Adaptive Ad Systems: A Profitable Microcap Trading Below Net Cash

Deep Value With Questionable Management

May 09, 2025

Profitable for each of the last 10 years
$9M market cap with $12.7M in net cash
Hidden real estate on balance sheet worth at least $2M
Sale of subsidiary provides consistent cash flow until 2028
Investing in new business that could provide substantial revenue growth
Thanks for reading Elias’ Investing Journal! Subscribe for free to receive new posts and support my work.

Disclaimer: The information provided in this article is for informational purposes only and should not be considered investment advice. Investing involves risk, including the potential loss of principal. The author may own, or plan to purchase, shares in the security discussed. The author is not a registered investment advisor and does not provide personalized investment advice. Always conduct your own research and consider your investment objectives and risk tolerance before making any investment decisions. The author and publisher shall not be liable for any actions taken based on the information provided in this article.

Business Overview

Adaptive Ad Systems (OTC: AATV) is a television advertising business headquartered in Washington. The company specializes in video media advertising for cable TV and streaming markets throughout the United States. Its core business is Dynamic Digital Ad Insertion (DDAI) for cable TV ads, which generates the majority of revenues. While the company primarily operates in smaller Tier 2/3 markets (rural areas), it has expanded to include large cities in Tier 1 markets as well.

The company has four business segments:

1. Ad Systems Inc. and Adaptive Media Inc. These two subsidiaries have operated the company’s core ad insertion technology since its founding in 1984. The company aggregates ad inventory from over 200 cable systems across 40 states, placing local ads on major national networks like ESPN, Discovery, CNN, MSNBC, and TNT, effectively creating a market for local advertisers in small and mid-sized markets overlooked by national players.

An example would be watching a nationally broadcast sports game on ESPN and seeing a commercial for a local restaurant or car dealership. This model allows smaller businesses to reach a captive, engaged audience during premium programming, while also providing cable operators with ad inventory to monetize in markets that were previously underserved.

This is the largest and most profitable segment of the company, which I estimated generated $6M-$6.5M of the total $7.5M revenue for 2024.

2. Adaptive Broadband Inc. was created in 2015 to provide internet services to homes and businesses in the Oregon/Washington area. In 2023, it sold its Oregon assets for $800k, structured as $50k down and $15k/month for 60 months. This provides the company with $180k/year until 2028. The company retained the Adaptive Broadband name and some proprietary assets for possible future expansion.

3. Adaptive TV, formed in 2020, was designed to stream cable TV to underserved markets and provide retransmission services to cable systems. It also purchased a Spanish-language TV station in Reno, Nevada as an initial foothold in the broadcast space. While Adaptive TV has yet to generate revenue, operations are expected to begin after relocating to a new facility in Q2 2025. In addition, the company organized StreamlyTV, a specialty streaming service not owned by AATV, but likely to utilize company infrastructure, potentially creating ancillary service revenue.

4. Adaptive HDMO was created by the company in 2019 to invest in real estate and administer employee benefits. I have identified several properties held by this subsidiary, discussed below.

Profitability

Overall this is a solid business. AATV has carved out a niche in DDAI for small and tertiary markets, as reflected in its history of profitability. Here is a chart of annual revenues and net income:

A key driver of business performance is political advertising, which boosts revenue and margins in even-numbered election years. Profit margins average over 25% in election years, compared to ~10% in off-years.

Despite persistent concerns about the decline of cable advertising amid the rise of digital media, this segment has continued to produce steady profits. In my view, while the cable ad business may face a slow, gradual decline over the coming decades, it’s unlikely to disappear entirely in the near future as some have predicted.

Beyond the cable advertising business, additional upside could come from the potential monetization of broadband assets or from Adaptive TV’s operations beginning to generate revenue.

Real Estate Assets

AATV’s primary operations are located in 3 leased office spaces in Washington, Utah, and Oregon.

The company also owns a building in Stayton, OR from the broadband business, and a flex office/storage property in Apache Junction, AZ.

This sentence from the annual report caught my eye:

The Company also owns several properties that are currently held as investment and not used to conduct technology operations

Since the company does not disclose their real estate holdings, I did some digging to track them down.

After searching public records, I was able to find two properties owned by Adaptive HDMO:

Both are manufactured homes held as investment real estate. While not as substantial as I’d hoped, they combined estimated value of $500,000 - which is still meaningful for a company of this size.

I also located a property in Holladay, Utah which also appears to be owned by AATV.

This one is odd because it states the owner as “Adaptive Media Inc”. This is listed as one of the company’s subsidiaries, and was the formal name of AATV before being changed to the current Adaptive Ad Systems. The only other business entity with a similar name is “Adaptive Media LLC”, however I do not think they are the owners because Utah law states that a limited liability company must use “LLC” in any filings.

Add in the fact that AATV has business operations and office space in nearby Salt Lake City, and I think it is likely they own this property.

This is a much nicer home in a gated community, with an estimated value of $800,000.

I wasn’t able to find the property owned in Apache Junction, AZ, but the company provides some useful detail:

“ownership of approximately 3,800 sq ft of office space and approximately 2,200 sq ft auxiliary storage in Apache Junction, Arizona.”

Based on comps for the area, this property is likely worth somewhere between $600,000–$1,000,000.

I wasn’t able to locate the property in Stayton, OR, so I’ve left it out of this valuation.

In total, the company owns real estate worth around $2M based on identifiable properties, with potential additional value from assets I was unable to verify.

Valuation

This company doesn’t need a complex model to figure out what it’s worth. AATV is a consistently profitable business trading below net cash, which on its own makes it interesting.

Here is my conservative NAV calculation:

At $0.17 per share, the company is valued at $9 Million.

The operating business is consistently profitable and clearly worth something here. Even if you assume the business has been over-earning since covid, the TV ad business generated normalized earnings of around $1.1M per year prior to 2020. Putting a conservative 3x multiple on this business gives a value of $3.3M.

There’s $12.7M of net cash sitting on the balance sheet.

And there’s at least $2M in real estate value based on identifiable properties.

Adding this up gets you to $18M of value. At a $9M market cap, the stock trades at about a 50% discount to NAV.

Red Flags

As is typical in nano-caps, management has outsized control. CEO J. Michael Heil owns 28% of the common stock plus 500,000 Preferred A Shares which have 100-1 voting rights. In effect he has complete control of the company, and there’s a strong risk he runs it in ways that harm minority shareholders.

There are several signs this has already been happening.

Adaptive HDMO, which holds the company’s real estate, is a minority-owned subsidiary of AATV. It’s unclear what percentage AATV actually owns and how much cash it’s invested in a subsidiary likely controlled by Heil himself.

StreamlyTV is organized but not owned by AATV, yet it appears the company’s infrastructure and cash are being used to support it.

In 2024 AATV used over $1 Million in “advances to affiliates” with no clear disclosure on who received the money or why.

For a profitable, cash-rich business trading below net cash, the obvious move would be to return capital to shareholders through buybacks or dividends. The illiquidity of the shares would make repurchases tricky, but it’s still a red flag that management is hoarding cash without deploying it productively or rewarding shareholders.

Unfortunately, the issues don’t stop there. Multiple company insiders have a history of shady operations and criminal charges.

Here are the top shareholders of the company:

Willmark Investments (22% owner) is controlled by Bryant Cragun, who has a history of operating alleged “boiler room” operations and has been investigated by the SEC. Here is another article with more on Cragun’s past.

CEO J. Michael Heil has worked with Cragun in prior ventures, and connections between the two are well documented.

And to top it all off, Kevin Orton, owner of the company’saccounting firm, was sentenced to 9 years in federal prison for charges including securities fraud and money laundering.

It’s clear this is not a group of individuals I’d trust with running a public company.

Do I think they care about minority shareholders? Not at all.

Overall, while the company’s assets and cash position suggest deep value, the combination of opaque governance, questionable insider history, and management’s apparent disregard for minority shareholders makes this an extremely speculative bet.

Many would argue such a company is not investable at any level, and I tend to agree. However, I have taken a small speculative position and do expect at a minimum for the stock to trade above net cash value at some point in the future. Even if management continues to ignore shareholder value, I think any announcement about the new business lines, or even a company presentation like they’ve issued in the past, could create some movement in a stock at multi-year lows and a dirt cheap valuation.

Disc: Long shares of AATV

Elias’ Investing Journal