QUANDRANT 4 SYSTEMS (QFOR) research, news, and more from GeoInvesting

Company description

Mon, 23 Jan 2017 18:56:15 GMT

Quadrant 4 System Corporation provides cloud based platform-as-a-service and software-as-a-service products to the health insurance, media, and education verticals in the United States. Its platforms include QHIX/QBIX, a cloud based health insurance exchange and benefits management platform; QBLITZ, a cloud based digital media platform; and QEDX, a cloud based education platform for K-12 students. The company also offers digital transformation services in the areas of social, mobile, analytics, and cloud; business analytics services; technology consulting services; application life cycle management services; enterprise mobility services, including, consulting and deployment, device management, support, and industry-focused solutions; and managed services, such as cloud hosting, colocation, IT infrastructure, and managed hosting services. Quadrant 4 Systems Corporation markets and sells its services directly. Quadrant 4 System Corporation was incorporated in 1990 and is headquartered in Schaumburg, Illinois.

Research

Fri, 07 Jul 2017 04:00:00 GMT

Quandrant 4 Systems (PINK:QFOR) ($0.0053) - In the company’s latest 8-K released this week, we finally got our answer as to how shareholders may fair during the bankruptcy proceedings, after QFOR pays its creditors.

“The Company is unable to predict the outcome of such sale efforts at this time, however management currently believes that there will be insufficient proceeds, after payment of secured creditors, to make distributions to its shareholders.”

Based on the price movement of the stock, It looks as though shareholders are opting to exit their investment in QFOR. We may look to do the same.

You can see our full past coverage of QFOR here.

Research

Wed, 05 Jul 2017 04:00:00 GMT

Quandrant 4 Systems (PINK:QFOR) ($0.0148) - On June 30, 2017, QFOR announced that it “reached a partial settlement with U.S. Securities and Exchange Commission and filed for a voluntary Chapter 11 Restructuring.” The company provides cloud based platform-as-a-service and software-as-a-service products to the health insurance, media, and education verticals in the United States.

In the release, QFOR disclosed that it is is aware of additional charges levied against its former executives, by the U.S. Attorney’s Office for the Northern District of Illinois. It further states that:

“No criminal charges have been, or are anticipated to be, filed against the Company. Since the November 30, 2016 arrests of Messrs. Thondavadi and Desai, the Company has been cooperating closely with both the SEC and the U.S. Department of Justice under the direction of its new executive team and reconstituted board of directors.”

“The Company believes that all of its customers, suppliers and employees can continue to rely on the Company to provide them with the superior services and relationships the Company has delivered for years. “The filing was necessary to preserve the value of our businesses and to ensure continued operations and services to our customers and employees. The voluntary Chapter 11 filing will give the Company sufficient breathing room to continue working through the process. The Company has already received signed asset purchase agreements for certain of its business units from reputable and stable organizations, which will be subject to approval during the Chapter 11 process and help guarantee the continuation of the Company’s services to customers and other interested parties,” said Robert H. Steele, the Company’s Chief Executive Officer. “Marketing and sale efforts for the Company’s remaining business units will continue during the Chapter 11. We expect prompt and successful results from those efforts as well. All of our energies are focused on concluding this process in an professional and positive manner”

The company did not address how this might affect their shareholders, perhaps with the goal of being careful on how it will convey future updates regarding the performance of its stock, but the main positive and negative take-aways from the release can be summed up as follows:

Concerns

Questionable if the company will be able to re-emerge
Selling assets/business units - if the value is not in excess of the outstanding loan principal, shareholders will be left with nothing
The company is now in possession of the creditors, who have little concern for shareholders

Hints of optimism

Operations are planned to continue
States that it plans to resolve issues quickly
No mention of change in management

The reality is that shareholders are usually last in line after creditors and preferred stockholders are taken care of, so our stance is that of caution, while remaining long.

Research

Wed, 05 Apr 2017 14:51:02 GMT

QFOR ($0.055) - As we continue to track the restructuring of Quadrant, we are pleased to see that the company’s promise to start to maintain a greater level of transparency is coming to fruition. Today, QFOR announced the launch of a new website for its Health Division, geared toward enhancing this transparency which we hope will put the company in a position to accelerate its communication with investors and showcase how they are moving forward with its new initiatives. CEO Robert Steele added:

"We are excited about our new website launch and the information it provides for clients, investors, partners and the community to better understand Quadrant 4 Health's robust solutions."

“We believe this new site will showcase our best-in-class capabilities and provide our visitors an informative experience as we continue to grow and increase our market presence."

"In the past year, our Health team has placed an emphasis on designing, developing and deploying industrial-strength solutions for our clients. Going forward, we are working to increase transparency with the community on all the great projects we have going on.”

We are maintaining our long position. For those of you that have also been monitoring the situation, you’d have noticed that QFOR’s stock price has been trading in the range between $0.05 and $0.07. We plan to exercise discipline on any meaningful and consistent price appreciation in the stock.

Research

Thu, 23 Mar 2017 14:01:34 GMT

QFOR ($0.05)announced restructuring of IT Service business and announced key personnel updates.

“The restructure will entail combining global services divisions spanning the U.S., India as well as additional offshore teams. Leveraging the tagline ‘Your Source for Everything IT,’ QSOURCE will enable Quadrant 4 to better take advantage of the three elements which developed its core business - Product Development, Solutions and Staffing.”

As a part of this restructure, Quadrant 4 is pleased to announce the appointment of several key leaders within QSource.

QSource has already begun to see immediate traction through our aggressive sales and marketing campaign as well as referrals, which has always been a successful part of our organic growth,” said Robert Steele. “With the successful TriZetto/Cognizant licensing transaction last year, QHIX was developed with our QSource vision in mind. Over the last seven months since the Trizetto agreement was announced, Quadrant 4 has partnered with the TriZetto team for integration into their core claim adjudication engines.”

On December 14, 2016 we stated we had initiated a small speculative long position as the market may re-price the stock to levels that make more sense, commensurate with what the stock was trading at ($0.20) prior to the large percent fall it experienced due to legal troubles with the former executives of the company. On January 30, 2017 we released an article titled, “Quadrant 4: Speculative name with an Attractive Risk/Reward Profile”.

We interpret today’s news as a positive, as it reaffirms a core part of our initial thesis: QFOR is not going bankrupt. The fact that QFOR was able to fill new management positions is encouraging and strengthens our belief that the business can successfully continue operations without a bankruptcy proceeding.

Research

Mon, 09 Jan 2017 16:55:38 GMT

Over the weekend, we reiterated our belief that there are circumstances surrounding the recent events at $QFOR ($0.07) that make it a risky but asymmetrical bet with multi-bagger potential. Siggy Eggert, a lead special situation analyst here at GeoInvesting restated his stance that once things start to get re-aligned at the company, the market may re-price the stock to levels that make more sense, commensurate with what the stock was trading at ($0.20) prior to the large percent fall it just experienced due to legal troubles with the former executives of the company. To review:

The company’s CEO and CFO recently received criminal charges over financial misrepresentation.
The stock experienced a 90% descent in the days following the announcement of the charges.
After reviewing court documents carefully, we concluded the alleged financial misrepresentations are not materially affecting the business going forward.
Tax related selling near year-end could have contributed to what we believe to be a temporarily depressed stock price.
At an EV/EBITDA of 4 and a new leadership team in place, the company’s stock price is set to revert to reasonable levels quickly, which we believe is up to 300% higher than the current stock price.
We have spoken to management and they are committed to turning the page to re-stabilizing the business, focus on their profitable initiatives, transparency, and the further cultivation of relationships with their existing customers.

You can see our initial note here, and we will be providing an update soon.

We are long QFOR.

Research

Wed, 14 Dec 2016 16:23:48 GMT

Took a small speculative position in QFOR ($0.07). Treating the trade as a call option with significant upside.

Taking a closer look at potential information arbitrage. Quadrant 4 System Corporation provides cloud based platform-as-a-service and software-as-a-service products to the health insurance, media, and education verticals in the United States. Situation summary:

Former CEO and CFO were sued on the 29th of November over misrepresenting company financials
On the announcement of the news the stock dropped from roughly 20 to 3 cents per share
After carefully reviewing court documents, we do not think the alleged misrepresentation and departure of key personnel justifies the extreme stock price reaction
QFOR announced in late September the intention to do a 10 for 1 reverse stock split, with fractional shares being paid in cash equivalent to $0.50 per pre reverse split share. The reverse split is now suspended indefinitely.
- To accomplish the reduction in the number of record holders of the Common Stock, the Company will effect a reverse stock split of the Common Stock, whereby each 10 shares of Common Stock outstanding as of the effective date of the reverse stock split will be converted into one whole share of Common Stock (the “Reverse Stock Split”). In lieu of issuing any fractional shares held by shareholders as a result of the Reverse Stock Split, the Company will make a cash payment equal to $0.50 per share of Common Stock held immediately prior to the Reverse Stock Split (the “Cash Payment”). Accordingly, shareholders owning fewer than 10 pre-Reverse Stock Split shares will have no further interest in the Company, will no longer be shareholders of the Company and will be entitled to receive only the Cash Payment multiplied by the number of pre-Reverse Stock Split shares owned by them. Stockholders owning at least 10 pre-Reverse Stock Split shares, who after the Reverse Stock Split will continue as shareholders but own a fractional share as a result of the Reverse Stock Split, will receive a Cash Payment based on their pre-Reverse Stock Split share equivalent of their fractional share. Stockholders owning at least 10 pre-Reverse Stock Split shares and who will not own any fractional shares as a result of the Reverse Stock Split will not receive a Cash Payment. The total amount of funds necessary to make Cash Payments to shareholders in connection with the Reverse Stock Split and for related expenses is estimated to be approximately $[30,000]. The funds for the Reverse Stock Split will come from the Company’s available funds.

At an EV/EBITDA multiple of around 4, and EV/Sales of roughly 0.6, the company is trading on a cheap multiple valuation compared to other SaaS companies. We have been unsuccessful in reaching out to the new management team to confirm the viability of the business going forward, and to understand all the possible repercussions of the lawsuit. Until our research confirms our intuition that the stock is being unduly punished, we are keeping QFOR as a speculative play.

Caveats:

We have not been able to talk with the new senior management yet, and still need to confirm that the business fundamentals have not been significantly changed by the CEO/CFO departure
The company has debt outstanding, has received formal notices of default from its senior and junior lender and were consequently put on the default rate. The new management team has to settle the situation with debtors and we need to get more clarity on this issue.
We know that there have been past pump campaigns However, the departure of the prior CFO and CEO may quell concerns of any new campaigns being executed.

Update 1/6/2017

We did notice that there have been past pump campaigns exacted by third parties on QFOR, the last one being noticed in March of 2015 by theotc.today (formerly d/b/a pumpanddumps.com). Whether the company paid for these campaigns is unknown as these occurred under old management.
Having said this, we have spoken to new management and they are committed to turning the page to focus on re-stabilizing the business, focusing on their profitable initiatives, transparency and further cultivation of relationships with their existing customers.