3 Interesting Microcap Companies

Thursday I attended the microcap conference put on by Drexel Hamilton.  Drexel is a firm that employs disabled military veterans, so we are proud to support their efforts by attending the event.

Several interesting companies presented.  The ones that struck me as particularly interesting were:

HPEV, Inc. ($WARM).  HPEV is a development stage company with no revenues yet.  They own or in the process of obtaining patents on cooling systems for mechanical pumps.  The cooling systems will increase power generated by the pumps as well as decrease pump size and weight.  The company anticipates that the global market for pumps is about $120Bn, of which about $60Bn is right for their product.  The plan is to license the technology to existing pump manufacturers for a standard 3% licensing fee.  Critical to success will be the ability to negotiate these license agreements with pump manufacturers, and management has a great deal of experience in the industry with relationships at many of the key firms.  In addition, HPEV has developed a mobile generation product and received their first $1mm order this week.  

The market cap is $60mm and they have an agreement with Lincoln Park Capital (LPC) that LPC will buy up to $10mm in stock over the next 3 years subject to conditions.  They currently have outstanding options on 5mm shares at an average price of $2. 

Sundance Strategies ($SUND): Sundance is a company that invests in a portfolio of life insurance policies.  The company hand-picks policies that have a high value and trade between 6% and 12% of face value.  Sundance holds the policies for approximately 8-10 years until the death benefit is realized.  The company bought its first portfolio of policies last year in June ($400mm in face) and plans to buy about $1Bn in policies each year.  The company needs to raise $50mm in equity financing on top of the $15mm they raised privately last year, and the rest of the cost (purchase price + ongoing insurance premiums) will be covered by debt financing and cashflow from portfolio assets.  Current market cap is $350mm.  Insiders own about 70% of the company. 

Datatrak ($DTRK).  Datatrak provides software for clinical trials of pharmaceutical products.  Here is the stock price chart, so you can see the issues this company faced as it’s stock price fell from $160 (split-adjusted) to just a few bucks:

So what happened?  Revenues fell off a cliff and the stock price did too.  But look what is happening since 2010.  Revenues are picking up, and backlog is back up to the 2005 (pre-cliff) timeframe.  And, according to the CEO, current backlog is more high quality since it is more long-term relationship driven backlog.  According to this chart, the revenue and backlog numbers are outpacing the stock price, giving a good amount of potential energy in the system here:  

What do you think of these companies, or the rest of the presentations at the conference?  

Written by Jennifer Galperin.  Follow me on twitter and stocktwits.