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.

This company undoubtedly has enormous potential and the question is when will they turn this into contracts and revenue?
Well this time could be a lot closer than some people think,according to Bob Dean at the AGM ,could be before 4-6 months.

But, in the meantime, likely to drift lower. Could be a possible in the New Year.

Still watching and waiting to see if I can pick them up around 6p.

Getting closer to a better risk/reward at 6p

getting close to my forcast now

which forecast was that? .... 6p? 4p? 2p?
anyway, i cut my losses the other day (ditto GOO) as, at best, i don't think the stock is going anywhere meaningful north in the immediate future or even in the next few months, so i reckon my cash is better placed elsewhere.

Buy order set at 6p

cynic put your cash in emblaze, the safe haven in stormy waters

a blast from the past .... made and lost a fortune there ..... will revisit

Better option BRR.

BRR is certainly steaming ahead!

Buy order got close i see , 6.19 to 6.25 before moving up .

FLIPER, the eternal optimist lol

Looks like i missed the chance of buying more around 6.25p

MG fill you boots , buying at 5.9 p

No rush fliper, not much happening until 2009 IMO. Prefer to wait for 4p ish.

FLIPER, fill your boots at 3p

Oh dear, this is looking anything but a wealth maker at the moment! I would not like to have to sell my shares right now - got in too high! Yet it all seemed so positive at the AGM, and others who attended clearly thought so too (from what I've read on other boards). Could have used the money elsewhere.

wrong logic Toya ..... if the stock is misbehaving and showing no signs of recovery, then one ought to cut .... i did

Hi Cynic - yes, you're right of course. Do you think it will continue to dive then???

Actually, looking at the graph I guess it could continue down to 4.5 or thereabouts. But it's not a very pleasant loss, having bought in at 9p! Ouch!