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Tuesday, June 28, 2005

Repository of Unexpected Random Observations

This post is a placeholder for observations that are unexpected. If you don't write these things down, you forget them.

Monday, June 27, 2005

BakBone Software: last year's 10-K (2004)

Incorp in Canada (TO exchange, BKB), offices in San Diego. Was in minerals, empty shell purchased (for public company status?). One trick pony: NetValue (MagnaVault sunsetted in 2002). Googles pretty well (NetVault holds its own), did they ever address the recent heap overflow security issue? March 31 end of year.

Subsidiaries ("The Company" was never defined, shoddy work)
Approx 200 resellers. OEM relations with NCR Teradata, Network Appliance, Sony: all have integrated products. Snap Appliance newer OEM arrangement.

Three primary regions:
Two parts: 1) core product, 2) application plug-in modules (APMs). Don't call them strap-ons no matter how funny it may seem (hat tip: Jason H).
APMs = hardware convergence.
Distribution includes over the net.
Huge Linux market share. 10 Linux distributions (how often do they do regression testing on all 10?)
They support 900 combinations of databases, applications, OSs, versions, and releases (ugh!)
perpetual licenses, but use 1 year maintenence contracts.
Various types of end user customers.
No system integrator relationships yet.
Reliance on single customers: 12% NCR Teradata
Core development is in Poole, UK
APM development in San Diego
Some localization in Japan
Research expenses have been consistent at around $5 million.
Headcount increased primarily in the Pacific Rim and EMEA as we expanded our sales operations in those regions
Copyright and trade secrets for IP protection
Competitors: Veritas, EMC, IBM Tivoli, Computer Associates, CommVault Systems.
175 employees: 44 R&D, 76 sales, 24 apps, 31 admin. No unions.
CEO Keith G. Rickard, 57 (Sterling Software, storage mgmt div. 97-99, BS Math UofLondon)
CFO John Fitzgerald: 33 (consulting for SEC reporting, IPOs, etc., Arthur Andersen, BS Bus Admin San Diego State) How incompetant is this guy?
VP Eng Fabrice Helliker, 36 (mostly stayed within BKBO, CS Brighton U in UK)
VP North Am sales Scott Petersen, 48 (VP sales Actionpoint/Captiva Software, VP sales Sterling Software, storage mgmt div. which was acquired by Computer Associates, BS Finance/Marketing Old Dominion)
VP EMEA sales, Patrick Clarke, 39, VP EMEA for Overland Storage, Dir sales and board member Asbis Enterprises)
SrVP OEMs, Adrian Michael Jones, 38, VP Worldwide sales Quantum Corp, Oxford College
Managing Director, Asia, Howard Weiss, 36, director Phoenix Technologies, sales manager at MCM Japan, BA Univ Mich
VP Customer Support, Ken Hudak, 46, VP tech support Orchestria in Sacramento, sales director Action Point, Sterling Software, Landmark Systems.

Leases: 25k-sq-ft San Diego (will need to expand), 7.8k-sq-ft Poole, 6k-sq-ft Tokyo.

No material legal proceedings.

Securities sales:
July 03: placed 22 million Series A convertable pf for $15.7 million.

Selling to resellers: includes a bundle of software, post contractual support, and/or professional services (implementation and training) ("multiple element arrangements"). Includes unspecified upgrades and enhancements, phone support.
Pricing is weird: Vendor Specific Objective Evidence (VSOE) of fair value. Revenue is assigned to each piece based on their relative values, and the price charged when sold separately. "We determine VSOE of fair value of post-contractual support based on substantive renewal rates for the same term post-contractual support." This sounds like accounting hell.

OEM sales: two methods of revenue recognition:
Certain OEM arrangements involve multiple elements where VSOE of fair value exists for all undelivered elements but VSOE of fair value does not exist for one or more delivered elements. Under these arrangements revenue is recognized using the residual method, whereby, the fair value of undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue, assuming the price is fixed or determinable, delivery has occurred and collectibility is probable. Revenue allocated to post-contractual support is recognized ratably over the arrangement period, which is generally one year. One OEM customer has a specific right of return, whereby the customer is contractually permitted to return our product during the arrangement period. We account for potential returns from this customer in accordance with Statement of Financial Accounting Standards, or SFAS, 48, “Revenue Recognition When Right of Return Exists”. We use historical returns experience with this customer to estimate potential returns and to establish the appropriate sales returns allowance.
And then there's this method:
We have also entered into multiple element arrangements with certain OEM customers under which, in addition to providing software licenses and maintenance services, we make a commitment to the customer to provide unspecified future software products. As VSOE of fair value cannot be determined for the unspecified future software products, all sales amounts procured under these arrangements are initially deferred and subsequently recognized ratably over the arrangement period. Revenue recognized under these arrangements is included under “Development Software Solutions” in Note 15 to the consolidated financial statements.
No currency hedging.
Canadian GAAP vs US GAAP: they use US for 10-K, 10-Q, 8-K with reconcilliations noted.
Prior financial report restatements: During the 04 report, they discovered the mistakes in 03 and 02 (deferred stock compensation and revenue recognition).
In connection with the audit of our financial statements for the fiscal year ended March 31, 2004, our independent auditors have issued a letter to our Audit Committee in which they noted certain matters involving our internal controls and operation that they consider to be “reportable conditions”, as defined under standards established by the American Institute of Certified Public Accountants, or AICPA, including our revenue recognition practices for certain customer contracts and our accounting for domestic and international income taxes. In addition, our independent auditors have advised us that they consider these matters to be “material weaknesses” that, by themselves or in combination, result in a more than remote likelihood that a material misstatement in our financial statements will not be prevented or detected by our employees in the normal course of performing their assigned functions.
So things are going to be a lot too fuzzy and, well, wrong. Given the incentives of senior managenement of a small public company who hold stock options, well... they have the means, motive, and opportunity to deceive.

Allowance for doubtful accounts:
We determine the adequacy of this allowance by evaluating individual customer accounts receivable, considering the customer’s financial condition, credit history and current economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
...pretty standard stuff.

Valuation allowance for deffered tax assets
we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes [meaning that earnings on the financial statements may differ from what governments view as earnings]. These differences result in deferred tax assets and liabilities. Significant management judgment is required in assessing.... The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in each tax jurisdiction during the periods in which those temporary differences become deductible [any assets means possibly overstated earnings, liabilities mean possibly understated earnings]. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In the event that actual results differ from our estimates or we adjust our estimates in future periods, we may need to reduce our valuation allowance, which could materially impact our financial position and results of operations.
This means they're really just guessing when it comes to tax liabilities, or it may mean they're playing games.
During the years ended March 31, 2003 and 2004, we recorded provisions for income taxes of $510,000 and $951,000, respectively.
Rather than having operating segments with different lines of business, these guys report geographic reporting entities (shown above) and evaluate them for impairment.

2004 vs 2003:
revenue increased 51%
MagnaVault was sunset Jan 1, 2003. But they still did some business in 2004: $0.56 licensing, $0.2 service (prior year was $0.9 licensing, $0.46 service). By now, this is a dead product line.

NCR TeraData
Data Warehousing [i.e. TeraData] revenue increased 12% in 2004 from 2003 due to both an increase in product sales and support services. Foreign currency fluctuations provided a 4 percentage point benefit to 2004 revenue. The strong growth is indicative of customers valuing the superior analytical capabilities of our Data Warehousing solutions and the return on investment they can provide. The increase in operating income from 2003 to 2004 reflects the increases in sales and support services.
Data Warehousing revenue declined 1% in 2003 from 2002 due to the constrained capital expenditure environment....
NCR views this is as an important, growing part of their business. It's hard to tell if IBM is beating them, but if so, it doesn't seem like a rout. NCR claims to have some solid niches. I don't know. It would be good if BakBone got in with IBM. If that happens, then they win regardless. (NOTE: revenues from NCR dropped in June of 2004 in North America). There is a risk of this getting dropped.

BakBone licensing revenues grew in all three segment regions: 24% in NA (Teradata was a big part of this, but has been dropping subsequently), 38% PacRim, 70% EMEA. Service revenues are growing even faster in all three segments.

Development Software Solutions:
During fiscal 2003 and 2004, we entered into OEM arrangements, under which, we committed to provide unspecified additional software products to the OEM partners during the respective arrangement periods. As such, revenue from the arrangements is classified as “Development Software Solutions” and is recognized ratably over the applicable arrangement period. Through March 31, 2004, we had billed and collected $4.4 million under these arrangements, $589,000 of which was recognized as revenue during fiscal 2004, resulting in $3.8 million of deferred revenue as of March 31, 2004. We expect to recognize annual revenues of approximately $850,000 through fiscal 2008 from these arrangements.
2003 vs 2002:
Revenue increases were hugely affected by the new consolidation of the Japanese subsidiary (>50% acquired in Q4 2002). They still had organic growth. Expanded into China and Korea.

2003 vs 2002:
Revenue increases were hugely affected by the new consolidation of the Japanese Subsid. (>50% acquired in Q4 2002). They still had organic growth in the area. Expanded into China and Korea.
(continued in another posting)

Thursday, June 23, 2005

The RIGHT way to deliver bad news

BakBone Software shows what it means to have a backbone.


You go to the owners, hat in hand, and you give them the straight story, in plain talk, exactly as you'd want to hear it if you were a shareholder.

I had considered this as an investment (I may still even own some shares!) but decided against it. If the price drops by much I'll consider buying.

UPDATE: Apparently I picked up some shares at $1.50. Score!

UPDATE: I bought more shares below $1.50, but it's still nowhere near a full investment. They've been having troubles with accounting... for a long time. That's a very large, very bright red flag. From a cash flow perspective, they're fine. But their earnings will definitely take a hit as stuff gets pushed out into the deferred category. This is serious stuff. Dangerous stuff. But you take a step back and ask, "What if I owned the entire company, including the Laurel and Hardy finance people?" At what price would it be worth it? And translating that back into price-per-share, how many shares does this company really have? The answer to the last question is "definitely less than 120 million" if you want to be really sure of yourself. The answer to the second question, in my opinion, is "definitely less than $360 million" (to pick a nice round number per share). So then what's a share worth in my opinion? At least $3. So what's a good price to buy with a margin of safety? $1.50. How much can I buy? Not much without knowing more.

UPDATE Oct 18, 2005: I've gone back to this paragraph above a couple of times now and I don't make any sense of it whatsoever. Back in the June time frame this blog was more like scribbled notes and I didn't write down any rationale for things.

This company has maybe $50 million in revenue per year now with extremely high gross profits, yes we can admit that. SG&A scales slowly with increasing revenue, which is what makes BKBO attractive. There are maybe as many as 100 million shares "extremely diluted" (not "totally" using my own terminology, but 10% more than if every stock option as of last year was a share). $1.50 per share value would correspond to free cash flow of 10 cents per share or $10 million. That doesn't strike me as being deep value, certainly not compared to other stuff I've been finding.

So I think it's best to avoid BKBO unless the price gets to say $1.

Wednesday, June 22, 2005

LVWD: key shareholders

These all include lots of warrants.

April 30, 1999:
NBC: 12.2%
Patricof/Hirschfeld: 10.7%
New York Life: 7.5%
Hearst: 6.5%
Cox: 6.5%
Media Technology Equity Partners/Weinman: 5.9%
Starbucks: 5.2%
Friedman: 8.2%
Bronfin: 6.5%
Graziano: 3.0%
Sculley: 1.4%
Winman: 5.9%
Yudkovitz: 12.2%
Woodul: 3.9%
Christensen: 1.0%

March 31, 2001
NBC: 9.5%
New York Life: 5.9%
Cox: 5.0%
Friedman: 5.7%
Hearst: 5.1%
Media Technology Equity Partners/Weinman: 4.5%
Woodul: 1.7%
Watkins: 1.2%
Christensen: 1.1%
Gourley: 49,250 shares
Snetiker: 9,718 shares

March 31, 2002
NBC: 9.3%
New York Life: 5.6%
Hearst: 5.0%
Friedman: 7.5%
Media Technology Partners/Weinman: 4.7%
Woodul: 2.3%
Watkins: 1.3%
Christensen: 1.5%
Lake: 72,817 shares

LVWD: prospectus notes continued (form S-1)

1998: LVWD issued lots of warrants to NBC in exchange for TV ads (director Yudkovitz was from NBC Multimedia). Separately, warrants were given to NBC Multimedia to allow chat service within their localized web services (warrants replaced, repriced, increased). So you had to pay to use your services?

1998, 1999: LVWD issued lots of warrants to Hearst for newspaper ads.

1998: Patrikof loaned $900,000 (which as convertable into 228,405 pf series D stock) + warrants on 90,000 shares common (Hirschfeld director). New York Life loaned $400,000 (convertable into 102,183 shares of pf series D stock) + warrants on 40,000 shares common.

1999: director Snetiker exercised 125,000 options before vested using a 5.23% loan secured by the shares with a repurchase agreement by LVWD in case of weird situations (also automatically vesting 25% of unvested shares).

There was also a repurchase agreement for Woodul and Friedman unvested options (at the company's option).

[Note: Buffett says that when financial statements are difficult to parse, it's intentional. That related party section was difficult.]

[key shareholders moved to relevant post]

Warrants strike prices: mode was $4. Range was $3 to $10. 5 year expiration.
Accounting statement is from ? (odd that the accounting company is missing). It's KPMG who also audited previous years.

zillions of page of contracts etc.

LVWD: press release

This press release was issued today:
Live-World blah blah blah blah
Wednesday June 22, 8:00 am ET
Full-service online community agency delivers over 30,000 hours of moderation per month
LOS GATOS, Calif., June 22 /PRNewswire-FirstCall/ -- LiveWorld, Inc. (Pinksheets: LVWD.PK. www.liveworld.com) today announced that it provides over 30,000 hours/month in community moderation services to its Fortune 1000 clients.
This was followed by about 10 times as much useless filler.

People reading a press release (other than announcing routine financial results) will assume that management considers whatever is being announced is unusual. Thus, the press release "XYZ Corporation announced that most of the employees showed up for work today" would not be seen in a good light.

So let's look at this press release. Why was it issued? Well, it looks like someone had been carefully tracking this odometer of hours/month in services when the tens of thousands digit click over to 3. Yippee! they yelled. Let's issue a press release!

Tuesday, June 21, 2005

LVWD: prospectus notes (form S-1)

re-incorporated in Delaware from Calif. pf stock rolled into com after reverse split. warrants on pf rolled into warrants on com. Hearst and NBC held the pf in exchange for advertising space/time [I had seen this somewhere else in an SEC doc]. $20 million additionally had been sold, all in April 1999. 2,523,951 shares set aside for options etc. 1,318,246 shares set aside for warrants.
We incurred losses of
$1.3 million in 1996,
$6.4 million in 1997,
$15.7 million in 1998 and
$6.9 million for the three months ended March 31, 1999. These losses include noncash advertising and promotional charges of $4.3 million through March 31, 1999
When you look at both the advertising revenue and service revenue of the late 1990s, you wouldn't see which one was going to continue increasing significantly.
Net cash used in operating activities was
$1.0 million in 1996,
$6.3 million in 1997,
$11.0 million in 1998 and
$4.6 million for the quarter ended March 31, 1999.
In May 1998, we obtained an equipment line of credit with a financial institution in the amount of $2.0 million. This line of credit is secured by our fixed assets and has a three-year term that expires in May 2001. As of March 31, 1999, the amount outstanding under this line of credit was $367,000. This amount is due in monthly installments through May 2001 [again, no mention of interest rates]
They pretty much had the service story refined by 1999.
The friendly tone of our service is further maintained by our network of approximately 2,000 community leaders and moderators
For example, we co-produce a series of year-round meetings with Barbie collectors for Mattel
Some of our online market research services are produced in partnership with NFO Research
Original Hearst stuff:

. William Morrow Books--We co-produce a weekly chat series called "BookSpeak" which brings William Morrow authors online to interact with the HomeArts' audience.
. Victoria Magazine--We provide the chat services for the editors and readers of Victoria Magazine.
. Lifetime Television--We provide the chat services for Lifetime cable television programs.

Original NBC stuff:
. CNBC.com--We facilitate the online interaction and discussion between CNBC.com's users and personalities on a variety of business related topics.
. NBC.com--We provide general and featured celebrity chats for NBC daytime and prime time programming, such as "Just Shoot Me," "Frasier" and "Days of Our Lives."
. TNBC--We provide our chat service for NBC's teen oriented programming, including television shows such as "Saved by the Bell" and "Hang Time." In addition, we co-produce TNBC's "At the Max" chat as well as the weekly "Best Friends" chat.
. NBC Interactive Neighborhood--We provide the capability to host locally- oriented chats to several of NBC's 200 local affiliate television stations.
Question: How many of these have they lost?
City Standards Advisors. Our city standards advisors form a separate group within the moderator network.... handling behavior problems, such as profanity or obscenity, and answering calls from users.... City standards advisors have the power to remove participants from our actual servers....
Over 270 of our approximately 2,000 trained community leaders and moderators are compensated for their services. The remainder are volunteers.
Our internal sales force consisted of 15 sales personnel as of March 31, 1999.
As of March 31, 1999, we had a total of 82 employees [would become 32 by 2002, but not before bloating to 201]... 52 were engaged in product development and programming, 21 in sales and marketing and 9 in general and administrative.
Peter H. Friedman.......   43 President, Chief Executive Officer and Chairman of the Board
Jeffrey Snetiker........ 51 Senior Vice President, Chief Financial and Administrative Officer
Jenna Woodul............ 50 Vice President of Community
Bernard G. Bernstein.... 33 Lead Engineer
Chris N. Christensen.... 38 Vice President of Engineering and Operations
Patricia Griffith....... 47 Vice President of Sales
Christopher J. Escher... 40 Vice President of Marketing
Arwyn Bryant............ 41 Vice President of Product Marketing and Business Operations
Daniel Paul............. 34 Vice President of Business Development (related to Cheryl Paul?)
Kenneth A. Bronfin...... 39 Director
Joseph A. 55 Director
Thomas P. 36 Director
John Sculley............ 60 Director
Barry M. Weinman(a)(b).. 60 Director
Martin J. Yudkovitz..... 44 Director
The company issued numerous issues of preferred stock going to: a private investment club, Cox, Media Technology Equity Partners, New York Life, Hearst, Starbucks(huh?), and two directors, one associated with Hearst.

Sculley resigned in 2000 when the stock was about to be delisted.

Hirschfeld (from Patricof) and Graziano (acting CFO 96-99) resigned on Jan 1, 2001. Shares gone by April 2001.

August 8, 2002, KPMG auditors were dumped. No adverse opinions. Replaced by Stonefield-Josephson. Board size reduced to 1 [I knew I read that in one of the 8-Ks].

[Ok, I'm just going to start bouncing all over the place from here on. I'll need to resume the S-1 from the top of page 60.]

On July 10, 2002
The Company’s EVP & Chief Community Officer and co-founder Jenna Woodul will have her salary reduced by 30% to an annual salary of $95,000. With this change, Ms Woodul’s salary has been reduced by 51% since mid-2001.
Peter Friedman took a 30% cut for a total 52% cut.

May 16, 2001 sale of Talk City:
Under the terms of the Purchase Agreement, myESP will pay the Registrant $1,600,000 for the Consumer Network, subject to the Registrant meeting certain earn-out criteria defined in the Purchase Agreement. Under the terms of the Services Agreement, myESP will pay the Registrant a total of $900,000 per year (to be paid in equal monthly installments of $75,000 prior to the beginning of each month) to operate the Talk City Network.
This will crop up again when they finally get some money due in Q4 of 2004 if I recall correctly.
[enough for now]

Monday, June 20, 2005

LVWD: Peter Friedman

The CEO of LiveWorld has done a lot of good stuff. Chris Christensen has a short history lesson. And there are others, too. Peter Friedman was one of the CEOs that Apple spawned.

I've certainly seen my share of project disasters that should not have been. I worked along with two people who would later become the CEO and chief technology officer of Sonus Networks when they were back at Motorola. We lost an enormous amount of money with 150 engineers working on a networking switch. Motorola closed the project and laid off most of the employees.

And then there's this:
UPDATE: Someone informed me that this is not the same Peter Friedman, although he's talking about Apple marketing. I verified this myself with a little more checking.

And then there's this quote:
"Our results indicate that the best way to address concerns about inappropriate content for children isn't more technology or more laws, rather it's more of Mom and Dad learning about the Web and hanging out online with their kids," said Peter Friedman, chief executive officer and chairman of Talk City [link added]. "Teens are willing to have their parents join in their online adventures -- it's up to parents to make sure that the Internet doesn't become the latchkey of the 21st Century."
Here's an interesting interview from 1996 (and notice the dire predictions from Robert Metcalfe that didn't exactly happen as planned).

LVWD: Chris Christensen

Chris went to RPI, an outstanding engineering school in a really unpleasant location (the steel industry left Troy, NY for Pittsburgh sometime around 1900 and the place never recovered). He runs a blog that actually has a lot of interesting and thought provoking things on it.

LVWD: Client Services

I found this on the web from Dec. 14, 2004:
I am the Director of Client Services for LiveWorld, Inc (www.liveworld.com), a California based company that develops online community products such as discussion boards, chat rooms and live internet based events.

My company is looking for discussion board moderators with bilingual fluency in English/ and any of the following regions/languages for an online discussion board moderation project starting in January for a large beauty products company.

[lots of overlap with this announcement 6 months later, hopefully meaning business expansion]

Previous online moderation chat/boards experience in chat rooms or discussion boards is preferred, but training will be provided. Applicant must have reliable ISP connectivity and email functionality.

Duties would include reading posts made to an online discussion board, determining if the content is in violation of any site policies, and promoting content of particular interest to the client's product. Translating featured content to and from English may also be necessary.

In addition to fluency in both English and the other language (writing and speaking without the use of any translation aides) , applicants must have familiarity with the culture/dialect/locale of the region.

We would be looking to hire an Independent Contractor to perform this work for us, approximately 3-7 hours per week, for approximately 8.00/hour USD. (or if eligible for US employment, a part time employment position may be available).

If interested, please complete our online application form at


In the section of the application marked Special Skills, please outline in detail how you meet the requirements for this project.

Please pass this along to anyone you know who would meet the qualifications and may have an interest in this project.

I appreciate your assistance.


Debbie Dembecki debbie@liveworld.com
Related party alert. I had already caught this earlier in the checklist.

LVWD: Bruce Dembecki

Bruce Dembecki
, who apparently is a very hands-on Vice President who works with clients on IT stuff (ok, so this is still a very small company), seems to be having trouble last Thursday on the mailing.database.myodbc newsgroup:
So I am attempting a 5.0 upgrade from 4.1 on one of our OS X servers...

When attempting to launch mysqld it quits, with this error (showing
two from the log files, happens with our build or the MySQL binary):

050617 14:03:46 mysqld started
line 2: --datadir=/mysqldata2: No such file or directory
050617 14:03:46 mysqld ended

050617 14:07:58 mysqld started
mysqld_safe64: line 2: --datadir=/mysqldata2: No such file or directory
050617 14:07:58 mysqld ended

Needless to say /mysqldata2 is present and accounted for, and has the
correct permissions for mysql to be able to read/write data... It is
a symlink to another volume, but if I substitute the true path to the
volume, I get the same error...

I had problems with one version of 4.1 having problems figuring out
where to write the log files and it turned out to be an absolute file
name issue... eg it treated /logs/binlogs as being relative to the
data directory, and not an absolute directory... I resolved that by
changing the log file setting to read ../logs/binlogs and it worked
fine. Assuming there was a similar problem here I have tried various
levels of ../../mysqldata2 to make sure I am escaping from whatever
directory it is starting me in, and have failed to get there, after
switching up 7 levels, far more than would be needed to get back to
root from anywhere in /usr/local/mysql-any-version

Any idea how I can get MySQL 5.0 to launch here would be greatly
appreciated :-)

Best Regards, Bruce
He's had a lot of messages on Usenet newsgroups about this sort of stuff: sometimes answering questions, sometimes asking them. And sometimes he endorses stuff in press releases:
SAN FRANCISCO--(BUSINESS WIRE)--June 7, 2005--MySQL AB, developer of the world's most popular open source database, today announced a new pair of visual database tools for the Macintosh OS X platform. Designed to make life easier for MySQL(R) database developers, DBAs and users -- new beta versions of the MySQL Query Browser and MySQL Administrator tools for Mac OS X are freely available from the company's Web site under the GPL open source license at http://dev.mysql.com.

MySQL and the new Macintosh tools will be demonstrated this week at the Apple Worldwide Developers Conference being held in San Francisco.

"The Apple Macintosh is one of the most popular platforms for MySQL development," said Maurizio Gianola, vice president of Software Engineering for MySQL AB. "We are happy to give database developers more choice by offering these open source database query and administration tools for Mac OS X."

"MySQL has proven to be fast and reliable on our heavy-load Apple Xserve servers -- it is every bit as easy to set up and manage as even the most diehard Mac user would expect," said Bruce Dembecki, Vice President, Solutions Development for LiveWorld, Inc., the leading full-service online community agency with clients such as eBay, AOL Time Warner, and Expedia. "We get an extremely high number of page views every day on our clients' discussion boards, and the combination of MySQL and Macintosh has scaled-out very well for us."

...and speaking at technical conferences. Very consistent. That's a good thing.

I noticed this: "Bruce spent several years building distribution companies in the Australian IT industry, including Keyway, Allaw Technologies, and his own company, Axon Technology."

And this:
How to reach the Talk of the Town...

We appreciate and welcome your feedback to this newsletter. The editor welcomes suggestions, constructive criticism, flowers, and chocolates at any time! Please send all submissions to:

In the prospectus, there's a very brief mention of this relationship. I've got to go back and look at it.

Sunday, June 19, 2005

LVWD: community websites

I'm doing some checking for the LVWD investment. The case of not finding LVWD based forums could mean that the forum is under development. But when a forum exists (especially if it's existed for at least 6 months), it should have a lot of activity. If few or no forums exist, then it means something is very wrong.

Campbell's website: I'm not sure the extent of what LVWD does for Campbell's. It seems like it's just the forum (the URL in the "Kitchen Table" area contains the liveworld name in the forum, not elsewhere). The website seems ok, but the frequency of replies in the discussions is slow: usually several days before anyone responds. A lot of discussions don't have responses. I spent several years on Usenet discussion boards of all sizes and Campbell's really doesn't have critical mass at this point.

I started with the Sopranos website: wow this website is a real community (I noticed the little "powered by LiveWorld" text in light gray). Lots and lots of discussions.

Looking at the "Sex and the City" community, it's also doing very well (powered by LiveWorld).

Real Time with Bill Maher community is active, but has a lot of dead time in it.

Deadwood community is very active. I had never heard of this show.

There are several other shows with varying levels of community activity. Overall I'd say HBO seems like they're getting a good amount of value from LiveWorld.

Now on to QVC, Dove, Expedia.com

LOS GATOS, Calif., Dec. 7 /PRNewswire-FirstCall/ -- LiveWorld, Inc. (Pink Sheets: LVWD) today announced it has launched services in the past 90 days for new clients QVC, Dove (Unilever's Dove Real Beauty Campaign), and Expedia.com. Each of these market leaders selected LiveWorld as the provider for various online community services. The contracts represent significant new revenue for LiveWorld in both years 2004 and 2005.
Additional new clients in year 2004 include Aramark, BEA Systems, Gatorade (via Tribal Systems), Macys (via Wetfeet), Medical Broadcasting Network, PayPal, and SUN MicroSystems.
LiveWorld clients that have renewed and/or expanded their relationship with LiveWorld in 2004 include:

* America Online * HBO
* A&E Television Networks * Intel
* Breastcancer.org * MINI Cooper USA
* eBay * Slim-Fast
* The Campbell Soup Company * The Walt Disney Company
* Discovery Communications * Warner Brothers
The QVC community is large and very active. There were supposedly over 500 users online when I checked at noon Eastern time on a Sunday. There was nothing saying it was powered by Liveworld, but I noticed it had a minor bug that also exists in either the HBO or Campbell's forum (I forget which): go to a user ID, it shows recent posts by that user, click on one of them, it takes you to the thread but not the actual post the user made. I noticed that the oldest date for a username is Oct 6, 2004 and that a lot of user names were created on this same date. Looking what what some of those people wrote, it looks like they are those contractors who LiveWorld hires. But it's hard to tell.

I didn't see any forums here, although they could be in the corporate travel section.

Cooper Mini
This is a snazzy website that I had seen before (someone I know recently bought one of these cars and was showing off the website). The owners' area requires a vehicle number (you have to own a car or are taking delivery of one). Perhaps I'll ask the guy about the website community.
UPDATE: The mini cooper owner that I know said the website is OK, but not all that useful.

This community seems pretty crappy and it's only moderately active. I have to wonder if this is LiveWorld or perhaps the LiveWorld version isn't online yet?

This community is like the others. It has the "Powered by LiveWorld" message. It's pretty active. There are 230 users online, all but 8 are guests.

Discovery Channel
There doesn't seem to be a community at the main page, but I found one in Animal Planet. The site is modestly active. It's a bit different from the others.

The Travel Channel community is interesting. They have a nice structure for being able to exchange information about specific places (such as restaurants in exotic locations). You create various travel journals based on trips and these get linked into the overall database.

This community is definitely LiveWorld. There are a very large number of discussion areas, but the overall traffic is not as great as you'd think.

This community is moderately active. It seems somewhat different from the other groups. I'm not sure if it's LiveWorld. They have a blog section, a newsgroup section, and a wiki section. Overall, it's very extensive. Typical techie support area stuff.

I've always said Intel is a stupid company. They're good at making fast chips, but they have profoundly bad marketing. Typical for semiconductor makers. I've had contact with them off and on over the years as a developer and of course as a user. They have a newsgroup area for developers here. It doesn't seem like LiveWorld.

I don't see any forums here. I tried logging on (since I have an account through my 401K at work).

I don't see anything here.

This is supposedly a project within the last 3 years, meaning they lost the contract. There is an area that is supposed to be a community, but it's very lame.

H & R Block
This is another previous project. I don't see anything there.

This is a new agreement in April of this year. I don't expect anything on the website, but, as someone who has used Intuit for taxes, the need for a very extensive community is huge here. LiveWorld can add a great deal of value for Intuit and tax customers.

The InSite
This was developed by LiveWorld, but it seems like a bad idea and apparently died a slow death.

The InSite first launched in 1997 as part of the online community, Talk City, produced by LiveWorld Inc. After changing ownership several times, The InSite is now back in the hands of its creators, Annie and David Fox. We're in the process of updating the site and hope to have it fully functional by March 2003.

Procter & Gamble
Another previous project. They have a very extensive website for all the zillions of products. I checked out IAMS and look for communities around cats and dogs. They have a lot of stuff that's a very controlled psuedo community. Not bad. I have no idea what LVWD did for P&G.

Ok, so the next obvious step is to set a baseline for googling for "powered by LiveWorld" forums. This is all I get:

UPDATE July 13, 2005:
Same results when Googling for "Powered by LiveWorld"

UPDATE Oct 23, 2005:
Tulane Law School is new. Better results searching "Hosted by LiveWorld" excluding eBay.

Friday, June 17, 2005

Amen Properties (AMEN)

I looked at this company a while back (a year ago? two years ago? I forget). They aren't on the pink sheets, but they're not far from it (the market cap is $14 million). At the time, the price was under $3 a share; it's more than doubled since then. Putting it all together, it seemed like a pretty good investment at the time. I never bought shares.

They have some interesting bylaws. My take on the religious angle of the business was definitely good thing. These guys seem to really believe it and live it.
Article XIII of our Bylaws provides that AMEN Properties, Inc. is a
"religious corporation." Our policy is generally to include among our officers and directors unconditionally, and among our employees where a bona fide occupation qualification exists, only persons who, upon request, subscribe to the Company's Christian Statement of Faith as follows:
1. We believe that there is one God, eternally existing in three persons: the Father, the Son, and the Holy Spirit.
2. We believe that the Bible is God's written revelation to man and that it is verbally inspired, authoritative, and without error in the original manuscripts.
3. We believe in the deity of Jesus Christ, His virgin birth, sinless life, miracles, and death on the cross to provide for our redemption, bodily resurrection and ascension into heaven, present ministry of intercession for us, and His return to earth in power and glory.
4. We believe in the personality and deity of the Holy Spirit, that He performs the miracle of the new birth in an unbeliever and indwells believers, enabling them to live a godly life.
5. We believe that man was created in the image of God, but because of sin, was alienated from God. That alienation can be removed only by accepting through faith, God's gift of salvation which was made possible by Christ's death.

They recently released their 10-K. I'm going to look over it. But I'd hate to buy shares for $6.35 that I passed up for $2.95 earlier.

UPDATE: I skimmed over the 10-K. Not interested.

Wednesday, June 15, 2005

Billy Martin's USA (BLYM)

I personally don't like this company (website). They seem very shareholder unfriendly. On their investor relations area of their website, there's no information a rational investor would want but lots of hype and BS. Looking at the press releases, here's my favorite:

NEW YORK, May 17, 2005 (PRIMEZONE) -- Billy Martin's USA, Inc. (Other OTC:BLYM.PK - News), the upscale apparel and accessory brand with a 26-year history and heritage, announced today that the company will immediately begin to aggressively buy back BLYM stock.

According to CEO Doug Newton, who founded the company's first “western-lifestyle” retail store in New York City in 1978, “Our stock is one of the best buys in the market today, and we believe the best investment we can make is in ourselves.”

With 175 million shares in the float, out of a total of 340 million issued, Newton said, “BLYM is selling at a fraction of its potential value, and we believe that buying our stock will be both a bargain and blessing for us now and in the future. We also believe the buy back program can maximize return for all our shareholders while increasing the value of BLYM stock.”

“Stock prices aside,” Newton said, “our shareholder return over the long haul ultimately will be determined by our operating performance and the execution of our business strategies. But right at the moment, our stock price is undervalued, and so, like making horse shoes, we need to strike while the iron is hot.”
etc. etc.

The stock is selling for substantially less than a penny a share. There have been no press releases in at least 5 years talking about earnings, revenues, cash flow, basically nothing but garden variety hype dressed up in fancy pants talk. If they really do sell a lot of $900 boots and $300 shirts, then that should be wonderful for investors. It reminds me of Jakk's Pacific toy company (JAKK) who had the same airs and in their case, they would piss off investors on a regular basis and the stock would tank and they'd have the gall to reprice their stock options. This company gives off the same creepy vibes.

No thanks.

Tuesday, June 14, 2005

Biddeford and Sacco Water Company (BDDD)

This looks like an interesting company (website), but there's no info for investors that I can find. It appears to be fairly closely held. Shares trade at $95.

Monday, June 13, 2005

next up BGII

The next company to look at is BGI, Inc

These guys sold "sweepstakes" machines which are amazingly similar to slot machines. Their equipment was seized during 2001 and 2002 and they went dark in 2003. Since then, they've been growing revenues and actually had a Q1 profit in March 2005. The stock has gone from a few cents to 40 cents and stayed there.

Of course there are a lot of obvious negatives about this company. They repriced their stock options, for one thing. This may not be as bad as it seems. With slimy people like this, you want their interests aligned with yours as much as possible.

This is an unlikely investment.

Thursday, June 09, 2005

Pacific International Bank

This bank (website) has apparently about 1,000,000 shares. They don't seem to trade on any exchange, although the bank lists a bid/ask/last numbers on their website ($16/$17/$15.50).
PI Bank was founded in 2001 when more than 240 local Korean-American business owners and investors decided to create a bank to give special attention to the needs of small business owners. Since that time we have added branches in Lakewood and Lynnwood to the service provided from our Seattle headquarters branch. Our officers and staff speak Korean as well as English. [emphasis added]
If that's true, then I wonder why there is so little emphasis on commercial/industrial loans (see below in bold).

FDIC certification #57246

Doing a comparison to Bank of the James (they're a good standard to use for comparison of startup community banks)...
Annualizing Q1 2005 for the year would be about $1 million in net earnings or about a dollar a share. This would give it a forward P/E of about 17. They've expanded about as much as they can with the current equity capital, so I don't expect the huge improvements in the future that they saw in the past. So this one is probably priced about right. It doesn't seem like they have much transparency, so this is not worth following.

Tuesday, June 07, 2005

Wintrust Financial (WTFC)

You'd think that with all the startup community banks I've been looking at, that WTFC would be the perfect investment. They create/purchase lots of startup community banks. Their results look absolutely wonderful: earnings each year of: $9.4, $11.1, $18.4, $27.9, $38.1 million from 1999 to 2003 (2004 is another banner year).

There's a lot of really great results they have to show me.

Just one problem. They don't pass the smell test. I could be wrong, but I don't trust companies that take in large amounts of cash every year from investors to rapidly expand. When that happens, it's possible to build something like a Ponzi scheme where new cash and new investments and new deposits can cover up ugly old investments and deposits. Net interest margin has been steadily declining over the years. A lot of little clues that I see on their website and in their reports give me the creeps. They remind me of shady used car dealers. And if you look at their cash flow statement, a huge part of it is buying and selling massive amounts of mortgage securities.

No, thanks.

Monday, June 06, 2005

Commonwealth National Bank (CWEA)

This bank in Worcester, Mass (website) doesn't seem as good as some of these other banks, but it's certainly doing well. I'm concerned about the overall return on assets.

Comparing CNB to Bank of the James (BOJF) when it was about the same point in its lifecycle:
So here we have a bank which is more leveraged, has more assets per employee, and lots of other reasons to be performing better than BOJF, but is lagging far behind. I wonder how much it has to do with the 13.47% of assets which are other borrowed funds rather than low interest paying deposits? CNB has a lot more real estate loans and this is in a bubble zone as far as I'm concerned. CNB is not going to grow out of this; they are getting close to the ideal leverage point.

The bank earned about $166,000 in Q1-05. This will probably improve to about $200,000 per quarter or about $800,000 per year. If we assume a P/E of 15, it's worth $12 million total. With 2.183 million shares, it might be worth about $5.50 a share, except that I don't like the potential real estate exposure and lousy operating results. These make it worth at most $4 a share. Given that shares are trading for $12.50, I think this can be ruled out.

UPDATE Dec 30, 2006: I stumbled back into this going through the letter "C" in new pink sheets companies. The ticker changed to CFNA and the stock price hasn't changed much at all in two years. Bid/Ask is $12.70 and $13.65.

First Community Bank of Joliet

Yet another new community bank (website). They had sort of a 'private IPO' for Joliet area investors only and had more offers ($26 million) than authorized capital ($18 million). I've only briefly looked through the FDIC numbers (certification #57681), but I figure the business is probably worth about $17 a share (1.8 million shares outstanding).
First Community Bank of Joliet stock is not traded on any stock exchange. To buy or sell the Bank's stock contact John Spanich, Chief Financial Officer at 815-725-0123.
The bank started up on June 14, 2004 and they have ramped up very quickly. Business is very good.

UPDATE July 1, 2006: Someone was searching for this, so I figured I'd update it. Looking at the FDIC database results as of March 31, 2006 and comparing this to March 31, 2005...
Assets have nearly doubled (good). Loans are spread out across a variety of areas. Equity capital has nearly doubled (very good). Assets past due constitute 0.25% of total assets, which isn't bad. Most of that is commercial and industrial loans with a tiny part loans to individuals. All of it is 30-90 days overdue.

Interest income is way up (tripled). Net income for the quarter is $373K (vs a loss).

Performance ratios are good. Net interest margin is 3.72%. Return on assets is only 0.86% which isn't unheard of, but not great. Return on equity is 5.10%, which is reasonable. Efficiency ratio is 44.17%, which is very good. $9.31 million dollars in assets per employee.

And now I see the reason for the lackluster returns. Their various capitalization ratios are still very high, meaning they still aren't leveraged enough (not enough loans and deposits compared to the equity in the business). Of course that makes the business very stable and solid, but it causes low returns for investors. Considering that assets have increased so much, I wouldn't worry much about it.

They have $29.5 million in equity capital. The stock might be worth, say, $45 million? If they still had only 1.8 million shares outstanding (which might not be the case) then the shares might be worth perhaps $25.00.

Seacoast Commerce Bank (SCCB)

Here's another new, community bank that I'm looking into (website).
FDIC certification #57428.

UPDATE: They're sending me an annual report in the mail.

UPDATE: I got the annual report and read it cover-to-cover. Seems ok. I still need to do checklist work. I have a rough valuation in my head at this point. It may be a good investment, although probably not a great one.

I'm going through the checklist now, but I wanted to keep some notes here, especially related to competitor local banks: Pacific Trust Bank (35498), Balboa Thrift and Loan (26704), San Diego Community Bank (23158)

Pacific Trust Bank: They more than tripled their assets since 2000, but their income is unchanged due to larger interest expense, salaries, equipment, taxes vs tax benefit. Doing a detailed comparison on the FDIC database, PTB looks worse than SCCB.

Balboa Thrift and Loan: They have an amazingly high interest income (10.90%)... suspiciously high. Their website shows that they're focused on commercial real estate, home improvement, and auto loans. Must be a lot of auto loans to high risk people. Their high provisions for losses (2.07%) seems to confirm this. So this comparison is not valid.

San Diego Community Bank: Although they have a lot more assets, bank premisis and fixed assets are twice as much a percentage of total assets. They have $142,000 in goodwill for mortgage servicing rights purchased. 79% real estate loans vs 58% for SCCB: a lot more residential (SCCB has almost none). Not much commercial loans. 0.71% of assets in non-accrual (all residential). A lot more non-interest income (probably the mortgage servicing rights). These guys have really good interest income numbers (better income, better expense). Still, their ROA is only 0.67% and ROE is 4.78%, pretty crappy. The ROE is hurt by their overcapitalization. But it's not like they're a new bank or anything (at least since 1992).

The checklist passes so far, but I don't have a proxy statement to check the audit committee, salaries, board member details, and stock ownership details. I sent them an email asking if they have anything like a 14A proxy statement.

UPDATE: The CEO got back to me and said they don't publish anything resembling a 14A proxy statement. I can't say that I blame them.

I bought some shares anyway and, like BOJF, this will be a small investment.

UPDATE: Sometimes buying shares in a really, really small company can be a real pain. Sometimes it can be like playing chess or maybe a lot more like fishing.

Sunday, June 05, 2005

River City Bank (RCBK)

Ok, so I'm looking at this as a potential bank earlier in its life cycle. This was found in July, 2004. They compare reasonably well with Bank of the James at the equivalent same point in time.

River City Bank
Mechanicsville, VA
FDIC certification #57743

Unfortunately, it's difficult getting information about RCBK. There are about 930,000 shares outstanding, with a rights offering to sell up to 310,000 more to increase equity. Anything not sold in rights offerings will be offered to the general public. The market cap right now is about $11 million, before the secondary offering.

I've done some preliminary ground work and haven't run into anything bad. This needs more work.

Bay National Corporation (BANI)

Bay National (website) is very similar to Bank of the James. They both have nearly identical amounts of assets. Both are very new banks. Both were founded as a response to the insane number of mergers/acquisitions. Both are trying to be community banks. If nothing else, this provides a great comparison for BotJ.

Comparisons. I'm going to just run through these in no particular order:
The risk-based capital ratio assigns different weighting to different types of assets, depending on how risky they are.

Oh yeah, all of these numbers are based on the quarter ending March 31, 2005.

Market cap:
BANI is selling for pretty close to what it's worth. I'll hold off on running it through the checklist for now (unless I get motivated for some reason).

Now that I've seen two of these, I might actively search for a startup bank before it's actually making money and do a close comparison with these other two banks at the same point in their lifespan.

Thursday, June 02, 2005

Bank of the James

Next up is to look into this bank (website). These guys started up on July 22, 1999 and got up to speed very nicely. (I've looked at another bank that recently started up and they had taken quite a bit longer to cross into reasonable profits.)

But here's what BOTJ has done:
Their FDIC database numbers for the end of 2004 and 2002 compare favorably to a peer group of banks with less than $100 million in assests in Virginia. The 2000 numbers looked ok. I'm impressed with how this bank has taken off since it was founded. Lynchburg, Virginia is where Jerry Falwell's megachurch was located, if I recall correctly. It's definitely outside of the DC area and not located in a bubble real estate area. I checked a couple of real estate websites: lots of reasonable houses for around $150,000.

FDIC certification #35207

Comparing BotJ to Community First Bank Lynchburg:
Ok, how about the other Lynchburg bank, Central National Bank:
Result: BotJ compares quite favorably to the other two local banks in Lynchburg (one national, one Virginia chartered).

Very importantly, the bank directors eat their own cooking: Most of them own at least six figure dollar amounts of stock. In total they own 18% of the bank (yes, a lot of it is via options unfortunately).

These guys own about 2.5% of the stock.

Now to the interesting part. First, we have a bank director, minister of a church, owner of a funeral home, and mayor of Lynchburg (all the same guy), resign from being an outside director of Bank of the James:
December 9, 2004

Board of Directors

Bank of the James Financial Group, Inc.

Bank of the James

Lady and Gentlemen:

It is with regret that I submit my resignation as a board member of both Bank of the James Financial Group, Inc. and Bank of the James. These resignations are effective December 31, 2004. I am resigning due to personal reasons and I wish the Bank my very best.

Carl B. Hutcherson, Jr
When a company director resigns, it's a signal that something is very wrong. It can be wrong with the individual or, more likely, wrong with the business.

Next, we have this little episode:
A Bank of the James complaint to law enforcement triggered the federal investigation of Lynchburg Mayor Carl Hutcherson.

The Bank of the James served as the depository for a $32,500 gift from Jerry Falwell Ministries in August to an organization affiliated with Hutcherson’s church.
According to his Statement of Economic Interests, filed with the City Council clerk, he was compensated between $1,001 and $10,000 last year for work as a Bank of the James director. Hutcherson owned between $10,001 and $50,000 of Bank of the James stock, his disclosure form shows. An official at Falwell ministries said earlier this year that Hutcherson called in September or October to say that the bank had raised questions about the ministries’ donation to the CDC. The Trinity CDC had its incorporation revoked by the State Corporation Commission in March and has not received its nonprofit status
The federal Bank Secrecy Act requires banks to report suspicious activity to the Financial Crimes Enforcement Network, according to Leland Chan of the California Bankers Association. “If there’s a suspicion of virtually any crime, banks have to file a suspicious activity report,” he said.
In addition to Falwell ministries, Hutcherson sought donations from Centra Health in the CDC’s name. That $10,000 grant was approved, but never disbursed because Hutcherson failed to furnish necessary paperwork proving the CDC’s non-profit status.

There are other articles about this whole thing here and here. And the NAACP supports him regardless. Like most people, he's not a bad person. Apparently, he tried to borrow money from Falwell before this whole episode.

So apparently, Hutcherson's resignation was probably forced. The bank knew of his problems and couldn't have someone like that in a director position at the bank.

This is why I use a checklist!

A minor red flag is that they don't spell out the depreciation lengths in any detail (they're vague about it).

Anyway, the bank detected the fraud and triggered the investigation. The mayor resigned from the board well before this. The mayor is the one with the money problems. I believe BotJ is a good investment at the right price.

So let's say we assume earnings of about $1.35. This would probably grow with the inflation rate. the stock would probably be worth about $22. It's been selling at around $17, which is about the most I would ever want to buy it for. At that price, it's a pretty good investment.

UPDATE: I'm in. It's a small investment.

Wednesday, June 01, 2005

Bank of Salem (Oregon)

BSOG: This one is worth looking into. They have 3.037 million shares and about $3 million in earnings last year. Earnings have been lower between 1992 and 2003, so I'm thinking about the equivalent of a steady $2.3 million per year, which is worth about $34 million or worth about $11.30 a share. Share are selling for around $17, but they were selling for $12 last year. Good ROA and ROE. Good capitalization ratios. They compare very favorably to a similar known-good bank and to a peer group of similar sized banks in Oregon from the mid 1990s to Q1 2005. Definitely worth watching.

1995 Commercial Street Southeast
Salem, OR 97302
(503) 585-5290

Ballston Spa National Bank

When I invested in Washington Mutual a while back (I've since decided they aren't a good investment), I read the book Bank Director's Handbook which is a good overview of the important things to know about banking.

The FDIC database is an outstanding resource. You can look at the assets, liabilities, income, expenses, and lots of other stuff in great detail (more than typical company financial tables and footnotes). You can look at both dollar amounts and ratios against total assets. Best of all, you can compare a bank against any other bank or a peer group of banks with all sorts of specifications. And you can do all of these things for any quarter or year. So I can take Bank A and look at how all of its numbers have changed since, say, 1992. Or I can compare it to another bank at the same time period or a different time period.

What I'm starting to do now is look at startup community banks. With all the mergers and acquisitions, there are a lot of these small banks being created.

This bank is in upstate New York. Obviously they have a lot of real estate loans (right now I consider that a negative). Zero derivatives (most small banks have no derivatives). They made increasing amounts of money from 1992 until 1999, then they blew up in 2000 and income cut in half. They slowly recovered over the years back to a little over a million a year in earnings. They pay out almost that much. And the P/E ratio is roughly around 30. Too high by a factor of 2.

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