www.howtofindbigstocks.com
The How To Find Big Stocks Newsletter
We Turn Waves Into Wealth
“Facts do not cease to exist because they are ignored.”
~ Aldous Huxley
“Virtual Smoking” March 2014
The Big Stock Progression
A huge part of the hunt for Big Stocks is having a vision for trends and technologies/companies that
will play a role in them. When HTFBSN highlights a company, we usually tend to be early, or in front
of a wave with a lot of time to accumulate before The Street catches on. We spot companies with
market capitalizations usually under $30M in these waves. As our readers certainly know by now,
valuation plays a key role when looking for “10baggers”. If we think the company has a good story
and breakthrough technology that can command a $100M valuation in these investable waves,
advantage us! That’s precisely why we only look for Big waves and companies with our preferred
market cap criteria. If we’ve done our homework and due diligence well, then getting from $25M to
$100M in valuation should be the easy part for a highlighted company.
With all that being said, getting from a $100M valuation to $500M or more takes execution. Management
needs to impress smart money with more than just a story. Just having a story won’t cut it in the nano
cap sandbox HTFBSN plays in. This genre is already rife with such companies/stories. Consequently, at
the $100M valuation is when institutional buying SHOULD come in IF smart money thinks it has potential.
At this point, we have to remind our readers that it is institutional money that makes a stock Big…
period! It is this $100M valuation where the rubber meets the road. Accordingly, the $100M market
cap is also a tell tail sign. How a stock trades at that level tells us what the smart money really thinks
about a company.
Likewise, when a stock hits that $100M valuation and doesn’t find institutional traction, it is a warning
sign for US, but more on this subject later in the issue.
For now, it's onward and upward... into the Cloud!
Sphere 3D ANY Canada SPIHF U. S. “Spiffy”
A unique Cloud powerhouse in the making
When HTFBSN recently opined that, “the only solution Sphere 3D is missing from being THE one
stop shop for Cloud computing, is the desktop”, little did we know that executive management was
getting ready to put a BIG exclamation point on that statement with their acquisition of V3 Systems!
Consequently, this synergistic acquisition, along with their strategic alliance with Overland has
uniquely positioned Sphere 3D with the Big Boys of Cloud computing.
There are several components to virtualization; applications, servers/mainframes, storage and
desktop. As stated, the only solution Sphere 3D WAS missing from being THE one stop shop for
cloud computing, WAS the desktop… as in past tense.
On that note, Sphere 3D announced February 11, they were not only shipping V3 Systems
solutions starting on January 1, but they would be acquiring the company as well. V3 just might be
THE best virtual desktop infrastructure solution on the market today. Certainly the pundits have said
so.
Please see our interview with the CEO titled “Sphere 3D V3 Acquisition Interview”
Founded in 2010, V3 Systems is the first company to deliver true replacement grade virtual
desktops. V3’s DCC solution delivers on the promises of virtualization with a new class of
highperformance virtual desktops that perform as fast as or faster than physical desktops, allowing
V3 to offer true replacement grade virtualization. They also offer Cloud Orchestra Software that
enables ALL of these desktops and applications to be managed on premise, the Cloud or both.
Desktop virtualization, as an idea, detaches a computer’s desktop environment from a
physical machine, running over the Internet instead. This is important because the service
allows you to access your work or home computer using remote devices. For example, a cell
phone or your personal laptop, iPad etc… enables this access.
From their website)
Their virtual desktops are guaranteed to run two to eight times faster than physical
desktops.
Virtual desktops that are served up through our V3 appliances actually are faster and outperform
physical desktops in every way, and that's true whether using 100 users or 10,000 users,"
V3 Systems’ service will run virtual desktops at approximately half the cost of competitors’ services.
In addition, one V3 Systems machine can run up to 300 desktops at the same time
has the potential to be the next game changer in the VDI space,” said Volker Wiora, CEO of wiora
Software GmbH and President, EMEA of V3 Systems, Inc. “V3’s technology creates virtual desktops
for business that outperform physical Windows PCs.
The benefits of a Cloud based managed desktop moves desktop and mobile device management to
a place where it is both affordable for everyone and realistic to have desktops and applications
which are available anytime, anywhere, outperforming “physical desktop only” architectures
in every way
Given these points, HTFBSN also likes this post from IHub message board poster silverline:
"turnkey holy grail" for the enterprise side of the business. Companies or governments or agencies
that have hundreds or thousands of traditional desktop computers, can literally let go 90% of their IT
departments, and save themselves absolutely massive amounts of money on maintaining software
and hardware annually. Add to this the fact that they will have instant partner agencies in Asia and
Europe “
Freedom to compute wherever, whenever, however, on ANY device, with ANY software, with ANY
O/S, at 8X the speed, at a fraction of the cost
To demonstrate, here’s a great video that explains what desktop virtualization is. When you watch
this, keep in mind that with Sphere 3D’s Glassware, the programs AND hardware can also be
virtualized.
Youtube Video
Virtualization…
Subscribers must understand how Big this wave is! That’s exactly why we created a separate page
on the member site titled “Cloud Computing and Virtualization”. This page has infographics and
videos showing you the benefits and the problems it solves. The virtualization of hardware and
software IS disrupting the Internet computing industry… please pay attention to it.
In short, let’s give you an example of how virtualization could work:
While lounging at the pool, Salesman John accidentally spills a drink onto his work computer. All of
his programs and widget videos are stored on that device. Alas, he also realizes that the National
DoHickey Convention is staying at the same hotel. They sure could buy a lot of the widgets he sells.
In desperation, he phones George his IT guy, who is on vacation skiing in another time zone and
explains his predicament. The conversation goes something like this, “All I have with me is my iPad
but so many of my programs (including our sales videos) don't work on the Apple devices”.
Not to worry! George, using ANY computing device and the V3 Cloud Orchestra Software, simply
provisions John’s iPad to run all of the programs when he logs into the network. In this and all cases
going forward, the device or OS (Operating System) is irrelevant with virtualization. Sphere 3D’s
Glassware has already virtualized all of the sales force programs to run on ANY device.
3D + V3 = Wowee
A great video that demonstrates this strategic acquisition:
YouTube video
Upon the V3 Systems acquisition and the UniPrint agreement, this is a great summary of Spiffy.
ANY program/application can be made to run on ANY device… real or virtual.
ANY device (real or virtual) can be monitored and provisioned using ANY device from
ANY location.
ANY database/documents (including legacy data) can be stored in a public, private
or hybrid cloud and can be accessed and printed from ANY device… real or virtual.
(kind of makes you wonder if Sphere 3D management chose the stock symbol “ANY” for a reason eh?”)
Remember, V3 Systems enables ANY device and ANY OS to run as a virtual desktop. With that,
and now adding Sphere 3D’s Glassware making it possible for ANY program/application to run on
ANY device or OS by their automated virtualization solution to the mix, and you have a powerful
synergistic combination. Another key element in this synergy, is that V3 Systems’ Cloud Orchestra
Software enables a network administrator to control/provision ANY or ALL of these devices from a
remote location.
The following slide lays out the many benefits of virtual desktop infrastructure:
source
Coupled with these benefits, HTFBSN really likes this quote with reference to the Cloud:
“Large enterprises, on the other hand, are moving more slowly to the Cloud, held back by twenty
years of legacy IT investment decisions that first need to be erased”... Peter Christy (from the book
Big Bang Disruption)
With this in mind, savvy subscribers will remember our interview with Sphere 3D’s CEO in the
“Latest Update on January 27”, where we learned:
… As one can certainly see, virtualizing mainframes (legacy data) is a HUGE opportunity. As
stated, the ONLY solution now is to manually enter data to the Cloud (time consuming and costly
$200/MB to move). Consider this for a moment; there is one potential customer, (probably
government) that has over 60TB of data. To manually move that data to the Cloud would run about
$12B.
The “size” of the hardware to house that data (mainframes) is about the size of a house, whereas
Sphere 3D’s solution is the size of a toaster. Keep in mind here, this is just ONE division of the
government and one example of a legacy revenue opportunity. We envision that Overland might
have a way to go back to those old Federal Government accounts with a current Cloud solution that
would appear cheap compared to $12B!
Add this to Sphere 3D’s opportunity
The average age of mainframe workers is 55 to 60, according to Dayton Semerjian, a senior
vicepresident at CA Technologies (CA). They are the secondlargest maker of software for
mainframe computers after IBM. Semerjian goes on to say, "The big challenge with the mainframe
is that the group that has worked on it—the Baby Boomers—is retiring," "The demographics are
inescapable. If this isn't addressed, it will be trouble for the platform." As evidence of this, the
resulting worker shortage poses a threat to Armonk (N.Y.)based IBM. The company commands 85
percent of the mainframe market and can't afford to abandon a technology that despite its age, still
underpins some 10,000 mainframes that are used by 4,000 to 5,000 customers around the globe,
where the aging mainframe workforce is "a critical painpoint."
So I guess we still need mainframes and they have been modernized somewhat, but it seems to me
this would be better handled by Cloud or cluster computing that would be more hardware and
software agnostic. My bet is that most of these systems are actually emulating other emulations
several layers deep – in some cases all the way back to punch card programming. I assume no
one actually wants to unravel that spaghetti out of fear of losing some critical legacy functionality.
link
Just where and how does Overland fit in?
Well for starters, this statement from Overland’s quarterly earning conference call February 13, is in
HTFBSN’s opinion... a Biggie!
With our integrated platform, users will have the ability to virtualize storage as well
as virtualize native applications and virtualize desktops.
With this revelation from Overland, and because Sphere 3D now has V3 under their umbrella, it is
our opinion they can now offer the “holygrail of Cloud computing!” In layman’s terms, a onestop
shop. One simple statement we believe, defines this synergistic relationship and truly makes it
unique in the Cloud realm… quote from ”Big Sky” Sphere 3D’s CEO
"with this acquisition, the problems we solve are the ones that have been considered
unsolvable"
To that end, let’s now fastforward to April 8, 2014. What’s so special about this date?
After twelve years, support for Windows XP will end on that date. There will be no more security
updates or technical support for the XP operating system. Because of this, it is very important that
customers and partners migrate to a modern OS such as Windows 8. An amazing 29% of
computers across the globe are still running Windows XP, according to NetMarketShare.
From CNN
For Windows XP users, the best course of action is to bite the bullet and buy a copy of Windows 8.
The problem is that most older computers won't be able to upgrade to Windows 8. Unfortunately,
many of those consumers will have to buy a new PC. (or they could stop from having to upgrade every
desktop and virtualize it)
The Windows XP impact will be felt more by companies than by consumers. Forrester
Research estimates that 20% of North American and European corporate computers are still
running XP. In China however, XPrelated problems will likely be much more pronounced. About
threequarters of Chinese PCs are running XP, according to NetMarketShare. That’s a whole lot of
computers!
From the files of “ruhroh!”
In addition, literally thousands of ATM’s will also potentially be exposed after Microsoft ends Windows
XP's life support. A recent Bloomberg Businessweek story revealed that 95% of ATM’s in the U. S.
are still running Windows XP, and only about 15% of them will be upgraded before April 8. Every time
a credit card is swiped there are at least THREE institutions that record the transaction (or create
data that needs to be stored). These would be the entities that own the ATM/credit card swiping
device, credit card company/bank and the F.D.I.C. Meanwhile, remember those old antiquated
mainframes we just talked about? Here’s a homework assignment for you. Take a guess as to
what ADDITIONAL U. S. Government agency stores their data on those mainframes? Remember
that mainframe revenue possibility we discussed earlier ($12B to move 60TB of data)? Could this
be ANOTHER opportunity for Sphere 3D?
With all that being said, your head is probably spinning by now from the concept of desktop
virtualization. Even Scooby Doo needs a break at this point, so we will delve further into this story
next month…
(update) Sphere 3D announced an OEM agreement with UniPrint, the leading printing virtualization
player with 70M licenses worldwide. We will be able to elaborate on this release after we meet with
mgmt at HIMSS Conference this week.
22nd Century Group XXII “Cigs”
A POT of Gold?
Subscribers know how much we love software companies. Famous Investor Marc Andreessen
penned a piece titled “Why Software is Eating The World”. (yeah we reference this article a lot).
But in many industries, new software ideas will result in the rise of new Silicon Valley-style
start-ups that invade existing industries with impunity. Over the next 10 years, the battles
between incumbents and software-powered insurgents will be epic. Joseph Schumpeter, the
economist who coined the term "creative destruction," would be proud.
Another form of “software” is described in the piece by Craig Venter titled “DNA, The Software of
Life” Well, genetics is the software that changes DNA.
read the digital code of life but also to write it, to simulate it within a computer, and even
to rewrite it to form new living cells
From time to time, HTFBSN likes to drop little hints. In 2013 (the March and May Issues), we teased
subscribers with the following quotes:
From our March 2013 issue
We think we’ve found one of the purest ways to play this massive marijuana wave. We are
still doing our due diligence but hope to put out an alert soon.
From our May 2013 issue
We didn't forget about our pure play on the marijuana wave. This tiny company could become the
“toll booth” for this massive wave, but we want to first make sure our due diligence is in order. We
will send out an alert if we decide to highlight.
With those hints revealed, the Big problem so far with this industry is keeping tabs on the money. A
lot of the companies have been dealing strictly in cash, because up until now, banks could seize
accounts that worked with an illegal “Federal” drug. Wow, so much for regulating it, until now that is.
“Marijuana stocks rallied today after the Treasury Department said it would allow banks to accept
accounts from those businesses, letting an industry that is illegal in a majority of U. S. States open
business checking accounts and accept credit cards”. link
We want to stress that our thinking below is JUST SPECULATION. XXII HAS NEVER
STATED THEIR intent to get into this space.
Several things have happened recently that make us think our original pondering was spot on, kinda.
The number of States that are legalizing medical marijuana is growing and the government is liking
the tax dollars that are starting to roll in. To wit, Colorado, one of the States where marijuana is legal
just announced the tax revenue from legal marijuana sales is even exceeding their expectations. In
HTFBSN’s opinion, it’s just a matter of time before medical marijuana is legal across all the States.
In August, national science journal JSTAGE’s study found that chemicals in marijuana blocked
activity of an enzyme linked with cancer. Furthermore, the researchers concluded that marijuana
compounds could be useful in treating cancer.
Compounds like THC and CBD are starting to take on a major role in cancer research, as many
studies have identified their ability to kill cancer cells directly.
In November GWPH received approval from the F.D.A. for a marijuana plant derived drug.
The Office of National Drug Control Policy is prohibited by law from studying or lending support to
the potential benefits of marijuana. However, a bill introduced in Congress the week of February 10,
2014 would change that. This bill allows the U. S. Drug Czar, who heads up the agency, to study
the potential benefits of cannabis legalization... hmmm, don’t we know a company that is currently working
with a U. S. Government division (National National Institute on Drug Abuse ("NIDA") on the potential benefits of
healthier cigarettes?
Yes, this wave is building and we know “Big Puff” has been proven to be ahead of the curve before!
Let’s put the pieces together shall we
On January 10 of this year, Chardan initiated coverage on XXII with a Buy and a $9 price target. At
that time, the stock was trading at $1.80. In view of this being the FIRST research coverage on XXII,
and they were calling for a 400% return... needless to say, that in itself made us do a double take. It
is unheard of to be the first brokerage house with such an extreme price target, especially on a
penny stock! It was that $9 price target that made us think our vision of last year may be coming
clearer.
Notably, this is what gave us even more confidence in our vision:
In Chardan’s recent XXII report titled “Management Meetings update” (see the report on our site) we
definitely noticed these quotes:
●
We also think the company will look to find other plant genetics opportunities
over time
● There is interest in evaluating other opportunities in plant genetics which could
open up new markets for 22nd Century. This is a wild card for the company
Well, inasmuch as gamblers know that wildcards can sometimes pay off in a Big way, let’s just see
if we can use this in our hand too.
22nd Century’s Verfola is a derivative of higher nicotine tobacco. Given that in XXII’s recent 10K,
they state (regarding Verfola/biomass product)
“We currently are not spending any capital for such potential biomass business activities nor do we
have any current plans to do so in the foreseeable future.
So when Chardan says “other”, we don’t think they are referring to Verfola, but it could be
marijuana. As far as we know, XXII has never mentioned their intent to enter the marijuana space
BUT, they are considered a “plant genetics” company! So it’s certainly not a stretch to think they
could, or will enter the marijuana space. (this is a question we definitely want to ask “Big Puff” in our next
interview)
As HTFBSN loves to do, let’s dig just a little deeper now. 22nd Century has an R&D partnership
with the National Research Council of Canada, Plant Biotechnology Institute in Saskatoon, Canada
(“NRC”).
From XXII’s latest 10 K:
●
●
We license rights to thirdparty intellectual property that is necessary or useful for our business, and we
may enter into additional licensing agreements in the future
Our two worldwide exclusive licenses, one from North Carolina State University (“NCSU”) and the other
from National Research Council of Canada, Plant Biotechnology Institute (“NRC”), each involve multiple
patent families.
Carrying this a little further now… from XXII’s website: (we made the highlights)
From 2005 to 2009, 22nd Century partnered again with NCSU and with other public institutions for
further R&D that included the cloning of additional nicotine biosynthesis genes: the Nara Institute of
Science and Technology, Nara Japan (NAIST) and the National Research Council of Canada, Plant
Biotechnology Institute, Saskatoon Canada (NRC). These contracted R&D partners, NCSU, NAIST
and NRC, were first to (i) clone the key nicotine biosynthesis genes and several transcription factor
genes that regulate expression of all nicotine biosynthesis genes and (ii) demonstrate biochemical
evidence of the function of these genes.
The technology and exclusive related patent rights 22nd Century obtained from NAIST and NRC are
keystones of 22nd Century’s intellectual property. (yeah, that’s the same NRC)
From HTFBSN’s CEO interview in November 2013: (we made the highlights)
We own most of the IP licensed to BAT. Of the 28 licensed patents/patent applications, we outright
own 23 of them. For the remaining 5, we are the exclusive worldwide licensee from the National
Research Council of Canada, Plant Biotechnology Institute (NRC). Sure it is somewhat better to
own patents than to license them in for a few reasons that I won’t get into here, but it should not
concern anybody in our case. We have a rock solid agreement with NRC and have a great
relationship with them.
THIS IS THE NUGGET!
All things considered, now let’s take this press release from October 2011 where NRC (XXII’s IP
partner) announced that they have sequenced the draft genome and transcriptome of a
marijuanaproducing Cannabis sativa strain known as "Purple Kush."
The team identified transcription patterns involving the production of the psychoactive compound
9tetrahydrocannabinol, or THC.
A couple of things readers must first know here: Marijuana comes from the plant Cannabis Sativa
and THC is the component used for medicinal purposes (it’s also the thing that gets you high)
Many of marijuana’s effects (including its psychoactive or mindaltering properties) stem from an
ingredient called delta9tetrahydrocannabinol (THC), which resembles a chemical that the body and
brain make naturally
"Selective breeding has produced cannabis plants for specific uses, including highpotency
marijuana strains and hemp cultivars for fiber and seed production," they wrote.
Hmmm, don’t we know a company that is making a high potency (nicotine) tobacco cigarette?
the researchers concluded. "Its availability will further the development of therapeutic marijuana
strains with tailored cannabinoid profiles and provide a basis for the breeding of hemp with improved
agronomic characteristics.
In essence, could XXII ALSO get into the business of modifying the amount of THC in cannabis
(marijuana) to produce cigarettes for both enjoyment and medicinal purposes?
It’s no secret that Big Tobacco is trying to get into the marijuana space. Did you know that Altria, the
parent company of Phillip Morris, recently bought the Web domain names “AltriaCannabis.com” and
“AltriaMarijuana.com?”
Equally important, XXII has landed in BAT, the world’s 2nd largest tobacco player as a licensee.
In summary of our marijuana pondering
Chardan puts a whopping $9 price target on 22nd Century, and they hint about other plant genetics
XXII may have. The NRC, which “Big Puff” states they already have a great relationship with, have
discovered a way to regulate the amount of THC in cannabis. On a related front, the F.D.A. is
opening the gates to other medicinal purposes for marijuana. In addition, 22nd Century has been
working with the F.D.A. for nicotine/tobacco research. Ultimately, Big Tobacco has been trying to
enter the marijuana space and XXII has the world’s 2nd largest player as a partner.
Once again, as HTFBSN has written in the past, we could see 22nd Century creating ANOTHER
subsidiary for a marijuana division and having TWO types of licensing revenue streams! One from
tobacco companies and the other from pharmaceutical companies.
But wait, there’s even more!!!
Upon doing some more sleuthing into one of XXII’s patents , we uncovered this:
"Illustrative plants that can be engineered in accordance with the invention include but are not limited
to tobacco, potato, tomato, eggplant, green pepper, and Atropa belladonna"
A little more digging turned this up… Atropa belladonna or Atropa belladonna, commonly known
as Belladonna or Deadly Nightshade, is a perennial herbaceous plant in the family Solanaceae,
native to Europe, North Africa, and Western Asia. The foliage and berries are extremely toxic,
containing tropane alkaloids. These toxins include scopolamine and hyoscyamine, which cause a
bizarre delirium and hallucinations, [1] and are also used as pharmaceutical anticholinergics.
The drug atropine is derived from the plant.
Now one just has to ask themselves; what other plants, not just in nightshade family, can be used
with the invention? We believe that cannabis could only be the beginning. Consider this for a
moment, the pharmaceutical benefits of regulating a variety of plant species could be enormous!
But that’s still not all, as this is also mentioned in the patent:
"For biofuels to replace a sizable portion of the world's dependence on nonrenewable energy
sources, coproducts, such as Rubisco, are required to help defray the cost of producing this
renewable energy. Greene et al., Growing Energy. How Biofuels Can End America's Oil
Dependence; National Resources Defense Counsel (2004). Thus, the greater reduction in
nicotinic alkaloids in tobacco, the greater the likelihood of a successful tobacco biomass
system."
Could biofuels be yet another avenue they will pursue someday?
Once again, we stress that we are SPECULATING WITH
ALL OF THIS PLANT GENETIC SUMMARY
More goodies from 22nd Century
In reading that November 2013 interview again, we thought this quote from “Big Puff” was very
apropos and welcomed.
“As CEO, I take full responsibility for the mid to longterm share price and I expect management to
continue to execute our business plan”
CEO or Chief EXECUTive Officer. Executive is one who has the task of executing. On June 10,
2013, in a press release, XXII released a company outline. This company has been executing (in
things that they can control) on each item they discuss. As referenced in the beginning of this issue,
institutional money makes a stock Big… period! Obviously, HTFBSN subscribers are witnessing
a stock become Big right in front of their eyes, due in large part to management’s execution and the
resulting institutional interest that comes along with that execution.
Why yes, we do read the 10K for the nuggets… more goodies
1.
We believe that the tobacco industry is at the beginning of a paradigm shift towards the
development and commercialization of reducedrisk tobacco products which represent a
significant step toward achieving the public health objective of harm reduction. Our 15 years of research
and development on the tobacco plant, mainly on the nicotine biosynthetic pathway, uniquely
positions us to become a major benefactor of this paradigm shift developing in the tobacco
industry. Our technology has created, and will continue to develop, a pipeline of products
2.
The basic techniques include, but are not limited to those that are used in the production of genetically
modified (“GM”) varieties of other crops, which are also known as “biotech crops.” However, our
proprietary technology can also be implemented without the resulting plants being GM, as long as no
foreign DNA (not inherent to a plant species such as Nicotiana tabacum ) is present in the engineered
plant.
3.
The top biotech crops in order of hectarage are the following: soybean, maize, cotton, and
canola. Alfalfa, sugar beet, papaya, squash, poplar, tomato, sweet pepper and tobacco are other
biotech crops grown in 2012.
4.
During the development of geneticallyengineered plant varieties, many candidate plant lines are
evaluated in the field in multiple locations over several years, as in any other variety development
program. This is carried out in order to identify lines that have not only the specific desired
trait, e.g., very low nicotine, but have overall characteristics that are suitable for commercial
production of the desired product. This process allows us to determine if there are undesirable
effects of the genetic modification approach or the specific genetic modification event, regardless of
whether the effects are anticipated or unanticipated.
5.
Our patent coverage in the United States and China, two of the most valuable smoking cessation
and cigarette markets in the world,
6. We believe that BRAND A and BRAND B will qualify as Modified Risk Cigarettes and we intend to seek
F.D.A. authorization to market BRAND A and BRAND B as Modified Risk Cigarettes. We believe that
our BRAND A and BRAND B cigarettes will benefit smokers who are unable or unwilling to quit smoking
and who may be interested in cigarettes which reduce exposure to certain tobacco smoke toxins and/or
pose a lower health risk than conventional cigarettes. This includes the approximate onehalf of the 44
million adult smokers in the United States who do not attempt to quit in a given year
And if that weren't enough, in a June 16, 2010 press release, Dr. David Kessler, the former F.D.A.
Commissioner, recommended that “the F.D.A. should quickly move to reduce nicotine levels in
cigarettes to nonaddictive levels. If we reduce the level of the stimulus, we reduce the craving. It is
the ultimate harm reduction strategy.” Shortly thereafter in a Washington Post article, Dr. Kessler
said, “the amount of nicotine in a cigarette should drop from about 10 milligrams to less than 1
milligram.” 22nd Century’s BRAND A contains approximately 0.7 milligram of nicotine per
cigarette
Additionally, there’s more talk saying that experts increasingly contemplate the end of smoking: link
Conversely, we then find out that cigarette companies have been making cigarettes even MORE
addictive. From NY Times
It was a shock to learn from the latest Surgeon General’s report; that because of changes in the
design and composition of cigarettes, smokers today face a higher risk of lung cancer and chronic
obstructive pulmonary disease than smokers in 1964, despite smoking fewer cigarettes. It is equally
shocking to learn now, that some of today’s cigarettes may be more addictive than those smoked in
past years. This is most likely because the manufacturers are designing them to deliver more
nicotine to the lungs to induce and sustain addiction. That devious tactic requires a strong response
by regulators.
Those provocative findings will need to be verified by other experts, but are consistent with the
Surgeon General’s report. That report, issued on January 17, found that some of today’s cigarettes
are more addictive than those from earlier decades. Furthermore, this report was based on the
findings of a Federal District Court Judge in 2006, who had access to industry documents spelling
out how cigarettes were designed to make them more addictive.
Now on to our more on this subject later section...
Destiny Media Technologies DSNY
Getting back to this issue’s introduction, and with those initial statements considered, we highlighted
Destiny over two years ago with their news of a crossplatform video solution. At the time, it carried
our preferred market cap of approximately $25M and went on to subsequently achieve that $100M
valuation; thanks in large part to the CEO’s July 16, 2013 conference call recapped with pertinent
quotes as follows:
From our August 2013 issue
_______________________________________________________________________
Was it something I said?
This past quarterly conference call was the first time CEO Steve Vestergaard gave a timeframe for a
product launch AND for revenue growth. We think it was some of the following statements that made
institutions sit up and take notice.
one of the most important quarters in the company’s history
we expect it (G2) will catapult us across the chasm to become a much larger company
contribute hockey stick revenue growth almost out of the gate
personally expect the impact on Q1 to be significant solving a huge problem (cloud encoder)
should start contributing right out of the gate
revenue ramp will come with the Cloud Encoder and that comes in early 1st Qtr
When he classified G2 as “the YouTube for business”, we think he did a great job of
summarizing this disruptive technology.
We also got a better handle on DSNY’s revenue potential when he said, “$1M to $5M is the potential
revenue per licensee”.
_______________________________________________________________________
With these comments for investors and institutions to favorably digest, Destiny proceeded to rocket
up to their $100M valuation by the end of July 2013. However, fastforward to the beginning of
October and HTFBSN threw up the first real red flag for subscribers in our TWENTYONE months
of coverage for DSNY to that point… as follows:
From our October 2013 issue
_______________________________________________________________________
And Now Our Take...
… The company said a launch would occur sometime in their 1st quarter, which ends November 30. The
company also promised a media blitz starting in early September, but we have yet to see one story about
the upcoming product.
Our Biggest Beef With DSNY
In the last year, the company has been appearing at numerous investor conferences pitching the upcoming
G2 product. In our opinion, all that has done is create an even larger audience of investors that realize
Destiny fails to meet their changing timelines. Rather than spend time and effort pitching investors about an
upcoming product, we would rather see them stay at home and complete the product! If there is such
“overwhelming interest” in this product and revenues should “ramp immediately”, shouldn’t the priority be
on COMPLETING the product?
HTFBSN has been extremely patient with this company. With that being said, even our patience has a limit.
There is much smarter money that is still sitting on the sidelines. For right now, there appears to be NO
URGENCY to own DSNY, but of course that could change on a dime with the longawaited launch of
Clipstream G2. We harken back at this point to that iconic catch phrase in relation to the muchanticipated
G2…”where's the beef?”
From the CEO’s lips last week, “we’re expecting the first product is going to launch mid October”.
You, us and a bunch of funds will be relieved when it finally happens.
_______________________________________________________________________
As fate would have it, DSNY continued their meteoric climb, actually hitting an intraday high
of $2.90 on October 24 in anticipation of what was then, only a weeklate first product launch
according to the CEO at that point. However, it was after this day HTFBSN believes investor
confidence in management’s execution really started to waiver for the first time, upon the
realization yet another timeline would not be met. This erosion continued even though
Destiny (FINALLY) launched the first product at the very end of November, clearly evidenced
by not being able to recapture the previous share price zenith of $2.90. Our red flags to
readers continued with January and February’s issues as follows:
From our January 2014 issue
_______________________________________________________________________
… With that being said, we are still very confident in the potential of the Destiny toolkit, but it is the
management team’s ability to add a period to those numerous forward looking statements this year that we
are starting to have some concerns with. Moreover, it is their inability to monetize ALL of the tools in their
“toolkit of technologies” that we are having such a hard time with. Management just doesn’t seem to have
any sense of urgency. It is our opinion that just the ability to “lock” a piece of digital content to a specific
device alone, is worth more than company’s current market capitalization! Yet that “tool” just sits in the
DSNY garage collecting dust.
_______________________________________________________________________
From our February 2014 issue
_______________________________________________________________________
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 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 threetofive
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.
… 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.
We also expressed how upset we were with management.
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.
Typically, when HTFBSN first starts to accumulate or follow a new company, we don’t put much weight in a
stock’s chart... 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’s usually a Big indicator of what’s really going on.
Accordingly, DSNY’s daily chart is under BOTH the 50day and 200day 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.
_______________________________________________________________________
Additionally, if the above example was not enough evidence, in the last 30 days Destiny’s chart
formed a “death cross” pattern. That is when the 50 day moving average goes BELOW the 200 day
moving average. This is typically a very bearish chart pattern.
Based on the various emails received concerning these reports and DSNY updates on our member
site, investors have become highly emotional with this investment… and clouded emotions are
never a good thing when it comes to investing. As alluded to above in our February HTFBSN , a
company’s stock chart takes the emotion out of investing. As can be seen, Destiny’s chart
started to turn over several months ago. We have been warning subscribers that they needed to pay
attention. We don't know how much more our team could have highlighted the concerns with DSNY,
beginning with the October issue, as manifested by this resulting chart turnover.
The increase in market cap from approximately 25M to 140M was on the expectation of G2 revenue,
which the CEO enthusiastically talked about in his July 16 conference call. The truth is, Destiny
generates the same amount (actually slightly less) revenue as when we first highlighted it over TWO
years ago.
So this begs some questions. Some difficult, and others not so much in our opinion:
1. How did we get from that oh so promising July 16, 2013 conference call to here?
2. Why have there not been any research reports on DSNY since the launch?
3. Why in over two years is HTFBSN the only coverage of Destiny?
4. Where are all the umpteen institutions visited by the CEO over the past year’s support at?
5. For those who have been criticizing HTFBSN, ask yourself if you’re really mad at us or DSNY?
6. On February 27, it will be TWELVE WEEKS since Destiny launched Clipstream. Are we really being “too
impatient” expecting some kind of publicity or thirdparty validation of the product?
As technologically brilliant as Destiny’s CEO is, we refer back to the beginning of this missive.
Simply execution, or in this case the lack thereof on management’s part has derailed progress on
many fronts (toolkit, revenue etc...) and share price wise, would be one of our top answers. Although
nothing has changed with the immense potential of the DSNY toolkit that we have written extensively
about the past twentysix months, we cannot and will not accept management’s lack of execution in
monetizing it.
It is primarily for these reasons that HTFBSN will no longer cover Destiny.
By the same token, our readers know we stopped covering BKYI, MKTY and VSUL in 2013 as well.
Moreover, we also fielded lots of criticism last year on the significant shortterm headwinds that XXII
was facing as one of our highlighted companies, which they have subsequently overcame and then
some!
In the final analysis, we can shine the spotlight on our highlighted companies, but we cannot make
them execute and perform. Unfortunately, HTFBSN gets paid for our performance and quite frankly,
we are not happy with the return on our money and investment of time in Destiny. After all, they
were our very first highlighted company and we have given them beyond fair coverage for over two
years; more than any other company to date.
In conclusion, we also want to make it crystal clear that we are NOT discontinuing coverage of
DSNY because of our “Transparency Alert” this month.
In fact, if/when G2 does generate traction, we may decide to revisit DSNY. In the meantime, there
are other companies that we want to spend our valuable research time on and potentially highlight.
All things considered, we would much rather find sub$25M market cap companies with
breakthrough technology, than sit and wait to see if institutions have interest. We wish Destiny’s
executive management and investors nothing but the best and every success moving forward.
We have been doing quite a bit of traveling meeting with potential Big Stocks and yes, last month we
hinted that we may have a new one coming. The truth of the matter is, we are having a VERY hard
time finding any company that has Bigger potential than our Big 2. Of course, we look for a
very high disruption ratio in our potential highlighted companies. “Cigs” has the ability to disrupt a
$700B a year market and ”Spiffy” can disrupt a $100B market TODAY, that is expected to grow to
$1T within 10 years. Let’s face it, those two market opportunities are about as Big as they get. There
are some other Big waves, but HTFBSN only looks at companies that have the competitive
advantage in them. We then highlight them ONLY when we think the wave is starting to break. That
simply means we want to find a situation that has the ability to deliver AT LEAST a tenfold return on
our investment. We see lots of potential 510 “baggers”, but only want 10bagger plus ideas. For this
reason, there is one company that we like a lot, but they are not quite ready to be highlighted yet.
until next month...
Scott P. Shaffer
(aka Vangorilla and The Pondering Primate)
Michael Keaton
Associate Editor & Director of Research
(montani semper liberi)
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