To OTC Journal Members:
 

American Water Star (AMEX: AMW): Rapid Distribution Expansion Continues

On July 15th American Water Star made a new multi month low of $.82, and rebounded to close at $.93. This brief move South precipitated many emails from OTC Journal subscribers, and hopefully today's edition answers all your questions.

There is an unusual phenomenon occurring in microcap stocks. In my view, when investors look back at the summer of 2004, they will either celebrate opportunities taken, or lament opportunities missed.

The phenomenon previously eluded to concerns support levels for microcap stocks. In essence, the current market environment favors a long term outlook in companies who are currently growing like a traffic line behind an accident at rush hour. Individual investors can afford to have a long term outlook with their own capital, fund managers cannot. 

Therefore, when stocks grind down to cost basis levels for fund managers, large sellers appear in "preservation of capital" mode. Like a homing pigeon, AMW has traded right down to $.90- the exact cost basis of the $8 million financing last February. Those who invest other people's money want to avoid losses to keep their jobs. Those who invest their own money should take advantage of this weakness.

I was watching the tape as AMW traded down to $.90 last Thursday. At the $.90 level, it was obvious a 50,000 share market order hit the specialist's desk at the AMEX. Like any specialist, he dropped the stock price, filled the guy's order, and the stock then rebounded to close back above $.90. Stupid trade; predictable result. Professionals refer to this as being "Whipsawed".

In this market environment you should be focusing on the company's fundamentals. When the stock is more fully valued in the future, you can sell then. In the interim, AMW delivered another major new customer today. This is the second major new customer in July. Here are the details:
 

American Water Star (AMEX: AMW) Adds Bi-Low Stores To Distribution List

Today, after the market closed, American Water Star revealed it had received it first purchase order from the Bi-Low supermarket chain with 291 stores located in Georgia, North Carolina, South Carolina, and Tennessee. This is the second major new customer added this month, and follows on the heels of the previously announced new purchase orders from the Vons/Safeway chain.

This is a good opportunity to bring everyone up to date on what is happening at AMW.

Here is a partial list of the current customers for their beverage lines:

• Wal-Mart
• Vons/Safeway
• Albertsons
• Longs Drug
• 7-11
• O&S Distributing: represents 4,000 independent stores and supermarkets
• McLane Co.: Has 50,000 customers which include convenience stores, mass merchandisers, fast food restaurants, and movie theaters. Distributes to this customer base out of 32 nationwide food distribution centers.

Initial orders have been shipped to the Vons/Safeway distribution center for delivery to the individual stores. It is not in the individual stores yet.

O&S and McLane have started receiving shipments of beverage and are in the process of delivering to customers.
 

Bottling Capacity Update

Here is the update on Production Plants and Capability:

• California: Owned and Bottling; Bottling Capacity about 500 truck loads per month ($7 to $8 million in monthly revs)
• Florida: Owned and Bottling; Bottling Capacity about 500 truck loads per month ($7 to $8 million in monthly revs)
• Mississippi: Owned and Bottling; Bottling Capacity about 500 truck loads per month ($7 to $8 million in monthly revs)
• Phoenix: Owned and Bottling- just beginning operations this week: Bottling Capacity about 1500 truck loads per month ($21 to $24 million in monthly revs)
• Hawaii: Bottling Equipment Has Been Purchased: Location still being sought

As bottling capacity grows, distribution expands, and product starts to appear on shelves, AMW should start delivering more consistent revenue growth. The process from initial order to regular appearance on the shelves of a supermarket chain or distribution point is a multi month event. Therefore, a little patience is warranted during this anemic market correction.

I believe AMW will turn the corner into 2005 annualizing at $100 million in annual revenues, give or take a 10% margin for error. At that point, the stock would be fairly valued in the $2.50 to $3.50 range.

Between now and then, the stock could trade up or down, and have brief spurts in either direction. Personally, I don't give a rat's behind where it goes in the short term. They have the product. They have the bottling facilities. Let's allow nature to run its course. By the time you see a regular supply on the shelves at your neighborhood grocery store, it will be too own this one at the same level fund managers "ponyed up" their $8 million in February.

Here is the complete text of today's news release for your review:
 

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