from w-w-bb:

19.01.2007 - Total Rocketscience

The third and final company making up our Risk / Reward trilogy on shares for 2007 has so many investment negatives that most observers might not even give it more than a cursory glance. Although quoted on the London AIM market, it is based on the other side of the World, has reported revenues and cash flow of diddly squat and, more importantly, operates in an area of expertise so deep in boffinland that you need to be at least a 5 star techie to venture anywhere near it.

What originally persuaded us to give it a second look was the fact that legendary Stockmarket investor, Jim Slater, was pouring money into it via several successive rounds of financing. As we all know, Mr. Slater is a qualified accountant and hugely experienced corporate financier but clearly he is more at home in leafy Surrey than in the technologically rarified atmosphere of Southern California. However, he must have gleaned enough about what the company actually did to get extremely excited about it. In fact, by last Autumn, he had grown to like it so much that, to paraphrase the immortal Victor Kiam, he bought the remaining 51 % of the company that his vehicle, Original Investments, didn't already own.

The company in question was VIALOGY and, ever since it was fully reversed into Original just before Christmas, Slater's loyal band of followers have seen their highly speculative penny punt move on to the calculated risk category and been duly rewarded with a 50% shareprice improvement. We first latched on to this situation last April when we wrote a piece entitled The Cisco Kid ( see news archive ). To recap briefly, the company was set up by some brainboxes who had earlier worked together on supercomputing projects for NASA. Led by Dr. Sandip Gulati, the team appeared to have perfected software to detect and enhance extremely weak signals previously obscured by background noise. This may not seem particularly earthshattering to the layman but, apparently, the applications for this technology are not only revolutionary but almost limitless which suggests that an exponential rise in licensing income could well lie ahead.

Big news clearly travels fast on the Eastern seaboard because global behemoths Cisco and Boeing have already enlisted Vialogy to work on 2 major government inspired projects and these are just the ones that the company have been allowed to talk about publicly. As we reported in April, Cisco has contracted Vialogy to help with its IPICS programme which seeks to make sure that all emergency services and government agencies can communicate with each other quickly via computers and phones. The need to address this obvious requirement was highlighted by 9 / 11 when communications between different departments with different systems proved chaotic.

For its part, Boeing has recently confirmed that Vialogy has delivered a tenfold improvement in the accuracy and efficiency of the types of gyroscopes it uses in spacecraft and missile navigational systems. It is also known that both Cisco and Boeing see a major role for the technology in such areas as border controls and missile defence systems. Elsewhere a much smaller Texan company, Evolution Petroleum, is applying the technology to improving seismic evaluation of oil and gas deposits.

This initial clutch of applications is almost certainly just the tip of a very large iceberg that is going to float into view over the next few years and all that is required is a little patience. At todays price of 5.5p, Vialogy is valued at a mere 22m. To justify this valuation, the company would have to be earning say 2 million pretax. With cash reserves of 3 million and its heavyweight partners funding the projects it is involved in, Vialogy should be able to get through to breakeven without further recourse to shareholders. We would expect this stage to be reached sometime over the next 12 months. Thereafter, profits could / should escalate very dramatically as new applications and licensing income start to snowball.

On a two year view, shareholders could be rewarded extremely handsomely indeed. Vialogy is in so many ways akin to last weeks selection, CORAC. Both are now moving from the development stage to commercialization with the scales tipping away from blue sky risk towards the reality of cash flow. Both have mindblowing upside potential yet both have current shareprice action that makes drying paint look positively orgasmic. Although this presents an opportunity for latecomers, it is a frustrating byproduct of both companies involvement with highly sensitive technology and powerful, publicity shy partners. Moreover, the present lack of any meaningful numbers together with the sheer scale of future potential makes any serious stockbroker research well nigh impossible. All this will resolve itself in due course but, as they say in the Grolsch advert, all good things come to those who wait.

MP, Can you share what the speculations os on the other side ?

probably speculating as to whether sp will rise or fall! ...... almost certainly 99.9% total tosh anyway!

possibly results held back for some big announcements also cisco year end is july and maybe there will be joint announcements as a top man in cisco has given up a rewarding job with a great company to run a tiddler like viy. the spec is there must be a very compelling cisco reason for him to do this. I'm just happy to wait and see it's not too long now.

perhaps cisco gave him a helping hand!

or he's giving them one!! hi ho silver!

Some nice 100k buys today , have the mm got a big buy order ?

Looks like we are going back to 15p again .

Terry Bond, Chairman of ViaLogy, commented: 'This autumn the company will be
launching the first of a series of three significant ViaLogy products based.on
our unique and patented technology. We are anticipating worldwide demand for the
products from the defense, construction and oil and gas industries. The funding
will be used to scale our sales operations This will begin the transition of
ViaLogy from a research and development operation to a commercial business.'

Great but a placing @ 8p, why such a large discount to the current share price ? Justr don't understand why the placing price is not closer to 10P where the price has been hovering. By the way am a holderr @ ave of 12p, just a tad disappointed, a LT hold without a doubt

ViaLogy raises 4.4 mln stg by placing 55 mln shares at 8p/shr
AFX

LONDON (Thomson Financial) - ViaLogy PLC said it has raised 4.4 mln stg before expenses, by placing 55 mln shares at 8 pence each.

The real-time signal processing platform company said the placing will also comprise the issue of 27.5 mln warrants, subject to shareholder approval.

Following the approval, it said each placee will get one warrant for every two new shares and each warrant will entitle the holder to subscribe for one ordinary share at 10 pence each.

ViaLogy said it will use the proceeds to finance its new sales and marketing programme for retailing its new products.

Surely the answer to that, pumben, is VIY is expecting the sp to drop sub 8p due to the issue of new shares & warrants, thus diluting the current shares in issue?

markets like it as it's for the right reasons--sp going back up. Worldwide demand expected for 3 of their products!!

wowowow thats a chunk of dilution and a kick in the teeth to the PIs that recently bought in.

Second class citizens again chaps I am affraid.

what worriws me is not only the placing but the fact that the company is not turning in profits and there looks to be no indication of them doing so in the near future

correct!

so have bitten the bullet and cut at 10p ...... this share is going nowhere except down ..... 8p may form some sort of short term support, but don't bet on it

Cynic, what made u buy into the company in the first instance, if this co. is making no profits & is unlikely in the near future ? This is no attack as you are someone who picks his stocks verry wisely. Just curious ?

Harrycat, I thought the price of the placing also took into consideration what the institutions believe the company share price is worth on current prospects.

Again questions is just for a betterr understanding of this complicated & fustrated world !!!

holders on the other side think this placing and price would have been in the pipeline before the recent rises in sp. and that's why it appears a giveaway price. If they are ready to start commercial operations and expect worldwide demand they probably have set up expenses. raising money for expansion is good news and the city didn't punish them much on a poor market day. A lot of topping up went on when they dipped first thing---I'm happy to hold and await developments.

Think we could be looking at a strong move up tomorrow.

when i bought in, i certainly was not expecting a heavily discounted fund raising and indeed, was hoping that the (next) trading statement would be upbeat, whereas i read nothing positive at all ....... also, to my mind, if VIY felt obliged to discount their placement so heavily, it implies to me that they were advised that was the only way they could get it placed - i.e. no firmly positive news to bolster

M+ ..... though the placing would have been considered for some time, the actual price could easily have been varied upwards at the last minute had there been good news to accompany ..... clearly there was not!