir-Therapeutics-Announces-Prioritization-of-CYT-0851-Development-and-Extended-Cash-Runway">announced</a> that it&rsquo;s streamlining operations and laying off 70% of their staff in an effort to increase their cash runway into 2026.&nbsp;&nbsp;Later on June 30th &lsquo;23, they <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.businesswire.com/news/home/20230119005876/en/Cyteir-Therapeutics-Announces-Prioritization-of-CYT-0851-Development-and-Extended-Cash-Runway">announced</a> that they are liquidating but did not announce distribution estimates. From their latest quarterly report, this is the back-of-the-envelope liquidation value I got:&nbsp;<img style="display: block; margin-left: auto; margin-right: auto;" src="https://lh5.googleusercontent.com/ucVwuOVE3lS5R1VN6vGqz0ikg4jJadI6yEkYoJlmFhc4pkn5a6z4QqhvJPKWgJWaU896E5inxe52j5aV5YX6s14MIXCejCdTVwMD6TLlvcBVrNVKIfWo7gAVX3WQ5j4xG3BncLFlFHBwsQBkQcyjfBE" width="388" height="232">&nbsp;Additionally, they might also have IP that might be of some value but I&rsquo;ve written it down to 0. Today they <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.sec.gov/Archives/edgar/data/1662244/000119312523249135/d554900dprem14a.htm">filed a proxy</a> announcing an initial distribution estimate between approximately $2.92 and $3.31 per share of common stock:&nbsp;"Based on the information currently available to us and if our stockholders approve the Dissolution, we estimate that the aggregate amount of cash that will be available for distribution to our stockholders will be in the range between approximately $106 million and $121 million and the total amount distributed to stockholders will be in the range between approximately $2.92 and $3.31 per share of common stock. We refer to this distribution to stockholders as the &ldquo;Common Stock Liquidation Distribution&rdquo;. Our current estimate of the amount to be distributed to stockholders in the Common Stock Liquidation Distribution does not reflect any additional proceeds we may receive from additional sales of our assets in connection with our Dissolution. We intend to make the Common Stock Liquidation Distribution as soon as practicable following the filing of the Certificate of Dissolution as creditor claims and contingent liabilities are paid or settled; however, we are unable to predict the precise timing or amount of the Common Stock Liquidation Distribution."&nbsp;I&rsquo;m assuming initial distribution by EOY and holdback distribution within the next 3-years once the trust winds down.&nbsp;Disclosure: I own shares of CYT

(CYT) Cytier Therapeutics Liquidation

&nbsp;Manchester United is a famed English Premier League soccer club that has lost its way from glory in recent years. Despite its recent history of poor performance, it continues to be one of the most popular soccer clubs in the world. Back in 2005, The Glazers bought the club via a LBO and later took the company public in 2012. The cash flow from the club went into servicing the debt and as a result, reinvestments in the club suffered. Christiano Ronaldo even publicly stated that the facilities, kitchen, and stadium have barely changed since he left the club a decade ago.&nbsp;&nbsp;Now the cash flow from sporting clubs usually stays lean because it funds players wages and future trades. However, on top of the mounting debt, the Glazers pay themselves <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.manchestereveningnews.co.uk/sport/football/man-utd-news-dividends-glazers-25309982">millions in dividends</a>. The fans noticed the poor leadership and publicly protested the Glazers leading to immense pressure from fans and pundits alike. In November 2022, the Glazers finally considered <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.cnbc.com/2022/11/22/manchester-united-exploring-strategic-options-including-sale.html">putting the club up for sale</a> on the same day they terminated Ronaldo&rsquo;s contract. Interestingly, they hired Raine Group as an advisor to oversee the sale process which has been involved in several big-name sports deals like WWE&rsquo;s merger with UFC, Chelsea&rsquo;s sale to Clearlake Capital etc.&nbsp;However, more recently the Glazers were rumored to pull the club <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.tipranks.com/news/glazers-consider-pulling-manchester-united-nyse-manu-off-the-market">off the market</a> in what looks like a notorious bargaining tactic to me. The shares took a hit. At current prices ($19.30/share), we are looking at a $3.3B market cap. However, valuing a heritage sports club is a difficult exercise due to the precious intangibles. Looking at the valuations of other clubs in the premier league, we can get a rough idea of what MANU could be worth. Chelsea was sold last year for $5.4B, Liverpool is currently valued at $4.5B. Given that Manchester United is an older, more popular and a more historic club than both of these, the current valuation doesn&rsquo;t seem too steep.&nbsp;MANU also received two offers in the last year, British billionaire Sir Jim Ratcliffe has <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.skysports.com/football/news/11095/12891591/manchester-united-ownership-bid-sir-jim-ratcliffe-remains-the-leading-candidate-to-buy-premier-league-club#:~:text=Sir%20Jim's%20takeover%20proposal%20includes,5bn%20and%20%C2%A35.5bn.">bid between &pound;5-5.5B for just more than 50% of the shares</a> (~$5.8B) while offering to keep the Galzers&rsquo; involved. Sheikh Jassim of the Qatari royal family also proposed to buy the <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.the-sun.com/sport/8904353/qatari-takeover-man-utd-announcement-ratcliffe/">entire club outright for &pound;6B</a> (~$7.5B). This is roughly double to the current share price and given that the next door neighbors (Manchester City) are owned by the Emirates, I can see a good incentive for the Qatari royal family to purchase MANU.&nbsp;The biggest risk I see here is the dual class share structure of MANU. It has class A and B shares where A shares carry 1 vote and B shares carry 10 votes. Glazers&rsquo; own 100% of class B shares and roughly ~4-5% of the class A shares. Looking at the <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://ir.manutd.com/~/media/Files/M/Manutd-IR/Governance%20Document/mar-2023-mu-plc-interim-accts.pdf">latest quarterly report</a>, the company&rsquo;s issued share capital comprised 54,537,360 Class A ordinary shares and 110,207,613 Class B ordinary shares. This means that a buyer can purchase class B shares from the Glazers and still maintain economic and voting ownership of the club while leaving the class A owners stranded. I think this is the primary reason why the shares currently trade at such a wide margin from the proposed bids. However, there are <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://seekingalpha.com/news/4015298-manchester-united-gains-on-report-jim-ratcliffe-reworking-takeover-offer">new reports</a> that Jim Ratcliffe is restructuring the offer to address concerns of minority shareholders. I like the risk-to-reward ratio here.&nbsp;Disclosure: I own shares of MANU

(MANU) Manchester United exploring potential sale

&nbsp;Chek-Cap (CHEK) is a small ($16M market-cap) clinical-stage medical diagnostics company engaged in the development of an ingestible imaging capsule that utilizes low-dose X-rays for the detection and imaging of colonic polyps and colorectal cancers. Earlier on March 21st, <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" target="_blank" href="https://app.quotemedia.com/data/downloadFiling?webmasterId=101533&amp;ref=117349963&amp;type=HTML&amp;formType=6-K&amp;dateFiled=2023-03-21&amp;cik=0001610590&amp;CK=1610590&amp;symbol=0001610590&amp;companyName=Check-Cap">they had announced</a> that their C-Scan clinical study did not meet their goal to further continue the program. Later on June 6th, they shared that <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" target="_blank" href="https://app.quotemedia.com/data/downloadFiling?webmasterId=101533&amp;ref=317546297&amp;type=HTML&amp;cdn=b1445875459af2e52bd6d296160e73b2&amp;formType=6-K&amp;dateFiled=2023-06-06&amp;cik=0001610590&amp;symbol=0001610590&amp;companyName=Check-Cap">the company is pursuing strategic alternatives</a> and has hired Ladenburg Thalmann &amp; Co. as an advisor. They also shared that they are laying-off 90% of their workforce after which they will have 8 remaining employees.&nbsp;Last week, Chek announced that they are <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=317695650&type=HTML&cdn=48561aa5ed11ade7764d59e5db863401&formType=6-K&dateFiled=2023-08-17&cik=0001610590&symbol=0001610590&companyName=Check-Cap" target="_blank">reverse merging with Keystone Dental</a>. Proforma, CHEK shareholders will own 15% of the combined enterprise (KSD) at a valuation of $39.7 million and Keystone Dental security holders are expected to own approximately 85% of the combined company representing an equity valuation of $225 million. Now what synergies does a colon cancer research company have with a dental implants company? I dunno. However, it would make sense for Keystone to go public and save the underwriting cost by acquiring an almost cash-shell like company for a small premium.&nbsp;The shareholder vote will be scheduled in Q3 and CHEK is expected to have a net-cash position of $22.3 million at closing of the transaction which implies a $17.4 million premium to the net cash target. Given that CHEK will issue around 33,750,000 shares to complete the transaction, at current prices (~$2.75/share) the implied value of KSD is around $93MM, that's less than 2x 2022 sales. The company being listed in the US should help with the multiple.&nbsp;Given the outcome, I think the vote is likely to go through. However, in the worst case if the vote doesn&rsquo;t pass, this is the back-of-the-envelope liquidation value I got to (using Q2 June 30th numbers):&nbsp;<img style="display: block; margin-left: auto; margin-right: auto;" src="https://lh4.googleusercontent.com/_Z9OUIriNAJx_TqBu2gwwpKUzwXxdr_CteUg3DM96wqq1ySdJ3vL5qi4d6U_iqCzzh88IGsNSA985xbyJPsTugbFqXbOUdXszZItl2RvD9VzEYqoi6lMgR4ysbRiZcdXqXGc9VWwNnCUIp2nKj00lGA" width="403" height="251">&nbsp;Kind of bummed out I couldn&rsquo;t purchase the shares when it dipped on the press-release announcement.&nbsp;These are some risks I could think of:<ul><li dir="ltr" aria-level="1">I couldn&rsquo;t find much information on insider ownership here. The company is also based out of Israel so there could be an incentive misalignment here.</li><li dir="ltr" aria-level="1">CHEK also didn&rsquo;t mention a liquidation scenario in their announcement. If the reverse-merger does not go through, cash burn could hurt the margin.</li><li dir="ltr" aria-level="1">The expected multiple will depend highly on Keystone’s revenue margins which is unknown. This is a risk but the gap here is wide enough to warrant a small position.</li></ul>&nbsp;Disclosure: I own shares of CHEK

(CHEK) Chek-Cap reverse merger with Keystone Dental

&nbsp;This post outlines the rules of the game I&rsquo;m playing. I&rsquo;m sharing this for two main reasons. Firstly, it&rsquo;s to formalize my approach as a constant reminder for myself of the parameters I&rsquo;ve established. Secondly, I&rsquo;ve learned a great deal from materials generously shared by other investors I admire, and I&rsquo;d like to give back in the hope that this helps others. Many of these principles are drawn from other investors whose approaches resonate with me. However, each of these has been acquired through my personal experiences&mdash;knowing what works well for me and aligns with my personal investing style.&nbsp;Where to Hunt&nbsp;The first important factor for me is understanding my own playing ground. What I&rsquo;ve found to be the most enjoyable and rewarding is analyzing mispricing that often presents itself around special corporate events. These events could be anything from M&amp;A, spin-offs, demergers, liquidation events, tender offers, and others. I find it much more reassuring to invest in something that might appear optically cheap knowing that there&rsquo;s a significant 'catalyst' anticipated to affect the price movement of the underlying.&nbsp;However, this approach inherently requires that my inputs are complete and accurate. Accuracy is of utmost importance, which means I need to stay updated with business news, carefully read public filings, and thoroughly analyze any potential value gaps. This approach almost turns investment research into an intriguing puzzle to solve, making it quite enjoyable.&nbsp;The Six Rules&nbsp;If I can&rsquo;t put a price on it, I can&rsquo;t buy it&nbsp;In other words, when something appears to be undervalued, I need a clear understanding of why this particular asset is deemed 'inexpensive.'&nbsp; I&rsquo;ve found that assessing the viability of the typical well-established profitable (or bluechip) companies&mdash;where projecting future cash flows and discounting them to their present value is the norm&mdash;are harder for me to accurately evaluate. For instance, knowing the returns and final value of a bond over upcoming years until maturity, I can calculate its present value with precision. However, personally, forecasting future cash flows for most companies is much harder and error-prone. Moreover, these companies also usually sell for a hefty premium which I can&rsquo;t stomach paying.&nbsp;&nbsp;However, I&rsquo;ve found that scenarios like liquidations or securities trading at a negative enterprise value, combined with specific special corporate events, offer a clearer landscape for valuation. This clarity makes it more feasible for me to establish a price.&nbsp;Opportunity Cost&nbsp;Nearly every decision I make is influenced by its opportunity cost. Time and the available amount of money are the two finite constraints within my framework. Consequently, every decision becomes an equation of these two variables. If I have a range of &ldquo;good&rdquo; ideas, my responsibility becomes assessing which one warrants the greatest allocation of my time and funds. This perspective also simplifies selling decisions at times; if I anticipate another asset to yield superior returns within my expected time horizon, it might be logical to sell and redistribute funds.&nbsp;Margin of Safety&nbsp;Nearly all my investments come with a perceived <a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.investopedia.com/articles/basics/07/grahamprinciples.asp#:~:text=Graham%20refers%20to%20value%20investing,and%20sell%20at%20a%20premium." target="_blank" rel="noopener">margin of safety</a>. I approach my position sizing by considering how much downside protection I have&mdash;essentially, how much I could potentially lose if things were to go bad. Fishing for a substantial margin of safety almost always makes this decision simpler.&nbsp;Shareholder Oriented Management&nbsp;The previous point sets the stage for this one. Misaligned management incentives can significantly erode value. When management takes actions that don't align with the best interests of shareholders, it diminishes the perceived value gap; a situation I aim to avoid. This is also why I value indicators like insider ownership and near-term management pay structures, as they often reflect the alignment between management and shareholders.&nbsp;The Rare Birds&nbsp;I borrowed this terminology from Michael Burry&rsquo;s strategy blueprint. Essentially, ever so often (think Netflix or Adobe in 2022), companies with strong durable advantages and a history of delivering high returns on invested capital emerge at attractive prices. I think of these as companies that could fit on Chuck Akre&rsquo;s &ldquo;<a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://www.akrecapital.com/investment-approach/" target="_blank" rel="noopener">three-legged stool</a>&rdquo;. These opportunities might arise due to pricey acquisitions or temporary capital expenditures, but if they don&rsquo;t seem detrimental to the company&rsquo;s long-term prospects, I&rsquo;m happy to include them in my portfolio.&nbsp;Managing the Portfolio&nbsp;Given the nature of my holdings, managing my portfolio becomes just as crucial as selecting stocks. While investing in a company on the verge of a special corporate event, it becomes imperative to keep up with the company news and SEC filings and reevaluate the thesis incrementally. If the actions taken by the management deviate from my thesis, I&rsquo;m happy to sell and move on.&nbsp;On Selling&nbsp;I&rsquo;ve found selling particularly difficult to do and it is something I&rsquo;m still learning and trying to get better at. Buying has just one objective, you lay out some cash today to get more in the future. However, selling involves a range of considerations&ndash;&ndash;taxation, trimming an oversized position, selling to buy a different enterprise, and more. Looking back, I've sometimes sold prematurely or held onto positions for too long.&nbsp; While there&rsquo;s no easy answer to this one, I appreciate Joel Greenblatt&rsquo;s tip: &ldquo;Trade the bad ones, keep the good ones&rdquo;.&nbsp;

Laying Out My Investment Philosophy

&nbsp;I.e., why I started this blog. &nbsp;Before setting up this website, I debated among alternatives where I could pen down things I&rsquo;d like to write about. Substack seemed like an obvious choice, after all everyone seems to have one these days. However, Substack seems to me like an ideal fit for newsletters, not blogs.&nbsp;&nbsp;The main purpose of this blog is to share the knowledge I've acquired about software engineering and investing as my experience has grown over the years, all while continuing to learn in the process. I don&rsquo;t intend to put my writing behind a paywall, and I certainly don&rsquo;t intend to constrain myself with a regular writing schedule. This blog is supposed to be experimental, playful, and occasional in nature. More importantly, I aim for this platform to compel me to do a write-up before investing in any enterprise. I&rsquo;ve consistently found that writing about my ideas enhances my thought clarity, as it compels me to seek complete and accurate information while also revealing any blind spots that I might otherwise overlook.&nbsp;Many of the features that I&rsquo;ve added to this website are also inspired by Blogger. There is something about Blogger&rsquo;s simplicity that resonates with me more than Substack. Substack pursues growth through recommendation systems, in which the algorithm suggests Substacks with similar themes or those endorsed by other authors. In contrast, I aim to attract readers in a more organic manner&ndash;where they come across my write-ups because they also happened to look at some obscure security that I&rsquo;ve been researching. I might trade off some growth for the sake of quality, but I&rsquo;m ok with that.&nbsp;Besides, as an engineer by trade, I also have a strong bias for self-hosted solutions. Owning my own section of the internet gives me greater control over the design, layout, and overall aesthetics of my blog, which can be more closely aligned with my personal style. I also don&rsquo;t mind the added benefit of ownership and complete control over my writing, as opposed to hosting it on an external service. As a backend infrastructure engineer, I don&rsquo;t often get to write frontend software. Setting up this blog felt akin to a fulfilling&nbsp;<a class="text-black duration-200 hover:no-underline underline after:content-['_↗']" href="https://github.com/sanchay0/home/" target="_blank">weekend hackathon project</a>.