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OTCJ: Imagine If: The Magic of Single Touch; FAZ Profit Alert

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To OTC Journal Members: 

Just a quick note for those who chose to partcipate in Thursday's idea to jump on FAZ (triple short financials) at $19 or below. I picked up 2,000 shares at an average cost of $19.02, and sold at the open this morning at $23. $8,000 profit. I suggest you do the same.
 

Imagine If: The Magic of Single Touch (OTC BB: SITO)

Imagine if you had the opportunity to invest in a small cap growth company that owned every 1-800 number back when toll free numbers appeared in 1967. Then, imagine your small cap company earned a fee every time a 1-800 number was dialed. You'd have made a fortune on that investment. Entire companies have been built around toll free numbers- 1-800 Flowers is one example. Today's small cap growth company idea has a toll booth for the next generation of 800 numbers in the wireless world.  Today's idea represents the opportunity to invest in a company that dominates the first generation of wireless, easy to dial, toll free numbers.

There's a mega growth driver in the mobile communications world. It's the "morphing" of the cellular telephone into something akin to your notebook computer. The current generation of iPhones and Blackberries can send and receive emails, browse the internet, contain your calendar, and receive and send IM's and text messages. Formerly the third screen after the computer and the TV, the cell phone is rapidly becoming many people's first screen.

As a result of the metamorphosis, voice revenues for cellular providers are actually shrinking, while data delivery has increased 63% over the past two years. Unless you're talking, it's all data delivery.

There's a rapidly emerging new frontier of data delivery, and cutting edge retailers are embracing the new technology. AT&T (NYSE: T) is leading the marketing charge, but only as the "sales agent" for the technology side- one small cap company has it all.

Abbreviated Dial Codes are the new 800 numbers for cell phones, but even simpler. For example, if you want to be connected to WalMart (NYSE: WMT), you just hit #WMT on your cell phone. If you want the WalMart pharmacy, it's #RX. If you want the recipe idea for the day sponsored by a major food company, it's #MEALS.

In fact, the Kraft Foods/WalMart/AT&T/Single Touch #MEALS campaign won the 2008 Mobile Marketing Association's Award for best new concept, marking the second time Single Touch has won this award. 

Here's the news that could make you a lot of money: When someone uses an Abbreviated Dialing Code (ADC), San Diego based Single Touch Systems (OTC BB: SITO) is going to collect a fee. Think of SITO as a cellular toll both- every time traffic passes through their data highway, they collect a fee, and it is going to become the 405 in LA- a very busy highway for years to come. Huge retail names are scrambling to launch applications right now, and you'll learn about them down the road.
 

Abbreviated Dial Codes (ADCs)- The Easier to Use Mobile 800 Numbers

The new revenue frontier is known as the Abbreviated Dial Code, and Single Touch deploys the majority of them. Working directly with all the major US based wireless carriers, Single Touch has arranged to provision all the combinations of # and three to five digits.

Single Touch is rolling out commercial versions of those ADCs, and all roads pass through their servers- the toll booths of this information super highway.

Here's some examples you can try on your cell phone today: #WMT for WalMart, #SEARS for Sears, #MTV for ring tones and backgrounds, #TAXI to have a taxi pick you up, #DND for Deal Or No Deal, the virtual version, or #MEALS for recipes and coupons. No kidding- Grab your cell phone and try them yourself. Each of your calls will be routed through SITO, and SITO will be paid every time.

Here's how it works. When you dial #WMT, the call routes to a cell tower then on to a router. The provider recognizes the call as a Single Touch property, and routes the call to a Single Touch server. From there, the Single Touch server sends it to the appropriate party for a fee, and Single Touch collects a fee for sending that traffic on its merry way.

Whether it's passing the call to an operator at a local taxi service or routing to customer service at SEARS, Single Touch is in the middle, collecting a fee, and generating recurring revenues.

SITO deploys all the ADCs and has relationships with all the major wireless companies. If you want a national ADC, you have go though SITO it get it.
 

A Marketing Powerhouse

In April of 2008, SITO signed a three year master contract with AT&T, at which point the sales arm of AT&T became their marketing arm.

With AT&T opening the doors, large commercial entities are anxious to avoid the huge payments they made to the cyber squatters who snatched up the URL's in the 90's. Big boys like WalMart (NYSE: WMT), Sears (NASDAQ: SHLD), and Black Entertainment Television (BET) are grabbing up and reserving these ADCs.

Each end user or subscriber to an Abbreviated Dial Code is added to the AT&T master contract. SITO provides the Abbreviated Dial Code to the end user. AT&T provisions the ADC on its wireless network. SITO works with all major U.S. carriers commercially distributing ADCs. SITO is the only company with national cross carrier deployment.

ADCs can support all kinds of commercial applications. They can be connected to a voice network for a human interface (try #SEARS). A text message can be delivered (as with #Meals for today's simple recipe). Click Here and scroll to the bottom of the page. You'll see the joint effort from WalMart and Campbell's. Try #MTV to download a popular ring tone. A charge will show up on your cell phone bill. #WMT will get you in WalMart's text message network.

And- coming soon- their next revenue generator deserves a whole edition- consider Mobile Couponing. I'll fill you in on this blockbuster sometime next week, and look for future editions on other revenue streams.
 

Conclusion: Your Upside Potential

One glance at this chart leads one to the obvious conclusion this stock is clearly illiquid and under followed. Therein lies both the opportunity, and the challenge. It might be hard to trade in either direction without big price movements.

The company has minimal trailing revenues, and their balance sheet is a bit of an enigma. As of the end of December, the company sported $13 million in shareholder equity, but they aren't loaded with cash. Of their $13.3 million in assets, $11.6 million is a prepaid expense. SITO also carries a derivative liability of $14.8 million. This is one of those funny, non cash accounting entries. Taken out, this company has nearly $30 million in shareholder equity, but needs to reload the bank account.

Trailing revenues currently add up to a fledgling $2 million annually, but I anticipate a meteoric rise over the coming months and years. The company sports an $118 million market value, so they have some growing to do to justify this and higher levels.

Since it's been illiquid up to now, it could prove difficult to acquire at a reasonable level. While demand hasn't surfaced, supply hasn't either. So, as more investors learn about this company, the stock could become quite volatile in both directions, and prove difficult to accumulate in a low enough trading range.

OTC Journal members are getting a first look at this one. Few investors know about or follow SITO- yet. With some level of commercial success, institutional sponsorship at or above the $5 level would allow the more risk oriented, earlier stage market investors an exit strategy on the double if you're a willing participant up to $2.50.

As commercial deployments start throughout the course of 2009, SITO will certainly attract more attention. The AT&T relationship alone has immeasurable value, and sooner or later will be recognized by the market.

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