***** TECH WRECK *****Tech Wreck
StreetSignal: Small Cap Research
Editorial by Dan Deadlock
Monday, July 23
Tech Wreck - Future of CDNX & OTC tech stocks in serious jeapordy
Through the Premium newsletter we track 32 cash rich Nasdaq tech
stocks for an opportunity to quickly capitalize on any turn in the
technology sector - which if we're fortunate, may occur in September -
October. During this process a very disturbing trend is coming to light.
Of the 32 companies, at least 30 have cash balances that will keep
them alive for 18 months to 36 months at current burn rates. Business
models seem pretty decent and the Nasdaq listings provide them with
good liquidity. If these were stocks that risked bankruptcy in the
next 12 months a person could understand huge discounts on cash as the
business model is worthless if they run out of cash in the interim.
However, HALF the companies we track are trading at 50% discounts to
cash value with the majority of the others trading at 30% discounts
+/- 5%. The issue brought to light from this is the fact that you're
dealing with Nasdaq listed companies who cannot gain fair market value
for cash reserves, let alone value for their business plan,
technology, customer base, etc.
In the meantime you have hundreds of small technology stocks on the
CDNX, OTC, and Pink Sheets that are running out of cash and cannot
raise capital even at fire sale prices. Red tape alone on the CDNX
over the past year has kept countless other public companies from
trading while they execute a regulatory requirement "Change of
Business". As the tech sector collapsed these same companies saw their
share prices drop like a rock and financing which was near impossible
while the stock was halted.
Now we're watching tech stocks with a Nasdaq listing that trade at 50%
discounts to huge cash positions and business plans that are
essentially worthless in the eyes of many investors. So where does
this leave the small technology company trading on these junior
exchanges? The CDNX created an administrative nightmare for many of
their listings at the same time the sector was collapsing. The OTC is
plagued with unscrupulous market makers who make life miserable for
investors trying to speculate on the exchange. It's a rotten situation
that will only get worse this year and may soon result in an avalanche
of bankruptcies and delistings.
The situation makes it near impossible to speculate on these junior
exchanges. From our own perspective we cannot justify researching a
technology company that trades on the CDNX that might have a great
future ahead of it, IF ONLY it could raise capital. Ideas look great
on paper but what value do they really hold when we can buy a Nasdaq
Tech with $70 million in the bank for $0.50 on the dollar.
Just keep in mind that our window of opportunity this year is
shrinking down to September - October. November and December could be
worse than the summer and by that time we'll be facing a very serious
threat of bankruptcy from many of these small technology stocks. If
not bankruptcy then most will revert back to shell status after a huge
rollback that leaves the retail investor holding the bag once again.