more(some repeated) from mondays inger letter
www.ingerletter.com--this will be the last i can post here due to copyright laws..if you are a market timer,and/or in to some of the stocks he follows in depth, really this is a great buy
InkSure (INKS) is normally light-volume and sensitive to any buying or selling efforts in-size, as is common for most OTC stocks. Modestly drifting lower (for days), there's was a (recently visible on Edgar) slightly complex-to-dissect registration statement that while superficially dilutive at first glance, mostly seems to clean-up previously announced warrants, converts, or registers certain stock for potential future sale by early holders. So there's no 'new' dilution. It's appears nothing materially changed, and that there's no stated intention as regards timing of any future sales (just enables such sales in the future).
Some of the old warrant/stock holders (from literally penny days) possibly have been the sellers (as they finally can), so while the 2 area may look good for sub-1 players, a drop to below 2 may appeal as attractive to those who didn't want to chase it on the quick run to 4 last year, following our initial write-up. Impossible to say for sure, but in our view that's basically a plausible scenario. The penny crowd has a good gain with respect to their entry, and the investor group (presumably with a speculative vision as relates to current and future products) is looking forward to speculative gains. There's little doubt in our thinking that if the company is able to market it's yet-to-be-launched 'chipless RFID' product, they could do quite well (the shares also), and we suspect the stock is probably no longer excessively pricey based on legacy existing products that already offer certain security capabilities that are competitively attractive now.
A cursory interpretation (which likely evoked early selling in the shares Thursday) is that a first read might lead one to interpret it as new, rather than newly able to sell, shares; whereas a careful read suggests it's a filing primarily for old shares or as are provided in the 'convertible' offering, as stipulated at the time. Some shares already are issued, but not necessarily tradeable, which now become tradeable, whereas it's also newly-empowered (or registered) holders may independently determine later-on whether to hold or retain (full or partial) positions. We understand it's actually unusual in that some waited for years prior to even the step of having shares registered; so as they are normal common or marketable securities.
So, presumably that took the shares down sharply, there were ready buyers willing to absorb it during that little maelstrom (or slightly below); so if our 'read' was right about this being basically related to older news (to wit; shares we all knew would eventually become marketable securities), it's not quite as blind-siding as initial discovery (that we had to dig to find) appeared.
In a late exclusive update yesterday, we were able to clarify the filing, and given to understand that the firm didn't see it as particularly relevant. Senior management did confirm that filing related to 'old stuff', such as the registration of shares sold through the July, 2004 private placement. Top management confirmed that there's been no new cash (since the 9/30/05 private placement of convertible notes) as well as no new dilution to the shareholders by virtue of this filing. That is their statement to us.
It was thus apparently less significant that first meets the eye. However, there may be something else. There apparently was scuttlebutt that the company would 'miss' their Q4 estimates, which related to becoming profitable by yearend. Today they released a clarification, which while slightly ambiguous, made several points that appreciated in our understanding of their current business developments:
a- that the largest (ever) customer required certain equipment customization that thus delayed shipment of the appropriate scanning equipment, that they intended to ship in Q4 (originally hoped to start in late Q3), but now is forthcoming in the 'near future';
b- an overt statement that this is a huge customer (we suspect pharmaceutical or similar field, but do not know) and may open doors to similar 'tax stamp' / mark authentication (we think pharma, because that's an area where counterfeiting or remarking and labeling has been a chronic international problem recently);
c- a realization that while this may adversely impact Q4 of '05 results, it may help early '06 results (ambiguous as to whether Q1 or Q2 for example);
d- delays in the shipping of (presumed scanning or imprinting equipment to get the customer going) are resolved, and they are going forward;
e- year-over-year ('05 versus '04) should nevertheless increase by around 50% (we think that's because they not only renewed the Turkish bus contract that was as yet unsecured at the last 'conference call', but expanded that customer by around 250 buses or so, as they indicated in a recent release; thus we think that cushions the adverse impact of a delay in the new customer shipments);
f- "Postponement of the equipment shipments into early 2006, combined with new and repeat business from other ‘world-class’ customers, should allow the Company to generate strong revenues and greatly improved operating results in the current year. InkSure is clearly positioning itself as a premier provider of innovative covert security solutions on a global scale, and our confidence in the future has never been stronger," concluded Elie Housman, CEO.
While this is a small company, we don't believe several of the SensorMatic crew from the original RFID days would have joined InkSure if they weren't enthusiastic about it prospectively, and we are given to understand that they have hired one or two more in the sales department of late, as well as bringing a chemist from Israel (presumably to help design and process formulations for customers in the U.S.) to assist the staff here. Again, we can't confirm anything other than the formal release, but ruminations exist to suggest that.
We think it's smart for the company to explain the shift of late '05 revenues into early '06 this week, and basically get that issue out of the way prior to reporting results as they will of course formally do in the course of events. While residual 'ink' income of course won't start for the new customer until the installation of imprinting machinery, it nevertheless is viewed as a glitch, and not a loss of business or anything like that.
Besides, the CEO previously had speculated that Q4 of '05 might be robust if they'd made the shipments more timely, but then Q1 of '06 would be softer, because these installations are non-recurring; the consumables are the recurring income stream for the company. Since we're mostly interested in the current (really not legacy, since it is fairly disruptive and unique in its own right as anti-counterfeiting and authentication goes) revenue stream facilitating the move into 'chipless RFID', we find no big issues at all with these reports. Rather we think it creates speculative risk opportunities for aggressive risk-takers understanding the opportunities and pitfalls in OTC stocks.
Anyway, this gets concern about the new customer (still coming, just delayed a hair) out of the way, and makes a missed Q4 probably moot, since the proceeds are still expected to be accruing at some point early in '05, as this proceeds, per the release.
This further clarification about the new 'largest ever' customer on the heels of having renewed and expanded the prior largest Turkish customer, and good relations we've heard rumored with the biggest domestic U.S. customer, is welcome, and negates for us (whether rightly or wrongly) concerns about the shakeout based on fears either of a new dilution, or of the significance of a missed Quarter (not missed; postponed and that's not the same as a lost customer as some might have feared but we don't know) and let's this progress with close-to-schedule evolutions of existing technologies into the forthcoming premier of the visionary future product, which is 'chipless' RFID.
I hope that this interpretation and summary is helpful, and you can find the release on most any normal web-based news service you may utilize, to ascertain for yourself.
As to 'chipless' RFID; while all along that's been a product intended to be presented in 2006 (early in March in Boston); if well received the company indicated previously anticipation of it becoming hopefully a revenue contributor starting in 2007 (or maybe a tad earlier, and continuing for years potentially). Though they're optimistic about 2006 (as previously presumed and now affirmed by their release) for existing lines of anti-counterfeiting and authentication products, we thought you'd enjoy learning that (with the help of an 'associate' super-sleuth), efforts were made to ascertain who are the participants involved in the upcoming Boston presentation (post from yesterday).
On the second day of the 'Smart Label' conference, and headlined in the agenda as a 'World's First', there are three speakers on 'Chipless RFID'. They are:
(With a caption; world's first): "Next generation of RF Tag based Track&Trace technologies - InkSure's approach"; the unveiling of a new 'chipless' technology from Inksure, Israel; Yaron Meerfeld, CEO, presenting.
Then we have 'low cost label opportunities' from Motorola, USA, with Ms Jie Zhang, Principal Staff Engineer, presenting.
Finally, we have "Fully Printed RFID for high volume application", including the status of organic electronics for RFID, from PolyIC, Germany, Wolfgang Clemens, Head of Applications, presenting.
We are unaware of any existing or pending relationships between InkSure, Motorola, PolyIC or any other companies, though do note that a host of familiar names such as Kodak, Dow Corning, Fujitsu, Proctor & Gamble, General Electric, Chevron, DHL and even several universities as well as Government agencies are participating. Note that among these are the U.S. Department of Defense/Defense Logistics Agency on the role of RFID in National Security, passive implementation, and data architecture areas. 'Wired Magazine' and 'The Boston Globe' will moderate the various sessions. Kodak is the key sponsor; and Motorola the key 'emerging technologies' sponsor (do note they speak right after InkSure's premier presentation at that segment on day 2).
Of all of participants, only InkSure is billed as a 'world's first' premier of a new product type and design. Further, it is late March (March 27-29, not early march as thought in earlier remarks), and the actual sessions will be held at The Westin Copley Place as opposed to at MIT (though introduction to qualified engineers/attendees are offered). (The original 'auto-ID' conferences started there, but have grown out of the facilities.)
Finally, while the 'vision' for the future includes lots of interest in 'chipless RFID', the firm continues to be quite optimistic about growth in the legacy business as noted. It goes without saying that while there may be parallel interest for these products over time as the new ones come available, a number of customers do not require RFID, but are quite interested in the existing anti-counterfeiting/authentications products. In this regard the company anticipated moving to positive cash flow either somewhere around the transition into 2006, and in 2007's first half, and we now expect that to be delayed into maybe the middle of this year (speculating per today's clarifying release) with a view of the existing product lines helping enable the new forthcoming goods.
As a parting note on the stock, yesterday we could not specifically affirm suggestions of progress on the previously-applied-for was 3rd U.S. Patent to complement the prior 2 received in the 'chipless RFID' field. We've heard the Patent application is cleared, but not yet issue. A number has been assigned. If or when we hear more specifics on this Patent, we'll certainly apprise our readers. It looks complex (we reviewed it) and is complementary to those previously issue (very involved from a technical aspect).
Bottom line: what is relevant to the future of InkSure as a 'disruptive technology' we suspect is not how well they did with 2006 vs. 2005 (though that apparently was o.k.); and not even how well they do in 2006 with future conventional (for them) sales of a unique authentication technology (though it is important and they're quite optimistic in that regard). But rather it relates to the future of non-silicon based RFID tags; exactly what InkSure hopes to be the first to introduce to the marketplace.
"Organic", of if one prefers "polymer-based", or "chipless" RFID tags could bring tag (per impression if you prefer) prices down below one cent (far below current levels), at which point possibilities of item-level RFID tagging shoot through the roof, beyond even the most ambitious goals of mere supply chain tracking and visibility. An article just published by research firm IDTechEx notes that if sub-penny organic RFID tags took hold, the industry would see a repeat of what happened with bar codes (earlier): the once-healthy bar code-label business was sunk when the printing of bar codes directly on packaging began. Well, that could create problems for the silicon chip type manufacturers, but create an impressive potential opening for the organic 'chipless' RFID impression business; and that's why we're particularly interested in the shares as time evolves.
After InkSure's 1st patent awards (to put this in perspective), CEO Elie Housman said: "Our goal is to develop multi-bit ‘chipless’ RFID tags that can be manufactured and applied to product labels at a cost of well below one cent each." Depending on how quickly and if these technologies meaningfully develop, the possibilities could disrupt the path to widespread RFID adoption, rendering obsolete the entire notion of a five-cent silicon-based RFID tag, and that's why we became interested in the stock. We of course won't know results of this advanced product line for a while, but are optimistic the company's existing business can at least be an enabler of adequate progress that allows evolution to non-silicon 'chipless' product, ideally with competitive advantages.
Are we early, before it's on Wall Street radar screens? Hopefully. As it drops back to the original price-zone we first initiated coverage, due to apprehension or old filings (or whatever), we can only suggest it has nothing to do with the future at the same time as it provides (for those interested) an equivalent entry consideration.
As usual we caution that investor decisions are their own, and this is the best and we think the most current information that can be gleaned on this interesting small firm; a speculation to be sure, but in an area that we continue to suspect will receive at least considerable attention in the next several years.
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