Warning! this stock is still declining but now to make things worse the company is behind in their regulatory filings. They will be kicked off of the NASDAQ OTCBB if they do not rectify this problem. I believe they have 30 days!
previous update April 30th 2007
We talked about this stock in February. Since we originally wrote it up the stock has declined over 40%. Our opinion is that the stock still goes lower. But there have been several developments. It seems they raised approximately 1 million canadian dollars in three separate financing transactions. (On a positive note one of the investors is an insider.)
Additionally, the company has clarified some of the issues with the testing delays. Here is how they explained it in a press release:
As previously stated, durability testing on the two-stroke engine has been delayed due to extremely high levels of vibration. Carnot Emission Services ("CES"), EVCC, and its testing partner have now decided to fully accommodate the motor's natural range of motion by testing it in its natural setting. Rather than mounting the engine to a rigid test bed, it will be placed in its original frame and allowed to operate in a controlled environment with minimal constraints. The engine will be brought into the test cell at pre-determined, EPA and CARB stipulated intervals and returned to its natural setup throughout the durability testing. This method is entirely in compliance with both EPA and CARB certification standards, and will bypass the mounting issues which have been the cause of the current delay. EVCC will update its investors on the commencement of this test in the near future.
Sounds to us like it will be more expensive. At their former burn rate that money would last them 2 years. We expect that spending will increase now that they have more money. We will update our forecast of when they run out of money, when we see the 2nd quarter results.
There has been quite a bit of activity surrounding this stock lately. It is certainly one of the most interesting stories we are following on the OTCBB lately. Environmental Controls (OTCBB:EVCC) was a vancouver based mining exploration company up until the spring of 2006 when a merger completely changed the direction of the company. Now the company is testing a new muffler aimed at reducing emissions. The company released a video on their website talking about their technology, business, etc.
EVCC raised about $500,000 USD. They had $200,000 remaining as of Dec. 31st 2006. In the third quarter, EVCC was using (burning) about $27,000 per month in operations. Assuming that there have not been any major changes in spending, they should have about $150,000 USD remaining in the bank today. If they continue to spend money at their current rate, the company will be completely out of funds within 6 months. Rolling Cash Forecast below:
Mar $120,000
Apr $93,000
May $66,000
Jun $39,000
July $12,000
Aug -$17,000
Estimated Day the company runs out of money: July 15th 2007.
We are not too concerned that the company is almost out of funds, as their (very liquid) stock can easily be used as a currency to raise additional captial. Depending on the type of transaction they enter into, and where the stock is at that point, the transaction is not necessarily going to be toxicly dilutive to shareholders. But the certain need for additional capital is a huge negative in our assessment of this investment.
More concerning to us is that they have only 2 employees. Their is time required to develop and build a good team, office, culture etc. On the plus side this keeps the overhead low. But the lack of a knowledgable trained group of people to carry out their business plan is also a huge negative.
Clearly a technology that reduces emissions from automobile muffler's is addressing a sizeable market. Stocktemple recently issued a euphorically optimistic research report on the company. In this report they state that several Fortune 100 companies are conducting independent tests on their technology. We found it odd that there is no mention of this by the company in either their press releases or public filings.
We would imagine that testing by a fortune 100 company on their technology is an event material enough to have the company file an 8-k. Hopefully, the company will clear this discrepancy of publicly available information soon. The fact that there is no officially released information about potential customers testing is also a negative.
It seems the entire future of this company is dependent solely on the outcome of a series of tests that are underway. The company has published some reports on the testing. The reports are certainly nicely prepared, but the testing is not yet complete. If there are delays, the company can run out of money before the tests are complete. According to an SEC 8-k filing last Friday there are testing delays. Here is a quote from the filing:
" We are currently involved in durability testing of our two-stroke catalytic muffler at Carnot Emissions Services (CES). Unfortunately, there has been a delay in this latest testing, as the type of engine being used produces extremely high levels of vibration. This has posed a challenge for CES and they have been required to order new mounting hardware in order to ensure that the engine will remain properly mounted throughout the 125 hour life-cycle. "
With 41 million shares outstanding today's $2.58 share price puts the market valuation north of 100 million dollars. In the private equity and venture capital markets you rarely see valuations of 100 million on companies this early in the developmental stages. The 100 million plus valuations are typically only seen once the company has secured at least 10 million in funding, has completed all of their testing, built a team, has a working production prototype, and has made measurable progress at securing partnerships with major corporations. Companies this early in the developmental stage usually have market valuations between 3 and 15 million dollars. In EVCC's case that would translate to a share price of $0.07 to $0.40.
Something has to give here. We hope for EVCC shareholder's that it is positive progress on their business development and testing.
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