Asymmetric bets like this are the types of stocks I love the most. An illiquid stock left for dead with very strong downside protection. Management is aligned with shareholders and there is a strong cohort of activist owners involved to keep an eye on them.

If you get JOB, (what a catchy ticker) it will cost you $27mn, but you get $20mn in cash back, and own an operating business that can be sold for $50mn.

JOB is an Illinois corporation with headquarters in Jacksonville, FL. They staff roles for information technology, accounting, finance, office work, engineering and medical roles.

The company is slightly profitable. Cumulatively over the last four fiscal years, the company has generated something like $2–4mn of total Adjusted EBITDA. Corporate expenses run at $1.5mn/quarter.

There is value in these stranded corporate costs being taken out. An acquirer can come in, buy the company, take out the overhead and tack it on to their portfolio. The value unlocked for the enterprise by removing these corporate expenses and adding adjusted EBITDA (capitalized at a 12.5% discount rate) is worth $56mn.

In fact, Star Equity Holdings has made an offer along those lines. Star has a portfolio of staffing companies that they would like to add JOB to, and they made on offer at $0.30/share (on the condition that management’s change in control provisions are waived).

But many other staffing companies could acquire this business at a higher price. Hirequest comes to mind. They have the capital and appetite to buy JOB. With Roth as an advisor, they made an all-cash offer to acquire a major business segment of competitor Trueblue, and are now likely considering other targets. The Hirequest business model is to buy a staffing company, franchise out the locations and collect a 8% royalty stream on the income. Historically they have bought companies at 1.0–1.3x gross profit, which on $53mn of JOB gross profit is $53-69mn. Considering this triangulation on value, I’ll use $50mn for the operating business.

Notably, the current COO was involved in a company buyout by hirequest.

There are also other costs to consider in this transaction. Management has generous change-in-control (CIC) provisions that are a significant consideration in a transaction here. While this incentivizes management to sell the business, the large size of these packages eat into shareholder returns. Key management personnel with CIC provisions are CEO Derek Dewan, CFO Kim Thorpe, and COO Alex Stuckey.

Management CIC Costs:

CIC is base plus max bonus x3. Management owns 1-2mn in stock, so at a $0.5/share takeout, the value of their stock ownership dwarfs the value they get from any change in control.

Then the Gross-Up.

Each executive’s 280G “base amount” is his five-year average taxable comp. $355k for the others. An excess tax of 20% applies to everything over the 2.99x safe harbors (1.6mn / 1.06mn). Also the company must pay the excise tax plus all taxes on the gross-up itself.

Estimating these fees at a 37% federal rate:

Dewan: Parachute of 3.4mn, excess of 2.85mn, excise of $570k plus 37% on 3.4mn = $1.4mn

Stuckey and Thorpe: parachute of 2.2mn, excess of 1.8mn, excise of $360k plus 37% on 2.2mn = $0.9mn

All together this is $3.2mn.

SOTP Valuation

Activists see the value in this business and have been working hard to unlock it. As mentioned above, the latest activist is Star Equity Fund, LP the investment arm of Star Equity Holdings (NASDAQ: STRR), run by Jeff Eberwein, a serial small‑cap activist. The fund owns 6,285,065 shares (5.7%) of JOB. Star has initiated an activist campaign that has escalated throughout 2026:

• Jan 21, 2026 – Star publicly proposed that GEE merge with them, arguing that it should not be a public company considering its high corporate costs and public company costs. And also asked that GEE stop making acquisitions given the poor record of past deals. The letter went unanswered. Access Newswire

• Feb 13, 2026 - On their analyst call, Management was asked: If GEE were sold at a multiple comparable to BGSF’s sale of its professional division (EV/revenue), there would be about 150% upside to the stock, so why isn’t the company pursuing that? The answer was: “I would say that, that’s extremely low, and that would be not what we believe is fair value for our shares. And if there is an offer, we anticipate it’ll be much better than that.” He also said the multiple offers received were being evaluated and couldn’t be discussed.

  • Note: The BGSF sale was done at 0.59x revenue. Here that would be $53mn. A reasonable price.

• Mar 3, 2026 – GEE announces they are running a sale process - engaging ROTH Capital as a strategic advisor. On the Aug 13 call, Dewan said the process reviewed “multiple expressions of interest” for an M&A transaction.

• March 6, 2026 - Director William Isaac, resigned. The company’s 8-K framed it as retirement. He’s in his early 80s, a director since 2015

• Apr 29, 2026 – Star attacked the April 2023 employment agreements for Dewan, Thorpe and Stuckey, signed within a month of a prior 13D filing. Per Star, a change in control triggers a large lump sum cash severance and the CIC definition trips at just 20% ownership or a 20% asset sale. They estimated that a CIC per the 2023 agreements would trigger payments of at least $8 million to the three executives.

• May 2026, Star sends IOI. Made offer at $0.30/share on the condition that Dewan, Thorpe and Stuckey forgo the severance triggered by a change in control.

• June 1, 2026 – Star nominated Rick Coleman to the board and filed a proposal to remove two directors.

• June 1, 2026- Director Darla Moore, resigned. No reason given.

• Aug 13, 2026 - Management remains open to a sale. When asked if management would consider a sale considering the company is below book value. Dewar answers “yes, we’ve discussed that.” Also commits to not making acquisitions while in the strategic review, and defends past acquisitions.

• Aug 21, 2026 – Cooperation agreement. GEE agreed to declassify the board (majority declassified at the 2027 meeting, fully by 2028). Star withdrew its nominee and removal proposal, accepted a standstill (no proxy solicitation, 7.5% ownership cap, vote with the board), but kept the right to vote freely on “Extraordinary Transactions.” The standstill is short: it expires when the nomination window for the 2027 meeting opens, so Star can be back in roughly nine months with a declassified board that’s easier to replace.

Next major events:

• Sept 24, 2026 - Say-on-pay (Proposal 5). If this fails, or is even 60% or less, there will be pressure on the management team to compromise their CIC agreements in negotiations of a sale.

• Sept 24, 2026 - Votes on 1-30 reverse stock split. And director elections: Director elections. James and Sandberg, remain uncontested (Star withdrew)

• Some time in May 2027 the standstill agreement dies.

• Fall 2027 - annual meeting, majority of board declassified. If the board is replaced here, it triggers the CIC provision, so funds would be paying this cost in order to clear the way to a deal.

In summary, this is a business with a large cash balance, strong downside protection, and significant upside should the current strategic review produce a sale. Even paying out the significant CIC provisions in a sale, the return on investment is significant. We have management aligned on getting to a sale, and significant activist ownership (35%) adding pressure for them to do so, perhaps at a reasonably reduced compensation amount. A newly declassified board and coming pressure on pay are all favorable for shareholders. I except a sale within a year.

Disclaimer: The information provided in this publication is for informational and educational purposes only and should not be construed as investment advice, financial advice, or a recommendation to buy or sell any securities. I am not a licensed financial advisor, and the views expressed are solely my own. Any investment decisions you make are at your own risk. Always do your own due diligence or consult a licensed financial advisor before making any financial decisions. Past performance is not indicative of future results.

I do hold a position in this security.

I have covered GWOX before, but after attending the annual meeting, speaking with management and (2) other public shareholders I have some updated thoughts on the company.

I’ll admit that originally, I was looking at it as an event-driven investment, but the catalysts for those corporate actions are not likely in the near term. While the underlying business is good and should be able to grow their profits as they increase their digital product offerings, it appears fully valued today.

The most important thing to understand with GWOX is the ESOP which effectively sets the price for GWOX shares. The price for shares in the eyes of the ESOP is determined via an independent appraisal, using a discounted cash flow model weighted 50-50 with an industry multiple based on 3 comparable education companies, with an additional discount added on top for lack of marketability. Historically this multiple has averaged to a 8.5x FCF multiple or 12x net income. This multiple would imply that no growth rate is used and cash flows are discounted at 12%.

You can back into what price the ESOP established for shares each year by taking the fair value of unreleased ESOP shares ÷ the suspense account balance. Today that amount is $363/share.

The FY2026 results were weak and leading indicators point to a flat FY2027. By that I mean that the current-portion deferred revenue figure indicates their contracted digital revenue for the year (historically ⅔ of all digital revenue). This year, current-portion deferred revenue is flat. Which suggests that the ESOP share appraisal will most likely be flat next year, and the dividend will most likely be flat to lower.

The 2028 ESOP loan maturity, on close analysis, is not the forcing event that it first appears. The ESOP obligations are fundable through cash contributions, and the Company’s recent choices: switching reinvestment to internal share recycling, redeeming ESOP blocks, and increasing cash contributions indicate that the company will not need to redeem for outside shares. Even if they do, they would likely turn to their historic practice of releasing treasury shares.

The only other time that the company takes a significant corporate action is when cash on hand is significantly above the ESOP obligation value. Historically the one time they issues a special dividend was when the ratio of cash to ESOP obligation was 15%. Today we are at 98%.

For now this one goes on the watchlist. It is only when the cash balance significantly outpaces the ESOP obligation amount OR if the appraised ESOP price is significantly higher than the public share price, that the stock gets interesting enough to take action on.

Hoyne Bancorp Inc (HYNE) on 3/2/26 with a 1% return.
I wrote this up on VIC in December, but I sold this position after speaking with folks at Gator Capital and other bank analysts I respect. They need to see a better record of operating performance before investing in this regardless of the strong cash position today.

It sells at 0.72x book, is breakeven profitable now but is growing it loan book well. If you are into small community banks keep an eye on this one.

Lycos Energy Inc (LXCEF) on 3/20/26 with a 115% return.

It hit my price target of 1.20, and the announced merger of Mahikan Oil seemed to have been priced in. It was an oil field in Canada selling for 33% of peers.

MTY Food Group Inc (MTYFF) on 4/9/26 with a -6% return.

The strategic review has taken longer than I anticipated, perhaps due to poor consumer spending recently. I increased my time frame which was reduced by expected return and dropped this position below my hurdle rate.

CVD Equipment Corporation (CVV) on 4/30/26 with a 64% return.

Sold after hitting my price target. CVV Equipment was selling for a market cap of $28M ($4 a share) but had $23M in cash on the balance sheet for a profitable and now streamlined core business. It was almost free so I bought it. That very strong downside protection made this a no-brainer. When it reached its fair value I sold. A big thanks to Hughie Forbes for that one!

I think it fairly valued here, but I read an interesting write up on MicroCapClub suggesting that there is additional upside optionality in terms of future contracts. There is something there, but I am less optimistic than the author on that.

Medical Facilities Corp (MFCSF) on 5/5/2026 with a 7% return.

I sold this after revisiting the thesis and revaluing the company lower than I originally had.

Current Positions:

NEW: Beam Communications Holdings Ltd (BMCMF)

Type: Free Company, Special Situation, Insider Ownership, Roadkill (?)

Daily Average Volume: $20,000

I recently covered Beam in a recent post. The market cap is less than the cash on the balance sheet so is essentially a free company. Insiders own 30%. It is undergoing a strategic review. I expect the strategic review to conclude by the end of the year. My price target is around A$0.25. It trades for A$0.06. The market has left it for dead and values the enterprise at $0. It’s worth more than that.

Burnham Holdings Inc (BURCA)

Type: Cheap Growth

Daily Average Volume: $25,000

Also covered in my previous write up. 10% FCF yield. Earnings are depressed due to an investment in expanding their manufacturing footprint. This is an ideal time to buy before earnings inflect.

Goodheart-Willcox Company Inc (GWOX)

Type: Special Situation, Growth

Daily Average Volume: $19,000

Covered in my previous write up. A growing company selling at a 12% FCF to market cap yield. I expect a corporate event within the year. More information will be gleaned from their annual report which comes out in July.

Otello Corporation ASA (OPESF)

Daily Average Volume: $160,000

Type: Growth, Discount to NAV, Buybacks

Also covered in my previous write up. It is trading at a 38% discount to NAV, has been growing at 17% a year and the company has been buying back 10% of its stock each year.

Monarch Cement Co (MCEM)

Type: Growth

Daily Average Volume: $142,000

Also covered in my previous write up. Cement is a solid “gravel pit” type business that has strong geographic barriers to competition. A durable business that will not be made obsolete any time soon. And comes with a skilled capital allocator at the helm that can compound book value at 16% a year.

NEW: Fleetwood ltd. (FLWLF)

Type: Cheap Earnings, Turnaround, Good co-Bad co.

Daily Average Volume: $500,000

This is a new position. EBIT of 38M. Market Cap of 150M. 30M net cash and significant land assets. That is a 26% earnings yield with a significant cash buffer and very strong downside protection. Fleetwood generates $40M in EBIT a year through its owned workforce accommodation village in Karratha, Western Australia (good co). This is an area where housing supply is significantly constrained. It also owns 2 roughly breakeven segments that Management appears to be open to selling. A new CEO makes shareholder friendly actions more likely.

The Marketing Alliance, Inc (MAAL)

Type: Cheap Earnings, Buybacks

Daily Average Volume: $13,000

Also covered in my previous write up. It trades at a 10% earnings yield with 30% of its market cap in cash. And an expected 10% a year deployed into share buybacks.

NEW: Harley-Davidson Inc (HOG)

Type: Cheap Earnings, Turnaround, Cyclical, Insider Buys, Stock Repurchases

Daily Average Volume: $95,000,000

This is a new position and not very illiquid at all (sorry), but it is so cheap I had to buy some. When you deconsolidate the non-recourse financing from the core operating business, you are buying the core operating business for 1.4B (I bought at 700M), which earns around 400M in mid-cycle EBITDA (management targets 350M by 2027) This is effectively a 25% earnings yield.

New management is taking significant actions to turnaround the operating business by introducing entry level bikes, returning the brand to its roots and resetting relationships with dealers. It has a very strong asset floor with liquidation value of $19.25/share making this an asymmetric bet.

Comstock Holding Companies Inc (CHCI)

Type: Cheap Compounder

Covered in my previous write up. While the stock price appreciated and I trimmed, it is still below my price target. I expect it to compound at 20% a year over the next 5 years.

NEW: Seaport Entertainment Group Inc (SEG)

Type: Low P/B, Turnaround, Insider Ownership

Daily Average Volume: $1,800,000

Seaport Entertainment is a small cap special situation trading at $25/share versus a liquidation value of $35-65/share. It owns real estate assets in short supply: Pier 17 and seaport district in lower Manhattan, a Triple A baseball franchise, a Las Vegas ballpark, an 80% interest in certain Las Vegas air rights, a stake in Jean-Georges Restaurants.

Using a sum of the parts liquidation calculation, I value the assets if sold at $36 at a minimum. New management has successfully taken action to turnaround the troubled properties in New York that have depressed earnings and valuations. Management recognises the significant undervaluation of the stock and have been buying back shares.

Cash

Unfortunately the Beam Communications deal included a dividend distribution that I will not receive for a few weeks and so this is effectively a cash balance I am forced to carry right now.

Beam was recently bought out of a 50/50 Joint Venture called NOLEO following a long and expensive legal process (that has depressed earnings). Their share of the joint venture was bought out for A$13.5M. At the time of settlement they had A$3.5M on the balance sheet. They returned $12M to shareholders in a return of capital on May 1. All together that is an cash value of of A$5.7M Today the market cap is A$5.3M. So this is an operating business you are receiving for free. This also isn’t counting the A$1.3M in tangible book value.

Normalizing Q2 financials (post-JV royalties after the sale, and other errata), the company has an operating cash flow of -$400k annualized, and is targeting $700k in cost savings by the end of the year, so let’s call this breakeven. Consider that it makes $10M in revenue, and $4M in gross profit, it could be attractive for an acquirer if taken private or sold for parts.

There are 86.42M shares out, and insiders own ~20M, so they are incentivized to maximize value for shareholders. They are also actively unlocking value for shareholders. With the following statements released recently:

“Beam is also undertaking a strategic review of its business and is currently reviewing proposals put forward by various parties.” - 27 February 2026

“[We] have completed an initial review of a range of strategic opportunities and are now progressing a focused subset of initiatives, with an emphasis on those most likely to deliver shareholder value. These initiatives remain at an early stage and subject to ongoing evaluation.” - April 23, 2026

So we have a free business, undergoing a strategic review. Now let’s consider, what is the operating business and how much is it worth? More than negative $400,000? I think so.

Beam Communications Holdings Limited (ASX: BCC) designs, develops, and manufactures satellite hardware and distributes satellite airtime services. The business comprises three segments: Iridium OEM hardware manufacturing, SatPhone Shop retail, and Airtime & Subscriptions.

Iridium OEM Hardware Manufacturing

Beam is the exclusive original equipment manufacturer of the Iridium GO!/exec: a portable Certus 100 satellite WiFi hotspot that connects up to four devices simultaneously and supports two concurrent voice lines. Beam was selected as OEM partner for both the original Iridium GO! (launched 2014, 67,500+ units shipped) and the Iridium GO!/exec (launched February 2023).

The GO!/exec is a premium device (retail US$1,200–1,800) designed for professionals and enterprises requiring reliable global satellite connectivity. It provides multi-device WiFi hotspot capability, standalone speakerphone, ethernet port, 88 Kbps download speed, IP65 weatherproofing, MIL-STD-810H military-grade ruggedness, and 24/7 SOS via IERCC. Critically, it is classified as a land mobile device running on Iridium Certus 100 midband not a maritime broadband terminal.

The Iridium OEM contract had a minimum commitment of US$12 million over five years from mid-2022 to mid-2027, with an earliest possible fulfillment date in FY24. Subsequent orders are discretionary. The contract was fufilled EOY 2025.

SatPhone Shop

SatPhone Shop Pty Ltd, a wholly owned subsidiary, operates as Australia’s largest Telstra satellite dealer and an online retailer of satellite phones, plans, and accessories. Revenue was A$0.64 million for H1 FY26 (annualised: approximately A$1.2 million). Gross margins are approximately 28%. The principal value of SatPhone Shop is the Telstra dealer accreditation and the approximately 30,000-customer database.

Airtime & Subscriptions

Beam resells satellite airtime from Iridium and other carriers to end customers, including through the MTData enterprise telematics platform (the anchor customer, representing approximately A$1.2 million of annual contracted recurring revenue) and through SatPhone Shop’s retail base. Airtime revenue was A$1.15 million for H1 FY26, growing +16.7% year-on-year. Gross margin on airtime is approximately 62%, reflecting minimal cost of goods. Beam buys wholesale satellite capacity at contracted rates and resells at retail rates.

This segment is contracted, recurring, growing, high-margin, and has a 85%+ net revenue retention. The MTData relationship is embedded in enterprise fleet telematics infrastructure, making it highly sticky. The Telstra dealer relationship provides ongoing consumer and SME airtime sales.

The approximately 30,000 customers Beam has described as SatPhone Shop’s customer base represent the installed base of activated plan customers, mostly on Telstra plans. The revenue Beam recognises as “SatPhone Shop” airtime or services is the aggregate of dealer commissions and direct plan resale activity, not the gross value of Telstra Mobile Satellite plans in force. The accreditation and the customer database are the real assets.

The practical deterrent is switching cost and relationship depth. Beam has supplied MTData’s satellite hardware and airtime for over 10 years. The integration between Beam’s SBD provisioning, MTData’s hardware platform, and the activation/billing infrastructure is deeply embedded. Switching airtime providers requires re-provisioning every active SIM, updating billing systems, potentially requalifying hardware, and managing service continuity for enterprise customers like Linfox with 5,000+ trucks. That is a significant operational undertaking for perhaps A$50-100K of annual savings not an attractive trade for a Telstra subsidiary.

Sum of the Parts Analysis of Each Segment

Competitors to Beam’s GO!/exec are in different product categories.

Beam’s primary product the GO!/exec at US$1,200–1,800 is a portable satellite WiFi hotspot that provides voice calls, data connectivity for multiple users, laptop connectivity, ethernet port, and standalone speakerphone. ZOLEO for example sells at US$149–200 and is a recreational messaging device that pairs with your phone via Bluetooth to send texts.

Competitors like ZOLEO, SOS support, Amazon and Starlink products have no voice call support, no data and no app support. They have no global coverage (only iridium offers this today) these are devices only for messaging, tracking, SOS. So it appears that there is no serious enterprise competition expected until 2030. They serve fundamentally different purposes at fundamentally different price points.

Notably the company has previously navigated competition well. Apple SOS and ZOLEO launched in 2022 and Iridum still signed a deal with Beam in 2023.

Valuation

These segments are contractually fragile but practically more durable than I think most expect. Using a SOTP analysis, we can estimate the value of the remaining operating segments.

Likely Acquirers of the Company

The most probable near-term bidder is Pivotel, which I give a 35% likelihood of acquisition. As Australia’s fourth-largest mobile carrier with six prior acquisitions under its belt and an existing relationship as a Beam reseller, Pivotel is well-positioned to acquire the Telstra dealer channel. What it values most is the airtime book combined with the Telstra dealer relationship and the SatPhone customer database. The strategic synergy lies in cross-selling Pivotel plans to the 30,000 existing customers. As an operational synergy buyer in the private equity range, a likely offer would fall between A$0.20 and A$0.26 per share.

For season Group, led by Carl Hung, I give a a 20% probability. Hung serves as CEO of Season Group, which is Beam’s contract manufacturer, and he is also the third-largest shareholder at 6.41%. This gives him perfect operational visibility and makes the deal a natural vertical integration play, combining manufacturing, brand, Iridium OEM intellectual property, and distribution under one roof. However, because this would be a related party transaction, it would require independent board approval and a shareholder vote. Pricing would likely fall between A$0.20 and A$0.26 per share.

For Iridium Communications (IRDM), I give a 20% probability. CEO Matt Desch has been explicitly open to bolt-on acquisitions and has paused buybacks specifically to pursue M&A. Beam is Iridium’s most important OEM partner, making this a defensive acquisition that would prevent a competitor from acquiring the distribution channel. Iridium would value the OEM intellectual property most highly (20-year certifications, firmware, and product development) alongside the Telstra airtime distribution and SatPhone dealer network. As the buyer most likely to pay a full strategic premium for the OEM IP (and with the deepest pockets) Iridium could offer A$0.28 to A$0.37 per share post-distribution. This would be the most value-maximizing scenario for shareholders.

For a private equity or satellite roll-up I give a 15% probability, framed around Asia-Pacific satellite services consolidation. The thesis would be to acquire the airtime book. The floor range would be A$0.18 to A$0.22 per share post-distribution.

Finally, a management buyout led by Stewart carries about a 10% probability and would emerge primarily as a fallback if external bids fail to clear the valuation threshold. Stewart holds 12.6% of shares and could potentially bring Hung in as a co-investor. Like the Season Group scenario, this would require independent board approval and a shareholder vote. The strategy would be to run the business for cash, maximize airtime growth, and delist to eliminate the A$0.3 million annual listing costs. Pricing would likely come in at or slightly above liquidation value ($0.06/share), raising minority squeeze concerns and making this the least value-maximizing outcome for shareholders.

Important Note: This may be classified as a PFIC (Passive Foreign Investment Company) and all the tax implications that entails. Do your own research and speak with a tax specialist. I own this in an IRA.

Conclusion

In conclusion, Beam’s operating busines sells for a less than $0, but has breakeven in profitability, and that will not face major competition for at least 3 years. The market is writing off the operating business entirely. Meanwhile insiders with significant skin in the game are working working on selling the company to multiple credible bidders in their active strategic review.

Risks are that cash burn increases before significant startegic alternatives close and that a definitive Iridium contract non-renewal announcement destroys the OEM valuation before such a time.

Disclaimer: The information provided in this publication is for informational and educational purposes only and should not be construed as investment advice, financial advice, or a recommendation to buy or sell any securities. I am not a licensed financial advisor, and the views expressed are solely my own. Any investment decisions you make are at your own risk. Always do your own due diligence or consult a licensed financial advisor before making any financial decisions. Past performance is not indicative of future results.

I do hold a position in these securities.

GWOX - Goodheart-Willcox Company Inc

Goodheart-Willcox is a publisher of career, technical, health and physical education textbooks. Over the past decade it has been growing its capital light e-book division very quickly, so that now the business requires minimal capex and consistently throws off cash. In fiscal 2025, it generated $23M in free cash flow. On a market cap of $193M, that is a 12% cash yield. Historically it has distributed 45% of free cash flow as dividends while the rest of the cash builds up on the balance sheet. Occasionally once cash is too high they announce a special dividend (last in 2021) or tender offer (last tender was April 2019 at a 50% premium to the stock price).

This situation reminds me a lot of Disney in the 1980’s when they found a new format to monetize their content library at essentially no extra cost (VHS), and benefited greatly. Here the new format is ebooks. Because all their pre-publishing and content writing costs have already been spent on creating the print textbook, they have very little cost to digitize these. Now they only have to spend a minimal amount to occasionally update their books when they release a new edition. This is a great business model, and the business transformation has been significant. Over the past 5 years revenue compounded at an annual growth rate (CAGR) of 16%, which with operating leverage has meant that free cash flow has grown at a 46% CAGR.

This is a pretty incredible deal. Why is it cheap? Well for one it is very illiquid, no major fund can buy this. Second, the stock price has not moved much in the past few years, and investors today have very short time horizons. Third, on its books is a 69M non-cash deferred revenue liability related to the future performance obligation they have to deliver textbooks to their customers. This isn’t a financial obligation in the traditional sense (not debt-like), so its net cash position is understated. Fourth, it is majority owned by an employee stock ownership plan (ESOP) - many investors do not touch controlled companies. Fifth, it is very hard to get financials for this company. It is the only company I have run into that does not show up in my stock screener (TIKR), nor in Capital IQ. It is totally obscure and illiquid.

What makes this company so interesting to me is that before the last buyback in 2019, there were around 60,000 shares in the ESOP plan, and today there are around 50,000. A tender offer (buyback) appears due. Even if there is no tender and the company maintains a 10% topline growth and its 46% payout ratio, then we are looking at $100M in dividends received over 4 years, and $200M in cash on the balance sheet at that time, plus the value of the ongoing operating business which you are buying today for ~$200M.

CHCI - Comstock Holding

CHCI is an idea I got from Will Harvey. Will is an accomplished real estate investor that has done well applying his knowledge in the public markets. CHCI is a former homebuilder turned asset light property manager in the DC area. Led by Dwight Schar, founder of NVR, the idea is to build a scaled property manager. It has a good balance sheet, and has a steady source of revenue, yet it is cheap - trading at an eps earnings yield of 11%.

Over the next 5 years they have in their pipeline a growth of 150% of their underlying management square footage. That implies a 15% CAGR in revenue. In addition, we can project out the recent average 6% growth in revenue per managed square foot in the past few years - driven by property values and rents increasing. When we consider the growth in additional fees (incentive fees, parking fees), the additional upside of externally managed properties being added to their platform, or multiple expansion, and this looks like a 20-25% compounder over 5 years.

Why is it cheap? Founders own over 60% of CHCI. It is controlled, and relatively illiquid. The core of the portfolio is the “anchor portfolio” which shares management overlap. A key risk is if the anchor portfolio does not renew their contract with CHCI, but this is very unlikely. This arrangement has turned what was a cost center for the anchor portfolio - “management fees” into a co-owned marketable security. What is to gain in ending that relationship? I also trust this management team based on their track record. To own a business alongside Dwight Schar at such a low price is a great gift. Like Norbert Lou buying NVR in 2001.

BURCA - Burnham Holdings

Burca trades at a 10% normalized FCF yield. On a $120M market cap it has 10Mn in net cash and is asset backed by its owned land and buildings which have around ~60M in value. They recently sold off a poorly performing division and invested in a new product line with their High-Efficiency Boiler production line. Headcount and factory size have recently increased by about 33%, and 25% respectively so we can expect significant cash flow growth to come online in the coming years.

Typically a company’s cash flows during a growth investment phase are understated due to capital investments, and such times make a great entry point before the growth shows up on the income statement.

Furthermore, the management team is top-notch, recently removing significant off-balance sheet liabilities, specifically their asbestos and pension exposure.

With this company we are getting a reasonably priced company with a top notch management team, likely growth, and good exposure to the housing market upcycle. It is also a likely PE target.

I heard about this and MAAL from Dirt Cheap Stocks, I suggest you check him out.

OTEC - Otello Corp

Otello is the Norwegian company behind the Opera browser, which they divested in 2018. Today their only asset is a significant stake in Bemobi Mobile Tech S.A., a Brazilian technology company which “develops and manages digital payment solutions for multiple B2B and B2C service providers.” Bemobi was listed on the BOVESPA B3 stock exchange in 2021. Otello’s owned subsidiary Otello Technology Investment AS, owns 32,719,588 shares of Bemobi. In the last reporting quarter, the company had 150M NOK in cash on hand, cash burn was 15M NOK, 75M NOK in dividends were received and 50M NOK was spent on stock buybacks.

Bemobi trades at BRL 23.06, which at 32 719 588 shares at (1.87 NOK/BRL) is worth 1.41B NOK. Otello’s market cap is 1.22B NOK. This means you could buy the all of Otello’s stock for 1.22B, liquidate the company and receive 1.66B NIK in value (+36%)

The underlying is also slightly underpriced. It has been growing earnings (net income) at a 17% CAGR since 2021. It trades at a 7.5% earnings yield.

Putting this all together, you have a company with a holding that grows at 17% a year, and that buys back 10% of its stock each year. If it also re-rates to the value of its cash and investments, we will achieve a 145% return over 3 years.

MCEM - Monarch Cement

Monarch Cement is a cement producer in Kansas. The nature of the cement industry is that cement can not be transported over long distances so needs to be produced at scale locally. Making most cement plants effective monopolies, and makes MCEM an excellent, well protected business. Earnings per share have grown at a 18% CAGR for 10 years. And the book value of their investment portfolio has grown at 16% over that time. Here you have a defensible operating business with a strong local moat that throws off cash and is able to reinvest capital at 16%. Over the long run you will do well owning this company. Today, it trades at a 8% yield on normalized earnings.

TSE:DR - Medical facilities Corp

Medical Facilities Corp is a Canadian listed company that owns American surgery centers. Surgery centers are very profitable in the American medical system, a defensive market. Today, DR trades at a 15% FCF yield. They have been slowly liquidating their facilities in piecemeal sales. They recently sold off 1 facility in 2025, and have 3 remaining. Historically these are sold in the private market at around 9x EBIT. Assuming the remaining facilities are sold at that multiple, we arrive at a $20/share value vs $12/share today.

Also consider their history of accretive stock buybacks, which can add additional upside.

I think I first heard about this from Dan Smoak, again, someone I highly recommend you follow.

MTYFF - MTY Group

MTY is a franchised, cash-generative business trading at ~6–7x EBITDA while undergoing a formal strategic review. The market overstates leverage due to IFRS lease accounting (with many screeners not properly accounting for sublease receiveables). With multiple bidders reportedly involved (with bids starting at $52 CAD/share) and meaningful founder ownership, the risk/reward skews favorably over the next 3 months.

Even with a deal break, the company is attractively priced here; it currently trades at 25% levered FCF yield, and is generally underlevered compared to peers.

MAAL - Marketing Alliance

MAAL is an online insurance platform, connecting buyers with brokers. It trades at a 9% earnings yield with 30% of its market cap in cash. It recently announced a buyback program to deploy that cash, which should be about 10% of share a year. Shares are illiquid and the business is majority owned. The shift from dividends to buybacks proves there is a good management team conscious of shareholders and focused on unlocking shareholder value.

HYNE - Hoyne Corporation

I wrote up HYNE on ValueInvestorsClub in November. It is a recent bank demutualization. You are buying the equity of the bank for 66% of its value, and as their commercial lending program ramps up we should expect it to re-rate to 100%. Over 90% of their market cap is covered by their strong net cash position and they also own significant real estate. Buybacks would likely be accretive here. We also have recent insider purchases near the current price.

Considering you are buying a bank for almost nothing here, it’s a good deal. There are many ways the business can create value here, we just don’t yet know how or when.

LYC:CA Lycos Energy

I covered this previously on SumZero. Lycos sold 66% of its producing assets and returned the proceeds to shareholders. What remains are high quality multi-lateral Alberta oil wells with low breakeven prices. Based on management commentary and because Lycos is subscale, we should expect the rest of the company to sell this year. There is commodity risk inherent here so I have significantly scaled down this position based on the poor oil outlook for the year. Chances of a sale are reduced with lower WCS prices, but are not entirely eliminated. Once clean post-divesture earnings print in April, I expect a re-rate.

Each of these owned businesses is illiquid, and trade at what I estimate to be under half of their intrinsic value. As I discuss in my investing philosophy statement, each of these businesses is creating shareholder value independent of market pricing. All are backed by significant assets and cash, and should do well in a downturn. I feel very comfortable owning this group of businesses heading into 2026.

Disclaimer: The information provided in this publication is for informational and educational purposes only and should not be construed as investment advice, financial advice, or a recommendation to buy or sell any securities. I am not a licensed financial advisor, and the views expressed are solely my own. Any investment decisions you make are at your own risk. Always do your own due diligence or consult a licensed financial advisor before making any financial decisions. Past performance is not indicative of future results.

I own a position in these securities.

The portfolio was started on March 5, 2025. Through December 31, the portfolio is up 25% vs. the S&P500’s 18%, while maintaining effectively zero correlation (0.0028) to the S&P.

On the General Market

Based on historic long term returns in the S&P500, at these prices, you should expect an annualized return of -2 to 2% per year over the next 10 years. This makes it an unattractive investment.

Source: https://www.forbes.com/sites/michaelfoster/2025/12/20/this-flawed-stock-chart-could-be-bad-news-for-investors-in-2026/

In investing, you are buying pieces of businesses. With the S&P500, I am not confident in those underlying businesses. 30% of the S&P500 is made up of companies that are betting heavily on AI, which means that if you are investing in the S&P500 you are betting that these AI investments will pay off. I am not so sure. Historically, overinvestment in innovative technologies (autos, radio, airplanes, internet) has not been a successful bet. I may be wrong, but I don’t know enough to make that bet.

Today, you are also buying some outrageous companies like Palantir and Tesla, which provide very little earnings for owners, have uncertain prospects for growth, and of which few people would want to be an owner if they were buying these companies alone (not packaged within the index). I don’t want exposure to these companies; I consider it risky, and mostly, I don’t like owning what I don’t know deeply. That’s why I prefer finding and buying mispriced companies that I understand on discount.

This year, I bought companies that I could understand at a price below their intrinsic value (at least 33% off). That is how I generated excess returns.

My portfolio heading into 2026 is positioned even better. It is now made up of companies that I own for at least 50% off their intrinsic value. I feel much more comfortable owning these than the general market.

Summary of Investments and Results

This year, I wrote up 14 businesses. I looked at over 300 to find these few worth writing about. In today’s market there is not much low hanging fruit. On average, each pick returned 22%, and since I held most of them for less than a year, the annualized return is higher. The benefit of owning companies whose value is unlocked by specific events is that once the event is passed, you can recycle your capital into other opportunities.

See here for full data of my results, links to my analysis, and a short note on each: https://docs.google.com/spreadsheets/d/1O12UjLJzzisZ9umTSHacyJhZhYx4TsDGG-opjS6ZAKY/edit?usp=sharing

Best Performers

In absolute terms, EVC, LPRO, and TROX were my best performers. These fall in the bucket of general undervaluations. In case you missed them:

EVC, as covered on my Substack, was a broadcaster with significant “hidden assets” that were not being appreciated by the market. I valued each of its component parts: $200mn for the media assets, $100mn for its owned spectra, $200mn for its adtech platform Smadex, and $90mn in debt at face value. All together, $410mn in value was selling for $170mn (market cap). The market has since revalued the company for 73% more, closing the gap. However, I have also come to realize that my valuation for the hidden assets was likely overly optimistic (what is the value of something that does not generate cash flows and is unlikely to be sold?). Still, I bought it so cheap that I had a significant margin of safety to make an error in my valuation.

LPRO was a subprime auto lending platform that was a “disaster of the week” type situation. I covered it on SeekingAlpha. In Q1 it had to write down a significant chunk of its loan book, which was made in 2021-2022. The writedowns were so significant that the company stated a negative revenue for the quarter. Lawsuits were filed. The market was pessimistic. When I first looked at it in April, it was selling for $100mn, but had $110mn in net cash. It was like buying a house for $100mn and finding $110mn sitting inside—it was far too cheap. Further, when considering the context and extent of the writedowns, it was clear that future losses and writedowns of a similar magnitude were incredibly unlikely. It was shortly revalued by the market for 60% more.

TROX was a levered equity at the bottom of its cycle that I covered on VIC. Commentary on VIC seems to suggest that analysts were expecting it to breach its debt covenants by Q4 of 2025. What caught my attention was that management was buying shares on the open market. When I dug in more and read their debt agreements, it was clear to me that the terms of their debt were generous (very wide adjustments given for EBITDA), that they were currently in compliance with covenants (so could even raise more debt), and they had significant hidden levers to play to drum up cash, (at the time I focused on ability to make loans on working capital), all of which made a default outcome unlikely.

My thesis was soon confirmed by a $400mn debt offering by the company, and the stock repriced up 50%. I sold.

I still like this idea. TROX’s industry is at the bottom of its demand cycle, and when end market demand picks up, TROX will benefit significantly. They are vertically integrated into mines and moving into higher-quality ore deposits. They have recently been offered very attractive loan terms to better develop their rare earth mineral deposits, which provides them even more upside and potential liquidity. Here, you are waiting for end market demand to return to normal. If TROX makes it through to the upside of the cycle (likely when interest rates lower), you will do quite well here. However, India’s anti-dumping duties against TROX’s biggest competitor (LB Group) are no longer going into effect, and only one of another competitor’s (Venator) six plants appear to be fully closed. Additional competitor plant closures would have been more beneficial to the thesis.

I will also briefly highlight the NESR warrant exchange. When I published my Substack article on that, you could buy an NESR warrant for $0.50 and exchange it for 0.1 shares of NESR, which were $5.72 each (or $0.572 in exchange value). The underlying stock was also attractively cheap, selling at a PE of 5-6. By the time the exchange closed 3 weeks later, NESR was $6.33 a share. Total return was 27%, and IRR was 539%.

Biggest Mistakes & Lessons Learned

The most important thing I can do is reflect on my mistakes over the year, and four come to mind.

Magnera (MAGN)

David Bastian at Kingdom Capital had excellent coverage of MAGN this year. The situation is relatively simple. Magnera is a paper products company, formed from a combination of Berry’s paper division with Glatfelter Corporation. The paper industry was at a cyclical trough, and management was in the meantime successful in finding post-merger synergies. Assuming management’s expected future synergies were found and valuing the company on their expected mid-cycle cash generation (net operating profit of $350M a year), the stock was worth $18.97 / share. I bought at $12.59, but set a stop loss at $9. I never set stop losses, but in this case, the high level of debt made me concerned about the downside. If bad news about liquidity or debt hit, I would want out immediately, so I set a stop loss. Shortly after the stop loss was hit, MAGN had a good earnings season, and the stock appreciated to $15. The lesson here is to either avoid highly indebted companies entirely, or be so confident in your analysis that you don’t set a stop loss, and become comfortable in riding out downturns. Generally, I will lean towards the former.

Sunlink Health (SSY)

This was a merger arbitrage written up by Oliver Sung. It was a risk free 66-140% return in one month, easily the biggest no-brainer of the year. I only found out about it on Oliver’s follow-up post, which he made after the deal closed. I am a broke college student that can only afford one Substack subscription at a time, so subscribing to his Substack is not an option for me right now (but you should).

Instead, I built a web app to scrape SEC Edgar filings of all common special situation filings (DEF-14(s), SC14D9A, Form 10, SC-13E3, S1, and S4), and email me the key deal terms. In my special situations publication, I only post the situations that have not been arbitraged out yet, and so have found two or three interesting situations this year. The Sunlink Health deal terms were announced in a DEFM-14A filing, so I have paid particularly close attention to those. The only good deals thus far have been with companies that have very small market caps. I may have to better filter out filings to focus on those.

Moro Corporation (MRCR)

This was another no-brainer, and I don’t know why I missed it. Dirt covered it earlier this year at a 20% free cash flow to market cap yield, and priced at $2.60 a share. This week it was announced that the company was bought by a PE firm, Blackford Capital, Inc. for a 9% free cash flow to market cap yield, or for $5.59 per share.

Futurefuel (FF)

This one really made a lot of sense at the time. It was asset backed and selling below liquidation value, and seemed to be facing temporary problems with biodiesel production and regulatory uncertainty that should clear up. Regulations were clarified, and biodiesel production was restarted, but cash flows did not materialize as I expected. This industry is highly complex with many moving parts and many things that can go wrong. It is a government created industry, many government policies at many different levels have to work in concert for the end markets to be profitable for biodiesel producers. This administration has made some choices that are friendly to biodiesel and some that are not, and the regulations made by different federal departments have been contradictory. The economics of feedstocks and oil prices have moved in an unfriendly way this year. The market for RINs appears oversupplied. The company doesn’t seem like it will be able to transition production to a new product, so we are stuck with the challenge of handicapping the complexities of biodiesel policy and economics going forward.

In investing, we often refer to the engineering concept of “margin of safety”: If you want to build a bridge to withstand 100 expected tons of traffic, you should build in an additional margin of safety to withstand, say, 150 tons. I think a similar engineering concept applies here, and that is “complexity reduction.” A simple system has fewer things that can go wrong, and fewer things to control for. Over the long run, a simple system will be more reliable than a more complex one. I think it is much the same in investing. Going forward, I will avoid industries as complex as biofuels. My winners have been very simple ideas, and I should find success in sticking to simplicity.

Conclusion

I feel good about the year. I outperformed the S&P500 with zero correlation. I recently wrote an article about why beating the S&P500 is so difficult, and why so few fund managers are able to do it, and I would recommend you read it for context on this.

More importantly, I learned a lot this year, and knowledge compounds. Each company you look at adds to a web of knowledge that you can pull on as you continue to read and learn about each additional company.

Four specific takeaways stand out to me:

The first is that complexity should be reduced as much as possible. If the situation is too complex and relies on too many moving parts, your confidence in arriving at the right conclusion should be reduced. I had enough great simple ideas this year that cutting out the most complex ones wouldn’t have had much of an impact.

The second is that excessive leverage should be avoided, and once leverage is avoided, stop losses are not necessary.

The third is to focus on illiquid stocks. In public markets, your returns are based on your competition. If you go up against the best hedge funds in the world with the smartest talent, better information, and better technology, you are much less likely to succeed against that competition. However, there are parts of the market where you can compete against no hedge fund. That happens in tightly held and thinly traded securities.

For example, say a small hedge fund manages $300M in capital. An average position is 5% of the portfolio or $15M. Now say there is a company that trades $100,000 worth of shares per day. In order to build a position without moving the market, you would need to buy less than 20% of the shares a day, and it would take you 750 trading days or 3 calendar years to enter the position. As you can imagine, no fund would do this—and none do.

Some of the most interesting ideas of the year fell into this category: NESRW, Sunlink health, and Moro.

There are a few more considerations about investing in illiquid names that I think are important and that I will write about shortly.

Overall, portfolio management and position sizing was a weak spot this year, but the quality of the average position was enough to overcome that. Going into 2026, I feel much more confident in my “value investing” philosophy: That you can generate satisfactory returns if you buy what you know for less than the value of its future cash flows.

Also, a post detailing my current positions will be released soon, stay tuned.

“The answer would be, in my particular case, it would be going through the 20,000 pages [of stock information]. And since we were talking about railroads—you know, I went through the Moody’s Transportation Manual a couple of times. That was 1,500 or 2,000 pages—well, probably 1,500 pages—and I found all kinds of interesting things when I was 20 or 21.”

I’ve known this advice since it was asked a year and a half ago, and haven’t actually followed it yet. I have most often leaned on screeners: Insider buys, EV/EBITDA, EV, High FCF yields, and maybe occasionally look through an entire industry, but never got around to the “read about every company A-Z” method. I still don’t have the time to do it now, but I will anyway.

I actually met the guy who asked the question prompting the quote above, and he also hasn’t followed this advice. Instead his take away was that he needs to re-read Ben Graham’s old books again. Maybe there is some cognitive bias against turning over every stone, and hoping the screener will give you a shortcut. Maybe we just assume that Buffett did it because he didn’t have a screener, but the problem is that everyone else is doing the screener method, so what would be your edge doing so?

I say all of this is to introduce my new series:

Looking through every public company headquartered in Minnesota A-Z. I will look through each company and publish the ones I find interesting or with potential.

Company #13: Ameriprise Financial

Fargo Clip: https://getyarn.io/yarn-clip/e6f589e2-2ea1-4a3b-85bb-071906eb5d17/gif#ebOYbIcf.copy

Amerprise was founded in 1894 as Investors Syndicate, then rebranded as Investors Diversified Services (and built the IDS tower which went on to star in the movie “Fargo”). Then they were bought by Alleghany Corporation, who sold them to American Express.

This company was actually briefly mentioned in Joel Greenblatt’s book “You Can Be a Stock Market Genius.”

“Investors Diversified Services (IDS), had been growing its earnings at a 20-percent rate for almost ten years. This business consisted of a nationwide group of financial planners who provided clients with overall investment and insurance plans based on the client’s individual needs. The planners often recommended and sold many of the company’s own product offering, such as annuities and mutual funds. Since the financial planning business is largely relational business dominated by single or small group practitioners, IDS (now american express advisors) was able to provide the comfort, resources and depth of financial products not easily found in other organizations. The ability to provide services all in one package had allowed IDS to grow its assets under management at a very fast rate. Its revenues were largely derived from the annual fees generated from the investment and insurance products sold to its customers. The bottom line was: IDS also seemed like a valuable and fast-growing niche business.”

Greenblatt focused on the spin off of Lehman Brothers from American Express, but had you also followed the spin off IDS in 2005, you would have done quite well, it grew at a 15% CAGR. It was the top performing stock in the S&P 500 Financials Index in that time.

Today, 60% of AMP’s revenue comes from wealth management (Advice & Wealth Management), with the remaining split between Asset Management, and other products (grouped under Retirement & Protection Services) which includes life insurance.

All revenues are from the US. Historically earnings growth has come exclusively from the wealth management segment.

Earnings growth has been driven by three engines: growth in the value of the underlying securities portfolio (AUM), growth in new product uptake, growth in their client base (notably not from advisor headcount growth).

AUM Growth

Margin Growth

The above data is defined as revenue/underlying asset value, which I use as a proxy for their take rate. As you can see, the wealth management division and asset management divisions are very capital light and productive divisions, (which makes sense, as they are service businesses).

Wealth management AUM is the fastest growing segment, so it seems that AMP is advising on larger client portfolios, both from underlying asset growth and from increasing the amount of the client wealth they are advising (and generating fees) on. From the annual report: “Fees at wealth management includes advisory fees on managed/wrap accounts, financial planning fees, distribution fees, transaction and other fees, and net investment income (earned spread).”

Interestingly, AMP yields an impressive 59.6% ROE, has achieved a 3 year EPS growth of 15% and an LTM PE of 12.4. Making a price-earnings-growth rate of 0.83.

EBITDA has grown at 8%, but significant buybacks pushed earnings growth to 15%.

The wealth management division is based on a flexible cost structure – as employees are generally compensated on some variable payment scheme and management can trim lower-performing advisors during an economic downturn.

There is a lot of concern in the industry around the shift towards passive investments and its implications for the asset management industry, but the advisory business has adapted as it has moved from a commission-driven business model to a “wrap-fee” business today where the advisor and client’s interests are better aligned.

In the latest annual report management highlighted a couple of interesting things as well:

“Wealth management is now the primary driver of earnings and caters to lower AUM clients, a segment that is underserved, sticky, and benefitting from advisors leaving wirehouses… Wealth management’s earnings are driven by management or wrap fees and are less reliant on product sales.”

Risks

There are a few notable risks to be aware of and track with this company. Advisor departures are a real risk in this business, per the Q3 2025 Earnings Call “Two practices went RIA... But overall, it’s fine for them. We’ve recruited very strongly.” The company seems to walk a good line between supporting their advisors and allowing them enough independence where advisors feel it is in their best interest to stay with the company. Also, fee compression pressure will likely continue, but Ameriprise has been navigating this well so far. Furthermore, while mass-affluent clients are underserved, they are also more sensitive to cyclical drawdowns. If there is a major market drawdown, Ameriprise would be more impacted than ultra-high net worth focused providers.

Summary

Ameriprise Financial is a well run financial services provider. By owning all the major functions of wealth management: Advisory, asset management and in-house insurance products, they are able to provide a one-stop-shop for their clients. Further, because they focus on lower AUM (mass affluent) clients, they are competing in a space where they have less competition from the likes of JP Morgan, Goldman Sachs and Morgan Stanley. Furthermore, with their independent advisor model, they attract advisors leaving the major wirehouses who are seeking to “own” their book of business. They have found success and appear to be positioned well in a world moving towards passive indexing products. With growing earnings, boosted by a significant share buyback program, and a current slight undervaluation, Amerprise is a quality compounder that you can hold for the long term.

Disclaimer: The information provided in this publication is for informational and educational purposes only and should not be construed as investment advice, financial advice, or a recommendation to buy or sell any securities. I am not a licensed financial advisor, and the views expressed are solely my own. Any investment decisions you make are at your own risk. Always do your own due diligence or consult a licensed financial advisor before making any financial decisions. Past performance is not indicative of future results.

I do not hold a position in these securities.

The only other fund I have found who has ever covered this copmany is Dave Waters at Alluvial Capital (who last wrote about it in 2012). Dave provides an interesting origin story on this odd security:

“SPH ran into trouble in 2008, when the financial crisis caused the value of many of its holdings to drop precipitously. Facing huge requests for redemption, but believing many of its holdings to be too under-valued or illiquid to sell without doing harm to continuing investors, Steel Partners Holdings hit upon a novel solution: going public. Many investors objected to this plan and pressed for a full liquidation, but Lichtenstein prevailed in court. Steel Partners executed a reverse merger into WebFinancial, a tiny pink sheets-traded financial concern operating in Utah, and then distributed the newly-created units to investors in the Steel Partners partnership. The LP now trades under the ticker SPNHU on the pinks. Many objecting shareholders opted to receive cash and in-kind securities instead, so the total assets of the partnership are much smaller than in 2007, when the partnership had $1.2 billion in assets.” Dave Waters

This transaction allowed SPLP to own a bank charter. They found an innovative way to monetize that bank charter. “After originating a loan for a client, WebBank holds it for no more than a few days before selling it back to them, creaming a fee off the top and earning interest for the period it holds the loan.” As the Financial Times put it, “one likened it to the jeweler Tiffany’s, while others called it the “gold standard” of correspondent banking, or charter renting to put it plainly.” (FT)

So, in 2008 SPLP ended up with a number of illiquid industrial investments and holding companies stuffed into a public OTC bank. With some asset management fees paid to the investment managers on top.

WebBank

Notably, WebBank has a capital structure made up of short maturity obligations as its loans are quickly sold to its “marketing partners”. It is also significantly overcapitalized and underleveraged compared to most banks. Tier 1 leverage ratio is the ratio of the bank’s “cushion” (equity and reserves) vs its total assets (loans, etc). WebBank has a very conservative Tier 1 leverage ratio of 18.6% (vs the regulatory minimum of 4%).

Typically, a Bank with a 30% ROE, compounding book at 8%, conservatively financed would be labelled an exceptional one and command a high premium. This would be a bank with 38%+ yield on equity/book, and if the market yield on equity is 8%, should command a 5x price to equity book premium. Thus a fair intrinsic value of the bank alone would be $1.9B.

The Industrial Conglomerate

This segment includes diversified industrials:

• Joining materials (Lucas Milhaupt)

• Tubing (HandyTube, Indiana Tube)

• Performance materials (JPS)

• Electrical products (MTE, MTI)

• Specialty films (Dunmore)

• Kasco blades & services

• Oil & gas service operations

• Steel Sports youth businesses

• ModusLink logistics / e-commerce fulfillment.

Add the bank and conglomerate together and we get an EV of 4.9B. The company is currently selling for an EV of $0.76B….

Management Fee Layer

Cash management fees are included in the above numbers.

SPLP’s controlling “Manager” (an affiliate corporate group) is entitled to a management fee equal to 1.5% of total partners’ capital, payable quarterly regardless of SPLP’s profitability in the 2024 10-K, the annual management fee was reported as $15,056,000. (steelpartners.com) In addition, the Manager (via an affiliate) holds “incentive units” that, if vesting criteria are met, convert into “Class C” common units granting the Manager a claim on 15% of the increase in stock price per common unit YoY. On top of those structural fees and dilution mechanisms, SPLP also reimburses the Manager (and its affiliates) for corporate-overhead costs, legal, accounting, compliance, travel, and other expenses tied to running the business — in 2024 those reimbursements to the Manager (for e.g. executive travel and overhead) were a few thousand dollars, but the broader indemnification and expense-reimbursement provisions give discretion to the Manager to charge many such costs back to the partnership. The vast bulk of compensation flows through the fee + carry + affiliate-entity structure, which is controlled by the Manager rather than by public unitholders.

For minority unitholders, this compensation structure means the effective “cost of control” is baked in - a recurring 1.5% annual drag on assets, and potential dilution via incentive units when equity-value triggers are met. That reduces the amount of cash flow and value accruing to public units; it also aligns incentives to grow or acquire “partners’ capital” rather than maximize distributions. In effect, minority units are economically subordinate: they receive residual returns after the controlling Manager and its affiliates take their fixed fee and carried interest for themselves. Furthermore, pay is mostly not paid through a shared reimbursement channel (like dividends) bypassing minority shareholders.

Now why is this company so mispriced at a 85% discount? Will it Re-rate?

1. Very illiquid - Institutions can not touch this. With only 3M in free float shares, and less than 2k shares traded per day on average, very few people are in the market for this security. In May of 2025, the security was delisted from the NYSE and is now only available on the OTC markets. As a publicly traded limited partnership with small float, few institutions can invest in this.

2. The most interesting aspect of this company is that it is majority controlled by Lichtenstein who controls 83% of stock outstanding and is compensated primarily via the holding company layer (not via dividends or share price appreciation).

So now the interesting part. What happens when you have a company with limited liquidity, only 3M/20M shares of free float, where the company that seems to be the only market participant and is buying 1M shares a year? I don’t know. I have never seen this before.

I do think that over 3 years if the remaining free float is bought out in buybacks, supply exhaustion would eventually occur. SPLP would hit a point where it is not able to buy shares at the current price as it finds no willing sellers. Here they either:

A. Increase the bid price to buy out the rest (still at a significant discount).

B. Stop the buyback program, leaving the market with no buyers, and minority stockholders orphaned. Stuck with stock in an illiquid market and no buyers.

C. Buyback the remaining shares at a minimal premium (10%), or execute a reverse stock split to force out small holders.

A few examples I found from history of similar situations.

Pendrell Corp (PCO) was a microcap with a single majority owner (Eagle River Holdings) who had 65% of the shares outstanding. In 2017, they went private with a 1-for-100 reverse stock split, squeezing out the public shareholders. 15% stock premium.

Two micro-cap industrials Handy & Harman (HNH) and SL Industries (SLI) are also interesting to consider. Both were majority owned by SPLP. In 2017 HNH was taken out by an exchange offer of HNH stock to SPLP stock at a modest premium. SLI management offered to buy out minority holders at a 28% premium. Steel partners did this seemingly to reduce their costs of multiple public holdings.

BGI has been majority owned (84%) with low float since 2010. In the 2010s buybacks stopped and minority shareholders were orphaned.

At RWWI minority shareholders resisted a lowball buyout offer, stayed public, and eventually shares appreciated.

Steel Partners is trading at a massive discount, which is unlikely to be realized by minority shareholders

In summary, when considering the majority ownership and incentive structure, supply exhaustion leading to increased buyback prices is unlikely. This market has no forced buyers, and little demand from buyers generally. The only significant buyer is the company itself who can essentially set their buyback price. I think it is mostly likely that minority shareholders are orphaned, SPLP has no real reason to buy them out. It has little to gain from doing so. In fact in many ways they have already orphaned minority shareholders. They delisted from the NYSE in April of 2025, and are now only traded OTC. Buybacks also effectively stopped around this time.

I would encourage any of my more experienced readers to leave their thoughts. Have you ever seen a situation like this before? Is there any value in a security like this? Let me know what you think.

Disclaimer: The information provided in this publication is for informational and educational purposes only and should not be construed as investment advice, financial advice, or a recommendation to buy or sell any securities. I am not a licensed financial advisor, and the views expressed are solely my own. Any investment decisions you make are at your own risk. Always do your own due diligence or consult a licensed financial advisor before making any financial decisions. Past performance is not indicative of future results.

I do not hold a position in these securities.

This is a tale about Outdoor Holding Company (POWW)

Background

Steven F. Urvan is a serial entrepreneur. He has been involved in starting over 15 companies. One (POWW) has been demonstrably cash flowing, the others have little disclosure and not not appear to be profitable.

They include:

BitRail - a fintech founded in 2018 that provides an infrastructure to allow 3rd party partners to offer a regulatory compliant payment system to their customers including payments, loyalty and rewards, and optionally cryptocurrency.

GunBroker.com - America’s largest online marketplace for firearms. With 3x the sales of guns.com.

Outdoors.com Digital Media - “a digital media platform focusing on outdoor lifestyle content.” Probably blogs and content marketing stuff.

App Cohesion - “integrated software solutions for the firearms retail industry.” This seems to be POS, ERP for firearms retailers.

Gemini Southern which has subsidiaries:

TVP Investments, LLC (TVP) - a holding company.

IA Tech, LLC and its wholly owned subsidiaries (IA Tech):

Media Lodge, Inc. (until May 2019) - A digital media company specializing in content for outdoor and shooting sports enthusiasts. Filed for Chapter 11 bankruptcy on November 10, 2020. It Previously claimed to reach over 40 million people monthly through digital content.

Cloud Catalyst Technologies, LLC - analytic platform for gun retailers. Owns trademarks “gun genius” and “gunbroker.com gold” which might be a market insights software.

S&T Logistics, LLC - logistics company.

Enthusiast Commerce, LLC - Involved in firearm and knife gun and auction service. (I think it is a seller on the gunbroker.com website)

Outdoor Liquidators, LLC - unclear. I think its an entity to buy wholesale products to resell on gunbroker.com

RightFit Direct, LLC - unknown

Outsource Commerce, LLC - unknown

GDI Air - unknown

Sources: [1] [2] [3]

He did have some notable debt with his holding company:

“During 2019 the Company entered into a note payable agreement (Note Agreement B) with a financial institution dated May 31, 2019 which provided the Company with $65,000,000 and bears interest at a rate of 8% plus the greater of 90-day LIBOR or 2% (10% at December 31, 2020). The 90-day LIBOR resets every 90 days. Payments on Note Agreement B are payable as follows:

(i) fixed quarterly payments of $1,750,000; and

(ii) an annual variable prepayment equal to 75% of the prior fiscal year free cash flow as defined by Note Agreement B.

The note matures May 31, 2024 and is due and payable in full on the earlier of the maturity date or upon the occurrence of an event of default as defined by Note Agreement B. The note is collateralized by all of the Company’s consolidated assets.”

All of that being said, the core of his business empire was gunbroker.com, which earned 99% of the holding company’s stated 14.5M in operating income in 2019 (which I consider baseline).

GunBroker.com - A Potentialy Great Business

Gunbroker.com is a relic from the dot-com boom. Since 1999, it has been the leader in online gun sales. I like the gunbroker.com business a lot. Though it faces new competition from new entrants like guns.com. The types of guns they sell are:

- New guns

- Used modern guns

- Collectible guns

It has somewhat of a moat, as major online retailers like ebay and amazon can not sell these products. And so gunbroker.com has been the largest platform for guns online in America.

I do not believe they have a moat for new guns. During covid, major sellers like Walmart, cabelas and bass pro shop began implementing their buy online, pick up in store model. These are now stable purchasing avenues that gunbroker has to compete with. Also generally it is cheaper to buy in person. gunbroker.com charges a $50 transfer fee (fee for transferring a firearm from another state) to pick up a gun at a participating gun store, and an additional 1% for compliance (state sales tax + background check). Guns.com charges a flat background check and sales tax, so it is slightly cheaper. Better yet are in-store gun purchases which typically include a free background check.

I don’t think that they have any moat for used or new guns as their prices are generally higher than other outlets, with similar selection. They do have a wider selection than in store.

However, I do think that gunbroker.com will remain the top source for collectible guns. 32% of Americans own a firearm, with half of that number owning 1-2 guns. 3% of Americans own 17+ guns. These are gun “collectors.” They collect guns that are fun to shoot (i.e. machine guns) or historically notable guns (like the M1 Garand from World War II). For this market segment gunbroker.com is the best option. They have #1 search position for top collectible guns like the M1 Garand. They have 3x the sellers for collectible guns compared to guns.com. Rockville Auctions is the other major competitor for collectible guns, and they made $111M in gross auction sales for 2024, while gunbroker.com made ~$800M in 2024.

The Collectible Business Model Is Great

An old gun collector dies. His estate or heirs liquidate his guns at the local gun shop. The gun shop sells it on gunbroker.com. They buy, die and the cycle repeats. GB gets its 6% cut of the sales price and only really has to pay for web hosting fees.

The Rest of the Business is Not

Interestingly, used guns don’t seem to lose much value on re-sale. These and new guns make up over 90% of sales. Here gunbroker doesn’t have any advantage. Doing some market research I found that they are not the lowest cost seller (after including their fees), but they do have a wider variety than most in-person stores. Consider newer entrants like guns.com and other e-commerce sellers, and any competitive advantage disappears for the bulk of their sales.

And Neither is the Website

I signed up for gunbrokers.com. In order to see the full final price you have to register (no guest checkout) and set-up 2 factor authentication. You have to copy the code they email you back into the registration page to get to the checkout. Sign-up takes probably 10 minutes in total. At some point during checkout the loading screen took over 5 minutes. The privacy banner pops up randomly even after you decline it. The UI is from 2004. The search function is broken unless you type the title exactly. Basically they are doing everything they can to make the user experience and SEO poor and they still are the #1 website for gun sales. That is because if you are the only or best game in town, people will put up with a lot of nonsense.

This website experience basically tells me that the business is good, but the management has a troubled past

Selling Gunbroker to AMMO, Inc.

On April 30, 2021, GDI executed an agreement to merge with Ammo, Inc. (Ammo) and SpeedLight Group, I, LLC (SpeedLight), a wholly owned subsidiary of Ammo. As a result of the completion of the arrangement, the separate existence of GDI will cease and Ammo will continue its existence as the surviving company in the merger. The purchase included cash and stock in the surviving company. The value of the transaction was 240 million. On 14M in normalized EBIT that seems to have been a good sell for Urvan. He also got to keep a position as strategy director of gunbroker.com after the purchase which entails pay and benefits. He sold it at its peak when covid inflated online orders, which was very smart on his part. However he sold it for a majority stock deal, which turned out to be a bad call.

Now who did he sell to?

Corporate Entities involved in the sale of GunBroker.com:

• AMMO, Inc. – Public company that acquired GunBroker.com.
  

• Speedlight Group I, LLC – A wholly owned subsidiary of AMMO, formed specifically for the merger.
  

• GunBroker.com, LLC / IA Tech, LLC / Gemini Direct Investments, LLC – The Urvan-controlled entities being acquired.
  

• Steven F. Urvan – Founder and owner of GunBroker.com; became AMMO’s Chief Strategy Officer and largest shareholder after the merger.

• Stephen Verska (GunBroker’s Chief Technology Officer under Urvan) & SharkDiver Consulting, Inc. (Verska’s company)

AMMO Directors and Executives:

1. Fred W. Wagenhals – AMMO’s Chairman and CEO; officially led merger negotiations.
   

2. Christopher D. Larson – Co-founder and VP of Finance; barred by the SEC from holding officer/director roles due to prior fraud but acted as a de facto officer. Larson was part of a market manipulation scheme. In 2020, the SEC obtained a final judgment against Larson for his role in manipulating the market for Crown Dynamics stock. The SEC’s complaint alleged that: Larson obtained control of Crown Dynamics, a shell company, and transferred shares to nominees. He paid $400,000 for a “call center” to promote Crown and placed manipulative trades in his own account to create the appearance of market interest. As Crown’s stock price became inflated due to these efforts, Larson’s nominees sold shares and wired the sale proceeds—at least $865,000—to him.
   

3. John P. Flynn – Disbarred attorney serving as AMMO VP and legal point person in the deal.
   

4. Jessica M. Lockett – Board member, shareholder, and Audit Committee participant.
   

5. Richard R. Childress – Board member and shareholder; involved in the merger.
   

6. Harry S. Markley – Board member and shareholder.
   

7. Russell William Wallace, Jr. – Board member and Audit Committee member.
   

8. Robert J. Goodmanson – President, board member, and affiliated with an investment firm holding AMMO shares.
   

9. Robert D. Wiley – Chief Financial Officer, participated in the merger.

So these are the players. Let me again restate that Urvan (the seller) has been involved in many ventures, only one has been successful. At the acquirer, Ammo, The “VP of finance” was barred from the SEC for holding any high level positions in a public company. This means that the VP position is the highest he is legally allowed to have. However, in Urvan’s complaints, Larson seemed to have operated as a Tony Soprano type character - an underboss who really runs the operation while the official boss is only a figurehead.

I’ll also restate that person serving as counsel for the deal was disbarred.

At the time the only major business that AMMO owned was an ammunition manufacturing facility in Wisconsin. In earnings calls since the acquisition, management has since stated that the cost of producing the ammunition was higher than the sales price of the ammunition. So basically Ammo owned a money burning factory.

In 2020 Urvan had $50m in debt coming due, so he started looking for buyers for his profitable business - gunbrokers.com. In 2021 AMMO expressed interest in the company (seeing the newly inflated covid sales numbers). Meetings and negotiations occur between Urvan and AMMO executives (notably Wagenhals, Larson, and Flynn).

Urvan alleged that during the negotiations, Ammo made misrepresentations including:

- Not disclosing the criminal history of its executives. (This was very easy for me to find, I am not sure how he didn’t check this)

- “AMMO touted the construction and capabilities of its ‘state-of-the-art’ manufacturing facility in Manitowoc, Wisconsin. AMMO represented to Urvan that the facility was nearly complete, would be operational imminently, and would be a reliable and profitable asset.” This was not true, the facility was not completed and would need significant investment to get it up to speed.

- “AMMO stated that the machinery at the facility was ready for operation and would produce high volumes of ammunition quickly.” Also untrue. Key equipment was missing including calibration equipment. There were no staff.

-“AMMO did not disclose the actual capital requirements needed to finish and operationalize the factory…The misrepresentation about the factory caused AMMO’s projections—upon which Urvan relied—to be materially inflated.”’

- “Urvan also later learned that AMMO’s factory was operated in part by a family member of a member of AMMO’s senior management team. AMMO did not disclose this related-party relationship either, in breach of its representation in Section 5.11(b) of the Merger Agreement.”

So he meets this shady management team, but Urvan still needs the money (and it’s a good deal) so it goes forward.

AMMO forms Speedlight Group I, LLC to serve as the merger vehicle. The merger closes for $240M. Urvan receives $50M cash, up to 20M AMMO shares, and Speedlight assumes $52.3M in debt. Urvan becomes Chief Strategy Officer for gunbroker.com and joins the AMMO board.

Shortly after, the Verska Agreement is signed, a post merger compensation agreement with gunbroker.com’s CTO Stephen Verska. He is to be paid $1m a year for 3 years. His previous salary was $250k a year. This was done allegedly to maintain Urvan’s control of GunBroker.

Urvan’s relationship with the Ammo team quickly deteriorates. He learns that Kathleen Hanrahan, a former AMMO board member and audit committee chair, filed a whistleblower complaint with OSHA in 2019. She alleged that AMMO executives: Retaliated against her for raising concerns about financial reporting. Committed violations of the Sarbanes-Oxley Act (SOX). OSHA issued a finding of “reasonable cause” to believe AMMO violated SOX. That’s a serious designation suggesting the agency found credible evidence of corporate misconduct.

This lawsuit was ongoing during the time of the GunBroker merger but was not disclosed to Urvan. AMMO settled the case after the merger—a fact Urvan learned only after the transaction closed.

Around this time he is denied access to internal data. (that could possibly be used to benefit his other businesses).

“Urvan also lacked access to financial and operational data for the business he had built and sold. He alleges that AMMO’s executives and IT staff restricted his ability to access GunBroker.com’s back-end data, violating his rights as a director and impairing his ability to evaluate the business.”

In Aug 2022, Urvan initiated a proxy battle to replace AMMO’s board and spin off GunBroker.com. Nov 2022 the proxy contest settles. Board expands to 9 members. Urvan appoints 2 nominees, the CEO resigns and Urvan joins the CEO succession committee.

Spin-off of the ammunition business.

In January 2025, AMMO, Inc. announced it would sell its money losing Wisconsin ammunition factory to Olin Winchester for $75 million, closing the deal in April 2025. As part of the broader restructuring, AMMO issued Series A Preferred Stock in late 2024 to insiders including Chairman Christopher Larson, ex-CEO Fred Wagenhals, and CFO Michael Paul.

Steven Urvan alleged in his lawsuit that the preferred stock issuance was self-dealing, lacked board disclosure, and diluted common shareholders’ value and voting rights.

On April 18 2025, AMMO Inc. completed the sale of its ammunition manufacturing facility to Olin Corporation for $75 million. After fees and tax, I estimate the cash proceeds to be $55.8 million. That number is also referenced in the St. Louis business journal and Olin’s 10-Q for Q 1 2025

Urvan’s lawsuit

Urvan sues AMMO to unwind the merger, citing fraud and misrepresentations. The claims that Ammo overstated the production and value of its ammunition production. AMMO countersues over indemnity and post-merger disputes.On May 29th, 2025. Ammo settles with Urvan. Urvan is appointed CEO and Chairman of the board. He received the following in compensation: 7 Million warrants a strike price of 1.81. And $51M in interest bearing notes.

So what have we learned?

In my mind there are 3 options here:

1. He did not check out the AMMO management team, company or business he was selling to. Most of this was relatively easy to verify. You could google the people involved in the company, or visit the AMMO plant. If this is true I would chalk that up to incompetence or ignorance.

2. He did check out the team, and knew this, but planned on waiting until the moment was right to capitalize on that information. That would be malicious on his part.

3. The AMMO management team had an intricate scheme where they hid key individuals from the internet, and created some diversions so that details about their business were obscured during the sales process.

What are we left with?

AMMO now has Urvan in charge.

Its latest filing says that it had $32M in cash on the balance sheet as of March 31. It should receive $55.8M from the ammunition business sale. It has to pay out (to Urvan) $51M for the settlement. It has one remaining lawsuit (for now) that is seeking $100m in damages for a contract violation. Let’s assume that settles for $20M. That leaves us with $17M in net cash.

Operating profits were $14.5M in 2019.

Gross profit in the last 3 quarters was ~$10M/quarter.

Let’s assume that sustainable gross profit ends up at $30M.

In 2019 (with Urvan in charge) G&A was $11M. However today, the business has additional costs:

- $3.1M in dividend payments on the preferred. These have a liquidation preference at $24, so it would cost $35M to remove this cost.

- Public company compliance fees ~$2M

- A hungry board of 9 to feed. ~$1M

After all of that we are left with 13MN in the owner’s income. At a 10x multiple that is $130.

Operating business: $130M

Net cash: $17M

= Est. market cap value = 147M

Current market cap = 175M

I would want a higher margin of safety working with Urvan, when considering the future legal fees that this company will generate. Urvan also hasn’t managed the website very well, instead focusing on his other projects. I think that will likely continue.

Overall Urvan was dealt a 14M/year EBIT website with $50M in debt. He sold it to AMMO Inc for $240M. He received $50M in cash and 17M in stock. He later sued Ammo to get $51M in cash and 7M warrants. He likely received at least $500k in compensation since 2021. And he runs the website once again. He and his legal team have come out well on this, I am not sure that us as investors will.

What do you think?

Appendix

See gemini investment portfolio: [3]

sold ammo division for 70m gross, maybe 55m cash

https://www.sec.gov/ix?doc=/Archives/edgar/data/0001015383/000164117225005369/form8-k.htm

Other warrants

As of December 31, 2024, we had 1,721,256 warrants outstanding. Each warrant provides the holder the right to purchase up to one share of our Common Stock at a predetermined exercise price. The outstanding warrants consist of (1) warrants to purchase 100,000 shares of Common Stock at an exercise price of $0.01 per share until December 2026; (2) warrants to purchase 911 shares of Common Stock at an exercise price of $1.65 per share until April 2025; (3) warrants to purchase 1,234,034 shares of our Common Stock at an exercise price of $2.00 per share consisting of 1% of the warrants that expired on August 2024, and 99% until February 2026; and (4) warrants to purchase 386,311 shares of Common Stock at an exercise price of $2.63 until November 2025.

The MN Action

On January 18, 2024, Innovative Computer Professionals, Inc. d/b/a Digital Cash Processing (“DCP”) filed a civil action in Minnesota state court against Outdoors Online, LLC d/b/a GunBroker.com (“GunBroker”) for breach of contract (the “MN Action”). In the MN Action, DCP alleges that GunBroker.com breached a May 2021 contract, pursuant to which DCP was to provide specified digital payment processing services, and it alleges $100 million in damages. On February 7, 2024, GunBroker.com removed the MN Action to the United States District Court for the District of Minnesota. On February 14, 2024, GunBroker moved to dismiss the MN Action.

To be clear the price of the stock is 38% of its instrinsic value. 1-2x upside.

Lycos Energy (TSXV: LCX) is a Canadian heavy-oil microcap entering a short-duration special-situation window with an unusually high return on capital at risk. The stock now trades at C$1.50 ( C$78.8M market cap) and on November 28, 2025 the company is set to distribute C$0.90/share as a Return of Capital—representing 60% of today’s share price and creating a highly asymmetric setup. (This applies tor shareholders as of record date November 20, so buy before then.)
This leaves us with a stub with a market cap of C$31.52M.

Management has already sold ~60% of its oil production for C$60M, eliminated nearly all debt, removed most long-term abandonment liabilities, and now returning the rest. Pro-forma, Lycos retains ~1,700 bbl/d of Mannville heavy-oil production, minimal ARO, access to a C$50M credit facility, and C$52M in NOL. Volume is small, and this stock is obscure, contributing to the mispricing.

The remaining business is extremely cheap on both asset and cash-flow metrics. Comparable transactions in Mannville generally occur at C$30k–60k per flowing barrel; at 1,700 bbl/d, valuing Lycos at the mid point of that range implies an value of $76.5 M for the operating business.

Lycos also carries C$65 million in Canadian non-capital loss carryforwards, which are highly valuable in an asset sale because Canadian tax rules allow these losses to be transferred without limitation so long as the acquirer continues operating in the same line of business. For an Alberta-based E&P company facing a combined federal–provincial tax rate of roughly 23%, these NOLs have an undiscounted tax value of approximately C$15 million. I discount this by 50% to reflect timing and commodity-price uncertainty, implying a transactional realizable value of C$7.5 million. This represents a meaningful incremental value to Lycos’ stub and should be considered in any sum-of-the-parts or takeout valuation.

Even in a downside scenario where management elects to continue operating rather than selling, the remaining assets generate sufficient cash flow to support a strong risk-adjusted return, albeit over a longer time frame. Given management’s prior history of building and monetizing successful E&P companies and the signal of returning 60% of market cap upfront the probability of a full wind-up or asset sale remains high.

It seems you must own this by Nov 20th, but there is a grace period until the final conversion date (ex-date) of Dec 1.

What is left?

The remaining Lycos production after the 2025 sale are their Alberta assets

• Swimming (AB)

• Wildmere (AB)

• Viking Kinsella (AB)

These all correspond to the Alberta Mannville multilateral heavy-oil program, which includes: Multilateral horizontal wells (6-leg, 8-leg, and hybrid “half-fishbone” multilaterals). These are not CHOPS.

Decline Rates

The Q3 filings (sept 30) states that bbl/d production was 2,958. By the time of the asset sale disclosures, 940 bbl/d were sold and 1,700 bbl/d remained. Implying a 10.75% decline rate for the remaining assets over 2 months.

Well vintages appear to be a mix of 2021-2024 drilling programs and older legacy wells. I use an average well age of 4 years and average well life expectancy of 10 years in my model.

I use decline rates of 30%,25%,20%,15%,10%+ starting in year 1.

ARO

Pre-sale ARO was $14.7M, assuming 64% of production retained equals a similar amound of ARO, leaves us with $9.4M.

Q2 MD&A states that decommissioing liabilties accrued at ~900k a year. Again, assuming accrual is proportional to production rates, future annual accrual should be 576k

Capital Efficiency

Relevant slides from the investor presentation: https://lycosenergy.com/wp-content/uploads/2023/06/LCX-JUNE-2023-FINAL-PPT-002.pdf

Based on the above the Alberta assets seem to have a best case capital efficiency of $6.8k/flowing, but a typical efficiency of $15-20k/flowing. Based on an avg decline curve of 26% or 442 bbl/d, I would estimate maintenance capex to maintain production to be $8.8M CAD a year.

When I do so and stress test a few oil prices, and maintenance capex costs, I get the following valuations for lycos’ enterprise value (for the operating business).

Catalysts

• C$0.90/share ROC distribution in 3 weeks

• Potential sale of remaining assets within 6–12 months

Appendix A: Tax Pool Benefits

Lycos has the following tax benefits.

In Canada the Non-capital loss carry forwards can be acquired without limit, so I focus on those. But my writeup above does not include a valuation for the other 100M in tax benefits. By my estimate, if fully used at relevant Canadian tax rates, these tax benefits should drive C$39M in value, but in an M&A context the realistic value is discounted to C$15–20M.

Appendix B: The Northern Asset disposition

This closed on October 16th.

Sale assets were older, lower-quality Lloydminster heavy oil with higher operating expense, lower netbacks, and a lower reserve life index.

Pro-forma earnings should be:

~27M in operating netback/net operating income

~23M in Adjusted Funds Flow / OCF.

My back of the napkin pro-forma model is here: https://docs.google.com/spreadsheets/d/1d1sowZoKnZTQFWKJSriI3EJfz6mQN9gqNuJx8ElnJXM/edit?usp=sharing

Disclaimer: The information provided in this publication is for informational and educational purposes only and should not be construed as investment advice, financial advice, or a recommendation to buy or sell any securities. I am not a licensed financial advisor, and the views expressed are solely my own. Any investment decisions you make are at your own risk. Always do your own due diligence or consult a licensed financial advisor before making any financial decisions. Past performance is not indicative of future results.

I do hold a position in these securities.

After studying a history of the for-profit college industry for the past month, notably my recent coverage of the failure of Corinthian College, it’s clear that regulatory risk is the biggest risk in the industry. And LGCY has enough regulatory risks to keep me away. That is to say, I am not personally invested in this, nor do I recommend it, but some of my more risk-tolerant readers may find this situation interesting.

I don’t invest in things where I have limited or no minority shareholder rights, or where I don’t hold the actual security. For that reason, I don’t invest in Chinese ADRs or corporations not incorporated in Delaware. LGCY went public last year, choosing to list in Nevada, making it a no-go for me. Others may not be as conservative as me on this, and that’s fine. But they should still read on to be advised of all the other risks of investing in this stock.

Favorable Macro

Source: https://data.hrsa.gov/topics/health-workforce/nchwa/workforce-projections

This is a chart of the supply and demand for medical sonographers (a program at all LGCY schools). Labor shortage in allied health professions is the same across the board for most of LGCY’s other programs. As shortages grow and unemployment grows, enrollment increases. This is what makes LGCY an interesting countercyclical play.

Measuring Education Regulatory Risks

When investing in this industry, understanding the downside thoroughly is key.

When we check the regulatory metrics of LGCY and other key leading indicators of business failure, we see that LGCY raises some red flags.

Accreditation And PPA Status.

3 LGCY colleges (HDMC, CCC, CCMCC) are accredited by ACCET (Accrediting Council for Continuing Education and Training). Integrity is accredited by ABHES. And no colleges are currently on “warning,” “show-cause,” or probationary status by the Education Department. (LGCY 10-K)

In order to receive title IV loan funds (over 80% of revenue), colleges must be part of a Program Participation Agreement (PPA). When colleges are acquired they are put on a temporary month-to-month PPA during which time oversight is higher and certain activities are limited (Requires prior ED approval for new programs and locations). During this time the Education Department is supposed to review the program to approve it for the long term. HDMC and CCC have standard PPAs. However Integrity (acquired 2020) and CCMCC (acquired 2024) are participating under temporary provisional program participation agreements (TPPPA). (LGCY 10-K)

Any “change in ownership and control,” puts a college on temporary PPA and triggers an automatic review by the ED.

Ironically, defunding/reduced staffing at the ED will further extend the timeline for approval of these programs and add headwinds to growth.

In early September 2025 the Education Department shared a proposal to engage in negotiated rulemaking to provide institutions flexibility to change accreditors and “remove other burdensome requirements that erect barriers to entry for new accreditation agencies.” (LGCY 10-K) Which undoubtedly will allow for-profit colleges to choose their auditor, create their own accreditation processes, etc.

This change will not benefit LGCY, since it is already accredited, but it will benefit its unaccredited competitors as it lowers the barrier to entry.

Student Success Metrics

The student retention rate is 86%. (LGCY 10-K)

Typical for the industry.

Average placement rates post graduation are dropping slightly:

Source: LGCY Sec filings 2024-2025

Cohort default rates and Composite Scores

CDRs are low, which has been a benefit of the recently ended tuition payment freezes. We should expect rates to normalize closer to the 2019 rate of 4%, which is well below the 30% limit set by regulators. With composite scores of 3/3, LGCY is rated as financially sound, and above the cutoff of ⅓. (LGCY 10-K)

Title IV Compliance

90/10 rule compliance: A majority of LGCY’s tuition revenue comes from federal loan programs, receiving over 90% means that funding would be limited. In 2024 the rule on federal Title IV funding was expanded to include GI Bill funding.

The 2024 fiscal year was the first one calculated under the stricter rule 90/10 that includes GI BIll funds in the federal funding portion. So the company has stood up well to that update.

Notably, on January 30, 2024, due to a failure to timely return unearned Title IV funds to ED, Integrity was required to submit an acceptable form of financial protection for 25% of the refunds that were made for the fiscal year ended June 30, 2023 in the amount of $18,828. This is a major concern for me. Regulatory compliance is key, failure to stay on top of regulations (intentionally or unintentionally) is a major red flag. (LGCY 10-K)

Borrower Defense to Repayment

LGCY is party to the Sweet v. Cardona settlement, which entailed seven active BDR applications. (LGCY 10-K)

Notably, the OBBBA delays the effective date of the 2022 version of the revised borrower defense to repayment regulations and closed school loan discharge regulations for ten years, until July 1, 2035. This should protect them from future BDR claims. (LGCY 10-K)

Exposure to Private Student Loans and Credit Risk

LGCY extends credit for tuition with the “TuitionFlex” program which provides a flexible tuition credit plan for students. In association with this program, the company reported long-term accounts receivable of $1,966,137. The company does not break down whether this is gross, or net of allowance for credit losses. However YoY from 2024 to 2025 the proportion of the credit losses account to net accounts receivable increased from 5% to 10%. The proportion of accounts receivable that was classified as “long term” also grew from 9.6% to 11.6%. (LGCY 10-K)

Customer acquisition costs (CAC)

At a for-profit college facing strain, CAC’s rise. However here CAC’s are declining, which is a good sign.

Security Regulatory Risks

This point is the final nail in the coffin.

When LGCY went public, the company decided to incorporate in Nevada. This means the management has weaker fiduciary duties, litigation and appraisal rights are limited, and fewer shareholder rights generally.

The last point bears repeating, in Nevada, shareholders have fewer rights to inspect corporate documents, and have a higher bar to request them. As compared to Delaware, shareholder rights are less developed and proven. (Snell & Wilmar)

This is already a morally gray business, and history shows these businesses have many incentives to inflate financial records. Now add in a management that is less accountable and more able to inflate financial figures and you get a very dangerous situation.

The latest 10-K, includes management’s conclusion that internal control over financial reporting was not effective.

(LGCY 10-K)

Conclusion

On the surface, LGCY should be an attractive investment, sporting an attractive valuation, but the red flags here are too many.

The first red flag is that two of LGCY’s colleges are on a temporary program participation agreement (PPA) which stifles enrollment growth. Recent regulatory changes will make it harder for these programs to get fully accredited, and any future acquisitions will face a similar problem.

The second red flag is that LGCY is sloppy with its regulatory compliance, with its recent failure to timely return unearned Title IV funds to ED. This also includes the fact that the company has insufficient internal controls over their financials.

The third red flag is the existence and growth of its in-house student loan program “TuitionFlex”. With a growing proportion of accounts receivable being part of this program, and growing allowance for credit losses on these loans, I am worried about the quality of their underwriting on these loans, and the perverse incentives this creates.

The final (and most important to me) red flag is that LGCY went public last year as a Nevada corporation. Limited shareholder rights, and transparency in the state raise questions to me about management’s intentions. Consider also that management is not buying stock. With only a year of track record here, I am not confident that management won’t abuse public investors or alter financial statements going forward.

Disclaimer:

The information provided in this publication is for informational and educational purposes only and should not be construed as investment advice, financial advice, or a recommendation to buy or sell any securities. I am not a licensed financial advisor, and the views expressed are solely my own. Any investment decisions you make are at your own risk. Always do your own due diligence or consult a licensed financial advisor before making any financial decisions. Past performance is not indicative of future results.