A Monthly Review of GeoInvesting’s Most Notable Activity — GeoInvesting June 2016 Newsletter

Our Calls to Action

Money-making Moves that the GeoTeam Conveys to its Premium Members

  • June 30, 2016 — Orbotech Ltd. (NMS:ORBK) – Initiated long position. ORBK has been on our “big cap buy on pullback” list since March.  We got our opportunity when the shares recently plummeted 7 % on June 10, 2016 on the heels of a secondary offering that de-risks the balance sheet and is EPS accretive.  The UK Brexit vote on June 23 to leave the EU and the subsequent decline in the British Pound is also weighing on the stock.  Our research indicates only 14% of ORBK’s revenues originate in Europe and its UK subsidiary’s operating expenses are denominated in BP while its revenues are in U.S. $.
  • June 22, 2016 — Domino”s Pizza Inc. (NYSE:DPZ) — Nomura Securities downgraded DPZ from Buy to Neutral while maintaining its price target of $135. In making its call, Nomura cited slowing U.S. restaurant same-store sales trends during Q2, # 1 market share Pizza Hut U.S. (owned by YUM! Brands) likely enjoying another solid quarter, and the possibility of growing risks associated with driver accidents.  Recall that we prepared our short thesis on DPZ in late April for submission to the Sohn Conference Idea Contest calling for downside into the high double digits.  Our thesis was chosen as a finalist.  Among our concerns are the company’s growing debt load, irresponsible allocation of capital to share buybacks at rich multiples, labor costs, and the dynamic eating habits of millennials.

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Information Arbitrage News

News Before the “Rest of the World” Finds Out

  • June 16, 2016 — Seychelle Environmental (OOTC:SYEV) – In a classic case of why it pays to read SEC filings, SYEV reported fiscal 2016 results that were under the company’s own guidance. The company also guided a decrease in Q1 FY 2017 sales and net income versus Q1 FY 2016 but did not elaborate.  The 10-K, however, revealed the story behind the story with grave implications for future operating results.  SYEV lost all of its business from its largest customer (34% of revenue in FY 2016 and 33% in FY 2015).  Disclosure on page 30, Concentrations, “Our largest customer during the year ended February 29, 2016, has raised concerns regarding the effectiveness of certain of our filters, in particular, the efficacy of fluoride removal.  The likelihood of this customer continuing to purchase our product is remote“.   The situation is described on page 8, of the 10-K filing, states SYEV not only lost its largest customers but sales to other customers may also be decreased.
  • June 1, 2016 – June 8 and 20, 2016 — Golden Enterprises Inc. (NASDAQ:GLDC)Information in SEC filings that was not included in GLDC’s press releases indicates the company’s period of unexciting and declining revenues is coming to an end. SEC filing disclosures suggest that the Company is about to enter a period of revenue growth and margin expansion, something that we hope management will comment on and/or demonstrate when fiscal Q4 (May 27, 2016) results are reported in August.

Top Performing Picks

Picks that GeoInvesting is Particularly Proud Of

  • June 1, 2016 — BG Staffing Inc (AMEX:BGSF) – Shares of BGSF have surged 40% since we alerted subscribers to the opportunity presented when the market overreacted to the announced pricing of the public offering of 1,075,000 shares of common stock at $14.00. The shares plunged over 17% following the announcement on May 27 to close below the offering price at $13.53.  Shareholders benefit from the offering in at least two ways.  First, the proceeds from the offering will eliminate $14.7 million debt with a 10%+ effective interest rate.  The interest savings alone more than offset the dilutive impact of the newly issued shares on EPS.  The company also picks up Roth Capital Partners, one of two book runners on the deal, who we believe will initiate coverage introducing its retail customer base to the opportunity BGSF offers at its recently depressed prices.  BGSF closed June 30, 2016, at $18.92.

GeoBargain Updates

Updates, Additions & Subtractions of GeoInvesting’s Best Picks

  • June 20, 2016 — Mikros Systems Corp (OOTC:MKRS) – Filed an 8-K disclosing a recapitalization transaction that will eliminate all the convertible preferred shares the Company has issued. The transaction eliminates the preferred dividends and around $3.0 million of aggregate liquidation preferences vs. MKRS’s recent market cap of $3.7 million changing the dynamics for common shareholders should the Board decide to sell the company.
  • June 17, 2016 — Determine Inc. (NASDAQ:DTRM)Reported Q4 FY 2016 results slightly missing analyst estimates. While DTRM is making progress in its turnaround efforts, the process is taking longer than we had hoped. Management has methodically reduced expenses and is beta testing its new integrated (procure to pay and contract life cycle) cloud platform with existing customers with positive results.  Management anticipates the full rollout of the new platform in late calendar 2016 and achieving profitability in fiscal 2018.  Given the ongoing support from activist investor, Lloyd Miller, we are giving DTRM another couple of quarters to see if it is clearly on the path to profitability.
  • June 17, 2016 — GSE Systems Inc. (AMEX:GVP) – Added to our long position based on steady insider buying including recent open market purchases in June by CTO, 8,000 shares at $2.17 and CEO, 25,000 shares at $2.14. See Form 4 filings here and here.  Since late May, insiders have acquired over 110,000 shares.

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