Bad Toys Quarterly Numbers Non-Event

Bad Toys released is Q2 numbers post close yesterday, and they would pretty much fall into the category of a “non-event”.

The company delivered $11.1 million in revs and $581k in net profits, which translates to $.03 per share.

Profits were a little soft because the company shut down one unprofitable division, and added two new ones during the period. They lost the revenues on the one side. The two new services are taking some time to gear up to full capacity. I would expect earnings to improve to about $.05 in Q3.

I continue to believe there is one key to a resurgence in this stock. You might believe it is the successful spin out of Southland into a separate public company. I don’t believe that’s the case. Bad Toys has two nagging problems it needs to solve which are both inherited from previous management- The company still owes $7.8 million in taxes and $2 to GE Capital. I’m estimating the amounts from the financial statements.

Both of these headaches were inherited from the past administration. The company has turned consistently profitable, but still has to eliminate these legacy issues.

Bad Toys has made no secret of the fact it is working on a more favorable debt financing to eliminate its defaults and restore its fiscal health. If we read about a financing to take out the past debt defaults, this will set us up for a successful spin out of Southland.

In the meantime, not much to say about the stock:

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Here’s the big picture, going back one year. The stock traded great in the Fall as investors warmed up to the high levels of revs and reasonable profits.

It peaked early in the year when the company announced the spin out of Southland. Those who follow the situation know this has not gone according to schedule- the company has not gone x dividend, and the process of going effective on the S1 appears to be stalled. They are in the process, but it is, of course, taking forever.

It’s been all down hill since the company failed to go x-dividend. I believe management has simply lost a lot of credibility. They have not delivered what they promised.
Watch for the company to deliver a new debt financing to clean up the past problems and be current in all respects. If they pull it off, I believe that will be a turning point for the stock.

In the meantime, don’t lose sight of the fact that the company is delivering north of $44 million in annual revenues and about $3.5 million in net profits.

Comments and questions are welcome.

US Energy Numbers As Expected

US Energy posted its numbers early today for the June quarter, and they were pretty much as expected. The 10Q is that of a development stage company making the transition to a commercially viable entity.

The top line was a fledgling $1/4 million in revs- not much to talk about. The company boasts that top line improved by 624% over the previous year, but it still does not amount to much of anything.

USEI has notched about $2 million in losses through the first six months of the year, and most of it is non-cash.

Numbers should improve dramatically in coming quarters as the company begins to deliver on the numerous major contracts it has landed over the last few months. They start delivering on 1500 systems to GreenGas in Thailand in September. 2000 systems for Truckgas in Europe are slated to being delivery early next year. The GM OEM arrangement kicks off in December.

Furthermore, I don’t believe there was any contribution for acquisition Automated Engineering corp in Q2. The transaction closed on June 15, so there would have been little or no contribution to the top line numbers.

Here’s a current chart:

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The stock has bounced off an extremely and absurdly oversold condition. I’ve circled what I call the “easy money rally”- the move off that level was just an oversold bounce.

As usual, the stock pulled back to the standard 61.8% retracement level, and climbed again.

With the market becoming more favorable everyday, higher levels seem likely. Gains from here will probably be won with corporate developments, many of which I believe are still ahead. Once this consolidation phase ends, the next volume surge should take us to a higher level than the last surge.
This one is a great speculation that should keep improving for the forseeable future. Continue to accumulate.

Comments and questions are welcome.

Teleplus Numbers Pretty Good

For those who are still following the TLPE situation, quarterly numbers came out today, and they were hardly what the company forecast last year, but nevertheless quite healthy.

TLPE, like NWKI, has also entered into a debt restructuring that is favorable to shareholders. However, unlike NWKI- there’s still has a conversion feature.

Revenues for the quarter were $6.5 million, up from $563k the previous year. Earnings from operations were about $250k, so they continue to run a profitable operation.

The number of shares I&O increased from 86 million to 110.5 million during the quarter. If the financier has been converting debt to equity and selling the shares, that would help explain both the additional shares I&O, and the recent swoon in the stock price.

According to the 10Q filing, about 1.85 million shares have been converted from debt to equity in the last six months. If it has been done over the last two months, it would help explain the consistent selling pressure on the stock.

This has proven to be another easy money situation- the stock has bounced from the new all time low of $.14 to about $.20 this week.

I don’t have a relationship with management on this one, so I can’t get answers to questions. However, comments and questions are welcome. I’ll try to give accurate answers.

NetWork Bouncing Off Bottom on Numbers

NWKI bounced off a severely oversold level in conjunction with the latest quarterly earnings report. I don’t know if the market felt the company was headed for problems, but the latest quarterly report suggests the numbers are definately headed in the right direction.

NWKI delivered $5 million in revenues and about $1 million in gross profits Q2. This suggests the company is now delivering at a $20 million top line run rate.

The $1 million gross profit was not quite enough to cover the overhead. Total operating expenses were about $1.1- there was a net loss of about $100k for the quarter.

Other operating expenses were over $600k, and no doubt there were some non cash items included in that category. Therefore, it is probably safe to assume that the company probably functions at a cash flow break even or slight positive at the current level.

Here’s the good news: Revenues improved from virtually nill to the current $20 million annual run rate. Furthermore, over $9 million in convertible debt was restructured into $7.5 million in non-convertible debt. Therefore, the threat of massive dillution from financing no longer exists for shareholders. There are about 30 million shares I&O, and that number should remain static.

Therefore any growth from this level should turn the company profitable if there are no major increases in SG&A, and the margins remain about the same.

For those who own or are considering owning the stock: The current market cap at about $.35 is about $10 million- Enterprise value (add in the debt) is $17.5 million. Against a backdrop of $20 million in annual sales and closing in on profitability, it seems there is significant upside from the current oversold level.

Here’s the chart as of 9:00 Pacific today:

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This is what I have been talking about concerning the August buying opportunities. This is easy money. These stocks can drift down for months on very light volume, and then rebound quite rapidly. Unlike the end of May when I suggested selling, August is the time to accumulate.

I love this one for higher levels. Comments and questions are welcome.

US Energy Trying To Break Out

I thought it would be useful to look at a chart in the action of US Energy today, as the stock is enjoying a strong week of renewed interest as demostrated by the volume.

Last week USEI only traded above 100,000 one day during a five trading day week. So far this week here are your volume totals: Monday- 84,000; Tuesday- 232,000; Wednesday- 863,000; Thursday (11:00 Pacific)- 441,000. As you can see, based on these volume numbers interest is return to the stock as it climbs from an absurdly oversold level.

Yesterday $.24 was big resistance. There seemed to be an unlimited supply coming from two market makers.

In checking with the insider trading tables, it became evident where the likely supply was coming from. Back in June two different entities filed to sell about 1 million shares. I spoke directly to the CEO and learned that both parties were shareholders going back over three years ago- long before his involvement. Neither are true “insiders”- just outside investors who have nothing to do with management.

If those filings were the source of the selling, my guess is the last couple of days volume cleaned them out, and the stock could now be positioned to make another move up.

Here’s a look at the chart:

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Although it is not easy to see as I have put up a multi month chart, I circled the recent surge in volume on the lower right. As you can see from the price movement on top, the stock has kind of stalled at the $.24 to $.25 level.

However, it appears to me that the sellers are about exhausted, and we could see the next leg up if the volume holds up for a few days more. If it doesn’t, the stock is likely to pull back a penny or two. We will see.

Regardless, I believe there will be more fundamental developments coming down the pike which could fuel higher levels. Clearly, the worst of the summer sell off is behind on this one, and the company is earning shareholder loyalty with performance.

Comments and questions are welcome.

CPNE- When I Drill Deeper, It Just Gets Better

I have now had a chance to review the 10Q filing for Q2. A couple of issues really jumped out at me, and they make the profit picture here even more compelling.

Here’s a few facts about this company’s income statement. First, they generated $7 million in revenues with a cost of goods of less than $1 million- gross profits are running 85%- that’s a huge margin.

Secondly, SG&A (the corporate overhead) only ran $3.6 million against a gross profit of $6 million- they should have netted $2.4 million in profits- instead it was only $1.4 million. So where did the money go?

The money went to $1 million in interest in the quarter, which seems absurd and usurous on about $2 million in debt. I have to assume there was some sort of prepayment penalty for paying off the debt so rapidly. It’s the only possible explanation.

Therefore, if the company can simply match the Q2 performance in Q3, the net profits should come out somewhere in the $2.4 million range, or EPS of .055 for one quarter.

A repeat of Q2 in Q3 would be a victory, as the summer months are seasonally slower for this company. If revenues stay the same, profits should soar.

Here’s a couple of Wall Street acronyms that CPNE is loaded with: GARP- Growth at a reasonable price, and ARG- Accelerating Revenue Growth- Investors love these characteristics in a stock.

Here’s a look at the chart in the early going this AM.

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As you can see, the stock is surging to another multi month high, just eclipsing the level from which the capitulation occurred last year. There is huge volume- over 800,000 shares have traded in the first 20 miinutes of trading- this suggests the stock could have the highest volume in its history today. Maybe not, as I would expect the majority of the volume to come in the early hours. We would need to surpass 4.5 million for the best volume ever.

There is no big gap in the chart, which is encouraging for higher levels. So, if you don’t own or or want to own more, do you buy more here?

That’s a very tough question. Here’s my suggestion- Since the stock is fairly extended over the past few days, I would suggest taking a partial position- perhaps 1/3 or 1/2 of what you want to invest in case it decides to pull back. There is probably some pent up demand to sell, as everything has been trading poorly of late.

If you own it much cheaper should you sell? If the profit is irresistable to you, I would suggest taking a partial profit and setting that capital aside to buy the stock back later in case it does pull back.

Fundamentally, if the performance continues, this company is worth a lot more by any fundamental valuation. A couple more quarters like this, and I believe this company is a likely buy out candidate.

A big shining star in an otherwise dismal summer sky. Comments and questions are welcome.