By our rough estimates the market capitalization of this company is equal to the trading volume of Apple (AAPL) in ~8 seconds. Hail MicroCaps!

A Hat Tip:

MicroCap investing is all about sharing ideas with other investors, and more so, playing devil’s advocate for each other. Matthew D’Addario turned us onto the idea of Total Telcom this week and we took a small starter position. You would be surprised how micro the MicroCap world is, following our find of BeWhere several months ago (Post, Video), Matthew was interested in the idea and did his own due diligence. The point - network with other MicroCap investors, talk and be successful together.

Opening:

Total Telcom (TTZ.V) is a thinly traded and undiscovered $1.53M (2M CAD) nano-cap that is trading on the TSX Venture exchange. The company focuses on custom web to wireless products using satellite or cellular connectivity to send the information to the backend server and then back to the customer.

The company also does remote monitoring of equipment and remote tracking. The latter is generally for marine-based fishing vessels and for tracking moving items such as off-road vehicle racing assets. TextAnywhere is the company’s second business line which allows you to send texts or alerts anywhere using a satellite connection.

A New Business:

Total Telcom got crushed during the 2008 recessions and lost their most valuable customers at the time, such as the state of Georgie due to budget cuts. Their past products were more expensive and feature limited, very different than today.

In contrast to 2008, the company now designs all of their products based on their own software platform so they can now offer customized solutions. The company has won some business in Alberta over the past year since their offerings have come down in price and are more feature rich versus 2008.

Also, the company won a breach of contract suit against a customer who was supposed to build out an offering but ended up flaking on the contract, due to this Total Telcom has $1M+ CAD in cash, or half its share price in cash.

Solution Costs:

Hardware ranges from $300 to $1,000’s of dollars depending upon the setup. Data charges can range on $20 to $100’s of dollars depending on the data the customer uses, measured by the byte.

Financials:

The company’s goal is to achieve Profitability with simply their monthly fees and not have to rely on one-time or cyclical hardware sales. The company is currently doing $165K CAD in recurring revenue.

With $1.089M CAD as of March 31, we expect the company to still have over $1M CAD in the bank due to an impressively low burn rate of 10K-20K CAD per Quarter. Sales have been growing, in this past quarter the company did $238K CAD, up from $212K CAD Y/Y. Interestingly, for both periods, the cost of sales was the nearly the same and the company’s gross margin expanded from 53.5% to 59.7%.

We do believe sales, and profitability quarter to quarter, can be cyclical and lumpy as this is a small company and they are currently building out their pipeline, dealer network and other initiatives.

• No warrants outstanding
• No debt outstandning
• 1,046,500 options priced at 0.10, above current share price. Minimal also as the company has 24.7M shares outstanding.

Management:

Management has a serious drive to keep costs low and not burn through their cash balance. CFO Scott Alan told me on a call that they could spend the money on sales and marketing but they would rather build out the recurring side of the business so they have a better footing before they do - a very good, conservative move in our opinion. The company has 8 employees currently and they don’t need to hire any right now.

CFO Scott Alan has been adding shares (120,000 shares since August 28) in the open market. Between the CEO, CFO and another director, the three own ~25% of the company.

Growth Areas:

• Company is involved with Best In Desert, 5 off-road racing events a year. The company has an agreement to provide monitoring services to track those races. They will provide their fleet of rental GPS tracking units, and they expect to make money on the event - not simply giving their units away for exposure.
  • There will be a rental charge which will depend on participation, and data charges depending on data sent from the cars.
  • Goal is to break into the off-road tracking market in a bigger way.
  • Has a rental pool of 400, more advanced units.

• The company expects growth to accelerate from he previous two years and they are now focusing on global opportunities. CFO Scott Alan told us in the past customers would test 1-2 units at a time, that has grown to testing 20-30 units at a time.

• Developing a dealer network outside of North America which is line with their goal go keeping costs low, no international sales staff. The company has a dealer network in the U.S. they are trying to expand.

• There is a lot of competition in the market, but the company believes they have carved out a niche in the market for smaller customized solutions. Example, they are not trying to compete with OnStar.

Company CEO, Neil Magrath , stated " North America has a large off-road racing culture which is growing in part to using technology such as ROM's to create a virtual link to a "connected" fan base. We see a real opportunity to expand our customer base and provide related services to numerous support companies that are required at these large events, additional race support services and increased TextAnywhere 2-way satellite text usage in these predominately no cellular coverage event areas." - Source

Risks:

Total Telcom is an extremely small, very thinly traded NanoCap so investors should be aware of this risk. We generally view illiquidity as a positive when we are right since buyers have to compete for limited shares, although this is reversed when we are wrong though.

There is limited information and news available on the company’s growth initiatives, so any delay or failure to execute and growth the business is the biggest risk for investors here. Do your own due diligence and make your own decisions.

We had similar concerns on execution with UrbanImmersive (report ), which shot up 500% on the venture. Granted a different story, there can be value in investing in the partially unknown if you’re initial due diligence is correct and viable.

Conclusion:

Total Telcom is an extremely undiscovered NanoCap with an extremely clean share structure (no warrants, or debt), a large cash balance, and the potential to move on any positive news or execution. We have a small starter position in the company.

Due to it being an undervalued play, it may be a shorter term hold than our normal long term holding periods as the company is discovered - if growth picks up we may extend our holding period.

____________________________________________________________

Disclosure: This content is strictly informational and educational. Do not invest or trade based upon this content. This is not a solicitation to buy or sell any security. Always contact a financial professional before executing any trades or investments. By reading this post you agree to SecretCaps’ full TERMS OF USE and agree to and understand SecretCaps’ Disclaimer. The author has not received compensation from the company or a third party and is LONG shares which may be sold at anytime in the future.