During the past week both Nexam Chemical and BrainCool released their Q3 reports. None of them contained significant news and for both companies’ sales were meagre at best. Nonetheless both shares went up after their reports, but for different reasons.
The report came out on Thursday afternoon as the second press release that day. The first was about an agreement with a Swedish hospital to join a clinical trial with the newly acquired RhinoChill nasal cooling device. I suspect that the timing was intended to move focus away from a report with no turnover. Two things in the report bothers me: First the lack of turnover in Q3. The company have delivered 20 systems to a distributor but none are apparently sold. The other thing: It is annoying that the report lacks a cash flow statement. This have been the case in all the reports, so it is not suspicious, just highly annoying. Cash is king – especially in start-ups.
Acquisition during October
BrainCool acquired the American cooling company, BeneChill Inc. with the trademark RhinoChill in October. BeneChill products cools with a nasal device and is strong for cooling during ambulance transport. This complements the products of BrainCool which is more stationary and better suited for hospital treatment. The acquisition took place after the quarter, and the present report does not include the inventory and ongoing business of the BeneChill. The price of the acquisition is 19 MSEK. It is or will be paid in shares (10.3 MSEK) and cash (8.7 MSEK). According the CEO, Martin Waleij the value of the inventory will generate app. 10 MSEK in cash – a little more than paid for BeneChill.
At the end of Q3 BrainCool had Inventories of 9.8 MSEK, Receivables of 1.9 MSEK and Cash 4.6 MSEK. Depending on sales, BrainCool have at max access to app. 16 MSEK. I cannot see if the cash from the private placement in August (15.5 MSEK) has arrived yet. Probably they have not, otherwise the company will be short of cash to finalize the acquisition. With the present burn rate (3 MSEK per quarter) there is sufficient cash (without Inventories but including Receivables) for another year at the present level. In other words, no issues in sight.
During October BrainCool announced that the company will split in Q2 or Q3 2017, and one part with focus on sports medicine (IQool Technologies) will continue as a separate company. Investors will receive shares in IQool proportionally of their shares in BrainCool.
After the report (and the agreement of the clinical trial) the share went up 6 % – probably not due to the historic facts of the report but in expectance of the future.
Q3 was a meagre quarter for Nexam in terms of turnover. Sales were only 1.1 MSEK – compared to 4.2 in Q2. The company still have a very few costumers and single orders still results in fluctuating turnover at this stage. The cash situation is good, though, since Nexam made a large private placement in March. At the end of Q3 the company had 143 MSEK, which can keep the company afloat for a long time and hopefully until break even.
The initial reaction from the market on the report was downhill. The share fell 6 % after the report came out. Two days after the report another press release came announcing the largest order in the history of the company. The order has a value of 5.3 MSEK and it will be delivered during Q4 and during 2017. Share price went up 15 % after this announcement. I guess this illustrates the fact that reports are secondary in moving the share price of companies like Nexam.
At every presentation, the CEO, Anders Spetz uses this slide to illustrate the strategic development of the company. Each triangle represents a focus area. These are Pipes, Foam and High Performance. The bottom of each triangle represents the ‘Proof of concept’ – does it work. They are all green. The next layer is the first reference costumer. It is green for each area, since the company has a reference costumer in each focus area. At present only High performance has changed colour (to yellow) with 3 costumers. In his presentation of the report, the CEO indicated that colours soon will change pipes as well. The 5.3 MSEK order came in High performance. I put Nexam’s value chain as illustration for this post.
I made an oversight of the Q3 reports in a post in October (link). This week (week 46) we will see reports from Cantargia (16th), AroCell (17th), and A1M Pharma (18th). All three of them will report no or very limited turnover, since Cantargia and A1M does not have any products to sell yet. I look forward to see if AroCell has commenced sales and what progress they have made in the commercialization process.