Dow Jones 11386.03 +3.12 11:25 am PDT, August 31, 2006 NASDAQ 2184.97 -0.76 For info, visit access.smallcapnetwork.com S & P 500 1303.86 -0.41 Change your subscription status here Russell 2000 721.96 +1.38 VOLUME 06: ISSUE 68 Clearly Canadian Is Clearly On The Right Track  Never let it be said we didn't give you plenty of notice about the opportunity. Clearly Canadian (OTCBB: CCBEF) just posted their 2nd quarter results, and you know what? We're now even more convinced this company's revival is the real deal. Revenue and gross profits were up from the previous quarter, as well as higher than Q2 of last year. By doing this, they've also achieved something critical to their long-term prosperity - growth in cash flow. In fact, this is the second quarter in a row revenue has increased on a quarter-over-quarter basis. Needless to say, Clearly Canadian is living up to all of our turn-around expectations.  For the quarter ended June 30th of 2006, sales totaled $2.67 million, 10.5% above the Q2 2005 revenue total of $2.4 million. Gross profits (sales minus the cost of sales) came in at $763,000, versus only $642,000 for the same quarter in the prior year. And for perspective, in Q1 of 2006, the company posted sales of $1.7 million, versus $1.64 million in 2005. Gross profits for Q1 totaled $360,000, which was a little less than Q1 2005's gross profits of $448,000.  But here's the key point to keep in mind...Clearly Canadian hasn't actually seen sales growth for years, until now. Revenues in 2004 were less than 2003's total, and 2005's sales were lower than 2004's. Get the picture? The path they were on then is NOT the path they're on now - a point we made when we first profiled Clearly Canadian back in January. We billed the company as a turn-around play, which it has been...and a particularly good one too. Today's news is more evidence of the same. Cash Flow  Above, we talked about the importance of cash flow. One could also make the counter-argument that earnings are an important piece of the puzzle, and we'd generally agree with the idea. And, if we didn't think Clearly was going to eventually get back into the black, you wouldn't even be reading this now. But what we really want to see - and what most investors should want to see from any company they own - is proof of the ability to grow earnings. How do you do that? By growing the top line of the income statement, and selling your product above cost. Clearly Canadian has done both.  It may seem like a no-brainer to sell your goods with at least a slightly positive margin, but you'd be surprised how many companies will spend $2 to make a widget they sell for $1. There are also just as many companies putting up attractive earnings figures, but only because they've slashed expenses to the bone. It's great in the short run, but you have to invest in your business if you want it to grow. As Tom Peters says, you 'can't shrink your way to greatness'. Given the choice, we'd much rather see Clearly Canadian work on expanding its market share and revenue totals first, which it has. Earnings, and earnings growth, are in store for any company able to grow sales and gross profits. Earnings And speaking of earnings, how did Clearly do? For the quarter, the company lost $2.62 million. For the same quarter last year, Clearly Canadian lost $1.67 million. Before you balk, don't forget the lesson we learned a couple of weeks ago from Network Installation's (OTCBB: NWKI) mid-year earnings results. In the middle of 2005, Network Installation had no revenue, and was taking big losses. By the middle of 2006, the loss had been shaved to 1/4 of what it was a year earlier, and revenue was through the roof. The news drove the stock from 22 cents to the current price of 33 cents...and it had been as high as 46 cents. Based solely on the numbers, a lot of investors would have avoided NWKI. Savvy investors, though, read the fine print. They knew Network Installation was involved in a key acquisition that wouldn't bear fruit right away. Patient shareholders were well rewarded though, just in the last couple of weeks.  The lesson also applies to Clearly Canadian's figures - don't come to any conclusions about earnings unless you also read the fine print. After all, the income statement only tells you where the company has been; we only care about where the company is going.  So what's the deal? The quarterly loss got bigger primarily because of payroll increases, like a one-time financing cost, a one-time video programming expense, a one-time design fee, a one-time restructuring cost, and about a $300,000 increase in stock compensation expenses from granted stock options (that may end up being a one-time event, at least to that magnitude). See the common theme there? Most of the added expenses are not ongoing operating costs. And, the ones that are ongoing are also investments in talented people - something well worth the cost. In simplest terms, we don't see any fundamental problem with Clearly Canadian's fundamentals. They're actually fairly typical of a turn-around company. Clearly is spending money on the right things, and taking care of cash flow first.    As For Clearly Canadian's Shareholders (Current or Future)...  Of course, the point of all of this ultimately boils down to the company's stock, or more specifically, its potential for gain.  Trading just above $3 right now, we have to say the current level is a pretty sweet entry point, especially in light of the bullish explosion we saw in its recent past. Just look back from mid-May to mid-June, as shares rocketed from a low of $2.55 to a high of $4.55. A lot of the move was news-based, but as we went back and tried to synchronize the chart and the dates of all the news releases, we also discovered a big chunk of the rally wasn't news-based. The implication? CCBEF shares are garnering investor interest on their own merit - the prodding from news (like this) is just gravy. It all helps though.  From a technical perspective, as we said, $3 is a great entry spot - not just because it's relatively low, but also because the $3 area appears to be an established base. Perhaps more important is the oversold condition the stock seems to be coming out of. We actually became oversold in mid-August, and have seen more than a little pressure to push shares out from this rut. The problem is, it hasn't been able to get any traction with those efforts. All that's needed is some sort of catalyst - to put a little more volume behind the move. Historically speaking, good news has done the trick.  Clearly Canadian (still) makes for a fantastic trading opportunity, plain and simple.  By the way, what do you think of the new charts? We're experimenting with a different color scheme (white background instead of black), and would like to know what you think. E-mail us and let us know your opinion. And while you're doing that, feel free to let us know of anything else you'd like to see - or not see - in future editions. We want to make this newsletter and website everything you'd like it to be.  Click here to see the official SEC filing from the Clearly Canadian website.      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 Here's Your Second Chance on Network Installation...With A Little Less Anxiety Back on August 15th we were singing a pretty positive tune about Network Installation (OTCBB: NWKI). After all, the company had just made a giant improvement in earnings and revenue, and a major debt restructure virtually eliminated all of the company's potential share dilution. Better yet, Network was on track to repeat that performance in the future...what wasn't to like?  Of course, if you were in a stock position before any of the news was released, then you're probably still a little sea-sick. On the 11th, shares closed at 22 cents. On the 17th, they closed at 42 cents. On the 23rd, they closed at 32 cents. As of right now, they're trading at 37 cents. That's a heck of a lot of traveling for just a 19 day trip.  For those who can stomach the volatility - and even trade it - then congratulations...you did well. For anybody who is (understandably) hesitant to buy into volatility, or is worried the biggest piece of the potential gain was already reaped by someone else, then now's your second chance. The stock has settled down. All the would-be profit-takers, scalpers, swing traders, and nervous Nellie's are pretty much done with their business, as the news has become a little stale. The volatility they tend to create is much less of a factor now.  Left behind are the logical, rationale investors...which includes us to a large extent. And what do we see now? Just look at the chart (click here). The stock survived all those wild swings, and has established a base around 33 cents. Back above the key moving average lines, and well above some significant resistance levels, we'd say it's safe to get back in the water here. However, there's still a little bit of lingering volatility, so you still want to be smart about your entry point.    Like Clockwork, The 'Cheap Oil' Chatter Is Starting To Spread In Tuesday's newsletter we took a look at crude oil futures. As a quick recap, our expectation was a very short-term price dip to somewhere around $67 per barrel, and then a rebound (again) of as much as $20. Of course, with crude priced around $69 and change at the time, we didn't think we were quite at the bottom yet.  You may recall - and here's the critical point - we said the short-term bottom would be marked by a media celebration of cheap oil and gasoline, with droves of people becoming certain we were permanently past our gas pump woes. In short, we felt (and still do) the price of crude would shoot higher only when the majority of interested parties thought that it wouldn't. You know, expect it when you least expect it.  Well, we got our first major media installment of the 'cheap oil' chatter on Wednesday, in a USA Today article. Click here to see the whole article, but to sum it up, the journalist put a spin on things that all but guaranteed the era of expensive oil was coming to a close.  It was just an oddly bold statement from the same journalistic lemmings who said stocks were selling off Tuesday on consumer confidence figures...all three major indices closed higher that day. Frankly, the article is a little incomplete, ignoring other major factors. However, it's certainly fun to dream about, isn't it?  Look, nobody would love to see cheap gas more than us, even if it means we were wrong about our call. But we would never - even in a journalistic way that didn't include being held accountable - say anything with this much certainty. This amount of confidence is the arrogance we were warning you about. Point being, this kind of article indeed points to a bottom being made very soon.  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 200,000 newly issued restricted shares of Network Installation for coverage of the company. In addition, one of the principles of TGR Group LLC is also a principle of MarketByte LLC. In a separate contractual relationship in 2003, MarketByte LLC was paid a fee of $25,000 in cash and 500,00 newly issued, restricted shares by Network Installation for coverage of the company. The term of MarketByte's obligation to Network Installation has expired. The aforementioned 500,000 shares issued to MarketByte LLC have become free trading, and whatever number remains could be sold at anytime. This should be viewed as a potential conflict of interest. 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.