analystgroup.com Initiates Coverage of QUEST PRODUCTS CORP (OTC BB: QPRC)
with a "Strong Buy" Recommendation.
Recent Price: $0.034
52-Week Range: $0.01-$0.0625
Market Capitalization: $5.95 million
Shares Outstanding: 175 million
Public Float: 60 million
Restricted shares; 115 million
Projected Revenues: $47.6 million
Projected EPS: $0.12
Insider Holding: 65.7%
Short-term target price: $0.75-$1.00
Recommendation: Strong Buy
Business and Corporation Background:
The Company's (http://www.quest-products.com/) primary product,
PHASEOUT, is a patented device developed to help a person quit smoking
without the use of any drugs, chemicals or attachments. The device was designed to gradually reduce the amounts of nicotine, tar and carbon monoxide consumed from cigarette smoke.
During the last four years, the company has been concentrating its
efforts in two areas: (1) test marketing the product domestically
through various channels of distribution and (2) entering into
international distribution agreements utilizing television
infomercials and commercials.
The PHASEOUT device is a simple, easy to use, mechanical,
light-weight instrument that allows the smoker to continue to smoke
their preferred brand cigarettes and at the same time, gradually and
sequentially reduce their nicotine intake by over 80%. This weaning
process is the same type of detoxification methodology that has proved successful with many other addictive substances. Once the smoker has been weaned, their chances to quit for good are greatly enhanced. PHASEOUT's weaning methodology has an important additional psychological benefit for all smokers. It allows the smoker to continue to smoke their preferred brand until they are ready to quit. Of course, to achieve these results under normal smoking conditions, smokers must avoid compensatory practices, such as smoking more cigarettes and blocking the ventilation holes created by the PHASEOUT device. The PHASEOUT system works without the use of any drugs, chemicals or attachments. The average retail price to consumers is $19.95 plus shipping and handling. The average wholesale
price is approximately $10-$12. The cost for PhaseOut manufacturing is less than $5 for each unit of PhaseOut. The company is currently having the product manufactured by a vendor in South Korea. The product is distributed via both its e- commerce site at phase-out.com and 12,000 retail chain stores across the nation, including RITE AID, ECKERD, GENOVESE, MEIJER, OSCO, SAVON, LUCKY SALES, LUCKY NORTH, ACME MARKETS, JEWEL FOOD, and BI-LO.
The Market
Cigarette smoking is the number one cause of preventable illness and
death in the United States. In excess of 450,000 deaths were directly
attributed to cigarette smoking last year. More than one of every six
deaths in the U.S. is caused by cigarette smoking. Of the country's
total health care budget, approximately 25% ($65 billion) is spent for
smoking related illness and diseases. Smoking-related health
problems include emphysema, cancer, and heart disease. Also, smoking
cigarettes for as few as five years can have a permanent effect on the
lungs, the heart, the eyes, the throat, the urinary tract, the digestive organs, the bones and joints, and the skin. This does not include an additional $35 billion in lost productivity and higher
insurance costs. In the United States, there are currently reported
to be approximately 46 million smokers. According to a report, the
number of smokers is estimated to be over 350 million worldwide and the annual costs for smoke-related illness and disease have been over $300 billion worldwide. Currently, no medical treatment to cure smoke-related illness and diseases exists. Only way out for smokers is to quit smoking.
Many studies prove that tobacco-related health effects decline
substantially as time away from smoking increases; some of the benefits begin within months after quitting.
There are two major products in the market for smoke quitting. One is
nicotine patch and another is nicotine gum. PhaseOut has some major
advantages over nicotine patch and gum product. First, nicotine patch and nicotine gum are not working for many heavy smokers. There are over 11.2 million heavy smokers who have tried the patch and the gum, and they're still smoking. Use of the PhaseOut filter perforation device allows smokers to continue smoking their usual preferred brand of cigarettes while reducing their exposure to harmful nicotine, tar, carbon monoxide and over 100 additional chemicals. This could have beneficial health effects, and could be particularly useful as a weaning method prior to smoking cessation. Second, PhaseOut is much less expensive than nicotine patch or gum. One-time charge of $19.95 can last for several years while the use nicotine patch or gum costs at least $3,000 in order to have any apparent effects on smokers. Third, PhaseOut is 100% natural and has no side effects that nicotine patch and nicotine gum often have such as skin irritation, insomnia, dry mouth, vomiting and nervousness. Severe nicotine overdose can result when patch and gum users also smoke. Severe overdose symptoms
are tremor, respiratory failure, low blood pressure, and some heart
attacks have been linked to nicotine overdose.
Summary
Technical analysis indicates that QPRC's shares temporarily peaked at
$0.0625 in the middle of May before the company released its PhaseOut and its e-commerce site, as the its Relative Strength generated a bearish overbought reading. Since then, its trading is best described as quietly basing, which is not surprising because QPRC, this little rough diamond, has not got much attention in the investment community. QPRC is getting ready for the next move now. Its Relative Strength remains oversold despite any real decline. Its On Balance Volume implies its shares are under heavy accumulation, adding to its positive technical picture. In the final analysis, many indicators suggest its current consolidation will end and its next leg up will begin and show an upside breakout from an ascending triangle that has been basing at a higher level for three months. That alone without any other data targets the stock at 30 cents with relative ease. QPRC is in an ideal technical state for a further advance to new highs.
Management is looking to increase earnings in QPRC through release of
several new products in addition to PhaseOut, which would provide strong growth potential for its shareholders and give the company recurring per share earnings with substantial cash flow. Several news products are completed and will be released very soon via its a new e-commerce site at quest-products.com, which is scheduled to be launched in the middle of August.
One of these new products is patent-pending sunglasses which change colors. Several major sunglass companies and sport companies
are interested in licensing the rights to use this new and exciting
technology. It can also be used in ski goggles or diving masks or just about anything else. Also, the company is negotiating with several major drug chain retailers including Walgreen for distribution of PhaseOut across the nation and major international distributors for distribution of its PhaseOut worldwide. Also, the company is negotiating with several major web portals to promote its new products, as well as PhaseOut.
We believe the company is about to come out in a huge way. Given this
severely undervalued situation in an exploding multi-billion dollar field, these major developments makes QPRC a super turnaround situation capable of being one of this year's biggest movers. QPRC may turn out to be one of the greatest turnaround stocks in 20th century and could be last opportunity that we will be ever able to grab before next millennium. We view QPRC as an excellent growth company with exceptional potential for capital appreciation over both the immediate and longer term. As industry and investor awareness of QPRC increases, new products are released, and contracts are signed and announced, QPRC's shares should move much higher in the coming weeks. We project the company will achieve annual revenues
of $47.5 million with EPS at $0.12. Hence, the stock is rated strong buy with a short-term target price at $0.75-$1.00.
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