Thursday, 15 November 2007

Noted Investment Advisor Comments On AeroMechanical

AeroMechanical Services (AMA - TSX V)

All those who are shareholders or have been watching the company are certainly aware that the stock has been under pressure with it sliding into the mid $0.40's from the mid $0.60's over the past couple of weeks.

Based on a large amount of feedback The Howard Group has received, we know this is attributable to a combination of 1) a potential patent infringment issue that was raised by STAR Navigation several months ago 2) a lack of news on new contracts and 3) updates on the rate of AFIRs installations.

First, the market hates anything with the words "patent and legal" in the same breath because it creates uncertainty. Whether or not the action is totally without merit is irrelevant in the minds of most people as until the matter is settled there will always be some level of doubt.

Of course, one of the quickest ways to dispel doubt about the integrity of your product and intellectual property is to have new customers lining up to sign contracts. This is the customer not the company saying, "we're not concerned".

With that in mind, we noted with great interest a very recent commentary that came from Chris Wardle, a well followed and respected investment advisor with Bolder Capital in Vancouver. The Howard Group introduced the AMA story to Chris in early 2006 and he became and remains a supporter of the story.

In a note to his clients he wrote: Stock has weakened off significantly recently. I believe all is intact and the reasoning for the weakness is not justified. I am buying more.

Stock is weaker off of Star Navigations SNA allegations and their "success". SNA as indicated in today's press release failed to file the necessary paper work regarding a review of AMA's patent. SNA's strategy is to steer attention to their company in hope of an upcoming financing (the company has no cash or revenue), but their patent strategy will fail. Actually SNA's ownership of the patent is questionable (SNA is fighting with their former President over the patent) and "their" patent has a different application from AMA's. I would expect AMA to now take legal action against SNA.

SNA's recent contracts are not wins from AMA. One is for a helicopter which is 35 years old and is not monitoring the health of the aircraft. The other contract is for an airline in India which does not have any aircrafts. SNA has announced contracts out of India in the past few years which have not resulted in revenue.

Investor psychology: selling pressure which came from uninformed retail investors and perhaps conservative funds are scaring shareholders, resulting in a domino effect, with retail investors now thinking something must be wrong. History has shown these situations as buying opportunities (capitulation). I have personally bought more.

Yes, the share price was ahead of itself when it got over $1.00. Yes, this stock can be well over $5.00 in 18 mos. An analyst started coverage and the investment opportunity was sold by several dealer at once, resulting in a chase for stock. Those situations must be delivered with results. The sales cycle is long and delivery of chunky contracts has not taken place. I did not expect delivery of major news, but I think over the next three months the company should have material news regarding the revenue ramp (this is not accounting the China opportunity which could drag indefinitely.)

Time to step up.


Chris Wardle
Bolder Investment Partners