Quinsam Capital Corporation (QCA) Earnings Call Transcript

Good morning, everybody. Welcome to the Quinsam Conference Call for Q2. I'll say a few things and then open it up for questions. The results were out on Friday. I assume everybody has seen them. We more or less had a breakeven quarter, a modest loss. And the reason for the loss basically was the decline in the share price of California Nanotechnologies. It's one of our larger holdings. It's done very well for us recently, but it has had some softness, but we're quite optimistic that, that will turn around towards the end of the year. The other major development in the quarter, we converted one of our private issuers into a public company. We've had a position in music royalties for about 3 years. It's done well for us. It's paid us monthly dividends, plus we've had capital appreciation. We made a deal with an affiliated company of Music Royalties called Royalties Inc. It's a publicly listed company that has a diversified pool of royalties. We made an agreement to convert our private shares into publicly traded shares. And quite fortuitously, they won a long-running legal dispute with Capstone relating to a silver royalty literally the day we closed it. So that position more or less doubled in value and continues at this point to have that approximate value. So that is an important development in the quarter, and it's probably the main reason why our publicly listed securities went from $0.05 a share to $0.06. In the current time frame, we've got two or three issuers that are looking at listings here shortly. Peninsula, which is probably the most important one, is a U.S. residential real estate play. They are looking at listing. They've been looking at it for a number of months. They're waiting for the right market window. They're working with Canaccord, CIBC and Raymond James to list. It's going to be quite a good-sized issuer. They have many thousands of residential rental units. So it's quite a significant entity. We're also looking at a listing by Theracann, hopefully here in the next short time period. That's a company that we bought way back in about 2018, and we wrote it off, but it is now looking at listing. It's got all the approvals in place from the exchange to list. The last condition precedent is completion of a small private placement. So that's what they're working on at this point. We've got another important listing, hopefully coming up in Q4. That's Electro Metals. That, again, was a cannabis company that relaunched itself. It's now a very traditional Canadian gold copper mining story. It's announced an RTO and is out literally just starting in the next week or so, marketing its go-public financing. So we're hoping that, that one will list before the end of the year. Our two biggest holdings, not much change in the quarter. The Guelph mortgage, which we have no carrying value on, continues to try to refinance. The U.S.-oriented CBD treatment for epilepsy, A-Synaptic. They have been working to start an FDA trial because it's CBD related, it has been taking a little longer to get final approval from the FDA. Obviously, they've had their own distractions with Trump and so on. But they think they are now getting very close to the final approval from the FDA. They've also developed a quite promising application for Parkinson's, which is a whole new opportunity for the product. So they are looking -- once the approval is in hand and the testing has begun at starting a U.S. Reg A go public process, which they are targeting to do at a significant premium to where we're carrying it. So we've got a few items coming up between now and the end of the year that we're hoping will have a positive impact on NAV. As far as finding a significant transaction to use Quinsam as a go public vehicle for someone else, we haven't seen anything in the last quarter that was sufficiently interesting to make us pursue it. But we really need one or both of the Guelph mortgage and A-Synaptic to list before you can really do something with maximum effect. But on the whole, while the quarter didn't show net income, it was a relatively modest loss and some nice progress on Music Royalties. Any questions from people online?

Can you hear me now? I was going to ask a question or two. If you can hear me. Okay. In terms of the ones you've -- you ran over -- you went over, especially the two biggest, like how much are they in terms of percentage of the overall NAV? Are they...

They're both -- well, the Guelph mortgage is nil, right? The reported NAV does not include it. So we've taken it to 0. So to the extent we get any money out of it, that's great. But the potential is about $0.02.

Okay. So it's a big part...

That is the face value. So we have a potential $0.02 of NAV out there that is not on the books in any way. A-Synaptic is on the books for around $0.05 roughly. They are looking at -- they're hoping to do a Reg A at well over double where we're carrying it. So it's got the potential to add a couple of cents to NAV.

Right. And then -- but that will take some time, I guess. I guess, both of them will take.

Well, the Guelph mortgage, hopefully, will be done by the end of the year, but it's something we can't really control. A-Synaptic, if they do a Reg A financing at a higher value, we would recognize the NAV. So we would get a bump in our NAV. We would not necessarily have the ability to sell it readily. For that to happen, they have to do the Reg A financing and then they have to apply for listing and have the listing happen. And then, there may be -- well, there's highly likely to be some sort of a regulatory hold period. It depends on the exact process they use to. So I would guess the ability to sell it is probably at least 6 months away, although it might be possible as part of a go-public transaction to sell it to somebody at a discount to the go public value, who's willing to take on whatever hold periods there might be.

Okay. Yes. But that's pretty good 6 months. I mean, if it's making progress towards a double and then being realized, that's...

Yes. And once it's listed, even if it's something we can't trade, then it's got a value that if you were trying to do some sort of a reverse merger, you're much more likely to get value for it. The problem now is, if we try to do something, people are going to say, well, you're carrying wealth at 0, it's 0. And we're not going to get credit for it. So I think if we had a quoted value on A-Synaptic, even if we couldn't sell it immediately after a listing, that would help.

It will give some confidence to it, right. And what about the other ones, they're all sort of under $0.05. Is there anything like the other ones you mentioned, the Peninsula...

Yes. I mean, there's a number of them. Electro Metals is looking at trying to raise money at a premium to where we're caring. There's probably $0.05 of upside in Electro Metals if they succeed. So obviously, we're hopeful that's going to happen. Theracann, our original investment was in the vicinity of $0.05. So is it likely to trade at our original investment? Probably not, but you never know. They're going public with a -- like their original business, they had two or three technologies related to cannabis propagation, and they're basically going public as a unique technology in indoor vegetable production. So they're basically going public as a high-tech greenhouse play. It's not a cannabis play. So it has quite a wide range of possible trading values. Obviously, the people behind it are very optimistic, but time will tell. But it's something that we'd be delighted if it added $0.05, let's put it that way.

Right -- your cost is 0 now. I mean it's -- it's on the book value.

Book value is 0, yes. So anything we get is gravy. So I think it's quite likely to end up listing. I can't believe after all the effort that people behind it have gone to not going to make it to the listing line, because the required private placement is only $1 million or $2 million or something. It's pretty modest.

Okay. And the Peninsula is the same?

Peninsula is a much bigger situation. So we're -- it's about $0.01 of our NAV. They are looking to list at something like double that value. So it's a much more important one. It's also a much more substantive entity. They're looking at paying a 4% yield on listing. Like it's a very significant -- it's like a REIT basically. I'm not sure it will be structured as a REIT on listing, but it's basically a REIT. And in the U.S., there's been a huge consolidation of people like Peninsula. And Peninsula has done three or four transactions itself. People are buying up these $100,000 houses in Rust Belt cities where people, for whatever reason, can't qualify for a mortgage, they're stuck in the rental business, and they're renting off of increasingly corporate entities like Peninsula. And Brookfield is a huge player in this business.

Yes, it seems to be a big business now in the States.