Friday, December 4, 2020

Harbor's Dark Takeover

In 2011, the "development stage" Harbor BioSciences HRBR lost 3.8M which was an improvement over the $6.6M lost in 2010 and $15.6M lost in 2009.  Not pretty and with a market cap of only $6.5M, not inspiring.  Amun LLC came along with a cash infusion of $2.8M to save the day if only shareholders will approve the following conditions:

  • must perform reverse/forward split to get below 300 shareholder cutoff for de-registration
  • must file to de-register from the SEC
  • must give 3 board seats to Amun
  • must approve a provision to preserve Net Operating Losses (NOLs)
  • money will be forfeited if "At any time following the Deregistration, the Company makes any filing with the Securities and Exchange Commission (“ SEC ”) pursuant to Sections 13 and 15(d) of the Exchange Act on a voluntary basis"

Wow.  Amun wanted the NOLs and to disappear.  The transaction was approved and HRBR stopped communicating after putting out one last 10k in Jan 2012.  

After 8 years of muted darkness Harbor Diversified (HRBR) put out an 8k in Apr 2020 with one of my favorite lines ever: 

as of January 1, 2020, which is the first day of the Company’s current fiscal year, the Company determined it no longer met the eligibility criteria under Rule 12h-3 of the Exchange Act to suspend its reporting obligations under Section 15(d) of the Exchange Act. As a result, the Company determined it is required to file the Annual Report

Shareholders made them file again!  So amazing and here's an article.  I don't know the details but it seems they were taken to court and forced to come back to the light.  Whoever did this is my hero.  They've since put out a 10k showing $69M cash, $78M book value, and $263M annual revenue.  They earned $4.2M in the latest 10Q.  The market cap is currently $12M...sound interesting?

We need a timeline:

  • Feb 9, 2010
    • Name change from Hollis-Eden Pharmaceuticals to Harbor BioSciences
  • July 28, 2011
    • Sell 2M shares of pref A to Amun LLC for 2.8M cash in escrow account
      • 28% of economic interest and 38% voting interest in company
      • can appoint 3 directors
    • Amun has put option to get their money back if
      • Shareholders do not approve the NOL provision or the reverse split
      • The company makes any filing with the SEC on a voluntary basis
  • Aug 2011
    • File proxy with everything Amun LLC wanted
  • Oct 26, 2011
    • Reverse and forward split to reduce shareholders to < 300 to de-register from SEC
  • Jan 12, 2012
    • File form 15 to de-register from SEC
  • Jan 20, 2012 
    • Last filing before disappearing
    • 35,422,140 shares common outstanding
    • Federal NOLs $215M and state NOLs $156M
  • Jan 30, 2012
    • Harbor Diversified incorporated in Delaware
  • Jan 31, 2012
    • AWAC Aviation (Air Wisconsin parent) is transferred to Amun LLC
    • Amun LLC sells 80% of AWAC to Harbor Diversified
  • Nov 12, 2014
    • NeurMedix company formed by Harbor Therapeutics Chief Scientific officer
  • Dec 9, 2014
    • NeurMedix buys Harbor Therapeutics for $2.5M
      • 3 executives of NeurMedix worked at Harbor Therapeutics
  • Jan 2016 
    • Harbor Diversified acquires the remaining 20% of AWAC Aviation
  • Jan 17, 2020
    • Acquired 3 jets plus 5 engines from Southshore for 4M shares series C pref
  • Apr 29, 2020
    • First filing in 8 years
  • May 22, 2020
    • Acquire 8 jets for $3M
  • July 10, 2020
    • First 10k as Harbor Diversified 
    • 54,863,305 shares of common stock outstanding
    • Amun still has 28% so they did not dilute all to Amun
    • 4,000,000 shares of Series C Convertible Redeemable Preferred Stock outstanding
    • Federal NOLs $61M and state NOLs $18M
      • These must be new since old Harbor BioScience NOLs were lost in 2018 troubled debt restructuring 
In 2011 HRBR was a struggling pharmaceutical company with a tiny $0.1M revenue.  Amun saw those NOLs and couldn't resist.  They came on board and forced HRBR into darkness then immediately brought in Air Wisconsin.  The pharmaceutical business was sold off a couple years later leaving HRBR unrecognizable to the past.  New board, new business.  Now in 2020 Harbor Diversified rises from the ashes bringing in $260M.  

The stock dropped from around $0.20 when Amun first came into the picture all the way to $0.015 in 2017.  It was at about $0.04 when the new filings hit in Apr 2020 and has since run to the current price of $0.22 thanks to a microcapdaily write up. 

On the one hand I don't like buying into a chart that has risen 10x in a year, but if you look back it used to be much higher.  I wish I would have heard of this right when they started filing again but oh well, you can't win them all.  Right now it sits about where it was in mid 2011 when Amun came on board but market cap has doubled due to dilution.  Below you can find the 1 year, 10 year, and all time charts.  I like the fact that we're way below all time highs and there was a good base from 2017-2020.  

This stock has so many things I look for.  Change.  Inflection points.  Abnormalities and non-linearities with the potential to cause big stock price changes.  The main draw is the situation.  The company the world had familiarity with has died and I think the new reality has yet to be reflected in the price.  They went dark to re-invent themself and have done just that.

Here are numbers as of the most recent 10k:
  • 54.9M shares common flat from 2018 to 2019
  • 4M shares convertible preferred
    • Converts into 16.5M common shares
    • Voting rights equal to 16.5M shares common
    • Conversion price $0.80 
    • Liquidation preference $13.2M total
  • revenue $263.5M in 2019 vs $240.6 in 2018
  • book value $77.5M vs $96.7M
  • cash $69.5M vs $60.2M
  • debt $195.1M vs $184.8
  • earnings -$19.2M vs -$17.4M
    • they actually reported +$181.3M net income in 2018 = EPS $3.30 but that was a one time gain due to extinguishment of debt
And numbers from the most recent 10q:
  • Cash $78.3M vs $69.5M from prior Q
  • BV $81.7M vs $77.5M
  • earnings $4.4M vs -$3M from last year
  • rev $67.1M vs $61.5
Based on the 10k numbers I'd say the stock is worth at least a dollar.  Maybe $2-3.  Going by those numbers the stock is at 16% of book value, 17% of cash, and 5% of revenue.  On top of that you have the $4M earnings posted in the last 10q which will make this stock incredibly cheap if it continues.

The risk is all that debt and in these numbers are a few things I do not like.  There are too many shares out.  Too much debt.  They've lost $36M the past two years if you exclude their gain due to debt restructuring.  I don't like the business in a normal year and with covid in 2020 I extra don't like it.  I don't like airlines and I don't like owning those huge depreciating assets.  Numbers reported from 2020 will likely be horrible due to covid.  

In a situation like this I want to know the motivation of all parties.  

First, why did shareholders approve this deal.  Amun clearly wanted to disappear and said so in the 8k announcing their financing.  Just look at these conditions:

Amun clearly stated their case.  They must have the NOLs and be on the board.  The company must de-register from the SEC and explicitly not communicate.  The company can't even spend $100k without Amun's approval!  

It was a takeover for the low cost of putting $2.8M cash into an escrow account.  Amun didn't even hand over the money.  They just put it up against these strict requirements on how HRBR could utilize:
Under the terms of the Purchase Agreement, the Company may be reimbursed from the escrow account for amounts required to purchase fractional shares of the Company held by record holders of Common Stock in connection with the Reverse Stock Split, if implemented. In addition, to the extent that certain of the holders of the Company’s warrants issued in connection with the June 2010 registered direct offering of Common Stock and warrants
In addition, under the terms of the Purchase Agreement, beginning January 1, 2012 and on the first day of each month thereafter, the Company will be entitled to disbursements from escrow in the amount of $200,000 (the “ Working Capital Amount ”) for so long as: (x) the Investor has not made a Qualifying Transaction Proposal to the Company, (y) for sixty calendar days following the Investor having made a Qualifying Transaction Proposal (provided that the sixty day period will be extended an additional fourteen calendar days in the event the sixty day period includes all or any part of the period from December 15 through December 31, 2011); and (z) in the event that a Qualifying Transaction has been presented and definitive documentation relating to such Qualifying Transaction has been executed, for so long as the Qualifying Transaction has not been consummated

So the money goes to escrow but it can only be used to eliminate shareholders (the reverse split and warrants) and give some monthly cash until Amun presents them with a "Qualifying Transaction".   From the beginning Amun had a plan to bring a large transaction to the table so it doesn't seem like much of that $2.8M would ever really be spent: 

As contemplated by the Purchase Agreement and the Stockholders Agreement, the Investor intends to bring to the Company an offer for the Company to acquire a controlling interest in a profitable entity, which transaction would provide to the Company at least $5,000,000 in cash plus an amount equal to the costs and expenses incurred by the Company in connection with such transaction (not to exceed $200,000), which amounts, together with any operating cash held by the Company immediately prior to closing such transaction, would be transferable, together with any and all (i) intellectual property and (ii) other assets of the Company related to the Company’s biotechnology business, to a newly formed subsidiary of the Company, which subsidiary will assume all liabilities of the Company as of immediately prior to such closing (a “ Qualifying Transaction ”).

My guess on shareholder motivation is they saw Amun coming in for the NOLs with plans for a large transaction and thought "why not vote for this, it can't be any worse than what we've experienced in the past 5 years": 

Board Members
Second question is why did board members and executive officers vote for this.  Why did they recommend shareholders vote for this.  Imagine the conversation, "We will take over your board and disappear and in return HRBR gets controlling interest in some unnamed company."  Super shady.  How can they recommend shareholders vote for something that would stop all communication.

First of all they owned almost no HRBR stock so what did they care.  Three of them owned less than 1% of the stock.  Three owned 1%.  And one owned 2%.  That is sad.

But I believe the real reason is they were given their company to walk away.  HRBR's Chief Scientific Officer Christoper Reading spent 15 years at Harbor developing their therapeutics product NE-3107.  Amun appeared on the scene with HRBR at a $6.5M market cap.  A few years later Reading starts a new company NeurMedix who then bought Harbor's therapeutics division for $2.5M.  How convenient.  

I think Amun came to HRBR and said, "Look we want your NOLs and that's it.  Let us take over the company we will go so dark we disappear and the stock will drop to nothing.  You just keep working on your therapeutics.  Once the world has forgotten Harbor we will sell you that division for half of what the world thinks it's worth now." 

As it goes NeurMedix ended up with 3 executives who used to work at Harbor therapeutics...

Amun LLC
Third is why did Amun do this.  Take a look back at that timeline I posted above and read this FCC document:
Air Wisconsin, a privately held, regional airline, uses its wireless licenses for internal communications systems in support of its activities. On January 31, 2012, a reorganization of parent entities of Air Wisconsin was consummated pursuant to which the stock held by the seven shareholders of AWAC Aviation, the immediate parent company of Air Wisconsin, was transferred to a new intermediate subsidiary, Amun LLC. Amun LLC then sold 80% of the stock of AWAC Aviation to Harbor in exchange for shares of Harbor common stock and other consideration, with the result that Amun became the single largest shareholder in Harbor, with approximately 36% of the total issued and outstanding stock of Harbor. AWAC Aviation at all times continued to own 100% of the stock of Air Wisconsin, the entity that has been granted the wireless licenses.
AWAC is a holding company with one asset: Air Wisconsin airlines.  "Air Wisconsin operated a fleet of 64 CRJ-200 regional jets with an average of approximately 284 daily departures".  AWAC has moved HRBR's revenue from literally $0 to $263.5M.

HRBR is basically Air Wisconsin at this point and the interesting thing is it never really changed hands.  If you look around you can see business entity registrations for AWAC Aviation in a number of states (NH, AK, NY, FL, etc) and they all have the same directors.  It's the same group from Amun who is now running HRBR.  

The same group runs Southshore Aircraft Holdings which has leased planes to Air Wisconsin and from whom HRBR recently bought planes.  Southshore owns the preferred.  

Here's what I think really happened.  This group was already running AWAC Aviation with Air Wisconsin as their asset.  They approached HRBR because they wanted a shell company with net operating losses and Harbor certainly had that with $215M federal and $156M state.  Amun came up with this takeover idea that didn't really cost them anything beyond dilution.  They put provisions in place to make sure they'll get control, go dark, and keep the NOLs.  They put money in an escrow account never to be drawn upon beyond the costs of going dark.  When the time was right they moved Air Wisconsin under the HRBR umbrella.  Look back at the timeline.  Only 10 days after Harbor BioSciences' last filing they incorporated Harbor Diversified in Delaware and on the very next day "sold" 80% of AWAC to HRBR.  I think their idea was use the NOLs while enriching themselves with self dealing.  

There are a few parts to the story I'm not certain about.  One is the NOLs.  Clearly Amun wanted them as you can see with the NOL protection provisions in their original offer.  But I don't know how much were utilized because we have no filings.  All we know is the most recent 10k shows they were all forfeited in 2018 due to the troubled debt restructuring.  
As a result of a troubled debt restructuring in 2018, any remaining federal and state net operating loss and tax credit carryovers were eliminated, and therefore any related deferred tax assets and valuation allowances were reduced 
At December 31, 2019 and 2018, the Company had federal net operating losses of approximately $60,940 and $0, and state net operating losses of approximately $17,897 and $509, respectively 
As of December 31, 2019, we had aggregate federal and state net operating loss carryforwards of approximately $60.9 million and $17.9 million
Looks like whatever was left they lost and then they started earning new NOLs.  On the bright side the debt restructuring extinguished $198.7M in debt and who can complain about that.  

Filing Again
Now this is where the story changes.  Another inflection point.  I love this because shareholders took HRBR to court and won.  You can feel the company's anger at being forced to file again.
as of January 1, 2020, which is the first day of the Company’s current fiscal year, the Company determined it no longer met the eligibility criteria under Rule 12h-3 of the Exchange Act to suspend its reporting obligations under Section 15(d) of the Exchange Act. As a result, the Company determined it is required to file the Annual Report

There's an SEC rule about how a company will have to file again with the SEC if they end up with more than 300 shareholders at the end of their fiscal year.   HRBR's fiscal year ends Dec 31 so I wonder if these angry shareholders increased the number of shareholders "of record" above 300 by taking hold of shares in paper form or gifting them to relatives or something.  I've thought about going that route.  Or maybe it was something with their court case.  In any case I LOVE IT.  

There are some unanswered questions.  I don't know how or when the Amun group acquired Air Wisconsin.  What did it cost them?  What did Harbor pay for AWAC (Air Wisconsin)?  If I knew those it would be easier to put a relative valuation on this.

Every stock has 3 parts to the story: the numbers, the chart, and the future.  The numbers say it's cheap.  The chart says it has come up and has room to move a lot higher.  The future is where I'm not sure.  How hard is this airline hit due to corona virus.  Does Amun try to hide again or do they embrace the sunlight and push forward towards a higher valuation.  

You can see they turned a $4M profit last 10Q by reducing airplane rental costs.  Less than 3 weeks after realizing they were forced to file again they bought 3 planes they had been leasing.  Four months later, just before releasing their first 10k in 8 years, they bought 8 more planes.  Maybe they know how to earn money and are embracing the sunshine...


disclosure: long HRBR


  1. Thank you for laying it all out - am certain the officers and directors of HRBR are VERY unhappy with your efforts

  2. Dan,
    About 4 or 5 years ago I reached out to get involved in the revival of Air WI and got a response from an investor group working on this. I believe it would be the group you mentioned. At the time didn't have the cash so I begged off in getting in. I think the number of holders went up because of these events. You may want to do some news searches on Air WI in Wisconsin papers. My guess is that is the cause of getting back above the 300 investor level. Maybe not as sinister as you think. This has been a long playing story locally. I did not know the full connection to Harbor but these guys are well known VC's and I'm not surprised at the maneuvers they made to get this done. I would think the numbers will not be great (like other airlines) but after Covid who knows.

  3. Really interesting company and write up. This one was like reading a novel.
    As always good revenue and balance sheet. Fantastic outlook for the next months after Covid. Don' t like very much airlines companys but this one has a lot of potential.

    Thanks for sharing. Love your style.

    1. You are welcome and yes it's a super interesting situation. The cash on the balance sheet is great but I don't like the debt. Numbers for 2020 will probably be bad due to covid

  4. Since the last-reported cash of $78m is as of March 31 (ie, pre-covid) what is your estimate of the cash burn since then? It seems almost certain that it is lower than that today...notwithstanding the "cheap" metrics, how do you get comfortable the company is a survivor?

    1. I have no estimate of cash burn. Many of the stocks I buy are small, struggling companies. Some of them will die (like SOFT for example) and that is part of this way of investing. I do not have any particular thinking about how HRBR will survive

      "notwithstanding the "cheap" metrics" I cannot do because that's a main reason I bought HRBR

    2. Well I estimate it could have already burned around -100m. Good news is I think we will see a good recovery based on the vaccine over the next 2 months. Bad news there's very high operating and balance sheet leverage. It does seem quite cheap on cash flow if they survive bankruptcy.

    3. I agree with your ultimate conclusion (that it seems cheap) but don't agree with your premise. For example, if you could put together a reasonable argument that the company may have already burned through $x million of cash from operating losses already incurred in Q2-3, and it's also unclear what cash burn will be like going forward (ie, until the world gets back to "normal"), then maybe your current P/BV is actually 0.5x with BV possibly shrinking, as opposed to the 0.2x you noted...but maybe after doing some back of the envelope numbers it's also still worth a bet.

      It's kind of like purchasing a property where the house just burned down yesterday. You might have an appraisal from last year showing a very high number with the house intact, and if you buy it cheap enough (ie, perhaps below a conservative land value) it may still make sense, but the last appraisal value shouldn't be so heavily weighted.

      By the way, please don't (at all) take my comments as criticizing your analysis or your blog. You've done some great work, and I really appreciate someone like yourself who goes far off the beaten path - professional investors should take note. I'm just hoping that by taking other things into account (if you agree they're valid points), you may be able to take your CAGR returns from 50% to 60% :)

  5. It is certainly a good idea. I am not so sure about the timing based on the "Fear and Greed" index, which shows extreme greed for U.S. stocks:

  6. You are moving the market! Late for me.

  7. A blog reader was nice enough to let me know an interesting piece of information I missed. Air Wisconsin looks to have received $42M in April 2020 as part of the Cares Act.

    Search for Air Wisconsin here:

  8. Hi Dan,

    Nice write-up. The only thing I would add that I find somewhat concerning is that they have filed notices that they are unable to file their June and September 10-Qs on time. They do say it is because of work from home orders and COVID that they don't have the ability to complete on time. As a resident of Minnesota, I'm not sure I buy this. I know that Wisconsin has for the most part removed all restrictions since sometime back this summer. I do want to add that I don't know all the information on local restrictions in eastern Wisconsin, so this could be different. I was in this area in July and things were pretty normal, but I wouldn't know about how a business like this is operating from briefly visiting the area. A delay like this doesn't necessarily mean anything bad, just is likely to increase volatility the longer it lasts and could result in a big move when they get caught up on filings.

    The other red flag besides the obvious unknowns for the industry is that they have changed audit firms. It makes me wonder if this is in connection with their delays in filings. They do state that there were no disagreements on the previous annual filings, but I do wonder if there was discussions around going concern and asset impairments after their last filing. Especially with the timing of the recent purchases, I would expect impairment charges. These are non-cash, so I wouldn't want to exaggerate the importance of them. Obviously whatever they paid pre-covid is more than they would have had to pay now. Unfortunate timing, but it is over and done with. Only other thing to add is that I don't think the change in CPA firms would be for cost savings, as BDO and Grant Thornton should be about the same ballpark price wise. I would actually expect Grant Thornton to be slightly more expensive.

    In the end, I see this as one of two outcomes--either they are worth a multiple of the current market value or they are close to bankruptcy. I don't really have a prediction which one that would be. I do think that in the event they pull through, there will still be an opportunity to buy below market value. You obviously have a great track record, so not trying to provide advice. Just think I will watch this one closely and wait rather than buy today. Best of luck.

    I tried posting a similar summary a few days ago that didn't post, not sure if there was an issue or you just haven't gotten around to approving it. I apologize if it is a duplicate.

    1. Thanks for the detailed comment Mark. The late filings I guess don't bother me. I have a lot of companies that get late from time to time. we'll see

      The audit thing yeah might be a concern. I dunno how to read that

      sorry about your first comment. It's not there on my end so something must have happened. I get emailed when there's a comment so I approve right away.

    2. Regarding the change in CPA, they cite on the 8K that it's related to Topics 606 and 842 (

      606 covers revenue recognition of contract revenue, I'm speculating this is benign and simply to update their accounting after this was passed in 2018.

      842 covers leasing, and requires operating leases to be capitalized on the BS. Would imagine this is actually beneficial to them since their EBITDA would improve from the additional depreciation vs the operating lease effect on EBITDAR, given their recent purchases.

      Curious if you've done any sort of channel check or reaching out to mgmt. I've done some scuttlebutt research: they don't appear to have laid off any pilots on LinkedIn, their twitter is pretty meticulously updated/responsive, and their flight history albeit scaled down is still operational, so things look somewhat OK.

      Lastly, given your background with companies going dark Dan, what are some ways that Amun could potentially force this company back into the dark again, if he were incentivized to do so? Thanks for the article!

    3. Probably does not matter, but that 8K states that those are the only adverse opinions or disclaimers on the last two annual filings, not that they are the reason for changing. A company will never give the real reason for changing-- could be cost, could be their perception of how willing they are to discuss issues, or even something as petty as a board member that doesn't like someone there. It is a pain to switch and get a new firm familiar with your business, so it is almost always due to cost or a general feeling about their performance.

      Both of the issues identified have since been fixed. I see that they have the operating lease asset and liability on their most recent 10K, so nothing would change going forward on their financial reporting on these items.

      My understanding of topic 842 is that you are only putting the PV of future lease payments and benefits on the balance sheet. The expense recognition on the income statement still relies on operating vs capitalized classification.

      Just posting to add to the information, it is still more likely than not an immaterial item. Just unusual timing that makes it something to consider. I work in finance for a publicly traded company, so I read and assist in filings regularly.

    4. I have not done channel checks or reached out to management. I saw they are hiring and yes I see their twitter is kept up to date

      as for how they go back into the dark, they could just stop talking. I mean I don't know what really prevents any company from stopping communication. I guess it's shareholder lawsuits but I've seen companies just stop talking and then file form 15 to de-register years later. That's what SOFT did.

      POSC is one I was just looking at. they filed an NT-10k in Mar 2016 and then just never filed the 10k. 3 years later they finally put out the official form 15 to de-register.

    5. I see that they have caught up on their filings through 9/30/20. I only did a quick glance, but it certainly looks like any short term risk of bankruptcy is off the table. Not good to see an audit from the Department of Treasury, but I don't think we see a material impact from that. There are still concerns around the longer term impact of COVID and previous management actions, but the upside seems to certainly outweigh those risks at this price level. Thanks for writing this up.

    6. Yeah they have a ton of cash right now. You're welcome for the writeup

  9. So would HRBR's incentives to not file primarily be reporting cost and effort? And the only way shareholders can force them to report is to continually have >300 shareholders?

    1. There are lots of reasons a company may want to stay dark. For sure cost and effort is high on that list. On the nefarious side it could be that management wants to give themselves perks outside the public eye. Maybe drive the stock down to buy stock themself (or take it private). I don't know HRBR's intentions. Some companies just don't care and don't want to deal with the public. I've heard companies say they think it hurt them competitively to report in the public

      Yes the only way I know of is to continually have > 300 shareholders

  10. It seems that this company was never really profitable. They record accumulated losses of 207 Mio. so the business is poor. They record a profit in 2018 but only because of some credit waivers. Further, the price has risen quite sharply. I prefer stocks that were at least highly profitable in the past.

  11. This is how one could potentially deal with the 300 shareholder issue in the future - recent 13D filing for MSLP:

    "In the Issuer’s most recently filed Annual Report on Form 10-K for the year ended December 31, 2019, the Issuer disclosed that as of August 18, 2020, there were approximately 295 holders of record of shares of its Common Stock. Public companies such as the Issuer, can deregister and terminate their obligation to file periodic and current reports with the Securities and Exchange Commission (the “Commission”) when it has a class of securities that are held of record by less than 300 persons.

    In order to support the Issuer as well as its SHAREHOLDERS and ensure that it continues to maintain at least 300 holders of record, on October 26, 2020, Wynnefield Partners completed the process of distributing 31 shares of Common Stock to 31 of its limited partners. The Wynnefield Reporting Persons plan to continue this process in the future to ensure that the Issuer continues to remain a reporting company with the Commission."

  12. Could you please have a look at the chart of XIN (Xinyuan). It looks like a perfect chart to me as the multi-year lows bottomed around usd 2. Now the stock is at 2.3 so close to the bottom. The price target of one analyst is at usd 6.93 and the P/E is around 8. Any comments?

    1. I don't know that one. I'll take a look. thanks for the idea

    2. chinese real estate company is not for me. also too many shares outstanding

    3. some Chinese stocks did lately very well such as FTFT or CGA. However, I dont see an explanation for these extreme price increases.

    4. another crazy event is a stock called Signal advance that did go up about 100x after a tweet by Elon Musk. He tweeted that you should use the app Signal instead of WhatsApp because of the new WhatsApp terms and conditions. Signal advance has nothing to do with the App!
      Reminds me of the year 2000.

  13. Hi Dan. Are you still holding? Any recent developments?/reason for weakness of late?

    1. yes I still hold all my HRBR shares. I've never sold any. I don't see any news or filings from them and I don't know why the price has dropped other than it's up 250% in the past few months

    2. What do you make of possible nefarious shenanigans by mgt to get this to dark status again. see risk of takeunder alluded to by @blkdiamondcap on twitter

    3. what is your specific question? yes management is shady they are a risk

  14. I wrote some time ago that Japan could be an interesting place for investors. Unfortunatly, there is a big language barrier and nobody writes about very small companies. Therefore this blog may be interesting:
    Unfortunatly I was not able so far to buy this stock as it is on the move up.

  15. There is some discussion going on if interest rates could go up. This would be bad for stocks as the discounted cash flows and the value of a company goes down. Also it seems that there is a lot of tension in the market (e.g. see the high price increases /bubbles of Bitcoin, Tesla or Gamestock and some other related stocks with high short selling interest). Hopefully these are not early indicators of a crash. Any thought how higher interest rates would effect nano stocks specifically? Do you still hold a lot of cash?

    1. no I don't hold much cash. I am usually pretty much fully invested. I did have a lot of cash after my HEMA and BMRA sales but that's almost all gone now. Used some for living expenses and bought stocks with the rest. Many of my purchases over the past year have been stocks I already own, just getting a larger position.

      As for interest rates and a crash or anything like that, I don't know. That's not my deal.

    2. right now about 3% of my portfolio is cash

    3. Interest rates are quite easy and one of the core concept of corporate finance.
      A dollar tomorrow is less worth than a dollar today. You discount future dollars (or earning) with the interest rate (usally with the weighted cost of capital which is based on the risk free interest rate and the market risk). If the risk free interest rate goes up (this is usually the 10 year bond rate), all future dollars (earnings) are worth less. The stock market boom of the last years can be explained by lower interest rates. you see on this chart below that interest rates have only gone down, which increased the value of future earnings of the comapanies today. further an investor has much more incentive to invest in the stock market than in bonds which pay low interests. What will happen if the interest rate goes up? Future earnings will have a lower value today and stocks usually fall.

    4. see also here:
      and here:
      In my opinion, the U.S. stock market party could indeed be over. Covid inflated the stock market.It will be interesting to see what happens next.

  16. see also here:

  17. Hi Any update on your view Dan, after seeing filings?

    1. It's great to see HRBR putting out filings, that's number one. To me the main part of this story is just the company continuing communication. They put out surprising long and detailed reports for a company that didn't want to report publicly.

      As for the numbers the airline industry is down and that's expected. But HRBR has a ton of cash and seems like they can weather the storm

  18. HRBR stock is exploding today, anyone have any idea why?

    I can't find any news anywhere.

    1. I don't see any news. Maybe new group of people finding it. Or someone getting excited about dropping covid numbers and rising vaccine distribution? who knows

    2. I suppose so! Oh well, I'm not complaining :)

    3. United Airlines is Air Wisconsin's sole airline partner. When United made the announcement yesterday that they were buying a bunch of Boeing 737 Max's, I suppose it could have been perceived as being good for United's business, and by extension to HRBR as well.

    4. Oi good point! I'll pay more attention to UAL going forward. Thanks!

  19. it looks like they are reporting earnings of $0.71/share... on a $0.75 stock

    1. Q4 looks really good. Revenue rebounded to $75M and they earned about $0.40 per diluted share after taking out CARES act stuff. It's going higher if they can keep that up

    2. Yes the business seems to be very cyclical. However, this could also be negative, e.g. sales and earnings could suddenly go down again. I am wondering why this is so cyclical.

  20. Any comment on the Q1 2021 numbers? Ex-govt assistance, it looks like $5 mill of pretax income.

    1. yeah. so maybe like 6-7 cents EPS for the Q given an estimate of taxes. Not bad and great to see it >0. Revenue not bad either, must better than earlier on in the covid madness

  21. Thx. What do you think is an appropriate value per share for HRBR? Fully diluted book value? Liquidation value (how realistic are book values)? Or some multiple of earnings? <Any sense of normalized earnings power and an appropriate multiple? Annualizing the 6-7c gets you to 0.25c per share, but surely this estimate is low?

    1. You have to make that decision on your own. I usually just take the higher of: 10x earnings, 1x book, 1x sales. That would put value at $2-3 which is about where we sit.

      I don't feel very confident in assigning exactly the right value. I haven't done very deep research on the business or airlines in general.

      The real question is where will the stock price go. It is of course much less compelling here at $1.90 than it was when I wrote it up at $0.22. When I wrote up the stock you could see the value based on the past. As the stock has risen the value now is coming from the future which is hard to predict.

      I have sold some recently because it has come up so much and the position got large. I am now watching and waiting. I could see the rise continuing as we move beyond covid lockdowns. but I don't really know what will happen

    2. Dan, I have looked at this quite a bit recently and I think it can double again. They have bought almost all of their leased aircraft and that alone will cut cost tremendously. Add in a few other cost cuts and the fact that they are rapidly approaching 2019 capacity again and I can see them doing $20M EBIT soon.
      Additionally they will expand capacity to some degree, which might require more aircraft but that is up in the air for now.

      They will also receive $50M in govt support this year so that is cash coming in on top.

      And finally if you look up the value of their machines in the second hand market it is at 50% of liquidation value. It is not realistic that they would liquidate or achieve those prices in a fire sale but gives some margin of safety.


  22. I am struggling a bit to come up with a fair value. It is a little more complicated than to say that they would be at a run rate of .06/qtr excluding government assistance, as they continue to have a lower cost structure due to lower demand. From reading their reports, they are likely to get ~$50M more in funding from the government, which certainly counts for something.

    A couple of things that I like is that they are very likely at 0.20+ per share in normalized earnings. Plus, they will be in a net cash position by the time they collect the remaining government assistance. They have also put in place a share repurchase plan, even if they likely can't use it right now (I believe the government agreements don't allow them to repurchase shares).

    The concerns are that they rely on UA and past management actions. I would hate to see them try to issue more preferreds, as it was unlikely that it was actually necessary back in January 2020 when they did so. Also, there is the ongoing treasury audit, which could cost them some relatively immaterial amount of the funds already received. More importantly, it could reduce future government funding that they would otherwise be entitled to.

    Even though it has become a higher percentage of my portfolio than I would typically prefer, I think it is best to still hold at this point. I think the downside is relatively limited based on what we know today. I could see it doubling yet if they use the funds to expand or do a special dividend or share repurchase when allowed to do so. It is probably far more likely that it ends up being worth somewhere in the 2.50-3.00 range than 4+, but I don't think there is a lot of downside from here. Wish I had purchased more sub $0.40.

  23. Forgot to add that they took ~20M and invested in ETFs. If you just take the S&P as a proxy, they would report $1.1M in unrealized gains quarter to date. If they invested in tech/nasdaq, it would be much closer to 200k. While i don't think recording mark to market gains/losses on unrealized gains/losses is a great way to look at things, I tend to think a lot of people just look at the EPS. So it could have an impact on the stock going forward.

  24. Dan
    Any thoughts on whether UAL Investor Day news re smaller planes spells liquidation for HRBR? Seems to be trading that way.

    1. I don't know. I started selling in May, sold some the other day at 2.96, and finished selling today between 1.85-2. I'm out now

      It's an airline business which does not excite me. Was a great situation and has played out very fast

  25. kinda fun I found the law firm that "Represented investors in Dr. Travis Martin v. Harbor Diversified, Inc., No. 2018-0762-SG (Del. Ch.), and successfully forcing this once-public company that had gone completely dark on its shareholders for over seven years to resume holding annual stockholder meetings and SEC reporting."

    see the experience section here:

  26. Wow, nice ! A group of investors is trying the same with BLSP now...

    1. yes I talked with them earlier this year. Very organized. I thought that was supposed to be done by now

  27. Hi Dan - How did you initially find this HRBR idea? I didn't see this information in the writeup or comments.

  28. just realized this lawyer mentioned me in their website stating they represented the shareholders in the lawsuit to make HRBR file again