AKR - Ackroo

[gary17]

Matthewd98

Did you see that Ackroo amended its financial statements on August 25 according to Sedar. Do you by chance know what the amendment is about ?

 

Thanks

Gary

[ItsAValueTrap]

Uh... are these guys giving stock options to investor relations freelancers/consultants?

 

This looks like a typical TSX V / Scamcouver Stock Exchange stock promotion.

[gary17]

Trap

 

it would be useful if you could post something constructive - we'd welcome your critical review of the business model , etc

 

Snowball sent his money to the company and have added more this summer - all disclosed in Sedar.  u just need to look.  I don't think he was granted options if that's what u r implying as that didn't show up on Canadian insiders

 

thx

[ItsAValueTrap]

Trap

 

it would be useful if you could post something constructive - we'd welcome your critical review of the business model , etc

 

Snowball sent his money to the company and have added more this summer - all disclosed in Sedar.  u just need to look.  I don't think he was granted options if that's what u r implying as that didn't show up on Canadian insiders

 

thx

 

To clarify: my comments weren't directed to snowball at all.

 

The annual financial statements talk about company policy regarding giving out options to people for "investor relations" services.  That's a big red flag.

[matthewd98]

Trap

 

it would be useful if you could post something constructive - we'd welcome your critical review of the business model , etc

 

Snowball sent his money to the company and have added more this summer - all disclosed in Sedar.  u just need to look.  I don't think he was granted options if that's what u r implying as that didn't show up on Canadian insiders

 

thx

 

To clarify: my comments weren't directed to snowball at all.

 

The annual financial statements talk about company policy regarding giving out options to people for "investor relations" services.  That's a big red flag.

 

They didn't give out any options to investor relations since Steve became CEO in May 2014. The share based compensation for the quarter was simply 250k options granted with a strike price of $0.30 and fair value of $64.6k. The "investor relations" wording is just there in the paragraph describing the rolling options plan, but it doesn't at all equate with them giving out options to an IR firm.

 

You should of at least looked at the breakdown of the options that were granted in the last year before making a comment like this.

 

Matthew

[matthewd98]

Here are my thoughts on Q3 which I shared on another forum:

 

I thought this was an excellent quarter. First, cash expenses were down 6% sequentially despite the 65% hike in revenue. Operating loss was only $116k adjusting for non-cash items and the $25k uplisting fee compared to $287k in Q2 excluding the settlement charge. Steve had never intended to do an uplisting anyways, but a warrant holder needed it to deposit his warrant certificate and he made a verbal commitment to exercise them all in exchange for the uplisting which would have pretty much covered the uplisting cost. Unfortunately, he hasn't kept true to his word now that they are out of the money. I think it's very feasible that the company will become cash flow positive with only the ~$150k it has in the bank especially since Q4 is seasonally very strong. That's not even realistic scenario either way as there will be a good chunk of the warrants that will be exercised IMO.

 

Secondly, stripping out the $50k in monthly revenue contribution from DealerRewards, the YoY organic growth was 15%. As I said in my previous posts, even if Steve has to temporarily stall the M&A strategy, he can still grow organically (I made a previous post on another forum where I said that Ackroo can keep growing without doing M&A should the stock price be too low to warrant an equity raise).

[gary17]

Matthewd98, that's too bad that US investor didn't exercise the warrants !  Not to second guess Steve but I would have asked that he exercise the warrants first; then use the proceeds to do the US listing.  Nothing wrong with leaving the share certificate in a safety deposit box until it is tradable.  You want the shares to trade, pay for the cost to do so first !

 

Anyway - the growth by acquisition strategy seems to be under a magnifying glass of late.  I like to see more organic growth - 

 

I am pleased with the financial results , and it is definitely good to see the CEO bought  360K worth of warrants - would be interesting to learn if he exercise them all now.

 

Gary

 

Here are my thoughts on Q3 which I shared on another forum:

 

I thought this was an excellent quarter. First, cash expenses were down 6% sequentially despite the 65% hike in revenue. Operating loss was only $116k adjusting for non-cash items and the $25k uplisting fee compared to $287k in Q2 excluding the settlement charge. Steve had never intended to do an uplisting anyways, but a warrant holder needed it to deposit his warrant certificate and he made a verbal commitment to exercise them all in exchange for the uplisting which would have pretty much covered the uplisting cost. Unfortunately, he hasn't kept true to his word now that they are out of the money. I think it's very feasible that the company will become cash flow positive with only the ~$150k it has in the bank especially since Q4 is seasonally very strong. That's not even realistic scenario either way as there will be a good chunk of the warrants that will be exercised IMO.

 

Secondly, stripping out the $50k in monthly revenue contribution from DealerRewards, the YoY organic growth was 15%. As I said in my previous posts, even if Steve has to temporarily stall the M&A strategy, he can still grow organically (I made a previous post on another forum where I said that Ackroo can keep growing without doing M&A should the stock price be too low to warrant an equity raise).

[gary17]

In fact if he exercise the warrants... 360K shares at $0.25 would cost him $90,000 plus the cost of the warrants.  That'd be a very strong vote of confidence in my book for me to exercise mine :)

[matthewd98]

Anyway - the growth by acquisition strategy seems to be under a magnifying glass of late.  I like to see more organic growth - 

 

I'd rather see some M&A personally. There's about 11 acquisitions he can make in Canada and that number is 10x larger in the US. The economics of M&A in this space are particularly interesting as Steve can acquire these companies for 1.5-2x sales if they are unprofitable or 3-4x profitable, then instantly improve their margins by only retaining the top talent and letting go of the majority of the staff (thereby improving the talent bar for the Ackroo overall) which means the incremental EBIT margin of these acquisitions is ~50%.

 

Not only are the economics for M&A compelling, but the industry is ripe for consolidation. Competitors are all fighting paper the majority of the time and only steal clients from each other about 10% of the time. That's why it's been so easy for Steve to negotiate these acquisitions and talk to competitors.

 

Furthermore, if Ackroo was fairly valued (i.e. should be trading at ~4x sales and 5-6x sales when they become cash flow positive IMO), then acquiring competitors for smaller multiple of sales would immediately create shareholder value by way of Ackroo being valued at a higher multiple.

 

In fact if he exercise the warrants... 360K shares at $0.25 would cost him $90,000 plus the cost of the warrants.  That'd be a very strong vote of confidence in my book for me to exercise mine :)

 

Steve bought the warrants so he could inject cash in the business, otherwise he could of bought in the open market at lower prices -- it's already a big vote of confidence. He will be giving a good chunk of the warrants to the board members so they can exercise them in order to have their interests aligned with those of shareholders. The rest he will exercise personally.

[gary17]

Anyway - the growth by acquisition strategy seems to be under a magnifying glass of late.  I like to see more organic growth - 

 

I'd rather see some M&A personally. There's about 11 acquisitions he can make in Canada and that number is 10x larger in the US. The economics of M&A in this space are particularly interesting as Steve can acquire these companies for 1.5-2x sales if they are unprofitable or 3-4x profitable, then instantly improve their margins by only retaining the top talent and letting go of the majority of the staff (thereby improving the talent bar for the Ackroo overall) which means the incremental EBIT margin of these acquisitions is ~50%.

 

Not only are the economics for M&A compelling, but the industry is ripe for consolidation. Competitors are all fighting paper the majority of the time and only steal clients from each other about 10% of the time. That's why it's been so easy for Steve to negotiate these acquisitions and talk to competitors.

 

Furthermore, if Ackroo was fairly valued (i.e. should be trading at ~4x sales and 5-6x sales when they become cash flow positive IMO), then acquiring competitors for smaller multiple of sales would immediately create shareholder value by way of Ackroo being valued at a higher multiple.

 

In fact if he exercise the warrants... 360K shares at $0.25 would cost him $90,000 plus the cost of the warrants.  That'd be a very strong vote of confidence in my book for me to exercise mine :)

 

Steve bought the warrants so he could inject cash in the business, otherwise he could of bought in the open market at lower prices -- it's already a big vote of confidence. He will be giving a good chunk of the warrants to the board members so they can exercise them in order to have their interests aligned with those of shareholders. The rest he will exercise personally.

 

 

I share your optimism - but I personally would be careful with the valuation based on 4x sales -  for me a business should only be valued based on how much you can get out of it over its sustainable lifetime...  Let's not get ahead of ourselves until we see some free cash flow or earnings --  I know the entire SaaS / cloud-based sector is hot... but let's not get carried away.

 

Secondly, I am not a big fan of doing acquisitions using company shares - why dilute existing shareholders , especially if shares could be worth more in the future.... I prefer grow the business organically - get to free cash flow - and use that for acquisition , and may be modest use of debt + equity financing.    to be purely waiting for the market to value AKR shares at 4x then start issuing shares for acquisition doesn't sound like a sound business strategy to me. IMO.

[matthewd98]

I share your optimism - but I personally would be careful with the valuation based on 4x sales -  for me a business should only be valued based on how much you can get out of it over its sustainable lifetime...  Let's not get ahead of ourselves until we see some free cash flow or earnings --  I know the entire SaaS / cloud-based sector is hot... but let's not get carried away.

 

Secondly, I am not a big fan of doing acquisitions using company shares - why dilute existing shareholders , especially if shares could be worth more in the future.... I prefer grow the business organically - get to free cash flow - and use that for acquisition , and may be modest use of debt + equity financing.    to be purely waiting for the market to value AKR shares at 4x then start issuing shares for acquisition doesn't sound like a sound business strategy to me. IMO.

 

Agreed with your statement in general about valuation on sales and your sentiment regarding SaaS companies. The problem with most SaaS companies is that they need to spend a large money upfront to acquire customers which means those customers will take months or ever years to become profitable. The cash burn keeps up so long as the company continues to grow at a reasonable rate. The only way around this is to have an excellent CLV/CAQ (customer lifetime value to customer acquisition cost) ratio like in Ackroo's case.

 

That said, I think it's fair to value Ackroo at 4x sales for 2 reasons: i) private unprofitable competitors get taken out for 2x sales and profitable ones for 3-4x sales. Given that Ackroo is a public company, it should trade a premium multiple to private unprofitable counterparts. There are lots of mergers and acquisitions going on in the gift card & loyalty provider industry so there is a possibility that Ackroo become acquired or merges with another company, and if that were to happen, the acquirer or merging company would need to pay this valuation as it's the industry standard. ii) these types of businesses are incredibly predictable (i.e. sub-10% annual church rate in this case -- it says 90% retention rate on their investor presentation, but it's actually 94% because they intentionally let go of a hospital location which skewed this metric).

 

I like to take a multi-model approach to valuation where I consider intrinsic valuation (present value of future cash flows), relative valuation and take-out scenarios.

 

I'm still very much a supporter of the organic growth, but I see it as secondary to the M&A strategy. Realistically, the company won't grow more than 20% organically per year IMO with the current referral partner model -- if Steve would want to kick up the growth rate, then he'd have to hire direct sales people and the company would just be burning again like in the past as you already know. The time it takes for Steve to generate sufficient cash flows to make acquisitions will be too long the way I see it (remember he still has to pay for the DealerRewards acquisition and there are more payments to be made in the future). I think a final equity raise, at the right price obviously, will build the most shareholder value by way of growing Ackroo's cash flows quickly where Steve can then use those cash flows to keep on doing future acquisitions -- it's just a way to get him the point of using cash flows for future acquisitions in a much faster time. There's also a wild card here that I haven't mentioned, but Steve has been trying to do some acquisitions lately that would be financed purely with future cash flows (so in installments at later dates). Debt financing also isn't out the question, but they would first need to become cash positive in order to get favorable terms and interest rates.

 

Matthew

[matthewd98]

Ackroo Amends Payment Terms for Dealer Rewards Canada Acquisition

 

Link: http://finance.yahoo.com/news/ackroo-amends-payment-terms-dealer-130000626.html

 

As I previously said, the vendor had little leverage. Steve was already able to negociate new payment terms with him.

[gary17]

According to the latest filing; the CEO Steve Levely has exercised all the warrants he bought - 360,000 shares at $0.25 or approximately $90,000.  IMO this is a big vote of confidence.

 

 

https://www.canadianinsider.com/company?menu_tickersearch=AKR%20%7C%20Ackroo

 

 

 

Gary

[unusualstocks]

Ackroo continues to be one of the most compelling microcap opportunities right now in Canada, in my opinion. It has become incredibly de-risked since mid-2015, and at today's prices it is being extremely undervalued. There is an open Private Placement and once Ackroo is capitalized I expect rapid upside.

 

A few recent reports and posts on the company:

 

- Espace Microcaps just released a fantastic and very thorough research report: https://espacemc.com/wp-content/uploads/2016/04/20160421-Espace-MicroCaps-AKR-Initiation-Report.pdf

 

- On my site, UnusualStocks, I recently wrote how the company is a cash infusion away from huge upside: http://www.unusualstocks.net/members-only/2016/4/15/ackroo-a-cash-infusion-away-from-huge-upside

 

Looking forward to interacting with all of you who are currently invested, or potentially looking to invest, in Ackroo.

[Guest Schwab711]

Ackroo continues to be one of the most compelling microcap opportunities right now in Canada, in my opinion. It has become incredibly de-risked since mid-2015, and at today's prices it is being extremely undervalued. There is an open Private Placement and once Ackroo is capitalized I expect rapid upside.

 

A few recent reports and posts on the company:

 

- Espace Microcaps just released a fantastic and very thorough research report: https://espacemc.com/wp-content/uploads/2016/04/20160421-Espace-MicroCaps-AKR-Initiation-Report.pdf

 

- On my site, UnusualStocks, I recently wrote how the company is a cash infusion away from huge upside: http://www.unusualstocks.net/members-only/2016/4/15/ackroo-a-cash-infusion-away-from-huge-upside

 

Looking forward to interacting with all of you who are currently invested, or potentially looking to invest, in Ackroo.

 

What makes Ackroo so compelling? There's tons of competition. Also, you say the company needs a capital infusion to take off but they are spending $60k+/yr on stock promotion. That doesn't really seem like a good long term decision. I'd have to look but I don't think organic rev growth was even positive in TTM.

 

Ackroo's gift card/loyalty card competition slide makes no sense. They seem very promotional and inefficient.

[unusualstocks]

@Schwab711...with all due respect I honestly have no clue what you are talking about. The company isn't paying anything for "stock promotion". They have never paid for any kind of "stock promotion" since Steve Levely became the CEO is 2014. All they have paid for is the services of an Investor Relations firm for the past 3 months, and I don't think they are even renewing that contract.

 

This is what makes Ackroo so compelling:

- 38.5% CAGR from 2012 to 2015

- Recurring revenue in excess of 60%

- Customer retention rate in excess of 90%

- Gross margin in excess of 70%

 

The last few quarters have shown 60%+ growth. Organic growth should be up 20% for the full year 2016.

[Guest Schwab711]

@Schwab711...with all due respect I honestly have no clue what you are talking about. The company isn't paying anything for "stock promotion". They have never paid for any kind of "stock promotion" since Steve Levely became the CEO is 2014. All they have paid for is the services of an Investor Relations firm for the past 3 months, and I don't think they are even renewing that contract.

 

This is what makes Ackroo so compelling:

- 38.5% CAGR from 2012 to 2015

- Recurring revenue in excess of 60%

- Customer retention rate in excess of 90%

- Gross margin in excess of 70%

 

The last few quarters have shown 60%+ growth. Organic growth should be up 20% for the full year 2016.

 

Thanks for responding.

 

http://www.newswire.ca/news-releases/ackroo-announces-record-fourth-quarter-revenue-565408861.html

I didn't notice the 90 day term (so it's $15k+). Torrey Hills Capital looks like a promotional partner to me and we have no way of knowing whether they will renew or not at this point.

 

http://ackroo.com/wp-content/uploads/2016/02/Ackroo-Investor-Deck-Feb-2016.pdf

http://www.sedar.com/GetFile.do?lang=EN&docClass=5&issuerNo=00018766&issuerType=03&projectNo=02408394&docId=3814974

Sales/diluted share fell by 35% y/y! Dealer Rewards and PhotoGIFTCARD accounted for ~$175k of sales in 3Q15. Nominal organic growth was trivial in 3Q15.

 

Edit: bad math

[Guest Schwab711]

Ackroo continues to be one of the most compelling microcap opportunities right now in Canada, in my opinion. It has become incredibly de-risked since mid-2015, and at today's prices it is being extremely undervalued. There is an open Private Placement and once Ackroo is capitalized I expect rapid upside.

 

A few recent reports and posts on the company:

 

- Espace Microcaps just released a fantastic and very thorough research report: https://espacemc.com/wp-content/uploads/2016/04/20160421-Espace-MicroCaps-AKR-Initiation-Report.pdf

 

- On my site, UnusualStocks, I recently wrote how the company is a cash infusion away from huge upside: http://www.unusualstocks.net/members-only/2016/4/15/ackroo-a-cash-infusion-away-from-huge-upside

 

Looking forward to interacting with all of you who are currently invested, or potentially looking to invest, in Ackroo.

 

What makes Ackroo so compelling? There's tons of competition. Also, you say the company needs a capital infusion to take off but they are spending $60k+/yr on stock promotion. That doesn't really seem like a good long term decision. I'd have to look but I don't think organic rev growth was even positive in TTM.

 

Ackroo's gift card/loyalty card competition slide makes no sense. They seem very promotional and inefficient.

 

@Schwab711

I own a large position in Ackroo. I'm interested to know "efficients" publics companies you know in this sector. First Data (FDC) and Blackhawk Network (HAWK) are billions companies -also active in payment solutions- but you probably know Ackroo (AKR.v) still very small (less than $ 4 M marketcap) and essentialy in gift/loyalty cards.

 

Could you tell us which companies are your comparables (ref. sector, gross margin, recurring revenues) ?

 

Thanks

 

Long

 

I'm just throwing out risks I see. I have not studied them in-depth but I've looked at them and I know the industry pretty well. Do your own research and fact check.

 

So without going into details, you can see there are a ton of competing solutions.

http://lmgtfy.com/?q=gift+card+solutions

 

Even if you use a SB search you can still see a ton of competitors. Maybe you can argue they have a niche and are terrible at SEO. I don't know.

http://lmgtfy.com/?q=gift+card+solutions+for+small+business

 

The promotion always makes me uneasy because there're so many sketchy companies on the OTC and ventures. I think management matters a lot more with small companies than large. Stock dilution and the value received for that dilution are red flags.

 

By inefficient, I mean they are tiny and competing in an industry where scale matters a lot. You basically need a strong competitive advantage or you need to get big, fast (even then, you will probably just lose more money at a faster) and everyone is already in gift card/loyalty. It's a tough industry.

[Guest Schwab711]

TSX:EFT

 

You should know the competitors. Just because you haven't found any doesn't mean they don't exist. You linked to their competitors slide after all so it was probably a safe bet that they existed. The Google searches were meant to show you that there are tons operators that offer solutions for businesses of various sizes. Ackroo may become profitable but their services are not special.

 

It also brings me back to my original question, what is so compelling about a pure-play gift and loyalty card solutions company? Why did you seek out this type of business to invest in? There are thousands of "pure play" companies so I assume you sought out gift card solutions? To me, it seems like Ackroo is focusing on a tiny market with higher CAC than other processing segments? The argument for Ackroo's potential is basically "high incremental margin on new customers", but this is true for Ackroo's competitors as well. It seems possible to me that Ackroo is fishing in an unprofitable pond. There are times where Canadian industry segments are vastly different, competitively, from US ones, so maybe that is the case here and Ackroo really is interesting. I haven't seen anyone make that argument yet so I'm assuming that US-based knowledge of the industry translate to Canada.

 

Just in Canada, EFT does both gift and loyalty cards, has roughly the same amount of revenue as Ackroo, and is publicly traded. Why didn't everyone rush into EFT?

 

I don't really understand your last question but I might have answered it above with the unprofitable pond comment. It would be great to read your responses but I'm not going to look into this name any further. Good luck with this.

 

However, can you share how you arrived at their #5 Canadian market share position? I don't know the Canadian processing market as well as the US so it would be great to have more sources for the future.

[unusualstocks]

An excerpt from the article I just posted on my site regarding Ackroo's Q1 2016 results:http://www.unusualstocks.net/members-only/2016/5/7/a-quick-glance-at-ackroos-q1-2016-results

 

My quick take on Ackroo's Q1 earnings are below, with the understanding that until the company gets capitalized the progress won't mean that much to the market.

 

-42% Revenue growth from same period in 2015 with continued significant reduction in expenses/operating costs.

-Subscription growth (i.e. the recurring revenue base) increased over 140% since same period in 2015.

-The operating loss from operations for the three months ended March 31, 2016 was $88,122 ($62,442 + $25,680 for non-recurring/non-operating investment services).

 

To show just how close I think the company is to profitability and positive cash flow, if you back out the following three things the company reaches both of these milestones.

 

- $25k for 3 months worth of Investor Relations activities (Ackroo did not renew the contract).

- $24k/month ($72k/quarter) in DRC licensing fees.

- Transaction, year-end legal fees, and acquisition-related fees.

 

Regarding the DRC licensing fee, it doesn't technically "go away" until all the DRC customers migrate over to Ackroo's platform, but the company can overcome this cost with some more organic growth so that once the DRC fee is gone it won't "get them to profitability" but rather it would "add to profitability".

[unusualstocks]

Very favorable developments for Ackroo:

 

http://www.newswire.ca/news-releases/ackroo-makes-final-amendment-of-payment-terms-for-dealer-rewards-canada-acquisition-578796861.html

 

 

[gary17]

from the financial statements:

 

Effective May 29, 2015, the Company acquired certain assets of Dealer Rewards of Canada 2014 lnc.("Dealer Rewards"), a company incorporated under the federal laws of Canada, and a division of Dealer Rewards Inc. and their affiliate Evolve Automotive Group Inc., for a purchase price of $1,500,000 in cash and 769,231 common shares of Ackroo with a fair value of $369,231. The acquisition was accounted for as a business combination. Cash consideration of $100,000 was paid at closing, with the remaining $1,400,000 payable over the next 18 month with $600,000 due by December 31, 2015, $400,000 due by June 30, 2016, and a final contingent amount of $400,000 due by December 31, 2016 which is subject to performance provisions.

 

 

OTTAWA, Nov. 18, 2015 /CNW/ - Ackroo Inc. (TSXV: AKR) (OTC: AKRFF) (the "Company"), a gift card, loyalty and rewards technology and services provider, has reached an agreement to amend the payment terms for its acquisition of Dealer Rewards Canada, a SaaS based loyalty rewards company tailored to the automotive sector. Under the current terms Ackroo agreed to make payments totaling $1,500,000 over an 18 month period of time expiring on December 31st 2016, and to issue 769,231 shares. Ackroo made an initial payment of $100,000 and issued the shares agreed on closing of the acquisition and has now revised the payment terms on the remaining $1,400,000. Under the new payment terms Ackroo will pay $100,000 by December 31, 2015, $100,000 by January 31, 2016, $100,000 a month for 9 months starting in March 2016 and a final payment of $300,000 due before January 31, 2017. The final cash payment is subject to adjustment based on performance goals for the Dealer Rewards business. Ackroo has also attached conversion provisions to the remaining cash payments, where the vendor may elect to receive shares of Ackroo, in lieu of the applicable cash payments, based on the current 20 day VWAP at the time of election. Any share issuances are subject to the prior approval of the TSX Venture Exchange.

 

So based on the news release; we should see 200k$ payment of loan in 2015 and  and 200K$ in Q1 2016  (Jan 31 $100,000 and March 31, $100,000). 

 

Why do I not see these repayments in the annual 2015 & Q1 financial statements?

 

The annual audited result suggested payment of loans of $160K - about $40K shy of the $200K it would have paid

 

and March 31 2016 statement shows repayment of $ 48,000 only.

 

[unusualstocks]

Gary, not sure. Maybe you missed the previous amendment to the DRC terms? Feel free to reach out to the company if you want to, but I am just happy that this new amendment was completed. Lots of breathing room for the company now and should provide nice momentum to get some cash raised for the current open PP. Then Steve can stop worrying about cash and can focus solely on execution.

[unusualstocks]

Based on my discussions with other investors that have participated directly in the PP and that know others that are participating in the PP, my estimates are that the company has around $200k-$250k committed at this time. I also know that there are several large investors in discussion with the company for this round. So, I suspect the private placement will either end up with $350k-$450k range in new commitments or $850k-$1M in commitments depending upon what transpires in the week ahead.

[unusualstocks]

http://www.unusualstocks.net/members-only/2016/6/4/an-update-on-ackroo-the-closing-of-the-private-placement-and-the-new-partnership-with-first-data-set-the-stage-for-significant-organic-growth

 

An Update on Ackroo: The Closing of the Private Placement and the New Partnership with First Data Set the Stage for Significant Organic Growth

 

There have been several pieces of significant news this week from Ackroo (AKR.V), one of which, in my opinion, is game-changing and elevates Ackroo to a whole new level within the loyalty and gift card market. The closure of the private placement and the announcement of Ackroo's partnership with First Data, the largest POS provider in the USA and one of the largest in the world, sets the stage for significant organic growth ahead that will fuel the company quickly to profitability and positive cash flow, thus allowing for acquisition opportunities to be acted upon later in 2016.

 

Let's examine each of these developments and their potential impacts to Ackroo:

 

1. Closure of the Private Placement

 

On March 17, 2016, Ackroo announced a private placement seeking to raise up to $2M. On May 10, 2016, Ackroo announced that it had re-negotiated its terms with Dealer Rewards Canada ("DRC"). Under the former terms of the acquisition Ackroo was required to complete payments totaling $1,130,000 prior to January 2017.  The re-negotiated terms extended those terms to January 2019 with Ackroo agreeing to pay DRC $330,000 on or before July 1st, 2016, in addition to twenty-four monthly payments of $36,916 commencing in January 2017. In effect, this significantly reduced the capital requirements of the company (remember, Ackroo was paying over $100k+ per month to DRC for this unsecured payout which was eating up cash flow) and thus Ackroo announced it was not seeking to raise the full $2M from the private placement announced in March.

 

On June 9th 2016 , Ackroo announced it closed the private placement with $587,316 of new capital. This capital will be sufficient to fund the company's near-term organic growth opportunities and the upcoming July payment to DRC. There will likely need to be another private placement in a few months to provide the ammunition for greater organic scale and an accretive acquisition or two.

 

Ackroo was able to raise nearly $600k with the market price mostly below the PP price of .20/share since the announcement of the equity raise, and without any warrants attached to the deal. Very positive!

 

Ackroo is now re-capitalized and closer than ever to profitability and positive cash flow!

 

2. Partnership with First Data

 

On June 8, 2016, Ackroo announced a new partnership with First Data. This is a HUGE WIN, and a very strategic move for Ackroo for many reasons as First Data owns about 55% of the US payment processing market, and has more merchant locations in the world than any other payment processor!

 

Here are the reasons that I believe this deal is extremely lucrative and validating for Ackroo:

 

-Opens up 6M merchant locations to Ackroo globally (initially 30k in Canada and quickly growing, 4M in USA). This is compared to the 250k potential merchant locations that Ackroo has now through its current Canadian POS partners like Chase Paymentech and Global Payments. Wow!

 

-Validates Ackroo’s technology and scalability as First Data did many months of due diligence before selecting Ackroo as its partner in this area.

 

-There will be 100+ Sales Reps of First Data that will now “work” with Ackroo, selling it’s products into First Data’s current and prospective merchant locations. All of this without Ackroo’s expenses/overhead increasing a penny.

 

-As a result of this partnership, adding a 3rd major partner could potentially increase organic growth by more than 33% if not higher. This is just an assumption on my end as I have no way of validating this yet however I wouldn’t be surprised if we see nice additional organic lift start to happen as early as Q3 2016.

 

It is quite unheard of for a company with a $12B market cap to select a partner like Ackroo with a mere $3M market cap. This speaks volume about Ackroo as a company, their technology and scalability, and First Data's belief and confidence in Steve Levely, Ackroo CEO.

 

The above two events indicate a significant inflection point for Ackroo that should allow the company's growth to begin accelerating, thus allowing for the potential of significant shareholder returns.