From the CES website excerpts from the Maedel report
A ProTrader Publication
Emmetten, Switzerland
MAEDEL'S MINI-CAP ANALYST INVESTING IN TOMORROW'S GIANTS
TODAY
Consolidated Ecoprogress
Excerpts from Maedel's Mini-Cap Analyst, Dec 17, 1998
Reprinted by Cons. Ecoprogress with the permission of Maedel's Mini-Cap Analyst
New Solutions
Although environmental stocks are certainly not the current flavor of the day, clearly,
con-cern over the environment is here to stay. Both consumers and investors have a
heightened rec-ognition of the merits of useful but practical en-vironmental technologies and
products and the potential upside of the companies behind them. This was quite evident in
the market's response to one of Maedel's recommendations last spring, Napier
International Technologies (Toronto Stock Exchange: NIR $1.38), which climbed from
our buy price of $0.82 to $4.88 in one month. That's reason enough for us to keep a
weather eye on emerging environmental com-panies. And now we have a new addition,
which we introduced to our fax and email sub-scribers on December 14th at $1.10.
We've been watching Consolidated Ecoprogress Technology (Vancouver Stock
Ex-change: CES $1.01) for well over a year. A couple of recent transforming events have
now posi-tioned the company for dramatic growth. First, CES has secured new financing.
Second, it has obtained the endorsement of the very company we just spoke of, Napier,
which we think will garner some attention from the market. Napier purchased 1.2 million
shares (with 0.6 m war-rants) and CEO Brad Aelicks has been ap-pointed as a CES
director.
As a result of the financing, CES is now able to ramp up marketing for a series of products
made with B-9 film, a proprietary plastic that is 100% water soluble, easily formable and,
criti-cally, totally biodegradable. Used in a range of applications, the B-9 film creates
opportunities for the firm to differentiate and compete in a number of large-scale markets,
giving CES con-siderable blue-sky potential for proprietary, pat-ented products.
Ducks and Cows will be Happy
There are three major applications for this tech- Consolidated Ecoprogress Excerpt form
Maedel's Mini-Cap Analyst, Dec 17, 1998 Reprinted by Cons. Ecoprogress with the
permission of Maedel's Mini-Cap Analyst nology at commercial stages: encapsulation for
products such as pharmaceuticals, vitamins, bath beads and paint balls; fabric for use in
dis-posable surgical clothing, bandages, etc.; and absorbents such as feminine hygiene
products, diapers and incontinence diapers/pads. These products, made with B-9 film and
other natural materials, are 100% biodegradable. In the case of feminine hygiene products,
they are also 100% flushable.
There are potentially a great number of other products to be made from the B-9
technology. It has an impressive set of physical characteris-tics: it can be formed into a
flexible film or rigid material; one side of the material is insoluble, but exposure of the other
side to water results in immediate dissolving of the material into car-bon dioxide and water;
particularly interesting is that the solubility can be made more sensi-tive to cold, hot or
boiling water, allowing the material to meet varying needs of different ap-plications and
disposal conditions.
Examples of the range of B-9's applicability include: The material has approval from the
US Food & Drug Administration for human inges-tion in its encapsulated form, e.g. for
vitamins or the precise metering and convenient con-sumption of pharmaceuticals. In the
case of feminine hygiene products or diapers, exposure to liquids on one side would result
in absorp-tion but not dissolution. Both products, how-ever, would subsequently be
biodegradable and feminine hygiene products would be flushable. Disposable gowns used
in hospitals are cur-rently boiled to kill bacteria with the residue flowing into sewage
systems yet the gown is still sent to a hazardous waste disposal site; B-9- based gowns
would simply dissolve with the initial wash in boiling water. As another ex-ample, most of
us probably have used a J-cloth at one point or another: using B-9, a similar rag does not
break down when used in usual kitchen sink temperatures, but would break down in
boiling water.
B-9 has been formed into rigid materials. To date some initial testing has occurred to form
pill containers (e.g. for vitamins). Again, such containers (or perhaps other disposable drink
containers?) can be designed to dissolve only under certain conditions.
How about this one? We're all familiar with the plastic holders used for six-packs of beer,
pop and juices. They're convenient for us but birds are less fond of them and they're a
gen-eral litter nuisance. B-9 can quite realistically be applied to such a purpose.
Napier's due diligence on Ecoprogress was conducted by its chief scientist, Sergio
Vitomir, who invented Napier's environmentally-friendly paint stripper. He is very
impressed with the B-9 technology and particularly excited by the possible industrial
applications that his inventive mind has already identified. He noted that not only does the
B-9 technology allow for low cost disposal of products, he also sees manu-facturing costs
for certain types of products be-ing dramatically reduced. According to Mr. Vitomir, the
patents were intelligently defined and are more than broad enough to protect a myriad of
applications.
The potential for encapsulation applications is by itself very intriguing. Gel-caps are derived
from animal bone, which presents two issues. First, many consumers now prefer products
that are free of animal content. Second, Mad Cow's disease, in particular, has raised fears
of disease being passed on to humans through products, such as gel-caps, with
animal-derivative con-tent. B-9 contains no animal derived compo-nents. There is,
consequently, huge potential for B-9 in vitamins, drugs, bath beads and such applications.
Moreover, the B-9 technology will enable significantly lower cost encapsulation compared
to today's gelatin-based approach. Ecoprogress has modest exposure to this appli-cation
through a shareholding in the company.
Mini-cap companies are smaller than mid-caps and are significantly more advanced than
penny shares. Mini-caps' share prices vary but usually trade around a few dollars and have
market capitalizations under $200 million. Maedel's Mini-Cap Analyst is an investment
newsletter focused on mini-cap stocks with outstanding reward/risk ratios. The staisfactory
surpass 100%. The exceptional have exceeded 1,000% and 2,000%. For more
information on Maedel's Mini-Cap Analyst: phone (604)669-8270, fax (604)683-5610 or
email sales@maedels.com
Ready to Go
Through arrangements with patent holders in Britain and the US, Consolidated
Ecoprogress previously secured the Canadian rights to all non-encapsulation applications
made from the patented B-9 technology. In the past twelve months, CES has undergone a
full-slate man-agement change and has been moving toward tapping some of the B-9
products' vast commer-cial potential.
To date, management has spent most of its efforts on establishing a flushable,
biodegrad-able, feminine sanitary napkin on Canadian re-tail store shelves, with inroads
into large BC gro-cery chains such as Save-On Foods and Overwaitea. The company has
received the highly-acclaimed Environmental Choice Ecologo Certification for these
products. The En-vironmental Choice Program is a Canadian Government initiative and is
one of the most coveted environmental awards in the world. Products given the Ecologo
undergo rigorous testing; certification may be used as an extremely effective marketing tool.
Market research con-ducted in Canada and Europe has indicated strong consumer
acceptance for these products. There is consequently strong evidence that CES' feminine
hygiene products, with their ecologi-cal appeal, can carve out a 5% - 8% market share as
a strong niche product. Management is now ramping up an aggressive marketing program
targeting the $100 million Canadian market.
CES' management is street-wise, with many years of consumer marketing experience. This
is evident in the success they've already had in getting listings and sales with a virtually
non-existent budget. Their skills will be even better leveraged with the new injection of
capital.
CEO and director Mike Daniels has 26 years' experience in sales and retailing, including
po-sitions with Canada Safeway and the Campbell Soup Company, where he was sales
director for western Canada. Vice President Sales and Mar-keting, Brian Besco, has 20
years experience in packaged goods, having worked within Gen-eral Foods and Best
Foods.
Michael Donald, a director of the company and also a significant shareholder, has a similar
number of years in the retail grocery and drug store businesses.
His company, Concord Sales Ltd., is a successful broker with about 40 selling staff
representing over 50 products throughout most of Canada. Concord previously
repre-sented another line of feminine hygience prod-ucts but dropped this line in favor of
CES' Sim-plicities brand. Mr. Donald has also made sig-nificant investments in the
company and we consider his commitment to CES a strong vote of confidence in the
company's product poten-tial.
Overall, management's combined experience in retail and packaged goods gives us
confidence that CES will execute on marketing objectives and hit their target of 5% market
penetration.
The Outlook
Reasonable success with feminine hygiene products and other applications in Canada
should vault sales to the millions of dollars next year and much higher in years beyond. But
while this may add up to a worthwhile domes-tic business, it still lacks the dramatic upside
potential we normally look for. So why are we recommending CES?
CES management's consumer packaged goods experience and long-standing relation-ship
with the inventors of this technology, com-bined with a lack of significant sales by the US
licensee of the technology for absorbent appli-cations, places CES in an ideal position to
nego-tiate rights for B-9 applications extending be-yond Canada. Management showed its
hand by announcing in September that it had begun negotiations to gain US distribution
rights for feminine hygiene products. If CES secures the US market rights, contracts with
large retail chains for a private or house brand of an absorbent product (or products) could
place CES' product in thousands of stores with rela-tively low marketing costs and
position the com-pany for sales growth into the tens of millions annually on sanitary
products alone. We see CES management's effort to secure US rights for the sanitary
products as a sign that even broader rights could be achievable, which would fur-ther
increase the company's blue-sky poten-tial for the unmatched B-9 technology.
Unquestionably, Consolidated Ecoprogress is still an early stage business with nominal
sales (due to past cash constraints). But it has sales: management has done an impressive
job of le-veraging its experience and relationships to get its promising initial products onto
retail shelves.
CES' announcement, on October 8th, of a pri-vate placement of Cdn $714,000 and
shares-for-debt settlement of $185,000 (both at $0.25) plus the more recent
announcement of a $434,000 placement (yet to be approved by the VSE) at $0.34, results
in the bolstering of the company's financial position. This capital injection allows
management to significantly increase market-ing momentum and sales growth. We'll be
watching closely for evidence that Ecoprogress' management is indeed able to implement a
big vision plan to rapidly exploit the opportuni-ties at hand and sales are accelerating.
As it stands today CES has 5.0 million shares issued but a free-trading float of only 1.4 m
shares. The likely-to-be-approved financing and new options will bring the outstanding
share position to 7.1 million, with 10.0 million shares fully diluted. We expect further
dilution as ad-ditional capital is raised to fully exploit the op-portunities at hand.
The bottom line is that with the small float (much of it purchased at $2.00 on a
post-roll-back basis) we think CES' shares could appreci-ate dramatically in the short
term. The recent financings will be free trading in four months, but the potential to raise
more capital at higher prices in the interim and significantly ramp up the company's business
plan will justify a higher market valuation. We bought 5,000 shares at $1.10 for our
portfolio; we recommend a buy limit of $1.50 for new buyers.
Maedel's Mini-Cap Analyst is an invest-ment newsletter focused on mini-cap stocks
with outstanding reward/risk ratios. It targets resource, technology & industrial companies
with the poten-tial for extraordinary stock price appreciation po-tential. The satisfactory
surpass 100%. The excep-tional have exceeded 1,000% and 2,000%. Editor Neil
Maedel, an ex-trader and 19-year veteran of the mini-cap market, lives &works in
Switzerland. He has been writing investment newsletters since 1988. For more information
on Maedel's Mini-Cap Analyst: phone (604) 669-8270, fax (604) 683-5610 or e-mail
sales@maedels.com. This newsletter is for information purposes only. It is neither an offer
to buy nor to sell any of the securities mentioned. The information contained herein is from
sources believed reliable but we do not guar-antee its accuracy. Please assume that the
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