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Tuesday, May 31, 2005

Ballistic Recovery Systems

These guys (website) make parachutes for entire airplanes, mostly Cirrus models but also ultra-lights. Walking through the 10-K statement, the oddest thing was that they seem to pay out every last dime of operational cash flow in the form of dividends. Reading down to the legal proceedings section, it seems there were a few crashes where the parachutes did not prevent deaths. In one case, the NTSB ruled it was pilot error. Two other cases are still up in the air (ok, maybe not up in the air).

Other than the legal issues, it seems like an interesting business that pays a hefty dividend: relative to cash flow, not relative to price. The dividend for 2004 was $0.08 while the recent stock price was $2.9. However, they are growing fast.

Given the uncertainty of the legal issues, the patent running out of time, and the single large customer, I have to wonder how a pink sheet company rates such a high price? Perhaps I'll dig some more later on. The news items show that Cirrus is buying big chunks of this company. That's a good sign.

UPDATE: They lost one lawsuit for $3.4 million, which coincidentally happens to be exactly the amount of equity on the books. And within a couple of days they saved another life.

Help Wanted

I'm thinking about hiring one of the neighborhood kids to sift through companies and fill out a checklist spreadsheet. I may even hire someone somewhere like India to do the same thing.

Monday, May 23, 2005

Lincoln Logs

Lincoln Logs (website) sells the shells for log cabins. Their gross margins are ok, I guess, but their SG&A is really lousy. All they do is lose money.
The decrease in gross profit percentage was primarily the result of higher material costs, which increased as a percent of sales by 7% in Fiscal 2005 as compared with Fiscal 2004.
They bought Snake River Log Homes LLC to expand into construction, but it doesn't seem to help pull them into profitability. They included results from Snake River in Nov 2004, but then they go on to say:
We expect our revenues to increase by a similar rate as that of the current year (36% increase) based on the increase in our backlog of undelivered contracts at January 31, 2005 and the continued favorable economic climate for home construction in the United States.
Ummm... I wouldn't bet the farm on housing construction continuing at the current rate. And it seems like a big part of that 36% increase is due to an acquisition. Do they still expect 36% increases in the future? I might visist one of the dealers this Summer.

Here's a competitor. (BPAB)

UPDATE OCT 7, 2005: The stock seems to have disappeared except OTC BB seems to still recognize it somewhat.

Live World

Live World is definitely worth looking into (website). Their financial results are very good. I went through a lot of the details without taking down notes, so I don't have much to put here right now. Oddly enough, I know one of the VPs from elsewhere and was even talking to him (not about business) the day before I found the stock. I need to finish walking the checklist.

May 31, 2005 update: I've filled out the checklist for this company and I'll continue to do additional groundwork.

Red flags: They repriced stock options twice. They were big-time spend thrifts during the bubble years (yeah I know, who wasn't?). They hand out stock options like free candy. Changed accountants in 2002. Jennifer "Jenna" Woodul had a $100,000 related party loan oustanding before going dark.

Green flags: Senior management salary cuts, removal of D&O insurance, and good flexible adaptation during lean times. Very favorable impression of a senior VP and family. Solid customer base and lots of renewals. [NOTE: add some of the other stuff I sent to Mike here]

Issues still unresolved:
1) Not sure of the loss being carried forward. Probably fairly large. Minor issue.
2) Don't know the current credit facility limit, interest rate, expiration, covenants, and balance. Minor issue.

UPDATE: I'm buying. It's an investment.

UPDATE: GAMBJIM says, "The loss carry forward is approximately 125 mil."

Sunday, May 22, 2005

Lift A Loft

Lift A Loft is a public company which trades on the Pink Sheets. It doesn't submit any SEC reports. It doesn't have any sort of investor information on its website. There is no obvious source of financial information about the business. There is very little trade information on the shares, but they appear to trade on the pink sheets every day and the stock price is above $200 a share.

The BPTR stuff has been moved to here.

BakBone Software

BakBone Software makes backup/archival software which has a low total cost of use. Sales are rapidly increasing across the board and they seem to have crossed the operating cash flow breakeven point (earnings breakeven doesn't seem far behind). High gross margins are a good thing. They've had problems with late-filings and restatements. And they give out shares of stock like AOL hands out free CDs.

May 31, 2005 update: I've decided against investing much in BakBone (I had started buying a few shares). They're a good company, they have a good product, their revenues are growing fast, but I really have no idea how long they'll keep their competitive advantage. In going through the 10-K, I just got a bad sense of where they stand in the food chain. I may come back to this later on. But I'd rather find something that's a lot more certain.

UPDATE: I changed my mind again when the stock price dropped to $1.50 and below after they reported bad news. I gathered more notes on BakBone here and here and here and here. This is a case where a really cheap price makes it worth looking closer at the business. Make no mistake about it, the accounting is definitely screwed up.

b-Fast Corporation

The b-Fast Corporation provides airport services for general aviation at the Harrisburg, PA airport. They mostly provide fuel and lose money. But they have a plan:
We continue to explore investments in other business opportunities not related to the aviation industry. To this end, b-Fast, in conjunction with Brant formed RTB/AS in January, 1999. The purpose of this company is to invest in the auto racing industry.
Sounds crazy, but it seems to pay the bills (at least the ones they've chosen to pay):
During fiscal year 1999, b-Fast entered into several transactions involving the auto racing industry, all of which were anticipated to diversify the business risks associated with our then dependency on general aviation services. During fiscal year 2002, these transactions produced a major source of our cash flow, amounting to $1,279,000. During fiscal year 2003 we received $451,000 from RTB/AS, L.L.C. ("RTB/AS"), which more than offset the $358,000 used in operations. During fiscal year 2004 we received $405,000 from RTB/AS again more than offsetting the $244,000 used in operations. We expect a similar cash flow in fiscal 2005.
If you could somehow ignore their existing debt (about half of it is in friendly hands), they generate something like $0.3 million in cash flow with about 8 million shares outstanding (about 3.75 cents per share). The stock trades about once every few months at around 15 cents.

UPDATE Oct 2005: Silly me, I wasn't accustomed to seeing quotes on the pink sheets. That was 1.5 cents, not 15 cents. I still wouldn't buy the stock, though.

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