Ceapro Inc V.CZO

Thoughts...

[prophetoffactz]

"- $5.5 million first six-month 2023 sales vs. $11.7 million for the same period in 2022; sales lagging by one quarter due to stocking campaign by one major customer in 2022 and further Marketplace reorganization" news release

If sales are "lagging by one quarter" does that suggest ~$11.7 million in revenue YTD is expected by Q3 2023? That's one quarter later. That would be ~$6.2 million revenue for Q3. Based on J&J's(Kenvue's) news releases Aveeno and Neutrogena appear stable to have grown vs. last year and isn't J&J ~60% of CZO's revenue? Aveeno and Neutrogena haven't dissappeared. Kenvue has been undergoing a well publicized reorganization as noted by CZO repeatedly. Kenvue's seperation from J&J was only completed last week:

"SKILLMAN, N.J., August 23, 2023--(BUSINESS WIRE)--Kenvue Inc. (NYSE: KVUE) ("Kenvue") today announced its separation from Johnson & Johnson, marking its first day as a fully independent company."

The Canadian dollar is also down sharply(~7%) vs. the first two quarters of last year when CZO reported the two exceptional quarters in a row. This could significantly boost CZO's revenue from Kenvue this year as reordering commences as CZO reports in Canadian dollars. CZO has a blowout record $5,144,636 million of inventory on standby for something big. Inventory has continued to grow ahead of expected reordering.

“Despite a slower start to the year, our business remains solid, and we expect the reordering pattern from one major customer to resume shortly." CZO news release

If the reordering pattern from Kenvue hadn't recommenced as of the date of CZO's news release, which left only one month in Q3, how certain can CZO be that sales are only lagging by one quarter?

Other than Kenvue, which doesn't appear to have gone anywhere, that leaves the "postponed shipments of beta glucan to a major Chinese customer" as noted in the Q1 press release. Postponed doesn't mean gone forever but I see no mention of it in the Q2 statements. Gilles had noted the Chinese customer was using CZO's beta glucan for facemasks and that it said there was nothing like CZO's product. It could be a commited client. China represented ~9% of CZO's revenue last fiscal year. 

If Kenvue(Aveeno, Neutrogena) is ~60% of CZO's revenue and China was ~9% last year one can understand Q1 and Q2 revenue shortfall. Two clients can have a major impact on quarterly revenue volitility given they are ~69% of total annual revenue. Kenvue doesn't appear to have gone anywhere. Will the major Chinese client also begin reordering at some scale shortly? With the fall in the Canadian dollar over the last year some shortfall could be offset helping to maintain stable revenue this year vs. last year. In the Feb. TSX-V video Gilles anticipated growth from the Symrise deal this year; but that is now dated. As for what CZO's annual run-rate revenue actually is we may only know that when the annual results are presented in April of 2024; however Gilles has presented product volume earlier in the past. A revenue shortfall could be significant given the revenue shortfall to date and the revenue reported in the trailing four quarters of only $12.67 million vs. $18.8 million for fiscal 2022. 2021 revenue was $17.195 million.

As for what's next, CZO and Symrise announced, "–Offering of new preservative free dry product formulation for oat beta glucan". I believe CZO currently only offers beta glucan in a liquid form. A preservative free powder could open new markets. Symrise may also have a significant interest in the new wound healing data for avenanthramide and beta glucan.

CZO has also announced, 

"Successfully achieved the malting procedure for a first batch at small commercial scale level. Obtention of batch-to-batch consistency should allow for the offer of enriched formulations with high concentration of avenanthramides to serve some nutraceutical markets." news release

CZO could sign new distributors for its neutraceutical opportunities and could also offer the product directly to some clients. Perhaps deals could be announced ahead of revenue.

CZO has also noted that it is looking for new sources of revenue and has said, "Ongoing strategic corporate discussions progressing and continued planning for uplisting to Nasdaq". A merger or acquisition of another company with additional revenue that also places a valuation on CZO's pipeline for the purposes of a merger and supports a NASDAQ listing could be a very transformative event. It could be a major valuation catalyst. What is CZO really worth in a merger that efficiently values its assets and creates a path to realizing the value of its pipeline? 

1) Commissioning of a five-fold PGX scale-up anticipated within about six months and ten-fold scale-up commissioning anticipated by Q3 2024. CZO could offer gold standard beta glucan and gold standard CoQ10 delivery. This could support a major deal in big markets and validate PGX. 
2) Avenanthramide clinical trial recruitment/enrollment expected mid-November. Gilles noted a focus on COVID heart inflammation in the presentation with Dr. Li; but avenanthramide has many potential applications as a search of PubMed indicates. A clean safety profile in the first half of next year could leave efficacy as the only risk and CZO's clinical trial is approved for testing in patients with inflammation. 
3) CZO now has wound healing data for avenanthramide and beta glucan in established animal models used in the industry. 
4) Advancement of fibrosis drug towards clinical trial(currently undergoing toxicity testing before a potential Phase I filing). 
5) Base business with new potential revenue sources(powder preservative free beta glucan, avenanthramide as a neutraceutical, other).

Here's some interesting new avenanthramide research that appears to compliment CZO's wound healing data. It's for periodontal disease.

Avenanthramide-C Shows Potential to Alleviate Gingival Inflammation and Alveolar Bone Loss in Experimental Periodontitis - PubMed (nih.gov)

Mol Cells

 

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. 2023 Aug 29.

 doi: 10.14348/molcells.2023.0109. Online ahead of print.

Avenanthramide-C Shows Potential to Alleviate Gingival Inflammation and Alveolar Bone Loss in Experimental Periodontitis

[prophetoffactz]

So what is the annual revenue run-rate for the base business? $18.8 million revenue for fiscal 2022. $17.195 million revenue for fiscal 2021. Trailing four quarters revenue of only $12.67 million. Average revenue over the last six quarters annualized is $16.226 million.

[prophetoffactz]

Given the actual revenue generated in the last four quarters of only $12.67 million and the average quarterly revenue over the last six quarters annualized of $16.226 million Fiscal 2023 would appear at significant risk for a significant decline in revenue vs. the $18.8 million in revenue reported in 2022. CZO has been investigating acquiring new sources of revenue which could change that quickly.

[prophetoffactz]

Given the revenue generated in the last four quarters of only $12.67 million and the average quarterly revenue over the last six quarters annualized of $16.226 million Fiscal 2023 would appear at significant risk for a significant decline in revenue vs. the $18.8 million in revenue reported in 2022.  Given the fall in the Canadian dollar since the first two quarters of 2022 when the

[prophetoffactz]

At 1:12 Gilles says J&J is 50% of CZO's sales in this interview from one year ago: Ceapro (TSX.V: CZO) Interview with CEO Gilles Gagnon - YouTube