1. technology and computing

www.HowToFindBigStocks.com
The How To Find Big Stocks Newsletter
We Turn Waves Into Wealth
February 2014
“Money goes to where it is treated best”
The Dow was down around 5% in January ­ the worst start to a year since 2009 (second
worst since 1990) and the worst month since May 2012. However, two of HTFBSN’s BIG three
made all time closing highs the last week of January.
Notably, when Internet pioneer Marc Andreessen talks, we listen. You might recall our referral to
his powerful piece “Why Software is Eating the World”. Indeed, when Big Stock hunting now, this
narrative completely changed our view. In a recent N Y Times article, he gives a terrific summary
of yet another wave we are watching: “Why Bitcoin Matters”. As always, the HTFBSN team and
BigStockular is searching for and finding companies with the competitive advantage in this wave.
A mysterious new technology emerges, seemingly out of nowhere, but actually the result of two
decades of intense research and development by nearly anonymous researchers.
Eventually mainstream products, companies and industries emerge to commercialize it; its
effects become profound; and later, many people wonder why its powerful promise wasn’t more
obvious from the start.
What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I
believe – Bitcoin in 2014.
The key question to be considered right now is what technology will be required for this new
investing trend? Of course, our focus will be finding companies that have the competitive
advantage.
Because of this, we are seeing many companies finding a way to incorporate the word BitCoin in
their press releases, so be careful. Even the powerful J P Morgan Bank is looking to cash in on
this trend with recent patents filed to introduce their own BitCoin­like digital currency.
In light of our “Different Kind of Canadian Gold” summary last month, HTFBSN now sees
Pinnacle Digest kind of summarizing what we were trying to suggest.
Canadian retail investors, particularly those who love to play the small caps, are
demanding more investment options on the TSXV. The Big money in Vancouver, that
same money which capitalized on the mining boom from 2003 – 2011 by throwing billions at
it, has heard this plea and is shifting into technology. Make no mistake here; this is a great
bellwether for Canada’s startup technology industry.
After painfully watching the mining market collapse over the past three years; a staple of
the Vancouver economy, namely local venture capitalists, are now throwing their
financial weight behind some innovative technologies.
Rest assured that HTFBSN has our eyes on a few as well, but speaking of innovative companies
from up North...
“the desktop category — now under fire as more users make their tablets or smart phones their
primary device — isn’t going away anytime soon. “They are the devices of yesterday and today,
phones are the devices of today and tomorrow and machines and sensors are the devices of
tomorrow”....Sanjay Poonen (VMWare)
Sphere 3D ANY Canada SPIHF U. S. “Spiffy”
Get your head IN the Clouds!
Cloud Cloud Cloud… If you’re serious about technology investing, one MUST pay attention to this
wave because it is already Big. In fact, it IS getting even Bigger right before our eyes, and it’s
starting to break.
In last month’s issue of HTFBSN we highlighted one of Forrester’s Top Trends for 2014. Number
9 was Firms Learn From Cloud and Mobile
the benefits of the Cloud will be limited by the speed with which traditional applications are
re­written to take advantage of the Cloud. Without this redesign, benefits will be limited.
Sphere 3D’s Glassware offers the ability to “re­write” or automate an application for the Cloud.
So much so, that Sphere 3D manifested this in real­time at the Cantech Conference a couple
weeks ago. As a result, the company posted this demonstration from the conference shown in
several videos . Important to realize here, this isn’t beta or prototype, and there are no usability
issues. Companies HAVE BEEN testing this product. This is very much a WORKING product
that is expected to go live this quarter (through Overland).
Furthermore, Seeking Alpha published a story called Automation..the next hybrid cloud battle.
This story actually sounded like it could be a marketing piece for Sphere 3D.
These platforms are powerful because they change the game. They allow enterprises to
deliver apps and services faster and more efficiently than the vast majority of traditional rack
and stack infrastructures operating today. They are the bridge between traditional IT in the
enterprise and the web scale IT being deployed at leading Internet companies like Facebook and
Google.
At stake in the short term is a potential $60B market based on a 3­year server refresh rate, for
hybrid Cloud software that would run on servers and allow apps to scale into one or more public
Clouds. Then there is the $1T+ spending on traditional IT, that could eventually shift to the
Cloud when one looks out 10+ years.
Automation will be key to the shift from IT complexity to agility. It will have a disproportionate
influence over the adoption of hybrid Cloud.
it is very likely that we will see the triumph of automation over extensive manual processes,
especially for apps that can operate efficiently (with minor tuning, for example) in the new Cloud
environments
More importantly, AirWatch was acquired for $1.5B by VMWare and had analysts confirming our
bullish thesis on the market opportunity for Sphere 3D. Just take a look at these quotes link
“It’s a good time to be in enterprise mobility,
MDM (Mobile device management) gives companies a way to set protocols and secure their
employees’ smartphones. The space has undergone consolidation for several years.
VMWare’s purchase will put pressure on remaining independent competitors to sell within the
next 12 months.
Buyers, like IBM, are placing the “economy” of the Bring Your Own Device (BYOD) to work
phenomenon through M&A, said Christopher Clark, president of Fiberlink. “They’re building a
mobile IT stack” through serial acquisition­making that allows for “collaboration, sequencing,
securing and implementing apps” on employees’ mobile devices.
The AirWatch­VMWare deal “validates how big and strategic” MDM is,
the fast­moving train that is MDM software
MDM encompasses the software tools required by information technology (IT) organizations to
manage, secure and monitor mobile devices in the enterprise. According to the industry research
firm, Gartner, Inc., over 2 billion mobile devices are expected to ship in 2014 alone, and a large
percentage of those devices will be utilized by employees while at work
the MDM market is relatively nascent
For software companies, there is a pot of gold at the end of the MDM rainbow. Gartner believes
the market will balloon to $1.6B in 2014, which will still only account for 30 percent penetration in
North America and much less elsewhere. Not surprisingly, software powerhouses like IBM,
SAP, Citrix and now VMware are gobbling up MDM providers
While Sphere 3D is classified as a “MDM provider”… it does SO MUCH more!
With all that being said about MDM providers and solutions, here’s probably the best quote of
them all:
Furthermore, many MDM solutions are developed on an island, with no regard to managing
laptops, desktops and servers already in the enterprise. A more prudent approach would be
to evaluate “one­size­fits­all” solutions that support laptops, desktops, servers and
mobile devices.
Not to be missed by our subscribers; inside the Cantech Conference videos, there are several
notable quotes from Sphere 3D management about Glassware as follows:
to take a traditional desktop application and host it to your own private Cloud, and then deliver it
concurrently delivering a virtual session to one device and at the same time actually virtualizing
another application… its multitasking while it does this, the IT administrator can be logged in and
be upgrading the box while the user is concurrently using it… you do not need to take it offline…
you do not need a separate box as both can work on it at the same time.
we use a very basic structure of html5
we have patented technology to run a java script behind it on browsers that don't support Java
full version of Microsoft Word available on Chrome and iPad
emulating chipsets and an old OS (aaah the mainframe possibilities here are enormous)
PDP8 server… Fortran running on a Motorola chip… running on an ARM based chip
you would not be able to run RISC software or OS on an ARM based environment
the emulation part of our technology
convert any website into an application so you can deliver it across platforms
extremely valuable in industries that are standard in building portals for specific browsers, how do
you achieve ubiquitous access
eBay as an application… a java client version for desktops and Macs
able to deliver full Flash, Silverlight, Real Player ,Quicktime, all the codecs and plugins to this
webpage
For those who have read HTFBSN’s January 27, 2014 update regarding our first­hand look at the
Glassware technology, we were completely amazed needless to say! That being the case, we
have subsequently thought of even more questions for management. We are hoping to do a
follow­up interview with Sphere 3D’s CEO Peter Tassiopoulos (“Big Sky”) the first week of
February.
Look at this chart.
Look familiar?
22nd Century Group XXII “Cigs”
Consider this Seeking Alpha story titled “Not Exactly Offering A Cure For Cancer, But Maybe
The Next Best Thing” link
22nd Century isn't trying to cure cancer, but it is trying to do something that would
greatly reduce incidences of the fatal disease.
XXII’s main objective is to provide happy smokers with a safer alternative, and
unhappy smokers with a better chance of quitting. This simply means people who
want to continue to smoke will have a lower likelihood of cancer, and obviously, so
will those who quit smoking entirely.
Just recently this week, 22nd Century posted their 10K and HTFBSN tries to break down the
BAT licensing deal a little further for our readers as follows:
BAT’s royalty is $0.05 per pound of tobacco. Similarly, if BAT licenses to R J Reynolds, XXII’s
portion of the royalty is guaranteed at $0.09 per pound. Likewise, if they sublicense, both BAT
and 22nd Century can charge whatever royalty they want per pound (i.e... $0.20 or $0.30 per
pound). Better yet, and we feel more likely, they could charge a percentage of finished products.
For example, 5% of sales or $0.05 per pack. The worldwide tobacco market is $700B a year or
roughly 5.5T cigarettes… yeah that’s 11 figures!
Further, there are upfront license fees and annual license fees besides running royalties.
Royalties aside, don’t forget BAT is spending millions and millions during the research term,
which XXII is directly and greatly benefiting from.
BAT could sublicense 22nd Century’s technology to a company in the SAME country that they
operate in. Better yet, XXII could also operate in the same country as BAT with their own
products as well!
The only company BAT is allowed to license in the U. S. is Reynolds American. BAT owns 42%
of Reynolds. Additionally, ONLY XXII can license all other tobacco companies in the U. S.,
including but not limited to Philip Morris and Lorillard.
This is important
The royalties 22nd Century gets from BAT licensing Reynolds do not apply towards the $25M
per year cap, nor do royalties from any other licensee (i.e... Philip Morris USA or Philip
Morris International) including any other non­licensed third party for that matter (i.e...
tobacco shipments to China for the Chinese to test market without them being licensed).
The $25M maximum is strictly on BAT sales.
We anticipate the Modified Risk application to be filed in Q3 and our expectation is for XXII to
receive the MSA very soon.
In early January, Chardan Capital initiated coverage on 22nd Century with a Buy
recommendation and a $9 price target. They also provided an update after XXII’s year­end
results:
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Our estimates for 2014 and 2015 are unchanged and we continue to believe there are
multiple near-term catalysts to drive the shares higher. We reiterate our Buy
recommendation and $9 target and the stock remains one of our Top Picks for the
year.
The next catalyst we expect is NAAG consent for 22nd Century's membership in the
Master Settlement Agreement (MSA). When (interesting they are not saying IF) this
occurs, possibly in the next 30 to 60 days, 22nd Century will begin manufacturing
REDSUN and MAGIC at its newly acquired Mocksville facility. We believe the
company will enter into distribution agreements with high-end tobacconists shortly
after receiving MSA membership.
The 10K provided additional information on the company's license with British American
Tobacco (BAT). If BAT enters into the worldwide license it will pay 22nd Century $3M in the
first two years and $100 per metric ton of licensed tobacco supplied to or grown and
processed by BAT and $200 per metric ton supplied or grown and processed to Reynolds
American, Inc. The minimum and maximum due 22nd Century are $3M and $15M
respectively in years 3 through 5 and ramp to a minimum and maximum of $5M and $25M
from year 6 through 2028. Our estimates for the license agreement remain unchanged.
Our $9 price target uses a sum of the parts method, valuing the BAT license
stream at $1.67 per share, the commercial product revenue at $4.34 per share
and the combined modified risk/X-22 at $3 per share. Risks to achieving this
target include increased regulation, inability to obtain MSA membership, delays
in finalizing distribution agreements and commercial license revenue lower than
expectations.
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You can find Chardan’s full January 31, 2014 report on our site.
BRAND A and BRAND B are brands in development. BRAND A is similar to MAGIC and
BRAND B is similar to RED SUN, but they are not the same. The company is continuing to
develop new and improved tobacco varieties for BRAND A and BRAND B and BAT is greatly
assisting with their R&D due to their financial resources.
An example is a new tobacco variety, which XXII recently received the results from an
independent lab that will allow them to reduce the tar/nicotine ratio of BRAND B to about 5 to 1
(RED SUN is about 7 to 1). This version of BRAND B (made with the new tobacco) is the
cigarette they could use to do exposure studies for our F.D.A. modified risk application. Of
course, once they commercialize, they would probably change the name.
In addition, HTFBSN expects to do another interview with 22nd Century’s CEO Joseph
Pandolfino (“Big Puff”) this month. Just as we accepted subscriber questions for “Spiffy”, get
your questions ready for “Cigs” as well.
Destiny Media Technologies DSNY
The destiny keeps getting pushed farther out
One simple sentence in an alleged email from “Steve” (we assume it was the CEO), posted on
the IHub message board (link) can sometimes define a situation. Fair or not, HTFBSN thinks the
last sentence in this post is what caused the accelerated selling.
We expect great things in 2014 and expect our shareholders will see increased value by the end of the year.
Admittedly, we’re sure that “by the end of the year” was just a conservative time frame being
given, but with all of the delays over the past year… unfortunately the market did not!
Destiny then held their quarterly earnings conference call on January 14, which just did not
create any more urgency to own. The company “forecasted” that “BIG deals” meaning $1M­$5M
could be three to five months out. Even more disconcerting, the expected increase in PlayMPE
should kick in during the (March to May) quarter, it was stated. With a 45­day deadline, those
revenue figures would not get posted until mid­July.
The premium a growth stock will trade at depends on its potential revenue growth and the timing
for this growth. In the case of DSNY, (in our opinion) these metrics have been lowered and
delayed.
Long­term Destiny investors have endured several false starts and with these market conditions,
it appears that these investors are not willing to tie up their money for another six months hoping
to see results.
Typically, when HTFBSN first starts to accumulate or follow a new company, we don't put much
weight in a stock’s chart. Most of the time, we are VERY early with the start of a potential Big
Stock and there is little trading volume. Once the company’s story has been (or is being) told, and
the product/service is on the market, it’s only then we carefully watch the stock chart. It is usually
a Big indicator of what’s really going on. Accordingly, DSNY’s daily chart is under BOTH the 50
and 200 day moving averages. In addition, the weekly chart has started to show signs of
distribution and breakdown. Owing to this fact, Destiny’s chart needs to be watched very
closely now.
If there is a naked shorting entity in DSNY, as has been rumored, it sure doesn't appear as
though they are in any hurry to cover whatsoever.
On the other hand, we also have another serious concern... more like something that really
upsets us. On January 20, 2014, it was announced that the CEO of Destiny joined the Board of
Directors of 3 Tier Logic, a public company that is subject to acquisition by CCT Capital Ltd. via a
reverse takeover. Previous to that appointment, in July 2013 he was appointed to the BOD of
Netco Silver, ANOTHER public company. Typically a person that has ALREADY achieved
success in a certain field or industry is asked to be on these types of Boards.
While we certainly understand that sitting on the Board of a company does not require much time,
it is a matter of principle and signals a much bigger problem for us. Until Clipstream is up
running, generating recurring revenue and a brand name in the Internet video space, we want our
CEO to be focused and giving ALL of his attention to the company he is guiding. In this case,
Destiny Media Technologies should be his sole focus in our opinion. Don’t know if this is just a
coincidence or not, but DSNY’s share price peaked in July of 2013. This is the same time the
CEO was appointed to the first public company’s BOD.
In stark contrast, notice how both 22nd Century and Sphere 3D have appointed seasoned
executives in their respective industries to help grow their business. Consequently, their share
prices are reflecting this strategy.
Destiny’s Shareholder Meeting is February 25 and we will all hear about the reverse­split voting
results, hopefully along with having a more definitive time frame for the much­anticipated
Clipstream traction.
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You may have noticed this month’s issue is a little “lighter” than normal. In prior issues we spent a
great deal of effort explaining the reasoning for why we think each company could be BIG, or
telling each story in a very detailed way. Well, these stories are now starting to come to life.
HTFBSN can’t always time when news or developments will hit in relation to our monthly issues,
so that is precisely why we added the section titled “The Latest Update” to the website. This
enables us to provide our analysis and opinions much quicker when breaking developments do
occur.
In conclusion, February will hopefully provide subscribers with two pending company interviews in
22nd Century and Sphere 3D. We are also looking closely at two new companies that may
have Big Stock potential. It bears repeating at this point and we will finish with what started this
issue. As stated above, “Money goes to where it is treated best”.
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until next month...
Scott P. Shaffer
(aka Vangorilla and The Pondering Primate)
Michael Keaton
Associate Editor & Director of Research
(montani semper liberi)
Learn how $10K turned into $2.8M in 2 years with the “BigStockular” tool.
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If you have a wave, a company or technology that you think has “Big Stock” potential, please
email us at [email protected]
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