O T C

With rumors swirling around the Caduceus Software Systems Corp (OTCMKTS:CSOC) merger story over recent weeks, bears have been on the run and investors have been driving shares higher in front of anticipated announcement.

The company has dropped numerous hints and set the stage for something with commercial-stage operations in the consumer packaged goods space with a strong revenue outlook that isn’t vulnerable to economic cyclicality – ie, something recession-proof.

The wait is officially over as of yesterday morning with the company announcing its acquisition of McLovin’s Pet Food, Inc. (mclovinspetfood.com), a California registered company active in the pet food industry.

According to the release, completion of the transaction, subject to customary closing conditions, is anticipated within this month.

 

Better than Expected

While Caduceus Software Systems Corp (OTCMKTS:CSOC) had set high expectations and communicated the bar to the markets in advance, it’s difficult to see this announcement as anything other than a vast overshooting of market-priced expectations.

The pet food space is a huge and rapidly growing market, driven by the pet humanization trend in developed world economies, as people invest larger and larger shares of the household budget in the health and wellness of our furry friends.

According to recent analysis from Grand View Research, the global pet food market size was estimated at about $87 billion in 2019 and was expected to reach nearly $93 billion in 2020. Analysis points to a growth rate going forward of more than 10% every 2 years over the coming half decade.

Fortune Business Insights agrees with that robust outlook, noting that the global pet food market size was valued at $90 billion in 2019 and is projected to reach $127 billion by 2027, running at a CAGR of 4.6%, year on year.

This is a staple, which means it is not only growing nicely, but that growth curve is unlikely to be vulnerable to economic or market vulnerability along the way. In other words, no one cuts back on dog food purchases when worried about losing a job. It just doesn’t happen. Pet food sales didn’t even flinch in the 2008 crash or last March when the pandemic brought the rest of the economy crashing down.

As a result, stocks in the pet care space have been steadily running ahead of the broad market over recent years, including Zoetis Inc (NYSE:ZTS), Chewy Inc (NYSE:CHWY), Freshpet Inc (NASDAQ:FRPT), and recent IPO Petco Health and Wellness Company Inc (NASDAQ:WOOF).

These trends were augmented during the pandemic lockdown, leading to more demand that will continue on after the period of rising adoption.

 

Who is McLovin?

According to materials, McLovin’s, Inc. is a California registered company focusing on the manufacturing and distribution of quality pet foods. “We believe in real food. What you’ll find in McLovin’s is similar to what you’ll find in your own grocery cart. In the case of our premium treats, it starts (and ends) with real beef, chicken and salmon. Our products are developed using responsible sourcing and quality is a key part of every single part of our manufacturing process.”

Given messaging from Caduceus Software Systems Corp (OTCMKTS:CSOC) ahead of the acquisition, we also know that McLovin’s, upon deeper due diligence (when available) will almost certainly have the following attributes (because these attributes were outlined by CSOC management last week as descriptive of its lead candidate):

  • Revenues and Assets exceeding a total of 5M$;
  • Projected revenues of over 15M$ for 2021;
  • Expansion and scalability are key;
  • Potential and eligibility for up listing to NADSAQ/NYSE;
  • Recession & Market proof industries.

Another reason to see this as likely very bad news for shorts still hiding out in CSOC is simply the scale of the transition – to go from a shell to a scalable, recession-proof, cash driver with major exchange uplisting potential in a rapidly growing $90 billion space is a massive shift in narrative for the ticker.

So, it’s a good time to point out that, ahead of this week, OTCshortreport.com was showing CSOC shares to be overwhelmingly popular among active bears, with over 15 million shares of short-side transactions over recent trading sessions making up almost 75% of all transactions in the stock over that period.

Looking ahead, management commentary tells the story:

“Our proven access to capital creates opportunities to pursue attractive targets in very profitable consumer goods space. We intend to complete this transaction shortly, following which we will announce further details on the operations and what we plan for 2021.” said Alex Chen, Chief Executive Officer and Director of Caduceus.

“We pride ourselves on the great level of quality behind our manufacturing process and more importantly the fact that McLovin’s sourcing is held to the highest standards of ethics and safety. The McLovin’s products are made in USA & Canada and we believe this is a competitive advantage for us” said David Ji, Chief Executive Officer of McLovin’s Pet Food, Inc.

 

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