LD Micro Invitational Conference

Many thanks to the team at LD Micro for organizing a great conference!  In particular, Chris Lahiji did an amazing job bringing so many great companies and investors together.  Conrad and Wade organized the 1x1 meetings and dealt with lots of changes to the schedule.  In addition to connecting with companies, I was able to network with a great group of smart investors. 

At the conference, I had the good fortune to connect with about 20 great companies.  Of those, here are the ones I plan to keep on my radar for the near-term: 

Iveda (IVDA): Market Cap $27mm.  

Iveda is in the cloud-based video surveillance market.  Specifically, Iveda generates monthly recurring revenues by offering customers wifi-enabled security cameras marketed through ISP’s.  Initial sales successes have been through telecom companies in the Philipines and Vietnam, with Mexico coming online in the third quarter.  The cameras themselves are somewhat of a commodity product (low-margin) but they are easy to deliver to the end user (drop-ship from the manufacturer) and easy for the end user to set up (wifi-enabled).  The real value and money is in the software to access the video feed (and, for an additional fee, save video for pre-determined lengths of time).  Note that the ISPs provide the hosting and storage, Iveda provides the software to link the cameras to the data and storage.  Iveda has about $2.6mm in cash on the balance sheet, with $1mm of it restricted related to a specific purchase order from a large customer.  Cash burn is currently about $275k / month, with sales successes expected to drive revenues such that cash flow will be positive by year end.  In the first quarter of this year, Iveda closed a $3.1mm Series B convert with investors, including a strategic investor. We are monitoring and might get involved if the company gets a bigger strategic investment or if some US ISP’s express an interest. 

Calpian (CLPI): Market Cap $25mm, Total Debt $19mm

Calpian is in the mobile payments business.  Their largest subsidiary, MoneyOnMobile (72.9% owned by CLPI, with options to buy another 1.1%) operates in India.  Of India’s 1.2 billion people, about half of them have no access to electronic payments or bank accounts.  Calpian is building infrastructure there to enable people with no bank or smartphone to digitize cash for easier payments.  Customers deposit cash at a local bodega and can digitally pay bills including phone, utilities, and TV.  Previously, customers needing to pay bills would need to travel (sometimes quite far) to a centralized location where they might wait hours to pay their bills.  Using MoneyOnMobile’s transaction-based bank, customers pay a fee on the order of 1% to 5% but avoid the cost and inconvenience of paying these bills with cash.  MoneyOnMobile currently has about 260,000 retail locations and about 131mm cumulative unique users on the system, with about 4mm “Repeat Active” users as of April 2015.  Monthly average transactions is about 7mm, with about Rs 2Bn (a little over $30mm US) processed in April 2015.  Average transaction volume has been increasing, as well as transactions / user.  MoneyOnMobile reported $57mm in top-line revenues in 2014, with gross margins of about 1%.  We are monitoring the situation. 

Chanticleer Holdings (HOTR): Market Cap $40mm.

Chanticleer is best described as a publicly traded private equity company in the restaurant operations business.  The company primarily focuses on the fast casual arena.  Their flagship holding is the corporate parent company Hooters, although there are discussions around selling this parent company to pay off the debt associated with it.  Chanticleer also owns 14 international Hooters franchises (mostly in South Africa and Australia).  They also own several local high-end burger franchises and chains, including American Burger, BGR, and are under LOI to buy BT’s Burger Joint.  They bought a significant share in Just Fresh out of a distressed situation.  In January Chanticleer raised about $8mm, mostly through friends and family.  The growth strategy involves buying existing restaurants for about 5x or less multiple of EBITDA.  Chanticleer continues to operate portfolio chains under their heritage name, but consolidates some operational line items such as beverage contracts and insurance.  One thing to note is that there are significant warrants outstanding.  We are monitoring the situation. 

Spiral Toys (STOY):  Market Cap $20mm, almost no debt.  

Spiral Toys uses consumer products as a bridge to digital content.  Their first area of focus is CloudPets, which is a stuffed animal that connects using bluetooth to phones to provide digital content.  On this product, they are partnering with Disney, Wal-Mart, NickJr, and Google.  This product launches this fall.  The company only went public in March of this year.  We are monitoring the product launches to see if they gain traction with the consumer. 

Quest Solutions (QUES): Market Cap $10mm.

Quest provides hardware and software solutions for logistics management.  They add value to small and medium-sized businesses by designing and implementing systems to improve efficiency.  An example would be a bakery that provides buns for fast-food chains.  Their hardware and software can allow the bakery to track the usage of the buns to deliver new, fresh product when supply is getting low.  Quest provides hardware (tracking RF chips) and software, so there is upfront revenue as well as ongoing.  The sales cycle is relatively long (6 months or so) but it is very collaborative and the revenue is sticky.  In the last 3 years, only 3 of 90 customers have failed to renew service contracts.  There are about 5 competitors that offer a full suite of products, but all (including QUES) are resellers of hardware.  For example, they may purchase tablets from Dell or Apple and upgrade the case for durability, add a swivel arm or forklift mounting device, or make other modifications.  QUES uses their relationships with hardware manufacturers to improve the economics for both QUES and their customers.  They recently acquired two companies, one in November and another closing soon.  2014 Pro-Forma revenue for both acquisitions was $60mm with $2.2mm EBITDA.  We are monitoring growth as well as integration of the acquisitions. 

IronClad (ICPW): Market Cap $20mm

IronClad designs and sells performance gloves.  Their primary market is workers on oil & gas rigs, although they have lines of gloves for many professional and recreational markets (think everything from home repairs and gardening to snowboarding and motocross).  They sell through distributors like Grainger.  In February 2014 they got a new management team, after the old management team tried and failed at selling the company.  At that time, they moved from CA to TX to be closer to their major customers.  They took 6 of 20 people from that location, and they are building their sales team.  The new CEO ran a $100mm company and wants to grow the business substantially.  They have signed over 300 retail doors such as Dicks Sporting Goods, Ace and True Value and Bunnings Australia.  Revenues are about $24mm with gross margins about 30% to 35%.  The market cap is quite low for the relationships they have, but need to see some catalysts shaping up for us to get interested.

SMTP (SMTP): Market Cap $35mm

SMTP is in the marketing automation business.  The company began as an email delivery company.  In the last six months or so they made 2 significant acquisitions, GraphicMail and SharpSpring.  GraphicMail is basically a competitor to MailChimp, for graphic newsletters and other email campaigns, but with a global sales team (based in 14 countries) that speaks multiple languages.  GraphicMail is relatively stable, cash flow positive business.  SharpSpring is the real growth potential because it is in Marketing Automation, a $3Bn and growing market segment.  Marketing automation is highly competitive, with major competitors Marketo and Hubspot each valued at over $1Bn in market cap and spending about $100mm / year in sales & marketing.  Sharpspring has some unique features such as call tracking and CRM integration which appeal to customers.  In addition, SMTP is employing a unique marketing strategy.  They target marketing agencies (rather than end users directly) to quickly expand its reach to end-users.  In addition, SMTP believes SharpSpring will benefit from the huge marketing spend of competition to drive awareness of the sector.  Marketing Automation is “sticky” with only about 2% attrition so far on average, since customers get comfortable with the interface and can access historical information.  Competition has higher attrition rates, but SMTP believes most users leave for a lower-cost solution (such as SharpSpring).  SharpSpring sits in a unique place within marketing automation since it is priced at significantly less than major competitors while including additional features such as CRM and call tracking.  For this reason, it can appeal to a larger number of companies who can’t afford the standalone solutions or the salaries of employees to manage these solutions.  SMTP has a clean balance sheet with no debt and about $13mm in revenue, $1.3mm EBITDA in fiscal 2014.  Need to see significant traction with agencies with consistent low attrition rates for us to get involved.   

LiquidMetal Technologies (LQMT): Market Cap $60mm

Liquidmetal manufactures small, complex injection-molded metal parts with 3D precision that resist corrosion and are extremely strong. These products are desirable for several industries including consumer electronics, watches, and medical devices.  For several years, Apple paid upfront several years ago for a non-royalty license to use the technology in Consumer Electronics. In addition, Swatch has a royalty license to use it for watches.  The company recently hired Paul Hauck as VP of Sales & Marketing with experience in injection-molded metals.  Paul is building and training a commission-based sales team with extensive experience in medical devices.  The sales cycle can be quite long (6-9 months).  In addition, the company completed construction of a manufacturing facility in CA back in October 2014.  LQMT has relationships with feedstock suppliers and manufacturers of the injection molding equipment necessary to manufacture parts using LQMT’s technology.  The company has $8.2mm in cash with $3.9mm in liabilities.  In addition, they have a $30mm undrawn equity line of credit with Aspire Capital with a floor of $0.10 on the stock.  Need to see traction (sales) in medical devices for us to get involved. 

Telenav (TNAV): Market Cap $350mm.

Telenav makes navigation software.  They have been working with Ford since 2010, and just acquired GM as a customer.  The 2017 requirement that all new cars have backup cameras will be a tailwind for them because the option to install navigation software will be partially offset by the mandatory presence of a color screen.  In 2014 they did about $150mm in top-line at about 60% gross margins.  It has almost doubled in the last year, and we think upside potential is 2x at most.  At this market cap, this company is too rich for our blood. 

Microvision (MVIS): Market Cap $150mm.

Microvision makes tiny laser projecting hardware components.  They sell to consumer electronics companies who package the components into a product with a power supply, speakers, controls, etc.  The projector doesn’t need to be focused and can project small to large format fairly easily.  They have about $18mm in orders to date with SONY and are working with an OEM to fit their product into a smartphone.  Currently manufacturing at negative margins, but if they can get sales from $4mm to $50mm they forecast break-even on a gross basis.  Current cash position is $16.7mm with a burn of about $1mm / month.   

S&W Seed Company (SANW): Market Cap $65mm.

S&W Seed Co is a breeder and grower of two main crops, Alfalfa and Stevia.  Alfalfa is the 4th largest (by volume) crop in the world, primarily as a feed crop for animals.  SANW has about 20% market share in this crop and this is the stable, slow-growth business.  Stevia is somewhat new to the market and has a huge growth potential, although unclear which companies will benefit tremendously from its growth.  In the Stevia market, SANW is focused on upstream breeding, and has 2 patents on stevia seeds.  

Of interest: RMG Networks (RMGN) Investment Thesis

Jennifer Galperin. Follow me on Twitter and Stocktwits.

Michael Bigger. Follow me on Twitter and StockTwits. 

Disclaimer: We have no position in any of the companies mentioned in this article as of 6/12/2015. 

PLUG PowerTrip Notes

On May 19, PLUG hosted the first of six presentations on it's PowerTrip tour.  The focus of this presentation was on sales growth and margin improvements.

CEO Andy Marsh announced a new big box retail customer with 1 site (177 GenDrive units) fully deployed as of early May.  This customer has over 100 distribution centers in the US, and could easily become a regular customer.  Andy reiterated confidence in 2015 guidance, which stands at $100mm in revenue and $200mm in bookings.  To get to $200mm in bookings: 

• $46mm already booked as of the end of the first quarter.  
• $113mm in business from existing customers at > 90% probability, including about 8-10 WMT sites in 2015.  
• $208mm in near-term opportunities, of which they only need to convert about 25% to meet plan. 

Andy then discussed his medium-term plan, which I found very interesting.  Andy sees an addressable market for PLUG of about $5bn annually.  He sees $500mm in annual revenues as the goal for 3-5 years out, broken out as follows: 

• $260mm from GenDrive units sold to present customers.
• $100mm from selling H2, infrastructure, and service sold to present customers.
• $80mm from new accounts. (this sounds low to me, but conservative is good)
• $60mm in international sales.

Critical to PLUG's success is the infrastructure to deliver H2 where it is needed.  Currently, each site has a liquid storage tank for H2 which receives deliveries about once a week.  This tank supplies the refilling stations located inside the center.  Given the high cost of the H2 storage tank and related equipment (about $1mm give or take), the change to PLUG GenDrive from lead-acid batteries only makes sense for "larger" distribution centers (>about 50 trucks).  For smaller centers, H2 would need to be more accessible without on-site storage and infrastructure.  Similarly, applications that require significantly more H2 (such as refrigeration TRUs) would require better infrastructure to avoid daily (or more often) refilling of the liquid tanks.  So Andy is very focused on H2 not only as a potential product, but as a way to make PLUG products more accessible to a wider range of customers and applications. 

After Andy gave the update, COO Keith Schmid spoke in depth about goals for gross margins for the balance of 2015 and beyond.

Keith targets about 29% gross margins by the fourth quarter of 2015 for the GenDrive product (the cornerstone of the GenKey product suite).  He plans to achieve this goal with several key initiatives:

1.  Design improvements.  Each generation of GenDrive products includes improvements in functionality as well as reductions in cost to manufacture.  By replacing costly parts (or those parts that take extensive time to install), manufacturing costs can be reduced.  The next major design changes will hit market during the third quarter of this year.

2.  Volume.  With increasing sales, obviously PLUG can spread fixed costs over a larger number of units.  In addition, though, PLUG gains leverage with suppliers for longer runs and better pricing.  In addition, PLUG gains flexibility to use custom-made parts previously unavailable for smaller volumes.  All in all, higher volumes have tremendous effects on reducing costs and improving gross margins.

For the rest of the product suite, which includes GenFuel and GenCare, Keith and team plan for positive gross margins by the end of the year.  To get there, volume is critical to achieve economies of scale.  In addition, drastic improvements in diagnostic software mean technicans can get units back up and running quickly, with minimal need to escalate issues.

On a long-term basis, Keith thinks 30% + gross margins are possible across the board, with SG&A at around 20% of sales, for a net EBITDA margin number of 10% to approaching 20%.  

If we put Andy's $500mm 3-5 year plan together with Keith's 10% + EBITDA targets, here is where we see valuation:

$500mm revenue

$100mm EBITDA

$1Bn EV at 10x EV / EBITDA

$131mm cash on the B/S as of 3/2015, with $0 debt

Potential Market Cap: $1,131mm, or $6.54 / share.  

Of interest: Plug Power Site Visit

Jennifer Galperin. Follow me on Twitter and Stocktwits.

Michael Bigger. Follow me on Twitter and StockTwits. 

Disclaimer: Plug Power has never made any money. Take our opinions with a grain of salt.

Plug Power Site Visit

On Monday, April 13, I joined a group of investors to tour Plug Power's ($PLUG) Latham facility as well as a nearby $PLUG customer's distribution center.  $PLUG CEO Andy Marsh rolled out the red carpet for us, including dinner in exotic Amsterdam, NY.  Aside from the beautiful red Ferrari parked outside the restaurant, there weren't too many surprises.  Some of my observations, in no particular order: 

• The PLUG manufacturing facility seemed to really be rockin' and rollin'.  I tweeted a picture of several hundred GenDrive units ready to go to a big customer.  Now, I have visited Latham a few times.  The first time, in the spring of 2013, when the stock was trading for $0.12.  Back then, the facility had a totally different feel.  Now it feels much more alive.
• At PLUG's facility, we saw new fueling stations being assembled, as well as parts for several more.  From Marsh down to the factory floor, there is focus on providing a soup-to-nuts solution for customers.  As Marsh said, this really is customer-driven and results in a much shorter sales cycle.
• Marsh mentioned a focus on hydrogen infrastructure.  It is clear that proper infrastructure is critical and also a key cost driver for material handling customers.  What is significant is that by setting up proper infrastructure, $PLUG is setting itself up to be at the epicenter of the hydrogen universe.  As the popularity of hydrogen power increases, $PLUG's infrastructure will allow the addressable market to grow.
• Marsh seems really focused on connecting with investors and increasing transparency.  He is keenly aware of criticisms, particularly those focused on meeting (or exceeding) guidance.  The current revenue guidance numbers reflect his desire to increase PLUG's credibility in that area. 
• We talked about how the sales process has transitioned with some customers to more of a planning process where there is longer-term clarity.  Andy seems very bullish on PLUG's ability to move additional big customers to this type of sales process.   
• We talked about gross margins.  I believe it is important to show (preferably soon) that PLUG can make solid profits in material handling on a gross basis.  Additional applications such as tuggers, refrigerated trucks, etc. are nice but not if the core business is marginal on a gross basis.  To this point, we saw a few design innovations on the factory floor that are aimed at cutting costs.  In addition, the recent acquisition of ReliOn provides a bit of supplier diversity and sheer volumes drive costs down.  All told, Marsh seems pretty confident in PLUG's ability to make good money in material handling.  Of course, I want to see the numbers!
• The biggest surprise for me at the customer site visit was the impact of taking out the battery room.  A huge room was left vacant.  This customer chose to use a small part of it as the PLUG GenDrive maintenance area.  But it was clear the space was too big, as they had only one unit in for service (out of almost 300 onsite) and 2 full-time workers to perform the service.  Clearly there is room to both improve space utilization as well as cut costs in the servicing. 

We did get a chance to meet the new CFO, Paul Middleton.  Middleton seems focused on understanding the key drivers to the business, both costs and revenues.  He has the ability to simplify the complex, which will be helpful to investors.  He is still new to the company, so I didn't ask any detailed questions in our brief conversation.  I will save that for another time.

Of Interest: The Boulevard of Broken Dreams: Plug Power

Jennifer Galperin. Follow me on Twitter and Stocktwits.

Astrotech: Free Option on Game-Changing Technology

• Recent sale of largest division

• Market cap less than liquidation value (pending tax)

• Remaining company has “game-changing” technology

• Sale of the company (or the new unit) in the next 1-3 years could be extremely profitable to shareholders.

Astrotech as a company changed dramatically in August when the completed the sale of their largest unit to Lockeed Martin for $61mm.  Following the sale, the company retained two divisions: 1st Detect and Astrogenetix.  The current market cap of $47mm represents a discount to the cash value of the company (pending information about the tax consequences of the sale), which means the two divisions are essentially free options available in the marketplace.  One of them, 1st Detect, has significant value as a standalone entity or as an acquisition target.  

1st Detect owns potentially game changing mass spectrometry technology.  A Mass Spectrometer is a device used to analyze pretty much any substance and determine the unique chemical compounds that comprise it.  These devices are used in many different industrial and academic fields.  Traditionally, these devices are slow, heavy, and expensive.  1st Detect’s technology is fast (3.5 seconds as opposed to hours), portable (17lbs as opposed to 100+lbs), and cost effective ($50k as opposed to $100k+).  This means analysis can be done on-site and practically real-time as opposed to sending results to a lab to get results several hours to days later.  The company compares their technology to the change from mainframe to PC in computing.  This opens the market to potential applications from pharmaceutical manufacturing to military and TSA, to archeology.  The company estimates the market for just the devices is in the billions of dollars over a 10 year period.  

In addition to their game changing devices, 1st Detect has partnered with Spark Cognition to provide analysis and predictive analytics.  Using Spark’s analytical software allows 1st Detect to offer customers a full-service product.  

1st Detect is currently working with pharmaceutical manufacturers to test the mass spec product.  If the tests are successful, this industry appears to offer a huge market for the product.  Testing output regularly can mean spotting potential issues very early, before downstream processing and customer shipments.  This means cost savings but also reduction in product liability.  So the benefits are huge and obvious.  

If commercial pilot testing is successful, 1st Detect technology can be sold to a larger industrial technology company.  Management seems focused on testing the concept and then selling the technology rather than building out the infrastructure necessary to distribute the product on an international basis.  We see potential upside in this scenario as well as a near-term exit plan that could mean 2-3x the current market cap in a few years.  Typically we look for larger upside potential however in this case we view the downside risk as small.  The company received cash proceeds of $61mm from the asset sale over the summer.  We expect some clarity about the net amount during the next earnings release. NOLs will reduce the liability somewhat.  At current cash burn rates, $60mm is more than 6 years of operations before they have to raise capital.  We believe that gives the company ample time to prove the concept and sell the technology.  So while the upside is a little below our typical goals, the downside risk is dramatically minimized.  

Astrotech also owns a much smaller operating segment called Astrogenetix.  Astrogenetix is a biopharmaceutical company that develops vaccines.  While there is no current revenue, we view this as a free option.

We are accumulating a position and will add to it as we receive feedback regarding the industry testing.  

Written by Jennifer Galperin.  Follow me on Twitter and Stocktwits. 

The Energy was in the Air at the Plug Power Annual Meeting

On Wednesday, July 23, Plug Power  ($PLUG) held it’s annual shareholder meeting in New York.  We attended, as well as some other new and long-time shareholders.  During the meeting, Andy Marsh, the CEO, gave a presentation that reaffirmed our bullish view on the long-term prospects of the company.  

In a nutshell, PLUG is currently in the material handling business (i.e. forklift truck batteries).  Specifically, PLUG built an industry to deliver GenKey and GenDrive, the turnkey solutions that can have a site up and running in a month flat.  PLUG provides the units, a service contract, and a source for hydrogen that makes the sales decision easy for the customer.  Andy gave two anecdotes that speak to the traction PLUG is gaining with customers.  First, $WMT announced earlier this year a 3 year deal to deploy PLUG products to 6 distribution centers.  They just deployed their second in July and have plans to deploy the third, originally slated for 2015, in September, more than 3 months ahead of schedule.  So WMT is moving fast to deploy PLUG products.  Second, Andy indicated that the sales department has started to receive in-bound calls from large competitors to WMT.  So success at WMT is making the sales decision easier for other potential new customers.

GenKey by itself is a $40Bn business total opportunity worldwide.  Expansion to Europe and Asia will be primarily through JV’s.  In Europe, HyPulsion (JV between PLUG and hydrogen producer Air Liquide) is driving success.  In Asia, PLUG is working with Hyundai to break into that market.

Beyond offering the GenKey solution, as we have all known for some time, there are other businesses that PLUG has on its horizon.  This year they completed a test run of airport tuggers powered by hydrogen for FedEx.  They are going live in Memphis during the 4th quarter. That is about a $500k to $1Bn market in the US.  A test of Transportation Refrigeration Units (TRU’s) powered by hydrogen is scheduled for the fourth quarter of this year at the Sysco facility located  on Long Island.  That is a $5Bn to $10Bn opportunity in the US.  

In addition, Andy discussed his blueprint to expand the GenKey offering to a large network of retail stores and small distribution centers.  Under the current model, a site needs about 100 forklift trucks or more to make a PLUG solution economical.  However, leveraging the hydrogen supply and distribution route provided by a nearby hydrogen powered distribution center, PLUG can bring hydrogen to a single truck at the store level.  This opens up the market tremendously within the material handling area.  

We still believe it is day 1 for the premier global hydrogen system integrator.  

We are looking forward to the earnings release on August 14.

Written by Jennifer Galperin.  Follow me on Twitter and StockTwits.

Marcum Microcap Notes

This year we attended the Marcum Microcap conference for the second year in a row.  The conference was well attended by both companies and investors.  There were a lot of interesting investment opportunities.  Here is a summary of the few presentations we attended that we plan to keep on our radar screen over the next few months.

Jennifer Galperin:

$MNGA:  MagnaGas: makes hydrogen gas for industrial applications. Their gas has some favorable properties relative to competing products, burns cleaner and at a higher temp. The company is in talks with some big clients such as US Navy for a contract to sell gas to power a torch to demolish a submarine. Working with a large coal plant to test their gas in combination with existing coal. Claim is that it burns cleaner with less emissions and costs less than a scrubber or other environmentally friendly addition to the plant. Expect results of this test 2Q - 3Q 2014. Current cash on hand should fund 18 months of operations. Will keep it on the radar for the fall. 

$MMMB: MamaMancinis: food manufacturer based in NJ. They make fresh and frozen meatballs for sale in the frozen, refrigerated, and hot food sections of supermarkets and big box. CEO / founder has a successful background, he was part of a group that sold Alpine Lakes to Land o Lakes. His goal right now is to grow brand awareness among consumers. Current manufacturing facility is operating well under capacity, it has capacity for $70mm in revenues, compared to $9mm in 2013 so plenty of room to grow. Market cap at $80mm seems fairly valued, not sure there is huge upside in the stock. 

 

$PLSB:  Pulse Beverage: Markets and sells lemonade, coconut water, and a line of "health drinks" that use a Baxter technology (no royalties) to increase vitamin absorption. Currently selling at WAG, KMRT, WFM, and about 150 distributors. They have no debt, $1mm in cash, and expect cash flow positive in the June Q. Management has tons of experience, including growing clearly Canadian from startup to $178mm. Current market cap is $24mm compared to $3mm in annual revenue seems fairly valued, with limited upside compared to current market.  Key will be growth in the brand. Patricia also attended this presentation, and here are her comments:

Located in Colorado the company produces high quality and healthy drinks (like ROAR). Started with lemonade Natural Cabana. Is in Wholefoods and WINCO on the west coast (says WINCO is fasted growing wholesale store outwest (like costco)). Very lean company – only 21 employees. Highly confident in the product – best taste. Coconut water made in Thailand with Thai coconuts (sweetest) and bottling occuring within 30 min. 

 

$PROP:  Propel Energy. The company owns the exclusive US license to a plasma pulse technology that can improve productivity of frack wells >100%.  The treatment lasts about 10 months to a year. In 1Q2014 they eliminated converts and debt. Competition includes chemical treatments. Current gross margins are >80% but need to grow scale. Interesting opportunity.

 

Patricia Winter:

 

DS Healthcare (DSKX): Daniel Khesin, president, CEO, CFO and Chairman of the company presented. Co makes hair loss prevention products. 1 consumer care ( shampoo etc) 2 treatments (not yet FDA approved in US ...process has not been started bc of expense- big market is Mexico) called Spectral DNC-N.

Very passionate about his product...claims great results with combination of treatments used by propecia Rogaine etc. Early prevention only way...once follicles are gone no way to treat them. Clinical studies are done every 3 months at Miami university hospital ( needs to be confirmed).

Pointed out change in way big competitors are distributing their products...no longer through hair specialists but main stream drug stores and walmarts. He believes that this is an opportunity as customers need emotional support and hand- holding. Case in point Mexico fastest growing market sells through pharmacies ..which are like French pharmacies. Says that no moth $ have been spent..all growth through word of mouth.

Revenue $13.6 million. Up 22 percent from previous year but 2011 down 69 percent at $9.6m. (What happened?) Mkt cap 29.6 m share price of $1.84. Neg cash flow w $2.8 m left in bank.

Some more research might be interesting.

Par Technology (PAR): Ron Casciano presented co providing technology solutions: 1 legacy business with gov software used in drones to track specifics 2 data and communication alerts management system for large Corp - Wal-Mart, wagman stores?- that helps cut costs by monitoring and controlling such things as temperatures and weather conditions affecting locations and 3 - the earnings engine- Altria a hospitality software system operating in the cloud that allows focus on each individual as a guest (vs paying guest only).

Want to diversify customer base..go to tier 3 and 4 organisations with 2.

Excited about Atria.

$241 m in revenue, mkt cap $72.9 m, share price of $ 4.66.cash flow neg w $10 m in the bank.

International Commercial Television Inc. (ICTL): Infomercial co for beauty products.

Richard ..... presented new business development (to be checked). Recent management change!! Tell old mgmt team....years of expertise;). 37 percent insider ownership. Turnaround story. Main product : Derma Wand...since 06. Derma Brilliance new big thing...skin abrasion with diamond tip...continuous refill sales hoped for.

Big outsource..low overhead to be able to cut cost if products do not sell.

Projecting $100 m sales in 2-3 years (corrected via feedback from @IanCassell on twitter) from 41 in 13. Mit cap 14.7m, at 0.64 share price. Slight pos cf, 1.7m in bank.

Boston Therapeutics (BTHE): Dr. David Platt PhD is the Chairman, CEO and CFO as well as the source of all IP and scientific research. The company develops drugs based on carbohydrate chemistry. 1) BTI3 20 is a chewable tablet that decreases the amount of glucose the digestive system could gain from food to help decrease the insulin needed. The target market is Type 2 diabetes patients. 2) OXYFEX is an anti-necrosis drug that enables oxygen supply to trauma caused areas (fex shut down of blood supply to limb in diabetic patients or severe injuries). Both drugs are in early stages of FDA approvals. Name drop: former president of the diabetic society joined board of directors and is blown away by the results.

$323,400 in revenue, mkt cap $21.4 m, share price of $ 0.57.cash flow neg w $3.4 m in the bank.

Hopto (HPTO): Jean-Louis Casabonne (CFO) presented as the CEO’s wife was having a baby. New to the company, that was originally founded in 98 and changed into its current form in 2010, he attempted to present the company’s new generation hopto software. He could not make the demonstration work bc of lack of bandwidth (he believed)! The idea is a “personal cloud” whereby you can access a variety of hosts, sources and programs from any one of your mobile devices without downloading data (security aspect). The release of the early stage of hopto is expected in Q4 14. He also pointed out that in his opinion the market cap of the company in no way reflects the value of the patent portfolio held by the company – 100 invention patents alone that could be monetized.

$6 m in revenue, mkt cap $19.9 m, share price of $ 0.17.cash flow neg w $4.3 m in the bank.

Silversun Technologies (SSNT): Charismatic president, chairman and CEO Mark Meller (Rangers Fan) presented surrounded by a fan club of people (from company, maybe Marcum and others). The company has a portfolio of cloud based technology and software solutions for small to medium sized business. Profit margins are at 42%. The license sale is accompanied by a service contract: “a $100K software license is a $250K ticket for us.” The company uses resellers to distribute the products and has a strategy of purchasing resellers in order to acquire customers – “the purchase price is cheaper than the margin paid to the reseller on the sale”. Expects equity raise of $5 million to finance acquisitions. 92% inside ownership. Plans to be on NASDAQ – believes price should be at 2.7 times sales.

$17.4 m in revenue, mkt cap $17.1 m, share price of $ 0.15.cash flow neg w $763,000 in the bank.

Michael Bigger:

Ricebran (RIBT) : take the stuff around rice. Very nutritious. Do all kind of stuff with that...rice bran derivatives. Play on population growth. Soy is an allergen not rice bran derivatives. Capital intensive... Most likely to raise $ in the future. This is a company worth monitoring.

The Staffing Group:(TSGL): Staffing company focused on the blue collar staffing market. The company is growing nicely but the barriers to entry in this business are very low.

Full Circle Capital (FULL): Another finance company. Not my type of company unless it is very very cheap.

Trend in Micro Caps Panel: Trends in MicroCaps financing: moderator is from Loeb and Loeb. The 2nd is from Roth. Roth says investment banking was really busy until the Russell index came down hard. Deals from early March are not workin very well. Biotech got kill and it was 75% of their biz. Lull in biotech right now. Lawyer says deals are slower. Other lawyer says same thing. Is the window closing?1000 companies in the pipeline.. So maybe good stuff coming. Lot of choppiness below the surface of large caps. All about liquidity right now.  75℅ of funding was in biotech and investors are hurting. Biotech crept up...so many massive follow on. Investors are extremely worried about bottom and deal not working. All deals were working so why not take a flyer. This is not the case right now. Billion dollar market cap companies sold off by more than 40℅. Investors are more picky. Uptick in renewable. Wearable is livening up. There will be more warrants inclusion for deals that are in the pipeline. People don't want to get into illiquid name right now.

3 Interesting Microcap Companies

Thursday I attended the microcap conference put on by Drexel Hamilton.  Drexel is a firm that employs disabled military veterans, so we are proud to support their efforts by attending the event.

Several interesting companies presented.  The ones that struck me as particularly interesting were:

HPEV, Inc. ($WARM).  HPEV is a development stage company with no revenues yet.  They own or in the process of obtaining patents on cooling systems for mechanical pumps.  The cooling systems will increase power generated by the pumps as well as decrease pump size and weight.  The company anticipates that the global market for pumps is about $120Bn, of which about $60Bn is right for their product.  The plan is to license the technology to existing pump manufacturers for a standard 3% licensing fee.  Critical to success will be the ability to negotiate these license agreements with pump manufacturers, and management has a great deal of experience in the industry with relationships at many of the key firms.  In addition, HPEV has developed a mobile generation product and received their first $1mm order this week.  

The market cap is $60mm and they have an agreement with Lincoln Park Capital (LPC) that LPC will buy up to $10mm in stock over the next 3 years subject to conditions.  They currently have outstanding options on 5mm shares at an average price of $2. 

Sundance Strategies ($SUND): Sundance is a company that invests in a portfolio of life insurance policies.  The company hand-picks policies that have a high value and trade between 6% and 12% of face value.  Sundance holds the policies for approximately 8-10 years until the death benefit is realized.  The company bought its first portfolio of policies last year in June ($400mm in face) and plans to buy about $1Bn in policies each year.  The company needs to raise $50mm in equity financing on top of the $15mm they raised privately last year, and the rest of the cost (purchase price + ongoing insurance premiums) will be covered by debt financing and cashflow from portfolio assets.  Current market cap is $350mm.  Insiders own about 70% of the company. 

Datatrak ($DTRK).  Datatrak provides software for clinical trials of pharmaceutical products.  Here is the stock price chart, so you can see the issues this company faced as it’s stock price fell from $160 (split-adjusted) to just a few bucks:

So what happened?  Revenues fell off a cliff and the stock price did too.  But look what is happening since 2010.  Revenues are picking up, and backlog is back up to the 2005 (pre-cliff) timeframe.  And, according to the CEO, current backlog is more high quality since it is more long-term relationship driven backlog.  According to this chart, the revenue and backlog numbers are outpacing the stock price, giving a good amount of potential energy in the system here:  

What do you think of these companies, or the rest of the presentations at the conference?  

Written by Jennifer Galperin.  Follow me on twitter and stocktwits.

OPTT: What I Know and What I Don't Know

Ocean Power Technologies, $OPTT, is a company that makes equipment to harness the power of the ocean's waves and turn them into electricity.  Sounds like a great idea, because what I do know is that ocean waves are free and abundant.  

What I don't know is how well $OPTT's devices work, their cost efficiency, durability, and the economics of the power generation on a $/kWh basis if you include the manufacture and installation.  I have no clue about that.  Sure, I have a degree in Engineering from MIT.  I could spend the next 6 months learning about their technology, reading patents, talking to engineers, and get up to my elbows in calculus.  

But why should I do that when a group of smart people at Lockeed Martin ($LMT) have already done the hard work for me?  The fact is, I don't need to do any of that detailed research.  I see that $LMT today announced a $200mm deal with $OPTT to build an ocean wave power generation station off the coast of Australia.  $LMT is very familiar with $OPTT's technologies and capabilities; the two companies have been working together on smaller projects since 2004 and on this project specifically for about 18 months.  If $LMT believes in the future of $OPTT's ocean power harnessing technology, then I know it is a good bet to jump on that ship.  

What do you know?

Written by Jennifer Galperin.  Follow me on Twitter and StockTwits.

Blackberry: The Good, The Bad, and the Shift in Momentum

If we can agree on one thing related to BBRY, it is that everyone has an opinion.  There are a lot of topics keeping the bulls and bears talking.  

The good: 

• Shift in focus to the secure email and enterprise security, through internal growth and potentially acquisitions.
• Dividing the company into operating units: Enterprise Services, Messaging, QNX Embedded, and Devices.  This allows each unit to grow the business independently and sets up the possibility to spin off one or more units if a good opportunity arrises.
• New CEO has a proven track record for turnarounds.
• The company now has $3Bn in cash on the balance sheet plus access to an undrawn credit facility of about $250mm.
• New head of Devices business hired from Sony/Ericsson.
• The new convert provided $1Bn in additional liquidity at 6% interest with a conversion price of $10.  The investor has until Jan 13 to exercise an option to purchase an additional $250mm of the convert.  Note that the option was extended from mid-December (that should go under the bad).
• The convert was issued to Fairfax in lieu of an original plan to buy the company for $9 / share.

The bad:

• Co-founder Michael Lazaridis just sold his position down to <5%
• Just announced an asset impairment of $2.7Bn and a reduction in inventory value of [?], primarily B10 devices.  Additional inventory writedowns are possible.

• Revenues continue to decline across operating units.

To evaluate an investment in $BBRY, these factors are all irrelevant.  They are all in the past.  All this information is priced into the stock.  In fact, a lot of the bad news was priced in ahead of the earnings announcement so that the actual announcement produced a positive spike in the stock.    

The critical question is, what (if anything) will be the catalyst for a stock price recovery?  Some investors hope that is the Foxconn deal.  The partnership will help avoid some of the inventory risk issues BBRY is currently dealing with, which is a positive for the company.  In addition, the deal allows BBRY to focus on other areas of the company where it has a competitive advantage, such as secure email and messaging.  The catalyst could be a change in attitude about the stock due to the CEO and the new deal.  Positive news improves the company's image which can come around to improve revenues and results.  We can't be sure what the catalyst will be at this point.  One thing is for sure, it feels like there is a lot of strength in the stock since the announcement. 

On this name in particular, there is a good amount of upside if the company is able to turn around its image and deal with the many issues around mostly the hardware.  The stock could double to the $15 range.  There is also a good amount of risk to the downside if they are unable to succeed with the turnaround plan.  It feels like a binary situation where either (a) they are able to turn around and the stock doubles (or more), or (b) they can’t turn things around and the stock price plummets.  Given all the hype, there is likely to be a lot of volatility.  In these types of situations, I think options offer the best value proposition.  I am long the Jan ‘15 $7 calls.

How are you playing Blackberry?  

Written by Jennifer Galperin.  Follow me on Twitter and StockTwits. 

Icing on the Cake

Today's news on PLUG highlights the feasibility of additional uses for hydrogen powered fuel cells.  PLUG's core business, forklifts, is enough to bring the company to profitability next year, assuming they meet revenue targets.  Any additional applications, such as powering refrigeration units for cold transportation, are in our opinion icing on the cake.  And there are plenty of potential applications such as this with existing PLUG customers.  With enough icing, this cake could turn into a beautiful tiered wedding cake.

PLUG earnings are scheduled to be announced tomorrow morning.  I will be listening to the conference call at 10am.  Will you?

Written by Jennifer Galperin.  Follow me on Twitter and StockTwits.