Newsletter

March Profile: XML Global Technologies (OTC BB: XMLG)

March 30, 2001
Volume IV, Issue 32
Email : info@otcjournal.com
URL : http://www.otcjournal.com

To OTC Journal Members:

Despite coming through a year stock market investors would like to forget, finished off by the worst 1st calendar quarter in the history of the NASDAQ, the OTC Journal is finally back on a profit roll with a major breakthrough over the past 10 days.

This year we have suggested our members accumulate three stocks, and two of them are well above January 1st levels. MedGrup (OTC BB: CODX) announced outstanding year end results this past week, and is up 95% since the first trading day of the year. Energy Power Systems (OTC BB: EYPSF) recently has been on a tear up the charts. The stock closed at $1.50 just 15 trading days ago, and has seen seen a high of $3.75 on huge volume.

March's profile is our first this year in the beaten down technology arena. Despite Wall Street's severe abuse of technology stocks, this company has leading edge proprietary technology for an emerging revolution. The stock is near its all time low, and the company is in the midst of a major commercial breakout. We may be early for a recovery in the technology sector, but we'd rather present this idea to you one month too early as opposed to one day too late. 
 

March Profile: XML Global Technologies (OTC BB: XMLG)
  • Stock Listing: OTC BB: XMLG (XMLG.OB on Yahoo!)
  • Shares Issued and Outstanding: 27.5 million
  • Estimated Public Float: 6 to 7 million
  • Closing Price and Volume: $.92 on 106,100 shares
  • Market Capitalization: $27 Million
  • 52 High and Low: $3.75/$.56
  • Click Here for a current stock chart
  • Web Site: http://www.xmlglobal.com
We have been hearing about "XML" for over a year. It really caught our attention when we read that Bill Gates, in his opening address at last November's Comdex Show stated the following:

    “If there was one thing that I thought was key in this last year it is the rise in XML. I’ll talk a lot tonight about how I believe both Microsoft and the industry should really bet their future around XML. The standards around XML are key to where we need to go.”
        Bill Gates – Comdex 2000 Keynote Speech, Las Vegas

In a recent survey by IDG Research Services Group of 500 Chief Information Officers, it was projected spending on XML will increase 86% this year over last. 78% of companies surveyed use, or are considering using XML, up from 20% last June.

David Hilal, and analyst with Friedman, Billings, Ramsey & Co., recently described XML as the Holy Grail of eCommerce.
 

What Is XML?

XML is an acronym which stands for Extensible Markup Language. XML is a markup language for documents containing structured information. Both content (words, pictures, etc.) and some indication of what role the content plays are contained in structured information. Almost all documents have some structure. A markup language is a mechanism to identify structures in a document. XML defines a standard way to ad markup to documents.

XML was created for richly structured documents and stored data to be used over the web within a structure common to all viewing parties. The only viable alternatives, HTML and SGML, are not practical for this purpose. The use of XML is expected to grow rapidly over the next five years, just as the popularity and use of HTML has grown over the last five years.

HTML stands for "Hypertext Markup Language".  HTML is the language which allows developers to present electronic media (i.e. web pages, email) in color, bold, and different size text. It allows the OTC Journal to look like a magazine, but definitely has limitations. XML opens a whole new door to the Internet and its capabilities which HTML is incapable of filling.

XML is a standardized simplified language, which allows richly structured documents and legacy data of all kinds to easily understand each other. Two examples of the use of XML are the NASDAQ quote feed and the SEC's EDGAR System.

Dozens of commercial stock quote providers pull their data from the NASDAQ quote feed. The information comes to them in XML. The same is true of EDGAR- all the EDGAR pages are written in XML.  This universal language makes it easy for public companies to file their documents in the SEC Electronic Filing System, and thus provide all viewers the ability to review the documentation in a common format.

The development of XML was completed in 1998 by the non-profit World Wide Web Consortium (http://www.w3c.org/). Software developers are introducing commercial products, and sales of XML based technologies are beginning to ramp up now.
 

The Problem- Legacy Systems

Throughout the prosperous decade of the 90's major corporations invested billions in computer infrastructures to handle every aspect of running their businesses.

The systems in existence today are referred to as "Legacy Systems". In the past, large contractors custom designed computer systems for specific businesses. In order to interact with other entities in the normal course of business (i.e. customers and suppliers) via computer, complicated EDIs (electronic data interchanges) have been developed which are extremely expensive and time consuming to implement, and not standardized for the Web.

For example, one company's Legacy System may have an entry for "Unit Price". A supplier's system may identify the same item as "Unit Cost". Their computers cannot talk to each other because their legacy systems identify the same item with a different hard code and format.

In order to allow the two computers to talk to each other, a complicated custom designed EDI (electronic data interexchange) needs to be implemented at significant cost. This customization is required so each company's legacy system can talk to the other. Industry experts estimate approximately $84 billion of corporate IT budgets have been spent developing EDIs.
 

The Solution- ebXML (Electronic Business Extensible Markup Language)

It is widely anticipated ebXML will replace EDI. The United Nations body for International Trade facilitation is endorsing and intimately involved in the International Standardization of ebXML. It's deployment is viewed as critical to the future of eBusiness. More information can be found at www.ebxml.org.

Eventually there will be one International Computer syntax language by which all systems can talk to each other easily and smoothly. It would be the same as all people on Earth speaking the same language. Right now, the process of translating one computer language to another is as complex as translating English into Chinese.

If the United Nations, Microsoft, Oracle, and many other household corporate names have their way, XML will become the universal syntax language of computer systems. Small companies developing new technologies with XML, will grow dramatically, especially if they have proprietary technology and talented people.
 

XML Global Technologies (OTC BB: XMLG)- Our Choice in this Space

More than 250 people representing 35 companies and 15 governments met in Vancouver, British Columbia during the week of February 12th, 2001. The guest list included representatives from the following companies:

  • IBM
  • Sun Microsystems
  • Microsoft
  • Oracle
  • Arriba
  • Commerce One
  • SAP
  • KPMG
The meeting was hosted by XML Global Technologies (OTC BB: XMLG), a company we believe is on the cutting edge of the XML revolution, and the subject of this profile. The purpose of this meeting was to set International standards for XML to ease the exchange of electronic data and trade between companies.

XML Global was founded in May of 1999. The company successfully raised $12 million in two rounds of financing.  In the first round investors purchased 4.5 million shares at $1. In the second round 5 million shares were sold at $1.50.

The company's initial 12 employees have now become 64, and they have spent the last two years investing this capital to develop XML based commercial applications.

The investment is just beginning to pay off in the form of recent contracts. On February 15th the company announced a major breakthrough in the form of a contract with the United States Government Defense Finance Accounting Service. Click Here to read the full text of the press release.

Other contracts are beginning to roll in as evidenced in increasing sales.
 

XML Global's Current Product Offerings

XML Global has a suite of three products offerings which form a basic framework on which to build an e-Business environment. Two products have been granted patents and one is patent pending.

The three products which make up the GoXML Foundation are as follows:

  • GoXML Search- Introduced in July of 1999 as the company's first product, GoXML Search is a scalable, context-based search engine which delivers precise results.
  • GoXML Transform- a transformation engine for dynamic exchange of XML, EDI, and other data formats. This products helps companies convert their existing Legacy Systems to XML. This is much like teaching a person multiple languages.
  • GoXML DB- No comprehensive system would be complete without a way to store and sort data. GoXML DB is database management software with a high-performance query engine.
This suite of product offerings is designed to provide tools for XML development and deployment. Other system developers will use the tools to design for their customers. The company anticipates 80% of its revenues will come from licensing fees. The other 20% will come from service contracts where XML Global will use its own tools to create solutions for its customers. For techies with an understanding of this, you can find more details at the XML Global web site: www.xmlglobal.com.

Wall Street loves the license fee business model. If successful, licensed software generates substantial profit margins as all the development costs have been absorbed.
 

Financial Outlook

Sales are growing rapidly and now becoming significant. The company achieved $53,000 in its first fiscal year of sales (June 2000 year end). In the second quarter of 2001 (December) the company achieved $327,000 in revenues, very high percentage growth.

In fiscal year 2001 (June) the company is on track to achieve just under $2 million in sales. Although there have been no formal projections published, management is very comfortable predicting they will achieve over $10 million in sales in fiscal 2002 which begins July 1st of this year.

XML Global is the only company we are currently featuring that is not profitable. We have been reluctant to feature any microcap companies needing to raise capital in this market environment, as financing can be extremely detrimental to share values with investment capital so scarce.

XML Global currently has just over $6 million in cash. They currently burn about $300,000 monthly in expenses. Therefore, at the current burn rate the company would last 20 months before running out of money if there were no sales.

However, the company is on track to enjoy just under $2 million in sales this fiscal year. Sales in excess of $10 million are anticipated for fiscal 2002.

The company is adding employees to fill demand right now, so monthly expenses will go up. Based on reasonable sales projections the company should turn cash flow positive once we know they are on track to achieve more than $5 million in annual sales. We believe the company will turn the corner to cash flow positive in the Fall, and still have about $4 million in cash in the bank. Once positive cash flow is achieved the risk of owning this stock is greatly reduced.
 

Valuation

One year ago it would have been no problem to see this stock trading at $5 in the near term, but this is a different market. Comparisons to two recent mergers help us set reasonable expectations for the future value of the company.

  • On February 15th, Iona (NASDAQ: IONA) signed a definitive agreement to purchase Netfish in a stock deal valued at $270 million. Netfish has 70 employees and is doing about $7 million in annual sales. Netfish is a company which specialized in XML technology. Click Here to read the press release.
  • On March 21st, Citrix Systems (NASDAQ: CTXS), announced a definitive agreement to acquire Sequoia Software in an all cash transaction of $184 million. Sequoia Software, an Enterprise Portal company with expertise in the XML arena, is doing $19 million in annual sales. Here is a direct quote from Mark Templeton, the president of Citrix: "Using Sequoia's XML-pure portal technology, we will help our customers get the best that the Windows and Web worlds offer, and aggregate digital information into a 'Virtual Workplace' -- the promise of access to any application over any network and any device, quickly, easily, securely and cost-effectively." Click Here to read the press release.
Based on these recent transactions it is easy to see XML Global having a value of $200 million sometime during 2002. Using the current number of shares issued this would put the stock in the $7.50 range, 750% above today's levels.
 
Conclusion

After two years of R&D and substantial investment, XML Global is now turning the corner from a start up to a commercially viable company. With the stock near an all time low, this is the ideal time to invest. Currently, the stock has little or no following.

The company is now making a commitment to bring its story to the investment community. The OTC Journal is fortunate to be the first to introduce this company to a national audience, which gives our members a competitive advantage.

The stock has been very illiquid until now. 4.5 million shares are free trading with a cost basis on $1. Undoubtedly some of that stock will be for sale when the stock trades more volume.

However, those wealthy investors in at $1 and $1.50 have been waiting for over a year, and individual investors now have the opportunity to own the stock below their cost just as the company is turning the corner to commercial success.

We don't see much downside. If these investors had needed the cash they would have sold at a loss already.

Despite the global slow down in IT spending by behemoth corporations, XML will be rapidly adopted because it saves companies money by reducing their overhead.

If you like this company we suggest you begin to Accumulate the stock anywhere at $1 or less with a six month target price of $2. This is a very conservative guess and based primarily on challenging market conditions. A home run is possible anytime within the next year with the stock in the $7.50 to $8 range.

Before making any investment decision based on an idea from the OTC Journal, please take the time to read our Mission Statement, found on our home page at www.otcjournal.com.
 

Have Some Fun

Even if you have never heard the term XML, it is the language running some of the software in your computer. Try the following experiment:

  • Place your cursor over the Start Button and right click on your mouse.
  • Select Find from the menu that pops up by left clicking it on your mouse.
  • In the Named window that pops up type in *.xml
  • Make sure the Look In line is set to your hard drive.
  • Left Click on Find Now, and see how many files come up.


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Disclaimer
The OTCjournal.com Newsletter is an independent electronic publication committed to providing our readers with factual information on selected  publicly traded companies. All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward  maximizing the upside potential for investors while minimizing the downside risk, whenever possible.  Moreover, as detailed below, this publication accepts compensation from certain of the companies which it features.  Likewise, this newsletter is owned by MarketByte, LLC. To the degrees enumerated herein,  this newsletter should not be regarded as an independent publication.

Click Here to view our compensation on every company we have ever covered, or visit the following web address:  http://www.otcjournal.com/disclaimer.html for our full profiles and http://www.otcjournal.com/trading-alerts/disclaimer.html for Trading Alerts. MarketByte LLC has been paid the following fee by XML Global for a year of representation: $100,000 cash, 60,000 shares of free trading stock, 60,000 shares of restricted stock, and 60,000 options exercisable at $2. The 60,000 shares of free trading stock have been contributed by a third party on behalf of the company. Please review our policy on selling shares found within our Mission Statement at our home page.

All statements and expressions are the sole  opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities  mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein.

The editor, members of the editor's family, and/or entities with  which they are affiliated, are forbidden by company policy to own, buy, sell or otherwise trade stock for their own benefit in the companies who appear in the publication.

The profiles, critiques, and other editorial content of the OTCjournal.com may contain forward-looking statements relating to the expected capabilities of the companies mentioned herein.

THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN  SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN  CONSENT OF THE EDITORS OF OTCjournal.com.

We encourage our readers to invest carefully and read the investor information available at the web sites of  the Securities and Exchange Commission ("SEC") at http://www.sec.govand/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at  http://www.sec.gov/consumer/cyberfr.htm. Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.


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The OTC Journal Newsletter is an electronic publication committed to providing our readers with useful information on publicly traded companies. The Newsletter contracts with publicly traded companies and receives compensation from them or third parties as payment for publishing information and opinions about the company and the trading market for their securities. Principals of the Newsletter may also purchase or sell securities of the companies in the open market from time to time. The positions, if any, that the Newsletter or its principals presently maintain in the securities of the companies are disclosed here (click here) and should be considered in making an investment decision regarding these companies securities. The Newsletter and its principals reserve the right to acquire additional shares or liquidate some or all of the positions they may hold in the issuer’s securities at any time in the future without further notice. These publications should not be considered to be independent publications concerning the company.

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We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.finra.org. We also recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at http://www.sec.gov/consumer/cyberfr.htm. Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.

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