Lighting Science Group (LSGP.OB)

Dear Bottarelli Research Member,

I must tell you, I’m very excited about this week’s small-cap pick. I’ve probably spent 12 hours making calls about this company, and after some rather extensive due diligence, I feel that now is the perfect time to get positioned in this $0.45 stock.

You see, today’s play revolves around changing laws that’ll soon favor LED lighting over incandescent lighting. Folks, I think this evolution over to LED technology could be a major market transformation that does not happen very often. Let’s face it, LED lights are much safer than conventional lighting since they do not use hazardous materials like mercury. They also conserve 80% more energy than conventional lighting, making them both technologically and environmentally superior to conventional lights.

I truly feel that the push towards green energy is here to stay, and as investors we need to be riding this powerful new wave in every way possible. And that’s the thing. Not many publicly-traded companies are involved in manufacturing, distributing, and designing LED lights. So as I dug deeper into my research, I quickly realized that this company is on the verge of a major upside move.

At this very minute, for example, this company is Australasia’s leading lighting distributor – giving them incredible exposure to Australia, New Zealand and the Pacific rim. But what got me really excited is that this little gem makes LED lighting for a host of companies that you’ll certainly recognize. The list includes brands such as Sylvania, Crompton, Concord, Inlite and Austube. As the benefits of LED technology gain U.S. exposure, I feel you could witness a large amount of consolidation in this sector. Just recently Color Kinetics (CLRK – NASDAQ) was bought out by Phillips, and I fully expect this trend to continue.

Now I admit, up until now the prices for LED lighting were a bit too high. But just like the prices of flat panel TVs, the costs of LED lights are now coming down very quickly – not only here in the U.S. but also in Europe. This is making LED lights appealing to the mainstream consumer for the first time ever.

Do you see where I’m going with this?

When you have a technology that’s coming down in price while gaining mainstream market acceptance (via the green revolution) – and you combine those two factors with new laws that support this technology – it’s clear that LED lighting is in the infancy stages of spectacular growth. Getting positioned in the small $0.45 company making the LED equivalent to 100-watt, 75-watt, 60-watt and 25-watt bulbs puts you in the perfect “sweet spot” to ride the LED technology revolution. And the biggest thing going for this little gem is the fact that they own all the patents for highly energy-efficient and environmentally-friendly lighting solutions based on proprietary technology called Optimized Digital Lighting (ODL).

Their patented designs enable affordable, efficient and long lasting LED lighting systems that can be quickly and easily implemented into existing lighting applications. This equates to immediate cost savings and environmental benefits for companies that use them. Plus, this company is a relative secret here in the United States because they’re primarily doing business with Phillips and Sylvania in the Pacific Rim. But very soon they’ll begin marketing their products here in the U.S. – and that’s when Wall Street is bound to catch on. I happen to think that this company is a prime acquisition target for a company like Phillips, especially since the LED market is growing very, very fast.

A word of caution: Currently trading for only $0.43 per share, this stock might be a bit more speculative in nature, but I truly think that we’re catching this one at precisely the right time. If you’re willing to own a small $0.43 stock for potentially huge rewards, then the pick of the week is Lighting Science Group (LSGP.OB) and it’s a buy here under $0.60 per share. Over the next 2 years, I believe you’ll witness some exponential gains. In fact, this one could very well be a 10-bagger. Bryan has more details on this little gem, but before I hand things over I’d like to quickly comment on some of our current positions.

WorldWater & Power (WWAT.OB): First and foremost, I hope you have taken your 100% off the table on WWAT. You’re now along for a free ride on the remaining half of the position, so let’s look to maximize our gains on this one and hold for more upside.

Solarfun Power Holdings (SOLF – NASDAQ): It looks like we missed entering SOLF by $0.05 per share. It was recommended under $10.35 and it opened at $10.40. It has now traded as high as $11.43, so going forward let me set some parameters for situations like this. Bryan and I decided to allow a 3% price difference on our buy recommendations. In other words, if entry prices are above our buy limits, feel free to pay 3% above our listed buy recommendation to ensure that you get into the play. I can tell you from personal experience that I have tried to pinch pennies on small-cap entry prices – only to miss the entry price and hopelessly watch as the stock skyrocketed. By implementing this 3% “pay-up” rule, this situation will not happen to you. If you’re currently not in SOLF, let’s re-adjust our buy recommendation and add the shares at or under $11.49 per share.

PRICE-ADJUSTED PLAY: Buy shares of Solarfun Power Holdings (SOLF – NASDAQ) at or under $11.49, good for the week.

Nevtah Capital Management (NTAH.PK): This last week, NTAH announced the inclusion of their patented, closed-loop extraction process in a June 2007 Report issued by the U.S. Department of Energy. Titled “Secure Fuels From Domestic Resources, The Continuing Evolution of America’s Oil Shale & Tar Sands Industries,” the report will be the subject of a Senate briefing this week that stresses the importance of reducing the country’s dependence on foreign oil. These objectives could be met, according to the report, by developing America’s two promising domestic unconventional resources: oil shale and tar sands. On page 7, the report features Nevtah/Black Sand’s Closed-Loop Mobile Extraction Unit and estimates a total resource between 19 and 32 billion barrels of tar sands in Utah alone. That is one third of the country’s oil sands! The joint venture partners have focused on Utah as the center of their commercial production, and folks this is just the tip of the iceberg. Information like this confirms that early birds like us will eventually get the biggest worm, so remain positioned in NTAH.

Yellowcake Mining (YCKM.OB): If you haven’t heard, Strathmore Minerals and Yellowcake have started their drills! Any of you that bought on that wonderful dip must be extremely happy, but what really got me excited this week was that Forbes.com did a write-up about uranium on June 28^th and Yellowcake was mentioned! As I have been saying all along, we all know that uranium is down there. Once YCKM proves just how much uranium is there, we could see a major run up. YCKM is moving towards the production phase at full throttle, and there is no reason to think that production will not happen sooner that previously thought. That’s great news for investors like us, so maintain your position.

Puda Coal (PUDC.OB): I would suggest anyone not yet holding PUDC do buy some shares — and soon. They just bought another Chinese coal company, making them the largest cleaned-coal processor in the Shanxi Province. This allows them to meet large order requirements of steel manufacturers and coking companies. By year end they will have the capacity to produce upwards of 4.0 metric tons, which is good news for shareholders like us.

Upstream Biosciences (UPBS.OB): This share price has burdened our portfolio, but it looks like it wants to bounce here. I’m keeping a close eye on this one, and things had better get going soon or we may need to cut bait. Their new technology is something we all agree is needed, but the stock price has yet to move accordingly. My plan is to contact UPBS internally to get the status straight from the horse’s mouth, and I’ll keep you posted.

Boots & Coots International Well Control (WEL – AMEX): Here is another stock price that has failed to move up despite a company that’s raking in profits. They’re certainly in the right business, getting contract after contract, yet the share price remains stagnant. Earnings will be coming out soon, and we all know that the oil drillers and exploration companies are running full throttle, so let’s continue to hold because I expect this little gem to get moving soon.

On that note, I’ll turn it over to Bryan. Have a great weekend, and I’ll be back next week with another powerful small-cap play!

Sincerely,

“The rapid development of solid state lighting technology is unleashing forces of change that promise to transform the way lighting is done – and possibly the lighting industry itself”

- Lighting Science Group President and CEO Kenneth Honeycutt

This $0.45 Stock Could Very Well be a 10-Bagger!

Before getting into the specific investment opportunity offered by Lighting Science Group (LSGP.OB), let’s first take a quick moment to fully understand the benefits and potential of LED technology.

LED stands for Light-Emitting Diode, and a LED light is actually comprised of a small semiconductor device that emits incoherent, narrow-spectrum light. When this narrow-spectrum light is electrically biased in the proper direction, the end result is a very high-quality electroluminescence.

The implementation of LED technology has already proven to be useful in many different applications. Here are a few examples:

• LED lights are used in traffic lights and signals.
• LED lights are used as status indicators on various devices, from electronics to equipment.
• LED lights are found on the new Audi S6 sedan.
• The largest LED display in the world is the 1,500 foot Fremont Street Experience in Las Vegas, Nevada.
• Sports stadiums across the world use large LED screens. The Dallas Cowboys, for example, have plans for a LED-based display that’ll soon be the world’s largest video screen, measuring over 20,000 square feet and running from one 20-yard line to the other 20-yard line. Large LED-based displays like this can also be used for video-walls, advertising, casinos, shopping centers, concert venues, and traffic information systems.
• And thinking outside the box, a luxury line of ceramics tiles feature embedded LED lights that can be applied to floors, walls, or ceilings.

Aside from those applications, LED lighting products have been implemented by companies like Merrill Lynch – and the reason behind this major lighting overhaul is simple. LED lights use only 10% to 20% of the electricity as incandescents for equivalent light, but LED lights last 50 times longer. LED lights also use only 50% of the electricity as fluorescents, but LED lights last 5 times longer (plus, fluorescents can’t be dimmed whereas LED bulbs can). And that’s not all. Other benefits of LED lighting include the following:

• LEDs produce more light per watt than incandescent bulbs, offering energy savings for battery powered devices.
• When dimming is required, LEDs do not change their color tint (unlike incandescent lamps which turn more yellow when dimmed)
• LEDs are ideal for frequent on-off cycling, unlike fluorescent lamps which burn out quickly when cycled often.
• LEDs are difficult to damage with external shock. Fluorescent and incandescent bulbs, as I’m sure you know, break easily if dropped or shaken. LEDs are not nearly as fragile.
• LEDs have an extremely long life span. One manufacturer has calculated the ETTF (Estimated Time To Failure) for their LEDs to be between 100,000 and 1,000,000 hours. Fluorescent tubes typically last 10,000 hours and incandescent light bulbs last only 1,000 — 2,000 hours.
• And as Mark mentioned above, LEDs do not contain harmful mercury like fluorescent lamps do.

As you can see by this long list of bullet points, the benefits of LED lights are unmistakable. As more and more consumers realize this, it’ll open up a massive market in the U.S. Right now, for example, four billion light sockets contain incandescent lights. All Lighting Science Group needs to do is capture a small faction of this market and their share price could shoot aggressively higher.

Trading for $0.45 per share, you’re probably wondering why the stock price is so inexpensive. With sales of only $73,000 in 2005 and $436,000 in 2006, Lighting Science Group is at the very beginning stages of their growth cycle. But I have reason to believe that their financial position is about to dramatically change. You see, using proprietary technology called Optimized Digital Lighting (ODL), Lighting Science Group is the first company to make high-output, dimmable, Edison-base white-LED light bulbs. This ODL technology enables LED lights to operate at the highest lighting levels over the longest life, and it delivers these benefits in standard bulb shapes and sizes. That means you do not need special ballasts or sockets to use these bulbs. You just screw them in and you’re good to go!

Now here’s the thing: Thus far, Lighting Science Group has been working to perfect their LED technology before focusing on sales. But now that their LED technology is proven, they’re about to begin their big sales push – and that’s why they just appointed Kenneth Honeycutt as President and Chief Operating Officer on June 5^th.

Mr. Honeycut comes to Lighting Science Group with more than 30 years of lighting industry experience. From 2002 to 2006, he served as CEO and President of Acuity Brands Lighting (one of the world’s leading providers of lighting fixtures and specialty chemical products). Prior to that, he was President of Lithonia Lighting Group, the leading brand of lighting equipment for commercial, industrial, outdoor, and residential applications in North America. In short, I believe that Mr. Honeycut will be the man that takes Lighting Science Group to the next level.

Upon this June 5^th announcement, Kenneth Honeycutt said, “The rapid development of solid state lighting technology is unleashing forces of change that promise to transform the way lighting is done -- and possibly the lighting industry itself. Lighting Science Group offers me the opportunity to play a key role in creating a next generation enterprise that is designed from the ground up to be a lean and agile winner in this fast moving environment. LSG has been built on a strong foundation of innovative R&D and is now investing in the operating capabilities needed to support its growth within the energy efficient lighting market. I look forward to joining the leadership team at this important inflection point in the history of the company and the lighting industry.”

What I particularly liked when doing my research was this: According to data provided by EDGAR Online, Lighting Science Groupreceived a total of 25 insider buys and only 3 insider sales since June of 2005. This tells me that management has a vested stake in the share price of their company – and they’re determined to increase shareholder value. And since only two (2) institutions are holding shares, you’re truly getting into this stock at the absolute ground floor.

As Lighting Science Group’s scientists and engineers continue to develop new ways to incorporate the latest LED designs into practical, cost-effective bulbs, the future looks extremely promising for LSGP. So let’s use the growth opportunity offered by LED lighting as an opportunity to own shares of Lighting Science Group (LSGP.OB).

PLAY: Buy shares of Lighting Science Group (LSGP.OB) at or under $0.60, good for the week.

Sincerely,