GVSS another new position

There are lots of stocks out there that just smell. Anyone who has been investing for awhile may very well know what I mean. The storys just don't make sense. Once in awhile though you get one that just smells .... well good. GVSS seems like one of those to me and despite the fact its a bit pricier than I generally like I bought in today at between .73 and .75 a share.

GVSS is a semi-exclusive distributor of Samsung video surveillance products in North and South America. One area of focus for them has been security for educational institutions. You have to like that niche. It has quite a bit of sex appeal for many investors.

The basic story is that we have a new management team that has taken a company that was bleeding cash when they took over back in March 06 and has turned it around into an enterprise that is growing the bottom line consistently and looks poised for some big topline and even bigger bottom line increases going forward.

Management has a history of turning around companies and they have lived up to that history so far at GVSS. Here are their earnings from when they first took over in March 06 to the present quarter.

Jun 06 (3,746,000)
Sep 06 (3,570,000)
Dec 06 (6,500,000)
Mar 07 160,000
Jun 07 308,000
Sep 07 473,000

This is a pretty impressive turnaround on the bottom line IMO. Earnings improved by 4.2 million a quarter over a 15 month period.

There is a nice presentation from management on some of their history and strategy for the company here.
http://www.seekingalpha.com/article/36487-gvi-security-solutions-wall-street-analyst-forum-presentation-transcript

Their early strategy was to fix things, and they did. They cut expenses improved margins and ditched a nasty financing deal with Laurus and replaced it with a new cheaper loan package from Wells Fargo.

Now they are focused on growth.

They expect the next quarter to again show year over year improvements on the revenue side which means they should also grow earnings again on a sequential basis. In addition there are some tidbits that suggest they will see very substantial growth in 2008. First they mentioned on the last conference call that they added 30 sales reps in the current quarter.As of September they were sitting at 80 reps so a 30 rep increase is a huge increase in the sales force. Most of their sales reps in the US are independent reps so there should be no hit to SGA outside of the expected commission arrangements. In addition they announced today that Samsung will be funding a 1.5 million dollar marketing campaign in 2008 to help them expand sales. Their current sales and marketing expenses combined are roughly 1.4 million a quarter. You have to like it when another company pays for a 30% increase in your sales and marketing budget.

My only big reservation here it is not dirt cheap on a trailing earnings basis. Diluted EPS was a bit under .015 last quarter and those are untaxed earnings. They do have NOL's to offset taxes going forward however I expect them to pay at least partial taxes in 2008. By my calculations they will likely only be able to utilize about 300k in NOL's a quarter.

Still this is a company in a nice recession resistant niche with what appears to be great management and some serious wind at their back to help them ramp up sales in 2008. I believe I am going to bevery happy with this purchase 6 months from now.