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I only look at stocks that have the possibility to double over a twelve month period and stocks in which the risk/reward ratio payout is high. In addition I focus on swing trade opportunities. I focus more on valuations and risk/reward metrics as opposed to what make companies tick. I have been... More
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  • An Undiscovered Micro-Cap For The Next Ten Years

    It's not everyday investors come across companies with good ideas that have the possibility for above average returns. In fact, most investors that hit it big owning stocks, usually do so by accident.

    However stock picking is a game of probabilities. So when we do come across a stock that has the potential for above average growth, then we have to look at it very closely.

    Wellness Center USA (OTCQB:WCUI) was introduced to me by a friend some time ago and I have been following it ever since. However, recent developments plus the fact that the stock recently hit an all time low, warrants that I bring it to your attention.

    (click to enlarge)

    Wellness Center is a micro-cap company that has three main business. In this article however I will only focus on two of the company's divisions, that I think are the most promising. These are Psoria-Sheild, that provides Advanced UV Phototherapy treatment for Psoriasis, Eczema, and Vitiligo, and StealthMark, that provides brand protection and counterfeiting solutions for companies.

    Psoria-Shield

    Psoria-Shield provides treatments for skin disorders such as psoriasis, eczema and vitiligo via targeted UV phototherapy. The company's main product Psoria-Light®, delivers high dosages of Ultra-Violet (UV) light to affected skin using deep UV LEDs, as opposed to excimer lasers or mercury gas lamp light sources.

    Psoria-Light® incorporates several patentpending features, such as advanced safety features and an innovative digital camera. These integrated features make it easier to track patient sessions, graph treatment metrics, and record and store digital, improving the flow of treatment for healthcare providers.

    A wide-screen color display with touchscreen control assists patient and healthcare provider visualization of treatment and patient records. All data, including images, are stored in permanent memory and can be exported to USB memory and in PDF format for printing and storing on clinic computers.

    The Psoria-Light® device is the first DEEP UV LED phototherapy device in the world, because it is the only one that can deliver laser-like power in the form of UV light. Delivering laser-like power in the form of UV light to affected areas only, is the most effective and safe form of treatment for several skin disorders.

    (click to enlarge)

    The advantages of Psoria-Light® are:

    • Highly Effective, Pain-Free Results Powered By LED
    • Standalone Device For Both NB-UVB & PUVA
    • Private Insurance & Medicare Reimbursement
    • Plug and Play - Move Psoria-Light® from room-to-room using standard wall power. In fact doctors can even use take Psoria-Light® mobile in their car or van and treat patients on site.
    • Psoria-Light® does not require a special laser room, laser certifications or a specially trained operator. Psoria-Light® thus has a big cost advantage over competing Excimer leaser products.
    • Standard CPT Codes for NB-UVB and PUVA
    • Covers Treatment and Maintenance Phases
    • No Insurance Pre-Authorization
    • Insurance Covers Psoriasis, Eczema, Vitiligo, and More.
    • FDA Cleared

    What the doctor ordered

    The main advantage of Psoria-Light®, from a business and financial prospective, is the significant lower up-front purchase cost and annual maintenance fees. Psoria-Light® is estimated to retail for $45,000 and the annual maintenance fees are around $4,000. Excimer lasers on the other hand cost north of $100,000 and the annual maintenance fees are around $15,000.

    This not only lowers the cost barrier for clinics and doctors who do not offer phototherapy treatment today, but also reduces the initial cost and maximizes investment return over the long term. In fact the company estimates that doctors and clinics would recoup their initial investment in 5-6 months time period.

    About twelve percent of the world's population, or 700 million people have reported psoriasis, eczema, vitiligo and alopecia areata. According to estimates by the company, skin disorders account for a $22 billion global market, with the U.S. accounting for about $ 4 billion.

    On January 15, 2015, WCUI announced an agreement with The Medical Alliance Inc. (TMA) to produce and commercialize Psoria-Light®. According to the terms of the Joint Venture Agreement, the relationship between WCUI and TMA commences immediately. WCUI and TMA have formed an Illinois company, Psoria Development Corp (PDC) to manage the operational side of the business, including; product manufacturing, sales & marketing, customer support & services, and all future research and development of new features and applications. PSI remains a wholly owned subsidiary of WCUI and shall account 100% of sales revenues. WCUI and TMA, the two equal members of the JV will be compensated through sales performance and market value of PSI.

    TMA is an established multi-tiered organization that has substantial experience and expertise in developing, manufacturing, and marketing technological and IP based products. It has vast experience and knowledge with LED's, lasers and LED based phototherapy technologies and strong relationships with national manufactures and distributors, domestically and internationally.

    With this agreement, not only has WCUI created a production, sales, customer service and marketing venue, but it also brought on board an expert team in the medical devices business, that has extensive manufacturing experience and agreements with major medical device distributors. TMA will be compensated based on performance, so it's like hiring an entire team of experts with vast industry experience without the upfront expense of such an undertaking.

    Big catalyst for WCUI around the corner

    In 2013, there were an estimated 16,000 dermatologists and 7,800 dermatology practices in the US, according to IMS Health. The company will get a feeling for how the dermatological crowd feels about Psoria-Light® very soon.

    Psoria-Light's debut recently took place at the American Academy of Dermatology's 73rd meeting. Why is this important? Because The American Academy of Dermatology is the largest, most influential, and most representative dermatology group in the United States. With a membership of more than 17,000, it represents virtually all practicing dermatologists in the United States, as well as a growing number of international dermatologists. Last year, the 72nd Annual Meeting hosted by AAD drew more than 15,000 attendees and featured world-renowned leaders presenting their studies in the field of dermatology.

    Psoria-Light® will be put to the test in this meeting and we will soon get a feel for how the product will be received by the dermatology community. And with the creation of the Joint Venture with TMA, the company is in a position to be able to produce and deliver product. In fact WCUI believes that it's "on track" to begin production in Q2 of 2015, and think it can deliver revenues of $10 million+ with a return of $2 million EBITA.

    StealthMark

    The next division of WCUI that I would like to introduce is Stealth Mark (NYSE:SMI). SMI is a global product authentication solutions provider that offers advanced product security technologies within the security and supply chain management vertical sectors.

    SMI provides customers brand protection from counterfeiting and diversion while maintaining the integrity of product authentication. StealthMark solutions are based upon encrypted microparticle technology, supported by a state of the art suite of tools comprised of readers, scanners, and proprietary software that can be used in various environments, including smartphones. Further, StealthMark's technology is protected by five issued patents and several pending.

    Before you continue reading, I think it's prudent to take the time and see the video below from CBS, on the issue of counterfeit products around the world. In fact the problem of brand and product counterfeiting is becoming epidemic around the world, with an emphasis on pharmaceuticals.

    the original video is here

    youtu.be/6Djftj0bwus

    According to the CBS video above, medical counterfeiters make about 75 billion dollars per year manufacturing fake prescription medicine, that pose health risks to those who are fooled into taking them.

    This is exactly where SMI fits in. In the fight against counterfeiting brands and products, WUCI's 100% subsidiary has the technology, the patents and the know how to take advantage of this soon to be thriving sector.

    Stealth Mark has five main businesses:

    Security Labeling - security label and seal products integrate embedded-in encrypted microparticles with advanced security print technologies. All products utilize holographic imagery, microprinting, serialized barcoding and UV printing.

    Direct Marking - non-label application methods custom tailored to specific needs, such as the direct application of particle marks to products or items, or the specialized marking of bulk materials. These type applications can usually be implemented seamlessly into current processes as the technology requires little in the way of equipment and training.

    Asset Protection - products designed specifically to provide forensic level proof-of-ownership of items, products, or valuables. Easy-to-use authentication available for use in either consumer or commercial applications.

    Analysis Tools - StealthFire software tools, readers, and accessories that make the process by which a marked item, product, or material is authenticated, is simple and easy. Validate code anywhere, anytime. No need for lost time waiting for lab work or expensive testing.

    Consulting Services - Consulting services to assist in designing a solution that will provide solid security to brands with minimal disruption to current processes.

    Due to the fact that WCUI is in the medical devices business, it has decided to focus on pharmaceutical counterfeiting. It makes sense and besides, it is probably the most lucrative business within the sector.

    One of the problem many companies have when attempting to incorporate technologies that will prevent fraud and counterfeiting, is that they literally have to revamp their entire production facility. That's where SMI comes. SMI has the advantage because companies do not need to overhaul their production. SMI has agreements with existing solution providers, so incorporating an authentication solution to products and brands does not require a complete overhaul of production methods or facilities. As an example, bar codes can be replicated, however bar codes with embedded microparticles in the label or on plastic film can not.

    The question is, what might be the catalyst that might propel SMI's business, that in turn might propel WCUI's stock? The answer is the need for brand protection and government regulation.

    Stealth Mark's catalyst for growth

    In 2013, Congress passed and President Barack Obama signed into law the Drug Quality and Security Act (DQSA). While the law is perhaps better known for its extensive pharmaceutical compounding reform provisions, it also contains another major component formally known as the Drug Supply Chain Security Act (DSCSA).

    The purpose of the Act is to facilitate the exchange of information at the individual package level about where a drug has been in the supply chain. The new system will:

    •enable verification of the legitimacy of the drug product identifier down to the package level;

    •enhance detection and notification of illegitimate products in the drug supply chain; and

    •facilitate more efficient recalls of drug products.

    Drug manufacturers, wholesale drug distributors, repackagers, and many dispensers (primarily pharmacies) will be called on to work in cooperation with FDA to develop the new system over the next 10 years.

    Among key provisions implemented over the next 10 years are requirements for:

    •Product identification: Manufacturers and repackagers to put a unique product identifier on certain prescription drug packages, for example, using a bar code that can be easily read electronically.

    •Product tracing: Manufacturers, wholesaler drug distributors, repackagers, and many dispensers (primarily pharmacies) in the drug supply chain to provide information about a drug and who handled it each time it is sold in the U.S. market.

    •Product verification: Manufacturers, wholesaler drug distributors, repackagers, and many dispensers (primarily pharmacies) to establish systems and processes to be able to verify the product identifier on certain prescription drug packages.

    •Detection and response: Manufacturers, wholesaler drug distributors, repackagers, and many dispensers (primarily pharmacies) to quarantine and promptly investigate a drug that has been identified as suspect, meaning that it may be counterfeit, unapproved, or potentially dangerous.

    •Notification: Manufacturers, wholesaler drug distributors, repackagers, and many dispensers (primarily pharmacies) to establish systems and processes to notify FDA and other stakeholders if an illegitimate drug is found.

    •Wholesaler licensing: Wholesale drug distributors to report their licensing status and contact information to FDA. This information will then be made available in a public database.

    •Third-party logistics provider licensing: Third-party logistic providers, those who provide storage and logistical operations related to drug distribution, to obtain a state or federal license.

    According to the FDA commissioner in the video above, about 40% of the drugs consumed in the U.S. come from overseas, and about 80% of the active ingredients for medication that is manufactured in the U.S. come from other countries also. In Baxter International's case (in the video above), little did they know that the main ingredient for one of their blood thinners, that was imported from China, was counterfeit. In this particular case, about 80 people died after taking this medication in the U.S. alone.

    Stealth Mark's Window of opportunity is just beginning

    Think of this, over the next 10 years or so, the entire pharmaceutical industry has to confront to the FDA's Drug Supply Chain Security Act. This means that many companies have to scramble to find ways to conform to these new rules. And guess what, SMI is right in the middle of all of this. SMI has the patents, the know-how and the tools to be able to cater to entire industries.

    The company claims they have the best authentication solutions in the industry. Now I don't know if they have the best technology and solutions, but what I can tell you is that it really doesn't matter. The authentication and anti-counterfeit business will be so huge, that even if SMI takes a small piece of the sector, given its current size, could mean handsome profits for current shareholders.

    In other words, the window of opportunity for SMI to capitalize on authentication solutions is just beginning. And because SMI has a complete array of tools and solutions for entire sectors and industries, it is well positioned to take advantage of this soon to be thriving sector.

    Stealth Mark is not only about drugs

    While I have focused on the drug sector as the main catalyst for MSI's growth potential, the truth is that the company's products span entire sectors, industries, and product categories, too many to mention in this article.

    For example the company's intelligent microparticle technology is well suited for the Art industry because it provides unbreachable security, accurate reference data, unique combinations of covert and overt markings, and track and trace capabilities that can be used on highly valuable pieces of art and objects such as paintings, ancient artifacts, sculptures, historical documents, and more.

    Last year MSI signed a brand protection agreement with Aveda, a division of Estée Lauder (NYSE: EL), for the use of Stealth Mark's integrated security products and services within Aveda's supply chain. Aveda produces an extensive variety of high-end, environmentally friendly personal care products, marketed and sold on a global scale. The integration of Stealth Mark's detection technologies within Aveda's supply aims to identify unauthorized diversion activities, assuring Aveda products are available only through Aveda authorized salons and outlets. Stealth Mark's state-of-the-art anti-diversion technology protects over seventy Aveda personal care products from possible illicit sales into unauthorized outlets.

    Recently MSI singed an agreement with The Center for Art Materials Analysis, Inc. (CAMA), that offers expert chemical analysis of paintings and objects for the collector, dealer, gallery, conservator, appraiser, auction house, or historian. This depth of expertise, in conjunction with the unique technologies of Stealth Mark, will position CAMA in the forefront of employing unique, secure, and accurate methodologies for assuring transactions of highly-valuable pieces of art, such as paintings, sculptures, artifacts, prints, documents, and more, remain free from fraud and deception.

    Investment case

    What kind of a value can an investor put on a company like this? Unknown. However if this company is even partially successful in delivering results, I think we can all agree that we could put some big fat number on the market cap of this company in the future.

    The other question is, what is the market cap of the company today and what can we expect to gain, if we buy this stock based on what we think it might be worth in the future? If the market cap today already discounts what might happen in the future, then our profit (if any) will be less, than if the market hasn't discounted anything by bidding up the stock.

    Judging from WCUI 's current market cap, which stands at around $7.5 million (as of the writing of this article, March 23,2015) it is my gut feeling that the market has not discounted anything yet and this company remains totally undiscovered.

    A small example of the possibilities. In 2012 DUSA Pharmaceuticals was sold to Sun Pharma for $230 million. DUSA manufactured Levulan, a photodynamic treatment for various skin disorders, though not for psoriasis. It was on the market for about 10 years and generated sales between $60 - $100 million per year.

    WCUI believes that Psoria-Light® could be a potential $200m business in several years. Based on what DUSA's Levulan device was sold for, it is not inconceivable for Psoria-Light® to be worth several hundred million dollars in several years.

    As for StealthMark I am even more bullish. Over the next several years companies will be racing to provide authentication solutions for their production chain. On the one hand to protect their brand and their customers against counterfeiting, and on the other to comply with regulations.

    The way I see it, the possibilities over the next decade for StealtMark are endless. The authentication business will probably be one of the next thriving sectors and investors who buy into companies developing such technologies and services, will be right in the middle of the growth story.

    Let's talk risk

    First of all the company's products are fully developed and no additional capital will be needed for further development.

    What this means is that since the company didn't go out of business while it was in the development stage, it has a much higher probability to survive today and be profitable in the future.

    Second, I took the time to call the company and talked with the CEO Mr Andrew Kandalepas. I asked him on how the company was going to finance the production of Psoria-Light®, in the event that they receive a lot of orders?

    His answer was simple. He told me the margins on Psoria-Light® are very generous, so between the down payment received on every device and the purchase order financing available to the company, WCUI can produce as many devices are needed without one cent in additional capital.

    As for StealthMark, no additional capital is needed in order to sell the company's products. Only in cases where clients want a customized solution are there really any capital outlays. However the CEO pointed out that is this case the money is paid by the client upfront. So even in StealthMark's case, the company has no need for capex spending.

    While there is always risk when buying stocks, especially companies who do not have an established business model, in the case of WCUI at least, no additional money will be needed for the company to develop their products and technology.

    The risk therefore for investors deciding to buy WCUI, is that its products and services might not be received by the market. In this case, it is conceivable the company might go out of business, however this is something that can happen to any company.

    Please note the company managed to survive all this time while it was in development stage. Logic dictates that since its capex needs are negligible, the company has a good chance to survive for a very long time, even assuming that it is not successful enough in selling its products right away.

    However this is why it is such a high risk and reward proposition. If it was a fully developed company, it would not trade at its current valuation.

    Lets talk a little about additional dilution. This is one of the main issues constantly facing companies who are trying to get off the ground.

    On March 19, 2015 the company announced that it and JMJ Financial ("JMJ") have entered into a Note Termination Agreement terminating the $350,000 Promissory Note dated April 16, 2014 (the "Note") with JMJ. The Note provided a loan arrangement pursuant to which the Company could borrow up to $350,000 and also provided JMJ certain rights to convert amounts payable under the Note into shares of common stock. Pursuant to the Note, JMJ paid the Company $150,000 on April 16, 2014 and an additional $50,000 on June 24, 2014.

    As of the date of the Termination Agreement, the outstanding balance on the Note was $127,400.77. The Note did not permit the Company to repay the Note in cash any time after the 90th day from the Effective Date of each loan advance and prior to the Maturity Date, other than through conversions of the Company's shares at the sole option of JMJ. Pursuant to the Note Termination Agreement executed on March 18, 2015, JMJ has agreed to permit full repayment of the Note in the sum of $200,000 payable in two installments of $100,000 each on March 20, 2015, and on April 24, 2015, respectively. In exchange for the agreed upon premium to be paid by the Company, JMJ no longer has the right to convert any portion of the remaining loan balance into WCUI shares, unless the Company defaults on its repayment terms. As of March 19, 2015 the Company completed the first payment to JMJ in the amount of $100,000 and accordingly the balance under the Note Termination Agreement stands at $100,000 and is payable on or before April 24, 2015.

    The reason the company paid a 50% cash premium in order to terminate the note agreement, is because the share conversion rate was at a very deep discount today's share price. Therefore the company decided to raise the money via other means in order to limit the dilution to current shareholders.

    This piece of news means two things to me. On the one hand, the company has respect for its shareholders and on the other, the company believes in the future of its stock, and paid a cash premium in order not to be further diluted. Now I don't know about you, but I do not know too many companies that have done that. And going forward, because of the fact that the company might not need much, if any capital (assume sales go well), chances are that there is very little if any additional equity capital that might be needed. Which of course means limited dilution down the road.

    In addition, the CEO of the company has raised over $70 million in equity capital over the past 15 years (as per his bio), and chances are that if any additional capital might be needed to keep the company afloat, it will be found.

    Another concern I have is the balance sheet. If one looks at the latest balance sheet, he will notice that current liabilities are about $1 million more than current assets. In theory this means that the company is in danger of being a going concern.

    I asked the CEO about this and the answer was that as far as the short and long term debt, it will be reduced by $200,000 after the termination of the JMJ note (as noted above). He also said that all other liabilities are more or less loyal shareholders who have loaned the company money, and even if these liabilities are technically short term, no one will come knocking at the company's door for this money. In addition he stressed that after the termination of the JMJ note, the company owes no other monies to any banks or financial institutions whatsoever.

    However as a company that does not yet have a sales record, I too am worried about further dilution down the road. Assuming that sales of Psoria-Light® do go as hoped, I think we can expect some more capital to dilute current shareholders. However, I do not think it will be more than 20% of total shares. But then again, if the company delivers results, I think it's a very small price to pay.

    Final thoughts

    As is the case for all companies that are just getting of the ground, there is a lot of risk involved. Micro-cap stocks are for investors who understand that risk is a function of reward. If you are this type of investor, I think WCUI warrents further investigation.

    Further reading

    Will The DSCSA Cause Drug Shortages After January 1?

    FDA Guidance: Federal Efforts to Secure Supply Chain Trump State Efforts

    With Weeks Until Drug Track and Trace System Launches, FDA Issues New Guidance

    Tags: WCUI, long-ideas
    Mar 31 11:58 AM | Link | 6 Comments
  • Apple Technical Picture – Buy

    I have told you many times to sell APPL at the $700 mark. I have also told you that this is a swing trade stock and not a buy and hold stock. Lastly, I have also told you many times (see my APLE logic here) that it would be a buy at $500. As such and an a technical note, we now have confirmed technical strength for the stock.

    My hunch is that we will see resistance around $600 when we approach the 200 day moving average. That's about a 15% return from these levels. If and when we reach $600 I will evaluate the technical situation again, but for now, the stock is a buy.

    (click to enlarge)

    Tags: AAPL
    Jan 01 5:21 AM | Link | 2 Comments
  • Pay Close Attention To Apple's 200 Day Moving Average

    Whether you use technical analysis or not is not the point. The 200 day moving average is a very important technical indicator, for it tells us something about the long term prospects.

    Every since Apple (NASDAQ:AAPL) broke above its 200 day average in early 2009, it has traded above ever since, only touching twice before on the border line. This time is the third time.

    For investors wanting to buy the stock, I would wait several days or even weeks, to get a confirmation that the price action stays above the 200 day average, because if it doesn't, more than likely the stock will correct even more.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 06 4:07 AM | Link | Comment!
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