3SOF

G, what do you think of OMRI . It has been going up like a rocket and appears to be undervalued.

I will pick Abraxas Petroleum Corp. (ABP) for the following reasons:

Due to the short term nature of this contest I need a stock with a near term potential trigger event to get it moving. ABP has earnings coming out on Monday (regretably before the open instead of after the close) and the potential for news on drill results. Either of these could move the stock significantly if the news if positive.

Further it is in a sector (oil and gas) that has enough potential volatility to make it a winner.

Finally it has had a lot of upward momentum until recently and could continue its ascent.

Time will tell.

Good luck to all. (sorry but could not get the graph to paste)

Thanks puenthouse.

David,

If they were going to do a 4 for 1 stock split would they have to increase the number of authroized sharers before doing it?

I do not think they are all in escrow but likely a lot is. I expect that Cornell has been hammering the bid with perhaps 10,000,000 shares (which would provide approximately $1,000,000 to EYII for inventory and their ongoing cash deficit of $500k+ per quarter, this is pure speculation, we really need to see the 10Q) but as well there are people who bought this company at a much lower price than us who might want to take profits and there have been planned sales going through by insiders. Within three weeks we will get more answers from the 10Q.

Spoke to Jennifer at EYII. She said that for legal reasons she could not disclose specifics about the  58,000,000 shares or how the money was used. But she did say that it has been publicly disclosed that shares issued for the Cornell financing would be put into escrow and Cornell would not get the shares unless and to the extent that EYII uses the financing. She said that all would be disclosed in the November 14th 10Q report.

I asked if the increase to one billion shares was to give the directors 500,000,000 shares and she said absolutely not. She said it is just a financing option if such option is needed in the future.

To conclude I expect that the 58,000,000 went into escrow and some of the Cornell financing has been used to finance operations but significantly less than 58,000,000 shares worth. EYII's payables can be financed in part with cash flow from ongoing sales/receivables. Further 58,000,000 shares at present prices would be worth over $4,000,000. EYII is not burning money at that rate and therefore would have no need to access $4,000,000 of financing.

If management truly believes that the shares are unvalued they will use as little of the financing as possible. This would be consistent with the stock option incentives that management has as well.

fill_ the_gap Thanks for the update from IR. I called Jennifer to ask her what was going on with the 58 million shares before posting but was not able to speak to her (she called back when I was not here). Will call her again on Monday. Have a good weekend.

fill_the_gap. For the quarter ending June 30, 2005 EYII lost $475,000 from continuing operations (they took a hit for another $387 from discontinued operations). Therefore including the Hong Kong office expenses I am assuming they will lose $535,000 per quarter if nothing changes (these are estimates as the company is not providing enough info for more exact numbers). If the first China order comes through for 100,000 units  (see below) they will make 30% for filters or $210,000 (based on what has been posted on this site in the past). Further they have a sales force selling the product at a much higher price which should bring in further sales and positive cash flow. If the sales force cannot generate enough to get them to positive cash flow in the first quarter then with the increase in China sales in the second quarter they should be there.

Regarding issuing more shares they are doing what is necessary to survive until the cash flow begins. I do not like dilution but see this as short term bridge financing. Yes there is risk on the downside on this trade (I agree with you that Cornell can hammer a stock price) in the short run but the upside on this company is huge. The managers hold options and I am sure will be lining up alternative financing at better terms as soon as there is an indication that positive cash flow is coming. The sooner the better.

At present levels 10% dilution would raise about $1.6 million or enough for three quarters of negative cash flow. If I sell now I might be able to buy back and save myself a penny a share. But if positive refinancing news or China news or EYII sales force news comes out while I am waiting to buy back in, the stock will likely gap and I will be left in the station waving the train good bye.

For the 58 million shares issued they would have likely obtained about $5,000,000. I trust this was used to pay off debt which as of September 30th was likely $4.5 million (most of which was current liabilities) and buy some inventory. If in fact the $5,000,000 was used to pay off debts we now have a much healthier company from a balance sheet perspective. We will see when the financial statements come out.

I understand your grief from a past bad experience with Cornell and you may ultimately be shown to be right but at these levels this stock is easily a 10 bagger if CEIEC can execute well on the sales side (if they can get to the 2007 4th quarter sales level of 7.5 million units and maintain it as people buy replacement filters every month the after tax income from this deal alone would be roughly $45,000,000 per year). It appears that CEIEC is a large company that should know their market well and be able to execute.

(The above is based on limited published info, estimates and speculation. I believe EYII will do well but it is not guaranteed.)


Purchase Plan
     
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units          Total
2006   100,000     400,000     2,000,000   3,500,000 (filter)item  6,000,000
2007 4,500,000   5,500,000     6,500,000   7,500,000 (filter)item 24,000,000
Total: 30,000,000 Code Blue Water Filtration Systems

If they buy the filter for $7 (see at the bottom for this assumption) EYII makes $7*.3 equals $2.10 per unit. At 100,000 units this equals $700,000 of revenue and $210,000 of cash flow for the first quarter plus what their own sales force sells. It is possible that the sales force can get them to positive cash flow in the first quarter as EYII should make a lot more on sales from their own sales force than they do on the deeply discounted pricing that China gets. Even if the sales force cannot get them to positive cash flow in the first quarter they will likely be close and should be able to get better financing than Cornell, especially if they have already paid off their debt from the equity sales in August and September. The second quarter sales should rise from there as seen in the Purchase plan schedule above.

SCHEDULE "A" TO CHINA AGENCY AGREEMENT

CONFIDENTIAL PRICING SCHEDULE (in US Dollars)

ITEM
DESCRIPTION
PRICE

Filter
The Code Blue Water
Filtration System Water
Filter must contain
technology to remove:
nitrates, nitrites, arsenic
and other contaminants
from tap water. $7.00 per unit

Pitcher
The Code Blue Filtration
System Water Pitcher must
be a unit that is able to fit
the above filter to remove
the contaminants from tap
water. This unit must have
an appropriate reservoir to
hold the filtered water.
This pitcher must come in
a box with Code Blue
branded material. $13.00 per unit


6. If, in any year, CEIEC purchases fewer than two-thirds of the Code
Blue Water Filtration Systems specified in the Purchase Plan (i.e.
fewer than 4,000,000 in 2006, or fewer than 4,000,000 in 2007), it
will cease to have the exclusive agency rights granted in paragraph 1
hereof, but will continue to be non-exclusive agents of EYI.

fill_the_gap. As soon as the first quarterly China order comes in the company will be cash flow positive on a quarterly basis, Cornell will be out and the price will rise.

fill_the_gap. You have made many valid points. But in my own personal experience I have recently seen a stock go from .9 cents to 5 cents when the company refinanced from a toxic convertible to a straight convertible. Once it became apparent that the company was heading for positive cash flow much better financing became available, the dilution stopped and before the financing was finalized the share price started rising rapidly. Assuming a base case of $21,000,000 per year in sales  and 30% margins for EYII it would seem that EYII would be cash flow positive, better financing would become available and the price will rocket.

Of course China is not the only girl in town. EYII has the best product in the world for table top water filters and a huge potential market since their water filters fit in the competition's water containers.

Further as you know an annuity is more valuable than a one time payment (unless the one time payment is huge). People have to keep buying the filters providing EYII with an annuity. By setting the options exercises price at 8 cents management has already told us that as a base case the price should be much higher. These guys want to make their fortune and will be motivated to get off of Cornell financing as soon as possible. They simply need to show that the sales are starting to come in. This is not guaranteed but likely IMHO.

ROOG puts video and advertising on web sites. Very low market cap ($4 million) relative to other companies doing the same thing (LOUD has a market cap of $96 million, ONT $47 million). Stock price was hammered after they did a toxic convertible but I expect they will retire the remainder of that debt soon which will stop price erosion. This is a high growth area with an ever increasing number of households using high speed internet access and ROOG.OB (http://roogroupinc.com/index.htm) is one of the biggest players (within the top 10 in the world) with some big name ad clients like Sony, ING, Saab, Microsoft etc.. I bought but this is not pump and dump. This is buy and hold. This company will likely get taken out in the next 12 to 24 months.