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VirTra Systems
(OTC BB: VTSI): Like a Duck on a Pond |
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Virtra Systems is just like
a duck paddling along on a quiet pond. While the duck is moving along smoothly
on the surface, his webbed feet are paddling furiously just beneath the
surface. The company is now paddling furiously beneath the surface to set
up for a great 2005.
The stock, like the duck, is quietly
trading in a channel between $.30 and $.40. This has been a great source
of frustration for both myself and shareholders alike, as the company has
had a breakout year on the fundamental side. It is hard enough to find
small companies that deliver as promised. It is even more frustrating to
have them deliver, but not make any money on the stock.
However, the company is making some
moves behind the scenes to position for a whole new level of business and
shareholder recognition. If they are successful 2005 could turn out to
be a breakout year for the stock as well.
There are a number of issues to cover
today. Let's start with quarterly earnings. VirTra Systems delivered
$350,000 in revenue in the September quarter of '04- a 60% increase
over
the same quarter in '03, and on par with this year's growth. As expected,
the company continues to lose money. The red ink could turn black in the
next quarter or two.
More importantly, during the September
quarter, VTSI made an initial sale to the U. S. Army, a second
sale to the U.S. Air Force, an additional sale to a classified U.S.
military customer, and the largest sale in the company's history.
If VirTra gets into production
on the 20 unit order for the Mexican FBI in the 4th quarter, there will
be a quantum leap in revenues and the company could deliver the first profitable
quarter in its history.
Of equal importance was the recent
new product introduction. Last Friday, VirTra announced the introduction
of The IVR 4G, the first training system specifically designed to train
military personnel for "Fourth-Generation" warfare.
The new IVR 4G simulators feature
completely untethered Bluetooth®- controlled recoil weapons with precise
military-specification accuracy, support for up to 20 soldiers,
self-authoring capability, and new close- quarter battle and anti-terrorist
scenarios. The IVR 4G's marksmanship capabilities include full qualification
shooting courseware with accurate, real-time ballistic calculation software.
The IVR 4G will offer an array of proprietary accessories, including a
new-concept shoot-back device, night- vision goggles, and flashlight simulation
capabilities.
This new product line bodes well
for another year of triple digit growth and a turn to profitability.
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Reduction
of Debt |
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Since first launching coverage of
VirTra
Systems in July of '03, I have mentioned the company's excessive debt
burden a number of times. VTSI carries about $7 million in debt
on its balance sheet. The debt is left over from a former iteration of
the company which failed, and current management probably should have bankrupted
its way of the debt before embarking into new arenas.
Management took the high road, and
chose to attempt to manage the debt rather than default. In an 8K filing
with the SEC last week, VTSI disclosed it has made an offer to debt
holders. Current note holders will be allowed to convert their debt to
equity, and have until the end of this month to elect to do so.
Note holders have several choices.
They can elect to receive free trading shares right now, in which case
they would get the least amount of shares possible at a discount to their
debt level. Those willing to wait over one year get the most number of
shares possible. Under the proposal, the maximum number of shares the company
would issue could be 6.5 million shares which would eradicate $5.3 million
in debt.
Another words, the company would
issue about $2.2 million in stock to get out from under $5.3
million in debt. To me, this seems like a great deal for both the note
holders who really lost their money a long time ago, and the shareholders
who have been burdened with this exorbitant debt level. Note holders would
now become shareholders, and they would have the option of holding the
shares in the anticipation they appreciate.
Debt holders have the option of accept
this offer by the end of November, and we will probably know where it stands
by mid December. This is a very positive long term move by the company.
Upon hearing the news, the market
sold off on moderate volume. There is probably a perception that this conversion
offer will create a temporary excess supply of stock.
The chart tells us you could play
VTSI
a couple of different ways. As you can see from the chart,
VTSI
has been trapped in a range between $.30 and $.40 since last May.
Those with a trading mentality could
simply buy the stock when it gets down near $.30, and sell it when it climbs
up near $.40. You could accumulate a tidy sum in trading profits following
that method if the current pattern continues.
The stock has now attempted to penetrate
the $.40 level three times since its first attempt last April. If you believe
as I do that persistence breaks down resistance, it will eventually crack
the $.40 level with conviction and move into a new range. Therefore, if
it breaks out of its range you could be giving up some potential profits.
You could also simply hold for the
long term, or hold some for the long term and trade another portion. The
choice is yours.
I strongly recommend you visit the
company's new web site and take a look at their current offerings. Go to
www.virtra.com.
Also, I strongly recommend you review the links on the home page to the
press coverage they have received, and watch the video of commentary on
their product.
Go
here to view the video in Windows Media Player. Go
here to view it in Real Player. Both are high speed versions. There
are dial up versions on the web site. Watch the video and see if you don't
agree this is a great story to follow.
If the debt conversion gets wide
acceptance the company's balance sheet will be greatly improved- a significant
benefit to shareholders.
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