Monthly Archives: July 2007

New Century: In The Eye of the Hurricane

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I haven’t published an update on NCNC since the initial presentation back on June 13th. The company hasn’t been in a position to announce some of the events that are happening behind the scenes.

However, I did have a chance to speak with CEO David Duquette today at length, and based on our conversation I believe this is one stock that could really take off later this year.

If you check back and read the original presentation, you will note one of their key growth drivers is the newly developing demand for wind turbines. Duquette reports the demand for machines to manufacture the components for wind turbines is skyrocketing. He has proposals going out nearly every day, and expects to have a number of new announceable contracts throughout the month of August. GE could be producing as many as 50 new wind turbines weekly by year’s end.

On the Boeing Dreamliner front, their joint venture is set up, and they will be setting up a machine to work on the 12 ft engine rings in very short order. Order flow is expected to start in August, and gain momentum for the forseeable future.

Q2 numbers are due out by Mid August, and I am expecting another quarter of growth in both top and bottom line.

NCNC does have one big challenge- they are having difficulty with the truck lines getting parts in and shipments out. They are also having challenges with suppliers- getting components they need which are backordered.

We agreed it was kind of a high class problem to have. He’s just got too much business, and the market will catch on sooner or later.

Here’s the current chart:

The stock has come down $.20 since the high of $.80 it made just after I started covering the company.

The chart you are looking at is a pretty typical summer trading pattern. The stock is drifting down on very light volume. It could trade all the way down to $.50 in my view before it becomes a screaming buy.

The company is in the proverbial eye of the hurricane right now. High winds are swirling all around, but there is a calm period before massive new order flow hits. Look for continued significant growth on both the top and bottom lines.

Comments and questions are welcome.

Universal Capital: Blown Out and Ready To Rally

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Admittedly, UCMT was one of the few bad ideas I have shared with OTC Journal members in a long time. At least in the short term, the stock has trade atrociously. This is a very thinly traded stock, and as such is subject to big price swings on very little volume.

Nevertheless, I believe this one will eventually be embraced by microcap investors. It might take a huge win in their portfolio, but this stock is absurdly undervalued and underfollowed.

Their year end audited numbers are due out by the end of July, and I believe they are going to be very good.

Here’s the chart, and you can see just how poorly the stock has done in the summer sell off period:

As you can see, UCMT traded very poorly pretty much out of the gates. Apparently, there was an appetite to sell, and despite the limited volume, the sellers don’t seem too concerned about the price at which they sell.

However, of late the supply seems to have dried up completely. The stock appears to be firming, and could be one heck of a great buy right now.

Thinly traded stocks can give a lot of ground on light volume, but they can make it up as quickly to the upside.

Year end audited numbers are due out by the end of July, and I believe you are going to see a very healthy company.

If you didn’t sell when the stock hit the SSL, it simply means you have decided to become a longer term investor. With this one, a little buying could go a long way.

The bottom appears to be in. I suggest being a buyer.

Comments and questions are welcome.

Bad Toys Continues on Glacially Slow Path

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This update is really about Southland Health, but we’ll cover it under the guise of Bad Toys until it opens for trading on its own.

Southland is moving forward with the planned opening of its stock for trading like a herd of turtles. Believe me, glaciers move faster than these guys, but since the government is involved, you can’t blame it all on them.

At long last the company is sending out the Southland stock certificates to all who were entitled to the dividend. If you don’t receive your shares in the next couple of weeks, call the company directly at (423) 247-9560 and have them look into it.

Getting the stock certs has taken for ever, but it really doesn’t matter as Southland is not open for trading, and doesn’t appear to be ready to open for trading in the immediate future.

In order for Southland to trade at a reasonable market cap they have to solve two problems. They need to pay off GE Capital and the IRS. They are in default with both of them, but these are inherited problems from previous management.

The IRS is the problem. Southland claims it has a new lender who will pay off the back taxes and provide the company with operating capital. However, they won’t do it until they have a final number from the IRS so the company can be released from its liens.

The IRS has received several proposals to bring the matter to a head, but as a government agency they take their own sweet time about things.

If and when they can get a resolution to the IRS issue, they can then move forward to pay off their defaulted debt. I am told there is even money in escrow awaiting the resolution.

Until that time, there isn’t anything to think about or worry about. There is nothing to do but wait. If they never get this problem solved, your Southland stock cert might not be worth much more than wallpaper. If they do, it could be a huge score.

We’ll have to wait and see how it goes over the summer. In the meantime, I would not be a buyer of BTYH- perhaps if they close in on Southland opening for trading BTYH will become interesting again.

From day one I stated this was a move I had never seen done in all my years in the microcap world. Perhaps they will pull it off. I can’t say for sure, but on paper it seems feasible.

However, they are moving at a glacial pace- like LA’s 405 during rush hour- hurry up and wait.

PhotoChannel In Focus

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PNWIF has been one of my best ideas in some time, and the picture just keeps improving. The stock has shown remarkable resilience post May to July correction, and higher levels look like they are definitely in store.

Not much has changed since the observations I shared in the June 25th edition. The Pixology acquisition is being assimilated- the expectations are for new deals with the likes of Costco and perhaps Rite Aid. They have their proverbial foot in the door at both companies.

If you are looking to get into this stock, and are looking for a pullback, Q2 numbers should be out by the end of August. When Q1 numbers came out, the stock took a pretty good hit as investors were reminded this is still a pretty small company.

Without further adieu, let’s look at the chart:

pnwif1.gif

You can see what a great year we’ve had with PNWIF. This is a weekly chart. I started covering the company at $1.80 last September, and we saw a high print of $5 back in January. That’s about 2 /12 times your money in the first six months.

PNWIF leveraged the good fortune in their stock price by raising $15 million at $3.60. It’s dilutive, but at a fixed price, so not too bad.

They used most of the capital to buy Pixology, which about triples their annual revenue run rate to about $10 million.

After the post Q1 numbers sell off, the stock has turned right around and appears to want to challenge the $4 level again, which brings a NASDAQ Small Cap listing back into the picture.

The rebound has been impressive, and I believe the summer lows have been made. This stock could have another double or triple in it over the next year. It is a theme investment- a play on the burgeoning world of digital photofinishing. It is one of the only pure plays in the space, and as such could be a good acquisition target.

$10 is still a good possibility for PNWIF. Look for new relationships with some bigger names to get the stock really rolling. These larger players have to start implementing change right now to be in place for the Holiday season.

Comments and questions are welcome.

eFoodSafety: The Good, The Bad, and the Not So Ugly

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EFSF is sitting in this mid $.30s range kind of grinding around. I wanted to share a couple of mid summer thoughts about this idea, and prepare you for what might be great, and what might not be so great.

Here’s what I am excited about today: PurEffect. PurEffect has the potential to be a huge product for the company. The CK41 team has launched a number of very successful products via infomercial, and now that we know the production has started, and there will be viable personalities endorsing the product, it makes for a great speculation at the get go. I have heard projections in the hundreds of millions in sales over the life cycle of the product, and in this case I believe we have a real shot. Remember- this is a recurring revenue product. Users must reorder monthly. If they use it and like it, sales could grow to unheard of levels.

Here’s a minor negative- Cinnergen- while I don’t know the exact levels, I can tell you Cinnergen is not taking off as robustly as the company would like. I know they thought retail distribution would be a little more widespread by now, and once the product gets on the retail shelf they have no control over how it is displayed. To their credit, they are taking matters in their own hands with the launch of the ecommerce site. All businesses will have challenges- it’s how they deal with the challenges that measures the upside. Eventually, this product should take off- Why? because it works. I know it works thanks to you. I have received emails from OTC Journal subscribers who are diabetics and take the product. They have reported to me that Cinnergen allows them to eliminate or take less of their medication. Once this is identified by the masses as a potential weight loss product, it could really rocket.

Oraphyte is simply a waiting game. I don’t know if Dupont will pick the product up for distribution, I can only hope. Someone erroneously reported that Dupont has rejected the product- it is not true- Dupont is in the testing phase right now.

Today, the company announced it will begin clinical trials for its Cold treatment, ColdZap. It’s probably a little early to factor this product into your thinking about the future, but if this is anything like Airborne, there is huge potential here as well.

Here are a couple of minor negatives you need to wrestle with if you are going to continue to be a shareholder: 1. You will no doubt here about AmeriFinancial registering to sell 1 million shares through Rule 144. This requires an SEC filing. I am informed Amerifinancial owns these shares through the settlement of a law suit. I am also informed they are limited to 10,000 shares per day and no more than 10% of the previous week’s total volume. This will not result in any major supplies hitting the market and sabotaging the stock price. However, the market makers might use the information to knock the stock down, in which case it would be a buying opportunity. I don’t know if this is the only incident of its kind pending, and I don’t know anything about the law suit. However, it is a non event in my view except in how it could effect the way the stock trades.

2. Minor negative, and this is ongoing- simply the number of shares I&O. Over the years, as this company has developed and had a couple of false starts, the number of shares I&O has grown to a pretty big number. The last quarterly number was 156 million, meaning at $.35 the market is saying the company is worth $56 million. 18 months ago there were 128 million I&O, so the number is remaining under control and growing at a very reasonable pace for a virtual pre revenue company. However, in order for the stock to go up $.10, the market must buy into believing the company is worth $15 million more. With the products they have ready for commercialization, it will take a bit of good fortune to see this one rolling up to $1 or more, but that’s the nature of speculation.

I won’t bother with the chart today. You will see a stock that has weathered it’s summer capitulation phase and has rebounded off the bottom. It is gathering the energy for another move- I’m not sure which way, but we are closing in on commercialization as some really big numbers over the coming months and years.

Comments and questions are welcome.

Planet Summer Low- All Blown Out

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Last week CPNE made another multi month low on an intraday basis, and the stock turned right around and moved up.

I believe the $1.04 print on July 18th might have been the capitulation blow off for the summer season, and now it is probably time to get healthy. You see this time and time again. The market makers drop these stocks to multi month lows, blow out all the weak hands, and the stock turns around almost immediately.

If you’re wondering about my views on Q2 numbers, that’s the $64 million question. They are going to be worse than Q1, but far better than Q2 of ’06.

Here’s a quote from the CEO that I dug out of a rather obscure section in the SEC filings:

“Our membership revenues are generated by charging our members a monthly fee for the tools and services needed to create and run a successful Internet auction business. Members sign-up for our services at our website after having been directed to our website by internet advertising campaigns for which we pay a fee for each sign-up. As we closed the year in 2006 and began 2007 we generated record volumes of sign-ups from orders generated through our affiliate networks which partially contributed to membership revenues during the three months ended March 31, 2007. We also experienced a large amount of poor quality sign-ups and a higher than normal level of potential online fraud in conjunction with the record sign-ups resulting in increases in both our return rate and our chargeback rate.

In response, we have reduced our advertising related to these programs as we implement preventative measures and analyze the results of these measures. We expect that our gross transactions will decline but that our return rates and chargeback percentages will return to normal levels, and that the conversion rate from sign-up to billable membership will improve as a result of our actions. It is not clear how much the second quarter’s performance will be impacted by these changes, but revenues generated from this source will likely be reduced at least temporarily.

The higher chargeback volume as a percentage of gross transaction volume is viewed as a potential credit risk by our merchant processing banks. An unfavorable credit risk assessment may result in increased transactional fees and penalties, and higher reserve requirements. We depend on our banking relationships to provide payment processing to all our customers. If chargeback volumes continue at a high rate as compared to gross transaction volume, our merchant processing banks may determine that we are too high a credit risk and decline to continue to provide payment processing services which would impact our ability to bill and collect payment from our membership customers. In addition, processing rates may increase in relation to the increased risk assessed by our processing banks.

We are aggressively pursuing opportunities to increase traffic at our websites and partner websites to offset these risks and grow long term revenues from memberships as well as, upsell, and lead generation revenues. We expect that increasing our website traffic from sources other than our current affiliate network will improve the volume and quality of sign-ups, and reduce both our return rate and chargeback rate.”

So, as you can see, the company definitely had a hiccup in Q2- Since they have decided to totally abandon the practice of informing the public markets about their financial health, the market, typically irrational in the short term, has sold the stock off to an absurdly low level in my view.

In Q1 the company delivered $13 million in revs and $3.7 million in after tax profits. How about Q2? I have no way of quantifying the hiccup, but I would guess revs will come in between $7 and $10 million, and they will still make a profit. That is purely guess work.

The ’06 Q2 numbers were $7 million in revs and $1.4 million in profits. Do I believe they will beat that- yes.

So- here’s the real problem with CPNE, and it’s a buzz word you hear often in stock market circles: EARNINGS VISIBILITY. There is no earnings visibility, and there are many investors who believe their business model lacks value for the consumer. Hence, you have a stock that is trading very poorly after one fantastic year.

So, is the party over? Not likely. It’s worth noting that exactly one year ago today, CPNE was trading at $.50 per share. ’07 high you ask? $3.40.

Here’s the chart, and here’s what I find interesting. The faint blue line you see (I’ll make it easier to see in the future) is the downtrend line. If you have read my past BLOGS, you know when we fell below the $1.47 level, I stated the bottom was impossible to forecast.

Now, I believe we have hit bottom. Why- look at last week’s capitulation- it butts up right against the downtrend line. This stock is now highly likely to be in a uptrend, albeit a slow one for the time being.

In short, I believe the stock is a stong buy right now, with an SSL wherever the downtrend line happens to be. As long as we are above the line, we should be fine. Today, the line would be at about $1.

Here’s what I believe will happen. The company will report “less than robust” numbers for Q2, and the stock will go up. Why? Because the market has already priced in a worst case scenario.

Thinking much longer term however- this company will never get the kind of multiple the numbers would suggest unless management is willing to be more transparent. Head in the sand equals stock in the toilet.

Comments and questions are welcome.

 

Titan Delivering as Projected- But Not Exactly As the Headline Implies

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Titan Global delivered Q3 numbers today, and they were off the charts. According to their press release, the company delivered $5.7 million in profits on $30 million in revenues. It was $.11 per share in earnings.

The stock should be $4 - right? not rocketing up the charts. Drilling down, the numbers are still quite good and suggest a market cap value far in excess of the roughly $50 million this one has.

However- look a little closer. Of the $5.6 million in profits they generated, $4.1 million was related to forgiveness of debt from a derivative. A one time, funny money accounting deal. Off operations, they really only made a profit of about $1.5 million. More like about $.03 or $.04 per share in earnings.

So, if you’re wondering why the stock is not charging out of the gates on this news, there’s your answer.

I am pressed for time this AM, so don’t have time to make a charge and comment on the technical side.

However, with the balance sheet improvements, these gyrations will eventually stabilize and this will be a very profitable company and continues to be undervalued. Technically, perhaps not a break out yet, but a great medium to long term hold for a big move later in the year.

eFoodSafety Going Head To Head With Pro Active

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Now that the cat is out of the bag on Pur Effect, EFSF is wasting no time getting to work on going head to head with the virtually unchallenged leader in the specialized acne treatment world.

Today, just after the market opened, EFSF announced it had completed a study showing 94% of participants preferred Pur Effect’s 4 step treatment over a standard 3 step treatment.

While it doesn’t say so for competitive reasons, this is really a frontal assault on the strangle hold ProActive has on the Acne treatment market.

Personally, I believe the company is making all the right moves on this one. Unlike Cinnergen, where they are at the mercy of the retailers in terms of product placement, they are completely in control of their destiny with Pur Effect with its planned infomercial marketing.

Moreover, they have teamed up with some pros who have a long history of successful product launches via infomercial, generating hundreds of millions in sales.

And- even better- they don’t have to take one dime of risk. CK41 will put up all the money for the marketing campaign, and they will just split the profits.

Bottom line- I really like what’s happening here. Here’s the chart:

In short, the chart looks great. You can see the summer low, and you can see the nice uptrend in the stock. I feel the downside risk at this point in somewhere in the $.28 to $.32 range. The upside is a new all time high sometime later this year. In short, just buy this thing whenever it’s near the blue line. If it trades below $.28, you might want to sell to protect your principal, but I believe the summer low has been made.

eFood Looking Ripe For Rebound

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It strikes me we are past some of the summer sell off lows, and several of our ideas could be ready for dramatic rebound phases. EFSF, NIHK, and CPNE all look ripe for rebounds, but I believe EFSF is the one to jump into today.

Last week, the company announced it was in the final stages of launching an ecommerce Cinnergen web site. Clearly, this means sales are not off the charts at the retail locations, but the company is taking steps to sell more product. It strikes me as a good move on their part.

Most of all, I like the chart. As you followers know, I love buying stocks at 61.8% retracements. I don’t like trying to buy them when they are falling. The old saying is don’t try to catch a falling knife- you’ll get cut. However, you have to look at them once they have fallen and are climbing back.

Here’s the EFSF chart:

Going back to the big upleg which started last January, the 61.8% retracement of that whole move is in the $.31 range.

The stock sold off rather violently in June, and capitulated down to about the $.25 level. It was at this point you needed to exercise some discipline and sell if you were short term.

However, it rebounded very quickly back to the $.30 to $.32 range, which tells me that is where the support lies. And, of course- it happens to be the 61.8% retracement level.

EFSF looks like it has great support at these levels and is ready to rebound. It’s simply a technical observation. The performance of the stock is a bit like getting the flu. It was sick for a while, but the patient is stable and clearly recovering.

Accumulate EFSF for a breakout move now. Be in before the patient returns to its former powerful self. New SSL- $.235