Dow Jones 13266.86 -206.71 1:02 pm PDT, July 27, 2007 NASDAQ 2576.68 -22.66 For info, visit access.smallcapnetwork.com S & P 500 1459.11 -23.55 Change your subscription status here Russell 2000 783.25 -8.23 VOLUME 07 : ISSUE 73 Is This Small Cap Ripe, Ready To Be Picked? I really hope everyone is using this lazy summer as an opportunity to become shareholders of your newest favorite companies - and small caps in particular. Some of that fruit is ripe and ready to be picked, while other stocks are on the verge. If you haven't collected your small cap harvest yet, we've got one you may want to jump on. Like a real fruit tree though, you don't want to wait too long to pick it.  As many of you might recall, I still expect a rotation to play out in the foreseeable future, where large caps lose their luster and small caps benefit from redirected investment dollars. So truth be told, I'm kind of glad we're seeing some of the better small cap names just move sideways for now. Why? It's a chance for you to step in and become an owner and not have to fight for a great price.  I made this point about Smart Energy Solutions (OTCBB: SMGY) on Wednesday, after observing several weeks of range-bound trading (and more recently, some subtle upside hints). I believe the exact same point can be made today about Clearly Canadian (OTCBB: CCBEF). CCBEF shares are basically where they were at the beginning of the year, but during that time, I feel the stock, as well as the company itself, have been giving subtle clues of much better days ahead.    Clearly Canadian's Numbers Behind The News The company certainly hasn't been lacking in the news department lately. It's all well and good, but you know as well as I do for serious investors (like yourselves), it's really all about the numbers.  The hard part is, all the recent acquisitions and revamps make it difficult to really compare apples to apples. I'll try and get it all laid out today though. For their most recent reported quarter (their Q1, ending March 31st), Clearly Canadian posted sales of $1.4 million. That was better than the previous quarter's $1.0 million, and less than last year's Q1 total of $1.7 million. For perspective, Clearly saw about $7.4 million in revenue last year.  Frankly, I was surprised they did as well as they did. Remember how they dumped their old distribution network and started to build one of their own from scratch? That's reflected in this quarter's numbers. In the long run it's a better option to develop your own distribution channels, but in the short run it can take a bite out of sales.  Fortunately, the impact of reworking the distribution network was somewhat offset by DMR Food Corporation's sales. In fact, more than half of a million bucks worth of the sales total came from DMR's organic foods, and the company didn't even get to count a full quarter's worth of DMR's contribution. DMR profitably did about $3.8 million in sales during their last fiscal year, or roughly $900K per quarter that will now be added to Clearly's results.  In the meantime, Clearly also bought My Organic Baby. Those sales are not reflected in the Q1 figures at all, as the acquisition didn't occur until May. My Organic Baby did about $1.3 million in business last year, and was also profitable.  So by my count, the combined companies should be doing somewhere around $11 million per year, assuming sales stay flat. The good news it, they're not - they're growing. Taking advantage of several new distribution channels, Clearly Canadian expects to improve My Organic Baby's sales by 350% in 2007. That works out to be about $4.5 million in baby food revenue, or $1.1 million per quarter. And yes, it's possible for this to happen - the number of stores carrying the line is likely to quadruple now that it's part of the Clearly Canadian family.  And it's not just baby food on a roll. Many of the company's major products (food as well as drink) are now in leading grocery and natural food stores - something the company never had before. Clearly expects this to add an extra $4.5 million in revenue in 2007.  Even without knowing the specific growth rates of their water and organic food lines, the minimum grand total still seems impressive to me. My guess, based on the numbers above, is an annual sales figure of at least $13.0 million just for starters. This is a vast improvement on last year's $7.4 million - when it was just a water company. The cash flow will help, and considering DMR and My Organic bay were profitable, I think Clearly Canadian is on solid footing.    Gettin' From Here To There You don't need me to tell you the two acquisitions weren't free. However, I don't know if a complete picture of the true financial cost was defined until this latest SEC filing. I was braced for the worst, and ended up being pleasantly surprised.  According to their last 10Q, the remaining financial obligations resulting from the two acquisitions only add up to about $5.1 million. Considering the revenue/cash flow potential both new divisions bring to the table could make Clearly Canadian a $13+ million company, the obligations actually seem pretty manageable.  More than that, the obligations are scheduled to be whittled way through 2011. The total due in 2008 is $2.7 million, and the number gets smaller each year. The last potential payment would be $275K in 2011. After then, it's history. And don't forget, if the stock does well, they both may be 'self-financing' buy-outs.  The point is, the top line is already starting to move higher, and the acquisition expenses are scheduled to shrink over the next five years (the cost of goods and general expenses seem to be mostly fixed). I know the company took on a lot of obligations to get from point A to pint B, but the pay-off schedule doesn't seem bad at all - there's an end in sight with enough cash and cash flow to cover it. Personally, I'd rather be an investor closer to their point A, where we basically are now, rather than their point B.  And yes, I think investing in the stock also has a point A and point B, largely reflective of the company's current results and future potential.  I'm drawing the range boundaries here between $2.62 and $3.00 - those lines catch the most highs and lows over the last few months. To some degree the waffling may be understandable. Clearly Canadian is a company in flux, and like I mentioned above, it's been hard to get a bead on what the new and improved organization will look like. Based on these lines though, I think a move above resistance at $3.00 will have very bullish implications. However, regardless of the trading range, we've also seen a longer-term pattern of higher highs and higher lows.  The other thing about this chart....check out all the major moving averages. They're all within about 15 cents of each other - a testament to the consolidation mode we're still in. However, knowing periods of stagnation are followed by periods of big movement, I equate this conflux of moving averages to a microwavable bag of popcorn. It's in the microwave and heating up, but no popping yet. Once it gets started popping though, it could pop quite a bit in very little time. Just a thought.  So any interested investors should wait? Not necessarily. My summer theme has been 'own good stocks while nobody else seems interested', and that theme still applies today. The reason is simple - I just wouldn't want to take a week off away from the market only to come back and see CCBEF trading at $3.70 without owning some.  We all saw the numbers above. Once all the noise/news is scraped off, I personally found them to be very encouraging - possibly more so than most people realize. Once the rest of the market starts to assemble all these pieces and parts, I have to think they'll be inspired too. That's why I'm a fan of doing something sooner instead of later...there may not be an opportune time later.     We Value Your Feedback   Got comments, questions or suggestions? Send 'em on over: Email the Editor If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402 San Diego, CA 92130 Subscribe Information is power and timely information is profitable. Become informed and profit from Small Cap Network Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. 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