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Kalkine IPO Report

Should You Subscribe to the IPO of Adamas One Corp.?

Nov 21, 2022

 

The Offer

Company Overview

On September 6, 2018, JEWL was established in the state of Nevada with the goal of obtaining technology that would successfully manufacture lab-grown, ethically sourced, and ecologically friendly diamonds. Scio Diamond Technology Corporation, or Scio, and JEWL entered into an Amended Asset Purchase Agreement on January 31, 2019, which was later amended on February 3, 2020. As a result, JEWL acquired nearly all of Scio's assets, including its patents and all intellectual property related to its proprietary diamond-growing chemical reactors, which JEWL refers to as diamond-growing machines. Since purchasing Scio's assets, JEWL has proceeded to advance the technology it already possessed, starting the production of diamonds for high-end jewelry as well as diamond material for industrial applications.

Key Highlights

Primary Offering: The Company is accepting applications for 3,150,000 Shares and expects the IPO price to be in the range of USD 4.50 - USD 5.00, therefore taking USD 4.75 per share as a mid-point to raise USD 14,962,500. After deducting projected underwriting discounts and commissions and the firm's expected offering expenses, the business anticipates receiving net proceeds from this offering of around USD 12.2 million (or around USD 14.2 million if the underwriters' option to buy further shares is fully exercised).

Use of proceeds:

Dividend policy: On its common shares, JEWL has never distributed or declared any cash dividends. JEWL does not anticipate paying any cash dividends on its common stock soon as it presently plans to keep all future earnings to support the expansion and development of its business. The Board of Directors shall decide whether to pay future dividends if any, and this decision will be based on the financial situation, operating results, capital requirements, preferential rights of any preferred stock, restrictions in any future financing instruments, and other relevant criteria.

Industry and competitive analysis

  • Within the whole diamond market, the market share of lab-grown diamonds has been gradually increasing in recent years. By 2030, it is predicted that 10% of the world's total diamond market would be made up of lab-grown diamonds. The market for lab-grown diamonds is anticipated to develop at a compound annual growth rate, or CAGR, of 6.7% from 2021 to 2027, from an estimated value of USD 17.8 billion in 2020 to USD 27.9 billion by 2027.
  • Due to awareness, acceptance, societal reasons, and affordability, sales of lab-grown diamonds in the diamond jewelry industry are currently modest but are rapidly expanding. Although the industrial market for lab-grown diamond materials is more established, it is dispersed across many industrial application sectors and geographical areas. Medical equipment, abrasive production, and the manufacture of electrical products like flat screens all use diamond materials. One of the main drivers of the market expansion is the construction and automobile industries explosive growth. Lab-grown diamond materials are employed in the construction sector for drilling, cutting, grinding, and polishing operations.
  • Product quality, supply reliability, and pricing are competitive aspects that affect the market for JEWL's goods. Diamonds generated in laboratories may be produced using two major techniques. The original technique was known as HPHT, or high pressure, high temperature. In the HPHT process, massive physical presses are used to apply tremendous pressure to a tiny cell holding graphite and a catalyst. The cell is heated and pushed over time, which causes the diamond to form a nucleus and grow. The foundation of JEWL's Diamond Technology is the second process, known as CVD. Given that it employs low-pressure and heated carbon-rich gases, this process differs greatly from HPHT. A plasma is created, and this plasma forces a cloud of gases that are rich in ionized carbon onto a tiny diamond sliver, causing the diamond to grow or expand.
  • The established producers and dealers of mined diamonds, including businesses like De Beers, as well as other present and possible future producers of lab-grown diamonds, compete with lab-grown diamond jewels and diamond materials for usage in industrial applications. Lab-grown diamonds are often less costly than mined diamonds at both the wholesale and retail levels.

Financial Highlights (Expressed in USD):

  • Revenue Highlights: In comparison to zero net sales during the nine months ending June 30, 2021, JEWL saw wholesale net sales of USD 1.1 million for the nine months ending June 30, 2022. The selling of industrial-grade diamonds directly to industrial manufacturing businesses, the sale of diamonds to wholesalers, distributors, and jewelers, as well as the direct sale of diamond gemstones to consumers via its website, are all expected to provide ongoing future revenue for JEWL.
  • COGs and gross margin: Included in the cost of products sold are direct manufacturing expenses (parts, materials, and labor), indirect manufacturing costs (factory overhead, depreciation, facility operating lease expenditure, and rent), shipping, lab services, and logistical charges. For the nine months that concluded on June 30, 2022, the costs of products sold came to USD 362,576. The nine-month period ending June 30, 2022, had a gross margin of USD 739,018 or a gross profit margin on diamond sales of 67%.
  • Improved net loss: The company has improved on the net losses due to revenue generation in 2022. In comparison to USD 8.45 million during the nine months ending June 30, 2021, JEWL saw improved net losses of USD 6.95 million for the nine months ending June 30, 2022.

Key Management Highlights

Risk Associated (High)

Investment in the IPO of “JEWL” is exposed to a variety of risks such as:

  • Limited Operating History, Financial Position, and Need for Additional Capital: The operating assets were just recently purchased by JEWL through the Scio transaction. It will take some time for JEWL to get up and running as it puts all the diamond-growing equipment it acquired through the Scio acquisition into service and expands its production scale by setting up additional factory space and buying, commissioning, and using additional diamond-growing equipment. JEWL's current challenge is to increase the manufacturing scale or the number of diamond crystals created each month. JEWL must be able to find the required funding and distribution options to boost its output. If JEWL is unable to obtain sufficient funding, it might not be able to completely scale up its activities.
  • Over-dependence on Diamond technology: The production of diamonds utilizing JEWL's Diamond Technology is the only source of their diamond supply. Even though JEWL has been able to produce a small number of premium lab-grown diamond gemstones, the company has yet to demonstrate that it can translate this success into a mass-production process that will produce premium gemstones and material ideal for retail gemstone distribution and commercial/industrial applications. Its activities, financial condition, results of operations, and prospects would all be materially adversely affected by the incapacity or difficulty of transferring the Diamond Technology into a high-yield manufacturing plant. If JEWL is unable to create high-quality lab-grown diamonds, it will likely go bankrupt and forfeit the whole investment due to the considerable material detrimental impact on its company, results of operations, financial condition, and prospects.
  • Stiff competition: Known and future producers of lab-grown gemstones as well as current producers and marketers of mined diamonds will compete with JEWL's lab-grown gemstone diamonds. The market acceptability of JEWL's lab-grown diamond gemstones, according to the company, will improve as it becomes more successful in doing so. Currently, WD Lab Grown Diamonds/Carnegie Institution of Washington, Sumitomo Electric Industries, Ltd., Diamond Foundry Inc., Applied Diamond, Inc., and CORNES Technologies Lim compete against JEWL in the production of lab-grown diamonds for the industrial and gemstone markets. 

Conclusion

JEWL’s performance over the nine months showed revenue generation in 2022 compared to the same period a year ago, resulting in improved net losses for the company. To increase its production scale through the preparation of additional factory space and the purchase, commissioning, and operation of additional diamond-growing machines, JEWL will need some time to ramp up its operations as all the diamond-growing machines acquired in the Scio acquisition are brought into operation. Although it is anticipated that JEWL will have opportunities to expand using IPO funds, the success of the company's entire operation is dependent on how efficiently the company is able to scale up its operations, making the offered IPO unattractive until there are any updates regarding the effectiveness of the scale-up of the operation and the profitability.

Hence, given the financial performance of the company for the nine months ending June 30, 2022, decreased net losses, and associated risks “Adamas One Corp. (JEWL)” IPO seems “Neutral" at the IPO price.


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

Kalkine Media LLC, an affiliate of Kalkine Equities LLC, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.