Dow Jones 11198.81 -43.78 12:15 pm PDT, August 4, 2006 NASDAQ 2071.20 -21.14 For info, visit access.smallcapnetwork.com S & P 500 1274.55 -5.72 Change your subscription status here Russell 2000 694.98 -9.40 VOLUME 06: ISSUE 60 Speaking Clearly Here at the SmallCap Digest, our mission is two-fold. First, we strive to highlight the very best stock ideas to investors looking for the potential gains only smaller companies can provide. And second, we want to educate our readers well enough to give them a chance to consistently beat the market. Yeah, yeah, it sounds a bit like the typical 'corporate mission statement' fodder. However, in our case, they aren't just hollow words - we really do work hard to be the best resource available in both of these categories. Hopefully you agree. Now, we said all that so we could say this...regular readers know each of our newsletters typically meets either the 'idea' goal, or the 'education' goal. Ironically, though, we rarely get to combine the two missions into one newsletter. Of course, that's usually because we have one specific point to make, or a particular news item we want to feature. But when it makes sense to do so - like it does today - we're thrilled to present one of our featured companies (the 'idea') as a case study (the 'education') everyone can learn from. Specifically, we'll be looking at some of the criteria that actually make a great company...well, great. Clearly Canadian (OTCBB: CCBEF), aside from being a tremendous investment opportunity, also boasts an outstanding business model most other companies would do well to mirror. Why? In simplest terms, they're doing things the right way. Or, from an analyst's point of view, they excel at what's important to investors. With that in mind, let's examine a few key things Clearly Canadian is doing that you should also require of other companies you own. Keep in mind, while all good businesses should be working towards these minimum standards, this isn't necessarily all the things good businesses need to do.   Great Management There's an old mutual fund saying, 'You're not betting on the fund - you're betting on the fund manager'. In fact, many fund owners will move their account from one fund company to another just to follow a particular manager. Frankly, we can't say we blame them. The same idea should apply when it comes to company leadership. Great managers tend to have a long record of success behind them, even if not always in the same industry. And when a leader is experienced in the industry, then the contribution is even bigger. (Conversely, poor managers tend to do poorly no matter where they go.) Well, Clearly Canadian has built a great management and advisory team recently...a team any investor could get excited about. Although Clearly's top leaders are the crème of the crop, we're just as impressed by some of the experienced veterans that may not be in the public eye all that often. Take a look at just a few of them... Brent Lokash - President: Mr. Lokash's prior experience is in the legal field. As a lawyer, he focused primarily on corporate financing and acquisitions - experience that has paid off in a huge way for Clearly Canadian. Brian O'Byrne - Member of the Clearly Canadian Advisory Board: He's also the former president of the Yoo-hoo/Orangina Beverage Company, and currently the CEO of INOV8 Beverage Company. Leo Novosel - Director of Sales: Former Vice President of Snapple Zone, where he grew revenues in his "Zone" to over $100 million. And these are just a few of the folks steering the ship up in Vancouver, B.C. We could devote an entire newsletter to Clearly Canadian's impressive roster, which is crammed full of a 'history of success', from top to bottom. Our expectation is more of the same from the folks who have already more than proven themselves as some of the best in the business. You'd think getting the right people in place would be a no-brainer for any company. Yet, too many companies are content to stick with what will ultimately be the wrong people-chemistry, and eventually damage the success of the corporation. The fact of the matter is people do make all the difference - something Clearly Canadian clearly understands.   Growth in All Lines of the Income Statement Again, you'd think it would be a no-brainer for any company: Revenue - Expenses = Profits. It's not exactly easy to do, but it's at least simple to conceptualize. Yet, when you start digging into the accounting statements of some publicly-traded companies, you have to wonder if the basic formula above has been forgotten. More often than you might think, a company will spend $2 to sell $1 worth of product...even if there's no profit margin on the product in question. That's just crazy. Now, just to be fair, we've recommended companies before that didn't have current earnings (according to the formula), including Clearly Canadian. But remember, our initial attraction to Clearly was not in the current results, but as a turn-around story...the kind if numbers the company was going to achieve in the future. Think about it like this - the 'right here/right now' is not exactly our concern. As investors, we can't buy into the 'right here/right now' performance. We're far more (ok, only) concerned about what kind of results a company is likely to post in the future, since it's the only thing a shareholder actually gets paid for. Point being, don't over-simplify the idea. So, the question is, has the company progressed in terms of improving its entire income statement, or are some lines being improved at the expense of others? Let's see. Revenue? The 2nd quarter results have not been released yet, although they should be announced soon. But, based on what we've seen so far this year, Clearly really is on track to start increasing sales. In fact, for Q1 of 2006, we saw a slight increase in quarter-to-quarter revenue (up 2.2%). That's not a giant percentage increase, but some context is required...it's the first quarter-over-quarter revenue increase in a few years. In April of this year, Clearly Canadian posted a 33% revenue gain over April of last year. See the trend? Oh yeah, one more thing...the official re-launch of the company's flavored water product didn't occur until May 30th. Think about it...the company saw a significant sales improvement more than a month before they actually made the big push to get the word out. If they can put up a huge increase without even really trying, just think what they can accomplish when they're going full throttle. Although only a couple of quarter's results will really say for sure, we have to think, yes, Cleary Canadian is headed towards a bigger top line. Expenses? You may recall the blog entry from a few days ago - the one where we mentioned Clearly Canadian's long-term debt has been virtually eliminated. Needless to say, that's a huge help for the company's numbers. The announcement came just a few weeks after we analyzed 2005's results relative to 2004's numbers. Although last year's loss was bigger, that was primarily the result of some other financing expenses being taken off the books. And don't forget, President Brent Lokash is a former attorney who specifically focused on finance deals and acquisitions, so he knows exactly what the ideal income statement should look like (and how to get it there). As with the revenue piece of the pie, we're certain the entire company understands - and is working towards - cutting out as many of the middle line expenses as is feasible, but without hindering growth. Earnings? Remember, you can't buy historical earnings - you only want to own a stock for what it can do in the future. In that light...it's no secret Clearly Canadian has been in the red for a while, but you might want to check under the hood for the true earnings potential. Remember, revenue - minus expenses = profit. We already know revenues are improving, and expenses are in check. So, profits are likely to turn positive in the very foreseeable future. By the way, as an investor, if you wait to buy a stock until the company's official announcement about achieving the results you want, then you've waited too long. The time to own stock in a turn-around company like Clearly Canadian is now...in the middle of the turn. If you don't, you're likely to miss the best part of the gain.   Sustainable Demand Anybody know of a good horse-drawn buggy manufacturer? If there are even two on the planet, we'd be surprised. They all went out of business almost a century ago, as the automobile made getting around much easier. Carriages, and horses to some extent, became obsolete when the demand for that mode of transportation evaporated. The corporate lesson to be learned, however, is going to be applicable for all eternity...demand has to be renewable if a company expects to survive. Some industries can be re-invented, like computer chips. Although there are now enough computer processing chips (e.g. Pentium, Athlon, Celeron, etc.) to practically provide one for every human being who has access to electricity, Intel and AMD are still cranking out news ones every day to meet demand. How does demand grow for an item that has already saturated its place in society? For Intel, it's about constantly making a better and faster chip - the one you bought just a few months ago is a relic compared to the new ones. Eventually, you'll 'demand' a better piece of technology to fully utilize the power of modern technology. When processors finally hit their maximum performance levels, chip-makers won't enjoy constantly-renewed demand. Clearly Canadian is in an enviable position, since people are going to always get thirsty. Demand for the kind of product they provide will literally never go away. Of course they'll be challenged by competition, costs, and other corporate-level roadblocks. But, thirsty people are always going to reach for a drink, even when those same consumers aren't looking for a more expensive house or a luxury car. In other words, their destiny is at least in their own hands, and not reliant on what could end up being only a temporary 'fad' industry.   Genuine Interest in a Rising Stock At the end of the day, a high-performance company is nice, but shareholders are really only concerned about seeing the stock price go higher. And let's make no bones about it - great companies don't always make for great stocks (and vice versa). Yes, great fundamentals certainly make it easier to produce a technically chart, but it's never a guarantee. That's one of the great things about Clearly Canadian - they also have an active interest in getting publicity for their company as a potential investment in addition to the publicity efforts centered around their product line. For instance, in May, President Brent Lokash wrote a very open and simple letter to the general public describing the re-invented company. It was issued as a press release, for the benefit of both potential consumers and potential shareholders. A press release was also issued in July regarding the elimination of almost all of the company's long-term debt. Before that, we learned Clearly's turn-around story was going to be featured in a reality TV series, which is definitely the kind of exposure that could generate some buzz and buying interest for a company's stock. The point is, it seems like Clearly Canadian's management team is looking at the picture through an investor's eyes. Worth the effort? Yes, the stock has indeed responded, not only to the PR efforts, but also to the turn-around being staged by the company. Since hitting a low of $1.01 last September, it's been nothing but gains. The current price of $3.25 translates into a gain of 221% in a little less than a year. Even better, shares have plenty of momentum right now, as well as plenty of room to recover. Take a look at the nearby chart, and note the upside move over the last few weeks. Also note where shares are now in relation to where they were in 2002. The stock was trading above $10 just a few years ago, and if the company continues to rebuild itself - and we've already seen it can - we wouldn't be surprised to see shares reclaim the prices we saw then. Whew! OK, we know this one was a bit longer than usual, but it was worth it. As investors, it's easy to forget the bigger picture when we're just trying to sift through all the daily distractions. But, as we saw with our Clearly Canadian recommendation, sometimes you just have to take a step back to see if a company is taking care of the important stuff. For Clearly Canadian, the answer is yes.     We Value Your Feedback   Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com 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 Resistance Lines Are Still In View, Still In Play Over the last few days, we've made a handful of mentions about the resistance levels most indices were currently contending with. Although stocks put up some nice numbers two weeks ago, they also stagnated this past week when prior highs were hit again. Our take at the time was a generally bearish one - a notion that really got tested over the last few days. However, Friday's failure to make a strong follow-through for the week is a red flag. In fact, we're not surprised to see the indices close pretty much where we pegged resistance. Despite having traded above these levels on an intra-day basis, the resistance lines are still a factor. As a reminder, they are (by index): Dow Jones Avg: 11,225/11,285 S&P 500: 1280/1290 NASDAQ: 2100 (updated) Russell 2000: 705   We Said It Before, And We're Saying It Again Back on July 19th, we posted a blog entry about the bullishness we saw for auto-manufacturers. Depsite four years of absolute torture for these stocks, we saw better days ahead. At the time, the Dow Jones Auto Index was trading at 159. Today, on the heels of Toyota's Q1 profits being up 39%, the Dow Jones Auto Index was knocking on the door of 175. The current price of 171 is a gain of 7.5% from our initial call. We're not saying it to gloat, but rather, as a gentle reminder that these stocks - practically untouchable a few months ago - truly are the real deal again. And by the way, you would have only read about that market/sector call in the blog. Be sure to visit the home page and blog often, since there's more there than here in the newsletter. Subscribe Information is power and timely information is profitable. Become informed and profit from SmallCapDigest Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the SmallCapDigest Email Newsletter on a regular basis. To ensure newsletter delivery, you can add any additional email addresses you may have to the SmallCapDigest Member List. Receiving the SmallCapDigest Newsletter in multiple locations is the best way of making sure you don't miss the next investing or trading opportunity! For web based email addresses, the SmallCapDigest recommends @yahoo.com or @aol.com for timely and reliable email newsletter delivery. Subscribe Here Note: Your email address will be kept strictly confidential, and will not be shared with any other entity for any purpose at any time. If you no longer wish to receive the SmallCapDigest, simply follow the instructions located at the bottom of every SmallCapDigest Newsletter Edition. Unsubscribe Here D I S C L A I M E R: The Small Cap Digest, the Small Cap Network, its website and email newsletter (hereafter, cumulatively referred to as "SCD") , is an independent electronic publication committed to providing its readers with factual information on select publicly traded companies. SCD is owned and operated by TGR Group, LLC ("TGR"). TGR is not a registered investment advisor or broker-dealer. All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible. Moreover, as detailed below, TGR accepts compensation from third party consultants and/or companies, which it features in the publication and circulation of SCD. To the degrees enumerated herein, SCD should not be regarded as an independent publication. Click Here or go to http://access.smallcapnetwork.com/compensation_disclosure.html to view our compensation on every company we have ever covered, or visit the following web address: http://www.smallnetwork.net/profile_disclosure.html for our full profiles and http://access.smallcapnetwork.com/short_term_alerts.html for Trading Alerts. TGR Group LLC has been paid a fee of $30,000 and pledged 150,000 warrants with an exercise price of $2, currently convertible into restricted shares of Clearly Canadian, by Level III Research, for its coverage of Clearly Canadian. From time to time TGR sells shares received as compensation for coverage of client companies. Shares received are sold in the open market. Since the shares are received as compensation for services as previously disclosed, and not for investment purposes, TGR does not view the sale of the shares as contradictory to any opinions delivered in the content. This should be viewed as a conflict of interest by shareholders or prospective shareholders of the client companies. TGR, its Members and Members' families, are forbidden by company policy to own, buy, sell or otherwise trade stock for their own benefit in the companies who appear in the publication unless specifically disclosed. All statements and expressions are the sole opinions of TGR and are subject to change without notice. A profile, description, or other mention of a company within SCD is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN CONSENT OF TGR. We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at http://www.sec.gov/consumer/cyberfr.htm. Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.