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February 28, 2003
Volume VI, Issue 17
Email : [email protected]

To OTC Journal Members:

How To Buy A Business With $20 Million in Annual Sales and $1.5 Million in Profits For Next To Nothing

The OTC Journal's mission is to uncover investment ideas in the small and microcap arena you would be unlikely to discover on your own. We provide information on the companies we follow, then report corporate developments, news, and updates. Our content is biased. If we didn't believe each of the companies we cover had the opportunity to grow, succeed, and provide an extraordinary return, we wouldn't cover them.

We always try to give a reasonable appraisal of the risk. Most of the companies we cover will be highly speculative in nature. If you want information on GE, IBM, or AT&T, there are hundreds of places to find it. This newsletter would have no value. Occasionally we will publish an idea for a short term trade in a more recognizable name, but those ideas have become scarce as investors wait for the war with Iraq to begin and run its course.

In preparing for a potential post war rally, we are looking for compelling ideas to prepare for the inevitable resurgence of interest in the stock market.

Over the last three months we have introduced two new ideas: 

  • Irvine Sensors (NASDAQ: IRSN), introduced on December 17th, is a turn around idea. The company's financial condition has improved considerably over the past year, and they have the opportunity to land substantial new business from the Department of Defense. The company has an impressive turnaround in progress, but it has not yet been reflected in the price of the stock.
  • SHEP Technologies, Inc (OTC BB: STLOF): Introduced just this past Friday, SHEP is highly speculative, but has technology which could end up on millions of vehicles and helps solve a major problem faced by car and truck manufacturers. We believe every risk oriented investor should own at least a little of this one.
Today we are going to introduce our members to a third idea. Having provided a turn around idea and high risk/high return idea, today we are going to complete the triangle by providing a small cap "value" idea. Today's featured company is probably worth more liquidated than its entire market value, and most of the liquidation value is in cash.

In fact, based on December quarterly results, the company enjoys about $20 million in annual sales and about $1.80 million in annual positive cash flow from operations. The market is valuing their business at nearly zero. As investors, anytime you can buy $20 million in annual sales and $1.5 million in profits for nearly nothing, you have to pay attention. 

For your consideration:

CAM Commerce Solutions, Inc (NASDAQ: CADA)
  • Stock Listing: NASDAQ: CADA
  • Estimated Shares Issued and Outstanding: 3.1 Million
  • Estimated Public Float: 2.8 Million
  • Last Closing Price: $4.30
  • Market Capitalization: $13.3 Million
  • 52 High and Low: $4.75 x $3.00
  • Corporate Web Site:
CAM Commerce is the largest supplier of electronic commerce solutions catering to the highly fragmented market of small to medium sized retail businesses. 

CAM Commerce, with locations in Fountain Valley, CA and Hendersen, NV has over 170 employees, and more importantly over 10,000 customers. They provide turnkey solutions for small to medium retailers to manage their entire businesses. 

Their customers include the NY Yankees, Denver Broncos, the Mattel and Fisher Price company owned stores, 300 of the largest museums in the United States, Zoos and Theme Parks, and the New Balance company owned stores.

The company provides systems for small to medium sized retailers which include inventory control, point-of-sale systems, fully integrated web and ecommerce solutions, invoicing, credit card transactions, and auction management systems primarily focused on EBay transactions.

An Extraordinary Value Opportunity

In the December quarter, traditionally one of the weakest for the company, CAM Commerce reported a loss of $184,000 (-.06 per share) on $4.88 million in revenues, suggesting annual revenues are running just under $20 million

However, a closer look at the company's cash flow statement reveals the following:

  • There were $273,000 in charges for the non cash expenses of amortization and depreciation
  • $50,000 was set aside for doubtful accounts, also non cash
  • $331,000 was charged for net changes in operating assets and liabilities- non cash
  • Net Result for the quarter: CAM Commerce actually produced $470,000 in net cash gains from operations for the quarter.
At the beginning of the December quarter the company had $9.1 million in cash. At the end of the December quarter, CAM Commerce had $9.414 million in cash. The gain was all from operations. There were no financings of any kind.

CAM Commerce boasts an extremely strong balance sheet. In fact, the December quarterly balance sheet reflects $9.4 million in cash, $1.53 million sellable securities, and $1.6 million in accounts receivable. 

Against these assets, on the liability side there is $568,000 in accounts payable, and a laughable $12,000 in debt.

Therefore, CAM Commerce currently has about $12 million in net hard liquid assets, mostly cash. This equates to about $3.87 per share, and based on last quarter's results, and that number is going up!

The company has exhibited little top line growth over the past two years, but losses have dropped dramatically from levels of one year ago. They are evolving their business model to much higher margin revenue streams and being reactive to the demands of their customers.

They have stopped focusing sales efforts on new systems installations; mostly low margin hardware. Instead, they are focusing on upgrading the existing systems of their 10,000 current customers, and ongoing recurring revenue service contracts.

For example, CAM Commerce currently has 1500 customers using their X-Charge product for credit card processing. They receive a fee for every credit card transaction performed on X-Charge. Based on current run rates, this high margin revenue will come in at about $1.5 million this year, which is twice last year's rate, and half what they expect next year. Management estimates this customer base would be worth approximately $4 million if sold in the open market.

Of the ten thousand customers using CAM Commerce systems daily, there are three to four thousand on recurring revenue service contracts. This is high margin business and an evolution from new systems installations of past years. All in all, this company is demonstrating it can morph its business model to meet the demands of this challenging environment.

The Hard Part- Buying the Stock

If CAM Commerce were to simply close their doors tomorrow and liquidate the hard assets of the business, shareholders would probably get about $4 per share.

Since the stock closed at $4.30 today, this means investors are only paying $.30 per share for an ongoing business with 10,000 customers that achieved positive cash flow of $470,000 last quarter on $5 million in sales. Analysts would say the company is trading at zero "enterprise value".

Actually buying the stock at these levels is the hard part. There is virtually no supply. The stock's average daily volume over the past 20 days is an abysmal 8,100 shares per day. Therefore, if you place a market order, you might get filled upwards of $5 for a trade of 1000 shares or more.

The 90 day chart we have provided shows volume has been picking up recently as investors study the current financial filings and start to recognize the value. The stock could be poised for a breakout. The chart displays the characteristics of William O'Neil's famous "cup and handle" formation, believed by many to be represent ideal entry point. 

We learned about this company from one of our many contacts around the market. This fund manager has been a buyer with a two year window in time. His target is $10, and he believes his investment is about as risk free as it gets for a potential double.

We would recommend paying up to about $4.50 for this stock, and waiting with a limit order for days if necessary to get a fill. At $4.50, you are really only paying $.50 per share for the business, or $1.55 million in market value- absurdly cheap.

Of course, risk factors include the possibility of poor future corporate performance and the usual market fluctuations. However, the company's seasonally worst quarters are traditionally the December and March. In discussions with management, we were convinced there is a high probability the company will do even better in the future, and the December quarter's results in a sluggish retail environment made us believers.

We have decided to cover developments at this company for at least the next six months as the value is so compelling for our members. Look for low volume surges to push the stock higher, and a post war rally of some significance could be in the works.

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The 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: for our full profiles and for Trading Alerts.

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 unless specifically disclosed in the newsletter.

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


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 We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at Disclaimer ID:$subst('Recip.userid') 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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