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:

nwki2.gif

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.

6 thoughts on “NetWork Bouncing Off Bottom on Numbers

  1. This stock broke thru the 200 day avg.
    I guess their gaming system is profitable.

    Editor: It’s kind of drifting up on light volume. Nice to see a reversal in this one. Numbers are improving- debt restructured- if they can turn profitable we are home free. 

  2. Any reason why there is NO trading on this stock today?
    Thanks.

    Editor: The company is simply doing an awful job making anyone care about what they are up to. Pathetic.

  3. If SIEN is doing so well, tripling revenue from last year and doubling margins, why are they still securing loans and financing for operating expenses?

    Editor: The company has made a lot of progress, but still has a ways to go to achieve the kind of numbers it is capable of. Like with CPNE, they have a number of years of negative cash flow to “profit” their way out of. Therefore, they still need capital, but are doing good enough numbers to qualify for less expensive capital. It’s kind of like refinancing your mortgage at a cheaper rate because your credit rating has improved.

  4. Is this going to zero? Or should we average down?

    Editor: I hardly think the stock is going to zero in light of the fact that the company is doing north of $15 million in annual revenues, signing new contracts, and looking like it might finally make a profit in ’07. This could simply be a tax selling January effect buying opportunity. Of note- it got down to $.20 in August and bounced right back.

  5. Siena (Network) has not had an update from you since August 06. Any news? Recommendations from you as it is way below the Stop Loss point? They seemed to be getting quite a few contracts. I assume they are performing well on these contracts.

    Editor: I know I haven’t written much coverage on this one. If they turn profitable this year, will pick up the activitiy.