here is a more detailed summary that i posted on Yahoo from a request from another poster. i had to split it up in several parts due to the character limits there.
i have followed this company for several years and do not believe it is viable long term. history of failed launches in "hot sectors" and a seemingly never ending increase in shares for acquisitions that dont make sense to the core (which i admit i dont even know what it is anymore) and they have recently authorized the insiders to take salary in convertible shares in lieu of cash. very fishy especially considering the history fo failures with no shareholder follow up. biggest one is their CC SmartWatch which was supposedly launched 12/1/13 accordingly to their PR released and to date - NOTHING has been disclosed concerning results.
PART 1
I ran some general numbers for current and future Fair Value (FV) projections based on trailing 4 quarters revenues and earnings and comparing to future revenues brought on by lottery revenues.
ASSUMPTIONS
USD/RMP = $1/6RMP
Monthly Increase in REV = RMP80MM or $13.3MM
Company will maintain trailing 4Q Return on Revenue (RORev) at 6.74% (I use RORev to model furture earnings since there is no concrete GM numbers provided by company).
Industry PE compared to Apple at 15.75
Current share price of $0.03
CUrrent OS is 79.8MM according to Yahoo
Future OS includes 80MM for lottery dilution and @10MM in future convertible debt (still remaining)
Does NOT include convertible salary that company announced in last 8K
With those assumptions - here are the figures based on the last 4Q providing a "fiscal year"
Trailing 4Q numbers: $4.2MM REV and $284K EARN
EPS = $0.0036
PE = 8.43
RORev = 6.74%
If one assumes a PE of APPL is a fair "target" to compare to and uses 15.75 as that number - than the PE Multiple to Industry Average is 1.87. If that is applied to current share price - than it would provide a FV SP of $0.056 (which is just below where it topped out last week).
Now - if one applies RMP80MM/month into the revenue equation and uses the same RORev estimate to assume what earnings could be obtained - it would provide the following numbers:
Future OS = 169.9MM shares
Future 4Q= $57.5MM REV and $3.88MM EARN
EPS = $0.0228
PE = 1.31
Now - if one applies the same target PE of 15.75 - the multiple is 11.99 and would provide a FV SP today of $0.36 (based on current $0.03 SP).
From here - one can start giving "growth" multiples on industry average. For example - aggressive growth companies are often assigned (by the market) multiple anywhere from 5 to 20 times PE (think Facebook) and can be over 100. If one assigned a modest growth multiple fo 5x - one could multiple the current and FV SP by 5 each and get today at $0.11 and FV at $1.80
PART 2
These obviously show a glimpse of the potential assuming IF the company reaches $13.3MM month and maintains GMs/RORev.
However, if one looks at the trailing 4Q of revenues – they are:
2Q14 $629,000
1Q14 $845,000
4Q13 $1,509,000
3Q13 $1,230,000
These are declining and NOT increasing. Due to these declining revenues, no past history provided on JIFU prior to acquisition (as it was private), and the constant dilution (from Jifu and convertible debt), the stock price has been hammered and the market is not willing to assign a current industry multiple let alone a growth multiple.
This is further exasperated due to never turning past announcements into growth. Mach5 and CCWatch – accounted for what appears to be $10-15K of revenues in past quarter based on quarterly report:
“Our revenue for the three months ended June 30, 2014 totaled $629,448, an increase of $613,420 or 3,827% from $16,028 for the three months ended June 30, 2013. This increase in revenue was primarily due to the acquisition of Jifu in the middle of 2013, which generated revenue of $617,588.”
The company is showing consistently decreasing revenues on last dilutive acquistion, no announcement/details provided on a major launch almost a year ago now (12/1/13), and now shareholder will take a 100% dilution hit on another, unproven, undetailed, acquisition and are expected to “trust” mgmt that revenues/profits will follow.
That is why I remain very skeptical of long term prospects and consider this stock good only for short term trading opportunities. Until the company definitively proves it can take an idea from concept to profitability and shows sustained revenues with a clear trend towards profitability, it will remain mired in volatility and taken advantage of by traders and hedge funds that will use the (for now) relatively low OS to manipulate and swing the price back and forth with a consistent long term downward trajectory. This is basic market mechanics.
PART 3
The variable/convertible compensation mgmt has just assigned/granted itself is further fodder to attack the viability of the organization. Show me (1) example of a legitimate company providing the option of taking salary in a convertible share format.
Now – if I am wrong, and these are only models and assumptions based on reported facts in figures in filings, past history of company/mgmt, and years of experience with microcaps, then there could be a very good opportunity for rapid price appreciation. However, if the company does turn around the revenue decline and show real gains – I would argue that a long term investor would have the ability to take a large position at a higher price point with substantially less risk. If one can get in at $0.10-$0.20 for a long term gain (based on future growth potential that is substantiated by one or two quarters of REAL growth in top and bottom line) of $1.50-$2.00 share – they will still have a very solid return while absorbing a fraction of the volatility and price declines the company is poised to see in the short term.
Markets are created by varying views on risk/return and investment horizons. Those that have the risk capital to put in play for a long time with highly speculative investments will usually see the highest returns (over a long period of time). However, they will also see more total (or near total) losses (on individual investments) along the way as part of the risk in going for those long term, highly rewarding plays. On the other end of the risk spectrum is grandma and grandpa taking 1.5% on a savings account or 2-3% on long term bonds where the only risk is death or catastrophic collapse of the US Government.
PART 4
While I remain highly critical and skeptical of this company/mgmt (due to the above and what I have previously argued about their history and failed launches that are never discussed afterwards), I have also laid out (not in this much detail) the future potential should they make it. I think their history suggests latching on to “hot” markets and stringing along naïve investors about the long term potential is a major red flag. The lottery business fits the same mold. Very difficult to do any due diligence on the actual business that was acquired to determine where any real value exists.
As I have publicly declared several times on this board and others, I have never shorted this or any other stock. I have never dealt with this company, mgmt, any employees past or present, in any professional or personal regards other than direct communication attempts via phone and email as DD for my investment purposes. To date, those communications have been mostly fruitless. Strauss has routinely dodged or ignored requests for information or clarification on filings that would NOT violate disclosure rules. I have also left voice mails at company listed main number and email asking for information on who to contact to purchase the CCWatch and those have also gone ignored. How do you generate revenues if you don’t respond to basic questions from potential customers on your products…?
Don’t take my word – do your own DD. Call the company and try to get info on CCWatch (or Mach5 for that matter). Another investor did and has shared his information. Contact Strauss and ask him about inconsistencies in filings on the smartwatch release that I have highlighted in past notes (inconsistent timelines, launches, revenue expectations, etc). Ask him about the declining revenues since Jifu acquisition (that you wont get a specific answer but if/how he addresses those types of questions can provide just as much information).
PART 5
Finally – compare and contrast the information and support provided in these posts with Ferrari and his constant attempts to discredit me as a market playing short or disgruntled employee. Challenge him to support his own ridiculous (by nature of no support and complete opposite of what the market is valuing at) price predictions that fluctuate wildly. More importantly – challenge his investment horizon as he has provided personal price targets and two days later has sold about 1000% below said targets. I see that as “pumping” or “hyping.” He suggests providing objective, market and filing supported opinions and models, and overall price projections based on such as “bashing.”
If my assumptions/assertions about mgmt/company viability are incorrect, the share price has room for very substantial increases (based on models presented). But, that can be said for almost EVERY stock in existence. The real measure is how much risk is associated with that future/potential return and if there are better risk/reward scenarios to employ risk capital until the reward becomes clearer and/or the risk decreases.
I welcome any constructive debate as this is the intent of message board forums such as this. I also thank those that have privately shared their own DD.
AI
