PainMed Investing

[geodan]

Xenacare 10Q out today, link http://www.advfn.com/p.php?pid=nmona&article=44020679&symbol=NB^XCHO

This link requires that you scroll right to view the report, the header is wider than the report.


Some highlights: Sales were smaller than 1Q but of course much higher than last year.

No Dilution at all in 2Q, they borrowed some money for the big ad spends. Their lack of dilution is rather amazing. Major dilution was expected and a major concern 9 months ago.

It would seem possible for them to pull off the $7.5 million in sales in 2010 that RedChip projected.

The loss P/L wise and slight drop sequentially in rev is not what we want, but understandable. The 1Q had a lot of pipeline filling and very low ad costs as they were waiting for it to be on the shelf. 2Q had much less pipeline filling and some sell down of customer inventory. It would be nice to see the actual reorder sales figures. The increase in sales in 1Q which was way beyond expectations was pre advertising pipeline filling, plus direct on-line sales, thus low expense. We expected more in 2Q because of all that additional shelf exposure, but until we see reorder sales versus inventory sales that is hard to figure out.

So at this point we do not know how big Cobroxin will be as a product. It has started off great, very fast for a new product type on small budget. But will it be a $10, $20, $50 or even as RedChip has projected a $100 million a year product?

The next step is for the ads to prove themselves with a $2 mill Q.

The concerns that sales had virtually disappeared because of the NPHC report are now known to not be true, NPHC sales dropped so much because (to their great benefit) XCHO bot and paid for a big inventory build.

Dangers here? The obvious one all along, XCHO is a very small company, thus may have money problems, but so far they have handled them with much smaller dilution than expected.

Another danger is that 80% of there biz is from two customers. Pretty obviously that would be CVS and Walgreen's. There is an opportunity there too, which is if the add big ones like Walmart (which RedChip hinted at) it will generate very big sales at CVS and Walgreen's did.

The positives here are that XCHO has a tiny mkt cap, so even a small success makes it an excellent investment and if it does hit it big like RedChip's 5 year $100 million sales projection, then it will be spectacular investment.

Many of the initial dangers are gone, such as can they get into the big chains?, will they run out of money in 1Q?, can they get the money for major TV ads, will they dilute the stock with 100 million more shares?

So today for just twice the price it was 9 months ago with those dangers behind us, it comes down to will the ads work. If they do, it looks appealing.