iBasis Inc.

Rating Buy - 12 month price target = $17.00 (unadjusted for one-time dividend)

IBAS $10.05 — (NASDAQ) June 30, 2007

Total Revenues (Millions)/ Earnings (loss) per share;

FY (12/04) – 264 M / (1.19)
FY (12/05) – 385 M / (0.07)
FY (12/06) – 511 M / 0.04

52 - Week range: $7.36- $11.07

Shares outstanding as of 30-06-07: 33.5 million

Approximate float: 27 million

Market Capitalization: $336 million

iBasis is a leading carrier of international long distance telephone calls and provider of retail prepaid services. iBasis delivers toll-quality international call completion services over its state of the art global VoIP network to more than 100 countries. The company's customers include many of the world's largest carriers and fastest-growing consumer VoIP providers who outsource their international voice traffic to iBasis to reduce their cost of transport and service support, while providing service quality indistinguishable from that of traditional phone networks.

Key Investment Considerations:

I am rating iBasis (NASDAQ:IBAS) with a Buy and a twelve-month price target of $17.00 (post split) per share based on a total 17x TEV/2008 EBITDA . The migration of traditional networks to VOIP, the internationalization of the worlds population along with a large untapped potential in retail voice services bode well for iBasis over the next few years. Voice traffic is becoming more fragmented and regionalised, and many of the emerging carriers such as ILECs, PTTs, cable operators and ISPs lack global networks, which iBasis can capitalize on. iBasis has not yet built a sizable retail operation, however, with more effort, there exists plenty of opportunity to capture a share of this multibillion-dollar market.

In the short term, iBasis investors should look forward to a one-time dividend arising from merger between itself and KPN wholesale. The merger will allow the combined entity to extract synergies and economies as one of the largest international carriers of voice traffic.

International Long Distance: iBasis’ network covers the globe using the Internet as the primary communication gateway. Internet Branch Offices and Internet Central Offices, or IBO’s and ICO’s, respectively, make up the network. These “points of presence” (“PoPs), are the points that interconnect with the public switched telephone network (“PSTN”). The analog signal is digitised and transmitted over the Internet. This transformation effectively creates two local calls. iBasis has the ability to take calls from any source, be it mobile, landline or VOBB (Voice over Broadband), and terminate that call via transmitting it over the internet.

Granularity: A Consequence of a Growing Network:

Granularity in iBasis operations is a function of its ability to automate routing, which includes the analysis of a large number of parameters such as quality and margin, across an increasing number of routing options. A good example is a call going from the U.S. to the U.K. If that were the extent of your "granularity" of routing and rating, you'd have to price every call from anywhere within the U.S. to anywhere within the U.K. at the same rate. If you could handle slightly more granular routing and rating, let's say calls from the U.S. to not only "all U.K.", but also bypassing the central international switch and going directly to the cities of Liverpool, Manchester, and Birmingham. You'd be able to take advantage of lower termination costs on those "breakouts", leading to more competitive pricing and/or higher margin, etc. To be able to multiply that by thousands of breakouts requires very sophisticated and automated routing and rating systems that accommodate more aggressive buying and selling and much higher granularity. This requires sophisticated back office technologies that iBasis continues to develop.

Revenue and Margin:

Overall, telecommunications is a highly dynamic and elastic market; price fluctations have immediate and significant impact on traffic volume. This is true at the retail level and at the wholesale trading level. iBasis and its competitors frequently adjust pricing for a variety of reasons, such as to cover cost increases or to take advantage of cost efficiencies to capture market share, or as a throttle to achieve balance. As players in the market make these changes, others make counter-adjustments to the resulting changes in traffic flow. Those adjustments may include pursuing lower termination rates from existing or new partners, establishing off-net relationships with other carriers to opportunistically pursue short-term gains, etc. This change is constant, with hundreds of moving parts and it never ends.

Despite the automated aspect to the business, "making a call" on whether to go below our margin threshold on a specific route is up to sales, not network operations. There are strategic considerations involving the nature of the sales relationship, including whether iBasis is providing termination traffic to a specific partner in exchange for higher margin origination traffic, in which case the company would analyze the overall margin (the 360 degree view). There are times iBasis may decide to let the traffic go, knowing that there will be an opportunity to get it back under more favorable terms in the not distant future. Despite this, iBasis enforces margin thresholds on its traffic to stabilize its profit margin, and may turn away wholesale traffic that won’t produce the desired margin.

It needs to be emphasized here that what is important to iBasis is not ARPM (Average Revenue per Minute), it is AMPM (Avergae Margin per minutre). As ARPM has declined over the alst 10 years+, termination fees have decreased, keeping margins in the 5-15% region for most operators. Carriers such as iBasis who can provide large volumes of traffic can negotiate cheaper termination fees. Consequently, like any commodity business, scale is the key driver for success.

No single carrier has sufficient capacity and quality on every route to every destination in the world. To build such a network to accommodate peak traffic would be astronomically inefficient. As a result, no one carrier is the least cost provider to every country in the world. So, iBasis cooperates as it competes. It's just the accepted way the telecommunications business is conducted, and it's never been a problem.

Customers or Partners?:

iBasis’s arrangements with customers and partners (in-country providers who terminate traffic for iBasis) run the gamut from pure one-way, per-minute deals to "swaps", which are like bilaterals in which the two companies agree to exchange certain volumes of traffic at a negotiated ratio, to hybrids of both. Prerequisites include cost, coverage and quality.

Origination and Termination on Mobile Networks: Growth Area:

Termination of international calls to mobile networks was initially difficult for iBasis, as termination capacity was been difficult to get. The increase in traffic to mobile phones that iBasis continues to experience is more the result of its pursuit of that traffic and the companys ability to deliver the quality the wireless carriers require, rather than anything mobile carriers are doing. The majority of calls iBasis is terminating on mobile networks are originating from landline phones. So, most of the traffic increase is coming from its existing landline carrier customers who have put iBasis in routing for calls to those mobile networks as the company has demonstrated its capacity and quality. iBasis continues to work on adding more capacity for mobile termination through direct interconnects with mobile operators around the world, which will help the company to grow this segment of its business. iBasis also pursues opportunities to get originating traffic from the mobile operators as well. The KPN merger will result in iBasis taking a greater share of Mobile origination and termination traffic.

International Long Distance as an Offensive Weapon

Customers are interested in growing their business and making money. iBasis can help them do that, for example, by offering great pricing on calls to Mexico that enables Cricket to target the Hispanic community for its prepaid mobile phone service in the Southwest, and by offering rates that enable Skype to expand their GlobalRate program. The fact that iBasis proactively propose ideas that support their marketing initiatives, rather than simply issue rate modifications and send A-Z pricing sheets, is an approach that iBasis believes strengthen their customer relationships and its position in the marketplace.

Quality Issues

Quality VoIP at a very large scale - say 20+ million minutes per day, remains very challenging. iBasis continues to develop proprietary enhancements to its patent-pending Assured Quality Routing systems, the relevancy and importance of which are growing in step with the scale of the business and with itsincreasing retail presence. Wholesale international VoIP at iBasis’s scale involves a great deal of complexity, not only in the routing of calls, but also in managing rate changes, code changes, provisioning, billing arrangements, margin assurance, and a host of other variables. Session border controllers in the iBasis network have greatly simplified interoperability among VoIP gear from a multitude of vendors, which in turn simplifies the process of interconnecting with other providers and expanding the iBasis footprint efficiently.

The VOIP Paradigm:

Due to the lower cost structure of the internet as opposed to the PSTN, VOIP services can be provided at a much lower price to businesses and consumers than switch-based calls..The cost savings come from the reduced number of ports and carriers involved with each call. Importantly, there is no distinction among local, long distance, and international calling with VoIP. Thus, although iBasis can be considered a carrier of international traffic, it could also be considered a termination facilitator, regardless of location or traffic source.

VoIP consumes less bandwidth than traditional switched calls, resulting in lower costs. For example, silence and repetitive speech patterns, which can comprise up to 70% of normal voice interaction, consume capacity on a regular PSTN networks, but not on VOIP network. Technology resulting in silence elimination, redundancy reduction, and more efficient data throughput, ensures that VoIP utilizes only 10 to 15 percent of the bandwidth required for traditional voice communications.

iBasis needs only add capacity where it is required in the network, rather than upgrading the entire network. A new point of presence will automatically connect with the other points of presence in the network. VoIP is growing at a rapid rate and it is expected to surpass traditional PSTN traffic in 2009.

Skype: Threat or Opportunity?

Free PC to PC calling via Skype and other players could be perceived potentially as a long term threat to wholesalers of international traffic. It is however a too simplistic view of the rapidly evolving communications environment. The trend is for more networks, and providers, not less. Mobile operators in particular rely on voice traffic as a major source of revenue, and the growth of mobile networks has done little to reduce PSTN based traffic. It is against this background that PC-PC calling is most likely to remain a niche in the communications environment. Its worthy to note here that Skype is a customer of iBasis for SkypeOut, so the net effect of Skype on iBasis is most probably positive.

Computer Termination and ENUM

Number translation between the PSTN world and IP is anything but straightfoward. The industry has figured out how to enable a PC to emulate a telephone (the so-called "softphone") to enable the user to "dial" a traditional phone number with country code/area code/city code, etc., but haven't yet figured out how to enable a standard telephone to dial an IP address. Nor has the industry assigned DIDs to all the Internet-connected computers around the world, which also sounds daunting. There are a number of efforts underway to standardize the translation of numbers between the two, but the task is not easy.

Companies such as XConnect are attempting to address the need for a standardized way of handling number translations. Essentially, it involves dipping into massive databases that link phone numbers to IP addresses.

Peering a Threat?

Today, peering is like a handful of needles in a barn full of hay - there are several billions of fixed and mobile phone numbers worldwide compared to a few million VoIP users. XConnect and others continue to push peering as a solution; in the meantime interconnecting with PSTN terminators enables them to offer "off-net" termination (to PSTN and mobile networks) to their VoIP customers/members. Its worthy to note that a competitor to iBasis, the Arbinet offers a peering solution. iBasis CEO Ofer Gneezy has been quoted as “not doing free”, but is also “watching the space" closely.

Voice may be bundled, but it can never be free. The companies whose business models were built on giving it away back during what we remember as "the bubble" proved quite convincingly that "free" is not viable. However, it is essential to achieve massive scale while driving costs down.

iBasis-KPN Wholesale Merger:

iBasis and KPN announced in 2006 merger between KPN Global Carrier Services and iBasis. The merger and Royal KPN's subsequent 51% ownership of iBasis will give iBasis access to far greater mobile termination capacity in Europe (which is the largest region of mobile-terminated traffic) as well as access to mobile-originated traffic from KPN's retail mobile brands, which are leaders in The Netherlands, Germany and Belgium. The merger gas been delayed by more than 12 months by the stock options fiasco, but the scene is finally set to finalize the merger by October 2007.

Details of the merger are as follows:

-KPN will contribute its wholesale voice subsidiary plus $55.0M in cash for 40MM shares of iBasis, or 51% of the combined entity.
-iBasis will pay a cash dividend of $113MM, or about $2.94 per share, to existing shareholders of the Company. The dividend is comprised of the $55.0MM contribution from KPN, $21.0MM at KPN GCS, and a portion of iBasis’ existing $54.0MM cash balance.
- iBasis will remain as a stand alone US incorporated company with the Ofer Gneezy, Gordon van DerBrug and Dick Tennant continuing to run the company, and KPN will take 2 of 7 positions on the Board of Directors at closing.
- Combined 2005 revenues and minutes of use (“MOU”) would have been $1.1B and 15.0B versus $385M and 7.9B at iBasis by itself. Combined 2007 revenues could well be 1.3B+. (Management has provided updated 2006 guidance of $1.2B - $1.25B in revenue and $45M - $50M in EBITDA on a proforma basis. The guidance does not include expected cost savings of $10M).
- Because KPN wholesale has strong EBITDA, iBasis is giving up 51% of the stock ownership in exchange for 60% of the proforma revenue base and 68% of the proforma EBITDA. This is a good deal for iBasis.

The Options Issue:

In September 2006 an independant performed an internal investigation relating to stock options granted to the employees of the Company, the timing of such grants and their related accounting and tax treatment. This issue dragged on until very recently, when the Nasdaq Listing and Hearing Review Council that it is in compliance with all Nasdaq Marketplace Rules for continued listing on the Nasdaq Global Market and that the matter is now closed. This issue has prevented the merger to proceed. Analyst interest has also been muted in the last 12 months as the stock options issue was slowly being resolved, although it should be noted, this did not stop institutional interest in the stock.

The Retail Opportunity: Poor Execution To date:

In the last few years, Ibasis expanded into retail services through the sale of pre-paid calling cards to consumers and an online calling card portal called Pingo.com. In principle, this concept makes sense, since it is a perfect example of vertical integration, where the existing network is leveraged at little additional cost.

The opportunity for iBasis, if executed upon correctly, in the retail prepaid space is tremendous. Approximately 40% of international calls originated in the US come from prepaid calling services. In addition, the foreign-born population in the US continues to grow-it was already more than 10% of the population two years ago, according to the 2002 Census.

Prepaid Calling Cards

The calling cards are sold through relationships with distributors representing a national network of retailers. Consumers pay cash upfront for the card, the prepaid calling card business has a fast cash collection cycle than traditional wholesale services, resulting in significant deferred revenue appearing on the balance sheet. This product provides another revenue stream for the Company with minimal incremental cost. iBasis expects the service to expand and represent a large part of the revenue base in the future. Retail revenue is anticipated to bring higher margins (15-30%) than wholesale services (5-15%). Although this sounds attractive, iBasis has not yet been capable of securing stable high margins from its retail operations, primarily because of the fluctuating cycles associated with its prepaid calling cards.

Ibasis initially experienced rapid growth in its prepaid calling card business. It has however suffered some significant setbacks, which include fraudulent activity of its senior retail executive, Johnathan Kaplan, and collection issues with an east coast calling card distributor.

Private Label Calling Cards

iBasis’s relationships with many national carriers overseas gives it tremendous business opportunities to leverage the distribution network, its ability to create and manage rate tables and route the traffic over the iBasis Network. Likewise, there are significant benefits to incumbent national carriers who have been concerned about recapturing revenue from terminating inbound international calls, much of which has gone to new competitive carriers following liberalization.

Europe Opportunity

The prepaid market in Europe presents many of the same challenges and opportunities as the U.S. market. The requirements are very similar -- local access, good quality, competitive pricing, etc. It's important to establish relationships with the existing distribution channel, and the regulatory environment is comparable. The VAT (value added tax) is different. None of these differences appears to be insurmountable, and iBasis should shortly leverage its KPN relationship to launch prepaid cards in major cities of Europe.

Pingo

iBasis’s online calling card venture is called Pingo.com. An inspection of traffic rankings from Alexa.com (below) reveals the website is ranked 7th out of 35 online prepaid calling providers (Pingo.com ranked 81,588th most popular website).



An interesting trend in 2007 for these online prepaid calling providers is the decline in overall traffic rankings (below). Interpretation of this requires care, since there could be a number of unknown forces giving rise to this effect. In addition, it should be noted that website traffic does not equate to revenue.


The outlook for Pingo.com looks surprisingly healthy. As the company continues to invest in promotional activities, it has the ability to squeeze its competitors by vertically integration of its superior network.

Retail in The Future

Looking forward, with the impending merger of KPN wholesale, the retail portion of iBasis’s business will form an even smaller percentage of total revenues. Despite this, after the merger, iBasis will have more resources potentially to commit to the retail segment of its operations. After the merger, iBasis could decide to;
- Spin-off retail the retail segment into a stand-alone business
- Increase retail product offerings, for example, account-based calling plans, VOBB and mobile VOIP products. However the lack of success of companies such as Vonage suggests further enhancing this side of the business will not be easy. Despite this, iBasis will be able to rely on KPN’s expertise in retail telecommunications for assistance.

Industry Trends

The ITU estimates that there are a total of about 2.3 billion phones being used around the world. That number includes mobile phones, more than half of which probably are secondary phones, meaning that less than a quarter of the world's six-and-a-half billion people have phone service. So, there's tremendous growth opportunity for telephony, and not just in the underdeveloped countries, but also in countries that already have significant development momentum. The Internet itself is also growing, and now much of the intra-regional Internet traffic that used to travel to the US and back to the region stays in the region, which improves the quality of VoIP.

The major trend in wholesale international voice traffic suggest fewer wholesalers rather than more, and that the remaining wholesalers will grow and strengthen their positions. With the impending merger between KPN wholesale and iBasis, its clear that iBasis intends to be one of the survivors. Encumbents such as AT&T and MCI need to focus on the needs of their new parents (perhaps at the expense of the rest of their wholesale customer base), on defending their domestic marketplace from mobile carriers and emerging VoBB players (such as Vonage), and on an intensified battle in the enterprise space. This is why Verizon bought MCI and SBC bought AT&T. The LECs are weaker in the enterprise space but want to share in that business space. Technology also creates more competition in the enterprise space. Cisco is devoting huge efforts there. This forces the BT's of the world, who largely own this space, to devote more resources there.

Ten years ago the deregulation actions of the FCC (News - Alert) and the WTO in the 90s paved the way for global competition, the cost-efficiency of VoIP and the opportunity to use the Internet for transport enabled emerging providers like iBasis to roll out services and expand network footprint quickly and at a fraction of the capital investment required by circuit switching. IP has enabled iBasis to scale.

One important result of these trends is that wholesale international traffic is likely to double within the next three to five years. At the same time, many carriers are scaling back or abandoning their international wholesale business. For some this may be in favor of investment in other, higher margin aspects of their business. Others may have failed to adapt to the increasing complexity and competitiveness brought on by a more open wholesale market. In either case, iBasis is well positioned to capture a significant share of the growth in international traffic in both the wholesale and the retail ends of its business.

Domestic Long Distance ?

Domestic long distance can, in principle, deliver margins as attractive as international long distance in those countries where one has favorable termination rates. So, it varies country to country, but overall can be a significant margin opportunity. iBasis has never reported how much of its traffic is local long distance, but given the potential resistance from encumbents, who are customers, and the regulatory implications that kick in if you exceed certain thresholds (For example, in the U.S. certain fees (e.g. universal service fund) don't apply unless domestic long distance is more than 12% of your business), iBasis is likely to concentrate on international long distance for the time being.

Company History and Management Profile

Ofer Gneezy is President and Chief Executive Officer of iBasis, a leader in international long distance, VoIP, and prepaid calling cards. As co-founder, Executive Vice President and Assistant Secretary of iBasis, Gordon VanderBrug shares overall responsibility for the company’s financial performance with Ofer Gneezy and in addition, oversees the company’s marketing initiatives.

Ofer Gneezy and Gordon VanderBrug laid the foundations for iBasis in 1996, placing test voice and fax calls over the Internet, which in turn led to the launch that same year of IP voice operator, VIP Calling. In mid-1999, VIP Calling changed its name to iBasis to reflect its expanded focus on enhanced IP services, and embarked on its initial public offering.

IP has enabled iBasis to progress from a start-up to one of the largest carriers of international calls in the world in just 10 years. iBasis's annual run-rate of 20 billion minutes of international traffic — after the merger of KPN Global Carrier Services into iBasis takes effect — will be second only to Verizon (News - Alert), according to Telegeography. The transformation of global telecommunications continues to be driven by the migration to All-IP networks.

Valuation: Outlook

I am rating iBasis (NASDAQ:IBAS) with a Buy rating and a twelve-month price target of $17.00 (post split) per share based on a simple 0.7x estimated 2008 revenue of $1.3B. Post-merger, the company will have strong cash flow and will have the ability to aggressively grow its network, fund retail expansion and seek out acquisitions.

Before the transaction was announced, iBasis shares were trading at approximately 17x 2006 projected EBITDA. On a proforma basis, these metrics decline to 10.8x after the KPN merger. With more than a 2x increase in revenue and 3x increase in EBITDA, combined with significant access to new geographic markets and customer mix, iBasis should be valued closer to $17.00 post merger and post split.

The trends in telecommunications appear to favour the iBasis business model. International traffic is migrating from fixed to mobile networks; traffic is migrating from PTTs to local carriers; and it's moving from TDM to IP. In all three cases, the traffic is moving towards providers that historically have not had international networks. In addition, the growing adoption of retail voice over broadband services like that from Skype and Yahoo Broadband, as well as those from cable operators and other providers, will drive growing demand for wholesale international VoIP.

IBasis is arguably one of the success stories of the of the IP revolution, and adequately weathered the dot-com crash. The future is bright for iBasis.

Boots & Coots International Well Control Inc.


Rating: Speculative Buy - 12 month price target = $2.50

WEL $1.82 — (AMEX) June 11, 2007

Total Revenues (Millions)/ Earnings (loss) per share;

FY (12/04) – 24.5 M / (0.04)
FY (12/05) – 29.5 M / 0.06
FY (12/06) – 97.3 M / 0.21
FY (12/07) E – 116 M / 0.44

52 - Week range: $1.50 - $2.99
Shares outstanding as of 12-06-07: 75 million
Approximate float: 63 million
Market Capitalization $139 million

Boots & Coots International Well Control, Inc. (Boots & Coots) provides a suite of integrated pressure control and related services to onshore and offshore oil and gas exploration and development companies in the USA and worldwide. Boots & Coots operates in two segments: Well Intervention and Response. The Company’s Well Intervention segment consists of services that are designed to enhance production for oil and gas operators and to reduce the number and severity of critical events, such as oil and gas well fires, blowouts, or other losses of control at the well. The segment includes services performed by hydraulic workover and snubbing units that are used to enhance production of oil and gas wells. The Company’s Response segment consists of personnel, equipment and emergency services utilized during a critical well event.

Key Investment Considerations:

I am rating Boots and Coots (AMEX: WEL) with a Speculative Buy rating and a twelve-month price target of $2.50 per share based on currently being undervalued in the marketplace. Investor confidence has been recently hit by a poorly executed stock offering and a weak quarter (revenues and EPS similar to Q2 06. Despite this, Boots and Coots is set to earn 0.10-0.15 cents per share in ’07, valuing it in the $2.50range assuming a simple PE x 10 multiple. Readers should note that the company’s revenue stream from the response section of its business is notoriously volatile due to factors including changes in the volume and type of drilling and workover activity occurring in response to fluctuations in oil and natural gas prices. Wars, acts of terrorism and other unpredictable factors may also increase the need for such services from time to time.

Well Intervention: The Company’s Well Intervention segment consists of services that are designed to enhance production for oil and gas operators and to reduce risk of oil and gas well fires, blowouts, and other serious events. The Wellsure® Program involves and alliance between Boots & Coots, Global Special Risks, a leading international Managing General Agent, and Underwriters at Lloyd’s of London. The resulting product is a package that includes a full range of Boots & Coots’ well control prevention and post-response services as part of clients’ insurance package. The SafeGuard program includes risk assessment, contingency planning training and education in well management

Response: Company’s Response segment consists of personnel, equipment and emergency services utilized during a critical well event, including provision of firefighting pumps and hydraulic workover units for emergency well control situations. These services are designed to minimize response time and mitigate damage while maximizing safety.

International Expansion: At present, Boots & Coots has active operations in Algeria, Venezuela, India, Kazakhstan, Congo, Egypt, Libya and Dubai. The Company also has 88 WELLSURE® contracts, including 2 contracts in Argentina and 61 in Canada. The HWC acquisition (below) brings the company closer to itscustomers geographically. In addition to complementary locations in Algeria and Venezuela, they provide the company with a presence and on-site facilities in Houma, Louisiana, West Africa, Egypt and Dubai. Boots and Coots intend to be able to leverage this geographical presence and expand its Safeguard and risk management services into these markets.

Growth: The Company expects growth to continue in 2007 as a result of additional Safeguard work in Libya, prevention work in Indonesia, and additional hydraulic workover/snubbing units in Qatar, Saudi Arabia, and the Congo. Boots & Coots is negotiating a large snubbing services job in the Mideast and has been approached to deploy an additional unit in 2008. The Company's Safeguard and hydraulic workover business in Algeria grew significantly in 2006 to five-year contracts worth $35 million. Boots & Coots has been approached by a major oil and gas operator to form a joint venture that would supply all of that company's hydraulic workover/snubbing service needs in Algeria.

HWC Acquisition: The acquisition of HWC adds a group of core service capabilities to each company that are a critical offering to Boots and Coots customers. Boots and Coots utilize hydraulic workover / snubbing in a large percentage of well control jobs.

Company Overview:

Boots and Coots provide a suite of integrated pressure control and related services to onshore and offshore oil and gas exploration and development companies, principally in North America, South America, North Africa, West Africa, and the Middle East.

The Company's primary business objectives are to continue growing its revenue base, especially its Intervention segment, and to continue strengthening its balance sheet. The Company plans to reinvest its working capital in order to accomplish those objectives.

Boots and Coots experiences large fluctuations in revenues from these services. Well Intervention services provide a more stable revenue stream and the companies strategy has been, and continues to be, to expand these product and service offerings to mitigate the revenue and earnings volatility associated with critical well event services.

Company History and Ownership:

1978: Boots Hansen and Coots Matthews leave the Adair Company to form Boots & Coots.
1991: Iraqi solders ignite more than 700 oil wells as they retreat in defeat at the close of the Persian Gulf War. Over 30% of the fires are controlled by specialists from the Red Adair Company (who later formed International Well Control [IWC]) and Boots & Coots.
1994: Red Adair retires and sells his company to Global Industries. The senior mangement of the Red Adair Company leaves Global Industries and forms International Well Control.
1995: IWC and Halliburton Energy Services join forces to create the WellCall Alliance.
1997: International Well Control acquires Boots & Coots, reuniting the world's most experienced well control specialists and fire fighters.

On March 3, 2006, Boots and Coots acquired the hydraulic well control business (HWC) of Oil States International, Inc. by issuing approximately 26.5 million shares of common stock and subordinated promissory notes. Oil States International, Inc. subsequently sold 14.95 million shares of Boots and Coots common stock in April 2007 and now owns approximately 15% of the Company.

As of December 31, 2006, the executive officers and directors, which consist of nine individuals, collectively have a 3.7 percent beneficial ownership in the form of stocks and stock options.

Valuation: Outlook

Boots and Coots experienced a weak 07 Q1, with revenues and gross profit similar to what was obtained in Q2 06 (see below):

Despite this, I am forecasting revenue of 104 Million and full EPS this year of 0.15 cents. The company has previously stated that the Well Intervention services segment for 2007 will generate approximately $95 million in revenues. Because of the highly unpredictable nature of the response business, the Company does not project results for this segment. However, using historical figures for the Response section of the business, Boots and Coots could easily surpass the 10M predicted in this model for 2007 (below);

Summary: I believe the Outlook for Boots and Coots are positive. With the companies stock offering and a weak quarter behind it, it is set to grow revenues and EPS via international expansion and integration of HWC. In the short term however, the stock may be continue to be subject to high volatility.

WWA Group, Inc.

Rating: Speculative Buy - 12 month price target = $2.00

WWAG $0.79 — (OTC BB) May 30, 2007

Total Revenues (Millions)/ Earnings (loss) per share;

FY (12/04) 11 M / 0.05
FY (12/05) 16.3 M / 0.07
FY (12/06) 17.62 M / 0.07)
FY (12/07) E 25.5 M / 0.20

52 - Week range: $0.50 - $1.35
Shares outstanding as of 30-05-07: 16.6 million
Approximate float: 5.1 million
Market Capitalization $13 million

WWA Group, Inc. is engaged in the auctioning of transportation and industrial equipment. The Company operates its largest auctions at its primary facility in Dubai where 33 large unreserved equipment auctions and five smaller transport auctions have been held since March 2001. WWA Group's primary auctioned items include mobile and stationary earthmoving and construction equipment, such as crawler tractors, excavators, wheel loaders, cranes, trucks and trailers, generators, compressors, agricultural tractors and forklifts. Much of the equipment can be used in multiple industries. The Company also sells light vehicles and other related items, such as boats and motorcycles. All of its auctions are unreserved, meaning that there are no minimum or reserve prices; each and every item is sold to the highest bidder on the day of the auction.

Key Investment Considerations:

I am rating WWA Group (OTCBB: WWAG.OB) with a Speculative Buy rating and a twelve-month price target of $2.00 per share based on an increase in cash flow arising from a larger auction facility, overseas expansion and from investments in shipping and mining.

International Hub:The WWA group are located in Dubai, which is quicly becoming one of the most attractive business hubs on the planet. Dubai’sport, Jebel Ali, constructed in the 1970s, has the largest man-made harbour in the world. Dubai is also increasingly developing as a hub for service industries such as IT and finance, with the establishment of a new Dubai International Financial Centre (DIFC). The population of Dubai has exploded in the last 10 years. There is no evidence that the pace of expansion is slowing.

1968 58,971
1975 183,000
1985 370,800
1995 674,000
2005 1,204,000

Cash Flow: Despite WWA Group being subject to a substantial increase in yard and staff housing rent expenses in the last 2 years, which is a result of a tremendous demand for housing and land within the UAE’s Free Zone, the WWA group has a history of operating cash flow from operations. The company’s attempts to diversify into other regions and markets (see below) should consolidate cash flow, and reduce its exposure to volatility arising from a single revenue stream. In addition, the Jebel Ali Free Zone is an income tax free zone. Therefore, the profits of WWA Group are not taxable in Dubai. WWA Group has determined that undistributed earnings from Dubai will be reinvested in the business indefinitely and that such earnings will not be distributed to the U.S. parent.

Diversification: WWA has embarked on its expanded operations plan to leverage its dominant equipment auction and trading base into a diversified business including shipping and mining activities in the Gulf region that are related to heavy equipment. For example, ownership of a shipping company and control over a large volume of equipment being moved around the world by regular consignors provides vertical integration opportunities that could combine auction services with the ability to meet shipping needs.

WWA Group acquired 32.5% of Power Track Projects in December of 2006. Power Track is engaged in a large scale limestone mining and aggregate production project in Ras Al Khaimah, and is currently managing a project for the government of Ras Al Khaimah, U.A.E., to excavate over 25 million tons of limestone through 2010. The process of removing the limestone is equipment intensive utilizing earthmoving and support equipment working with three crushing machines capable of producing over 10,000 tons of crushed aggregate per day. The WWA group has indicated that Power Track Projects is growing organically, but may require additional funding to fuel growth. The aggregate business is set to grow in line with the growth in construction projects in the U.A.E. and the Gulf region.

In June, 2006, the WWA group announced that it agreed to acquire a company that owns a 3,500 dead-weight-ton shipping vessel specializing in moving heavy equipment to and from the Gulf region and India. The vessel is chartered for the next 42 months to a freight company that handles shipping for WWA and WWA customers. The previous loan agreement and the current acquisition are based on gross revenue from the vessel charter of approximately $1,800,000 per annum, and net profit of approximately $900,000 per annum.

WWA Group to partner with an established Johannesburg based equipment dealer in a 50/50 joint venture company to run equipment auctions in the Republic of South Africa (RSA). The company has indicated there are several synergies with its existing business, and a large amount of potentionally auctionable new and used mining equipment present within the country.

New Auction Site: The WWA Group has been operating in a yard rented on an annual basis from Dubai Ports World since 2002. The companies new site in Jebel Ali will be larger and capable of holding more equipment than the existing site, eliminating the current restraint on growth. The WWA group has signed a 20-year lease on a 1 million square foot property in the Jebel Ali Free Zone, Dubai. WWA Group plans to build a permanent facility on the site for auctions, trading and the refurbishment of heavy equipment.

Company Overview:

Auction Business: WWA Group’s business strategy is to increase cash flow from operations and expand operations to new auction sites. Inherent to the companies growth plans is the expansion of lower cost auction methods, such as on-line auctions, video auctions and transportation equipment only auctions, all of which can be held on a more frequent basis than the larger equipment auctions. While smaller in size, these auctions will not interfere with or detract from WWA Group’s major equipment auctions, and the economics of scale at the Dubai facility are efficient for this purpose.

WWA Group's primary auctioned items include mobile and stationary earthmoving and construction equipment, such as crawler tractors, excavators, wheel loaders, cranes, trucks and trailers, generators, compressors, agricultural tractors and forklifts. The Company also sells light vehicles and other related items, such as boats and motorcycles. All of its auctions are unreserved, meaning that there are no minimum or reserve prices; each and every item is sold to the highest bidder on the day of the auction. Consignors are prohibited by contract from bidding on their own consigned items at the auction or in any way artificially affecting the auction results.

Company History and Ownership: On August 8, 2003, the Company (formerly Novamed, Inc.) and World Wide Auctioners (WWA) executed a stock exchange agreement, whereby the Company agreed to acquire 100% of the issued and outstanding shares of World Wide, in exchange for 13,887,447 shares of the Company’s common stock. Subsequent to the merger, the Company changed its name to “WWA Group, Inc.”

It should be noted that Asia4Sale.com, Inc. (now changed names to “Asia8”) owns and controls voting power over approximately 46% of WWA Group’s issued and outstanding stock. Asia8 plans to list as a publicly traded company in 2007, but otherwise, the status of this privately held concern is unknown.

Valuation: Outlook

I am forecasting ’07 revenue of 25 M and EPS of 0.20. I am assuming in my modekl relatively flat growth over the initial half of 07 while the company moves to its new facility, followed by increased revenue towards the end of 07. I have forecast that by Q4 ’07, the company will earn 7 M in revenue with 1.5 M in net income.

Using aforward PE of 15, and using the aforementioned assumptions, I am valuing the company at $3.00 per share. However, I am adding a discount of $1.00 for being a low volume traded OTCBB stock

Summary: I believe that the long run prospects of the Company are positive. Its risk reward ratio advocates purchase of the stock. In the short term however, the stock may be continue to be subject to high volatility.

General Metals Corp.

Rating: Speculative Buy - 12 month price target = $1.50

GNLM $0.39 — (OTC BB) May 17, 2007

Total Revenues (Millions)/ Earnings (loss) per share;

FY (12/05) - 1 M / (0.14)
FY (12/06) - 0 M / (0.20)
FY (12/07) E - 0 M / (0.25)

52 - Week range: $0.06 - $0.89

Shares outstanding as of 21-05-07: 39 million

Approximate float: 70.12 million

Market Capitalization $29 million

General Metals Corporation (OTCBB: GNLM.OB) is a gold and silver mining company. The company has a 100% undivided leasehold interest in the Independence mine, which is predominately a silver mine, consisting of 14 whole and fractional mining claims encompassing 240 acres. General Metals Corporation also focuses on acquiring mineral rights and mining opportunities in Ghana,

Key Investment Considerations:

I am rating General Metals Corporation (OTCBB: GNLM.OB)with a Speculative Buy rating and a twelve-month price target of $1.50 per share based on the likelihood successful commercialization of the independence mine in Nevada.

Reduced Risk: The Independence Mine deposit could potentially be open pit mined, with the ore being treated with excellent recoveries, opening the way for cash flow over the next 1-5 years, which could finance future exploration activities. A 1997 geologist report by Akright estimates that the Independence mine contains 2.5 million ounces of silver and 235,000 ounces of gold at shallow depths. The company has indicated its competency at recovering precsious metals at low depth. The Company’s 2007 production from the shallow target mineralized cyanide heap leach is targeted at 4,000 ounces of gold and 250,000 ounces of silver.

Despite this, investors should recognise, that management could be over-estimating mineral reserves, and that the necessary authorisation from State and Federal regulators to mine the claim have not been obtained.

Deep Target: A deep target at the Independence mine is estimated to hold 2 million ounces of gold. General Metals Corporation is currently conducting drilling on the property to determine the grade and quantity of gold and silver present in the mines.

Location: The Independence property is strategically located on strike with Newmont's world class Fortitude / Phoenix gold skarn deposit whose gold reserves exceed 8.5 million ounces and is scheduled for production in mid 2006. The Independence property has reasonable potential to develop an underground resource in the Antler sequence. General Metals Corporation control 100% of The Independence claims which are completely surrounded by Newmont Mining's Phoenix Mine and is a 240-acre island with legal access. From 1983 - 1997 there were several exploration campaigns conducted by Noranda, Teck Exploration, Northern Dynasty and Great Basin Minerals which resulted in about 80 reverse circulation and core drill holes being drilled and reported.

Management Expertise: General Metals CEO is Mr. Stephen Parent, who has worked in the mining industry for 25 years and has previously managed the several junior mining companies in the United States and Canada.

The Outlook for Gold and Silver: The precious metals research firm GFMS Ltd. estimated that at the end of 2005, above-ground stocks represented a total quantity of approximately 155,500 tonnes, of which 64% had been mined since 1950.
• During the past year, gold trading ranged from US$540 to US$730 and 2007 could bring similar volatility to the gold markets.
• One of Wall Street’s best technical analysts sees gold surpassing US$730 per ounce this year and US$3,000 within the next ten years.
• Analysts are calling for gold to average from US$600 to US$675 per ounce in 2007, after averaging slightly over US$600 in 2006.
• Central banks' gold holdings are the equivalent of about nine years’ worth of industrial and jewelry demand.

Global inflation concerns, geo-political tensions, high crude oil prices, depreciation of the US dollar against major global currencies and rising US public debt have caused major investment funds to invest in gold to hedge risk.

Company Overview:

Exploration Plans: The Company plans to conduct a three-phased drilling program at its Independence mine;

Phase I: Phase I of the drilling program is underway. The Company plans to drill 15 to
20 holes with a depth of 500 meters and two reverse circulation holes of 1,000 meters to determine the vertical location and another 5 to 10 shallow holes to analyze and determine the grades of gold reserves.

The first section to be drilled is on the Independence shallow target and will also be the first section to be mined once permitting is received for the proposed cyanide heap leach operation. The Company has already drilled and sampled approximately 130,000 tons of mineralized material that should generate over $3,000,000 of revenue on recovery.

Phase II: General Metals Corporation plans to drill 20 holes of 500 feet in the Independence target

Phase III: The Company intends to drill five holes of over 3,000 feet in depth in the Wilson-Independence Deep target to determine the grade, quality and quantity of gold and silver reserves and the economic feasibility for commercial exploration and mining.

Geology: There are two known types of ore deposits in the Independence and Fortitude mine areas. Both are believed to have been formed around the Wilson lobe and the main body of the Copper Canyon stock, a 38 million year old granodiorite intrusive. These lobes may be connected at depth to a larger intrusion. The shallower Independence mine ore deposit contains elevated silver values relative to gold, indicative of higher level epithermal veins that overlie deeper hypothermal mineralization where gold values are expected to increase.

Previous mine records and more recent surface drilling indicate that the mineralization found at the Independence Mine is the higher level expression of a deeper gold skarn ore target at depth. The Wilson-Independence property contains both shallow and deep economic grade mineral potential.

Financing: General Metal’s financing strategy is to raise funds in small increments that allow it to complete exploration of a specific targeted area while minimizing dilution to existing shareholders. The Company has budgeted $1.35 million for its Phase I drilling activities. In addition, the company has also approximately 6.1 million warrants outstanding exercisable through June 30, 2007. If these warrants are exercised, the proceeds the Company would receive in excess of $1.5 million.

Valuation: Outlook

At current ore prices, the value of the shallow target gold production could be in excess of $150 million and the value of potential production from the deep target could exceed $1 billion. Gold and Silver production in 2007 could afford $5 M+ in revenues. Junior Gold and Silver companies tend to trade at very high Price/Sales multiples, ranging from 10 times revenues to over 300 times revenues. Newmont Mining (who owns the adjoining property in Nevada), a large mining company, trades at a Price/Sales multiple of four times revenues.

General Metals Corporation has a market capitalization $29 million, which is approximately 1/5th the short near-term revenues which could be generated from developing shallow target gold deposits. A 1x multiple of short term realizable revenues, or roughly $1.50 per share is more appropriate.

Summary: I believe that the long run prospects of the Company are positive. Its risk reward ratio advocates purchase of the stock. In the short term however, the stock may be continue to be subject to high volatility.

Novelos Therapeutics Inc.

Rating: Speculative Buy - 12 month price target = $3.00

NVLT $1.15 — (OTC BB) May 12, 2007

Total Revenues (Millions)/ Earnings (loss) per share;

FY (12/05) - 0 M / (0.14)
FY (12/06) - 0 M / (0.20)
FY (12/07) E - 0 M / (0.25)
FY (12/08) E - 0 M
FY (12/09) E - 0 M
FY (12/10) E - 30 M
FY (12/11) E - 150 M
FY (12/12) E - 300 M
FY (12/13) E - 450 M

52 - Week range: $0.60 - 1.40
Shares outstanding as of 12-05-07: 39 million
Approximate float: 28 million
Market Capitalization $45 million

Novelos Therapeutics, Inc. (OTCBB: NVLT.ob) is a biopharmaceutical company commercializing oxidized glutathione-based compounds for the treatment of Cancer and Hepatitis.

Key Investment Considerations:

I am rating Novelos Therapeutics, Inc. (OTCBB: NVLT) with a Speculative Buy rating and a twelve-month price target of $3.00 per share based on the likelihood of success of its lead compound NOV-002 in Phase 3 trials, that were commenced in November 2006 under fast track designation from the FDA for non-small cell lung cancer (NSCLC).

Reduced Risk: NOV-002 is marketed in Russia by PharmaBAM under the trade name Glutoxim®, and has already been administered to over 10,000 patients, demonstrating clinical efficacy and excellent safety. Thus, the risk associated with this stock is significantly less than other early-stage biotechs, because NOV-002 is already approved in Russia and has been used successfully in THOUSANDS of cancer patients.

Billion Dollar Prospect: If successful, NOV-002 global sales in NSCLC could be greater than $1B by 2014. Lung cancer is a ~$1.5bil market in the US. Hepatitis C (NOV-205 candidate) is a ~$3bil market, projected to grow to $8bil by 2010.

Tolerance and Availability: Patients treated with NOV-002 are able to withstand many more cycles than conventional lung canvcer treatments, such as cisplatin alone. Glutathione, when combined with other chemotherapy drugs is able to reduce the side effect profile for the patient. Oxidized glutathione is simple and inexpensive to manufacture relative other chemotheraphy drugs such as Taxol.

Potential Glutathione Pipeline: The scope of activity of Glutathione, the active molecule in NOV-002, is being investigated thoroughly by Novelos. NOV-002 is also being investigated in a Phase II trial with Carboplatin in women with Recurrent and Platinum Resistant Tumors of Mullerian Origin. The company has also developed a pipeline drug candidate known as NOV-205 for treatment of hepatitis B and C, which is currently being tested in a Phase Ib study in the US.

Positive data from these studies should provide additional upside to the stock in the future, and could become a takeover candidate.

Valuation: Novelos remains undervalued relative to other early stage biotechs. As an example, CYTR (Nasdaq) has a Pipeline of: 2 phase II's, 1 phase I and numerous preclinicals, and has a market cap of 325 M. As soon as the investment community acknowledges the potential for Novelos to develop a portfolio of active Glutathione derivatives against a broad spoectrum of diseases, the market cap should rise accordingly.

Company Overview:

History: Novelos Therapeutics was originally incorporated in June 1996 as AVAM International Inc to capitalise on glutathione-containing drugs. In October 1998, the original Novelos Therapeutics was merged with AVAM and the resulting entity was Novelos Therapeutics Inc. In June 2005, the firm completed a reverse merger with Common Horizons Inc., and Novelos was the surviving firm. Between May and September 2005, Novelos raised $5 million in gross proceeds from a PIPE financing and $3 million in gross proceeds from a
convertible preferred financing. Subsequently, Novelos raised an additional $15 million in a PIPE financing in March 2006. Novelos Therapeutics recently announced the closing of a $15MM private placement. Thus far, the firm has raised $44 million through a combination of debt and equity offerings.

Pipeline and Developmental Milestones:

NOV-002 for Non-Small Cell Lung Cancer Phase 3 - under SPA and Fast Track
Q1 2008: Complete Enrollment
Q2 2009: Completion
Q2 2010: FDA approval and app.

NOV-002 for chemotherapy-resistant ovarian cancer Phase 2
Q3 2007: Initiation

NOV-002 for breast cancer
Q4 2008: Completion

NOV-205 for chronic hepatitis C Ph 1b
Q3 2007: Completion

Cash Burn: Novelos increased its R&D investments to $641,523 in Q1 FY06 compared to $157,589 in Q1 FY05. The company’s general and administrative costs expanded to $793,285 in Q1 FY06 from $195,515 in the comparable quarter a year earlier. The Company’s net loss was $1,354,086 in Q1 FY06 compared to $410,744 in Q1 FY05. These costs should continue to increase over the coming years as expenditure on clinical trials increases. Novelos is fully funded to mid-to-late 2008.

Projections: Rodman and Renshaw recently assigned a risk adjusted NPV for NOV-002 of 200M, which I beleive, at this time, is a low estimate. For example, they gave only a 40% probabilty of success as part of the NPV analysis of NOV-002 for NSCLC. This is despite the drug candidate already receiving positive Phase II results in the Russian study and now also in the US. As a point of reference here, as a drug moves through the pipeline and passes each hurdle, the risk decreases with each major milestone. Drugs entering Phase I clinical trials have a only a 15% probability of success. For phase II, the odds are around 30%, and for Phase III, 60%. Thus, if a probability of success of 60% was given, then the NPV becomes 300M, without any revenue from other cancer studies included at this time.

If positive phase II data can be obtained, then a similar risk adjusted NPV will add significantly to the valuation of this company. The pipeline and the exploration of further indications with NOV-002 are crucial to sustaining Novelos’ forward momentum as the Phase III program matures.

Summary: I believe that the long run prospects of the Company are positive. Its risk reward ratio advocates purchase of the stock. In the short run, the stock may be continue to be subject to high volatility and continue to trade at a significant discount to its market. Over the next few years as the story plays out, this situation should change.