Pink Sheets

I'm working on some other things, so nothing is showing up here right now. I suspect it might take a week before I'm back evaluating companies.

UPDATE: Tuesday: Still working on the side issue.

A collection of categories of businesses. Most businesses are a combination of multiple categories. For example, Mousetrap+Niche+Ghost Ship=Underpants Gnomes.

1. Toll Bridge: Anyone who wants to do a particular thing must use your product or service, and lots of people do this thing regardless of how much you charge (within reason). This is the ultimate business to own.
   
2. Habitual brand: People buy your product/service out of habit and they have a clear preference for your brand. The purchases are repetitive and small costs. Coca Cola and Marlboro are good examples (well we all know cigarettes are actually bad).
3. Safety Brand: People buy your product/service because they trust it and anything else has enough uncertainty to warrant paying more for the known brand. Branded restaurants or hotels are good examples.
4. Status Brand: We all know about these.
5. Fight Club: Bare knuckles competition with no advantages other than brute force competition. Wal*Mart actually won this way, but there's only one Sam Walton and he's dead.
   
6. Niche: A company dominates a small market no one else cares about.
7. Bank: any highly leveraged financial institution working with interest rate spreads. Extremely dangerous if not run correctly.
   
8. Mine: A hole in the ground owned [or managed] by a liar. (Mark Twain?)
9. Mousetrap: A company based around some clever gimmick that no one wants, often with a patent (especially if it's the CEO's patent and it's framed hanging on the wall)
   
10. Ghost Ship: A company without any sense of direction or purpose, drifting on past success.
    

Solitron Devices (website) Makes military and aerospace semiconductors (bipolar and MOS). 93% US Government (mostly through contractors such as Raytheon, Lockheed Martin, Smith Ind, harris, Northrup Grumman), the rest are still military related. Ground radar, airborne radar, power dist, missles, missle control, spacecraft (manned and unmanned).

2005 10-K
period ending Feb 28, 2005
Delaware inc. 1987, originally New York 1959

Power transisitors: 17% (0.1amps to 150amps, 30V to 1000V)
Hybrids: 60% (passive and active components)
Field effect transistors: 5%
Power MOSFETs: 18%
numbers seem to be fairly consistent.
only analog devices (hey, what would I know about analog devices?)
Company has been certified since 1990 and qualified since 1995 under MIL-PRF-38534 Class H, which is the standard military level, although there are lower levels. Class K is actually higher and applies to at least some space applications.

ISO 9001 in March 2000, recertified this past year after two additional surveillance audits. Now qualified for ISO 9001-2000 which may result in additional business.

90% custom products. This is actually a good thing as it avoids commoditization.
Some new demand from Motorola, non military.
All the usual military standards.

In the US: 6 sales people, 2 stocking distributor organizations in 39 locations with 270 sales people.

International: 2 representative organizations in 2 countries with 4 sales people, mixed with distribution. "Several" sales, marketing, and apps engineers for key accounts.

Raytheon accounted for 46% of net sales! Was 41% previous year. 61 new customers this past year out of 172 total customers. US Gov was only 8% vs 11% previous year. No other 10+% customers. But 15 customers were 87% of sales.

Due to changes in Congressional appropriations and military spending, Company had a 19% decrease in net bookings this past year. This doesn't look good, but in the later 10-Q for the first quarter of 2006, the book to bill ratio went up to 1.08 from 0.91 and sales continued to increase.

33 patents, all expired. No material impact. "The Company believes that engineering standards, manufacturing techniques and product reliability ar emore important to the successful manufacture and sale of products than the old patents that it had." which is probably true.

The Company is not in direct competition with any other semiconductor manufacturer for an identical mixture of products; however, one or more of the major manufacturers of semiconductors manufactures some of the Company's products. A few such major competitors (e.g., IXYS, Motorola, Intersil, Fairchild, among others) have elected to withdraw from the military market altogether. However, there is no assurance that the Company's business will increase as a result of such withdrawals. Other competitors in the military market include International Rectifier (the Omnirel Division), Microsemi (the NES Division), MS Kennedy, Natel and Sensitron. The Company competes principally on the basis of product quality, turn-around time, customer service and price. The Company believes that competition for sales of products that will ultimately be sold to the United States government has intensified and will continue to intensify as United States defense spending on high reliability components continues to decrease and the Department of Defense pushes for implementation of its 1995 decision to purchase COTS standard products in lieu of products made in accordance with more stringent military specifications.

91 employees (up from 90): 65 in production, 4 in sales/marketing, 6 executive/admin, 16 technical support, 5 of 91 are part time. No unions.

Diminishing number of suppliers for raw materials. Costs going up. They rely on 3-inch wafers.

Key suppliers: Egide USA Inc., Platronics Seals, Kyocera America, Coining, Kilburn Isotronics, IXYS, Purecoat International, Stellar Industries, and others.

No R&D expenditures over the last 2 years. Special design costs are borne by customers directly or indirectly.

Usual hazmat materials of a semiconductor company.

This is particularly bad and could make this a non-investment:

However, the Company has significant obligations arising from settlements in connection with its bankruptcy that require the Company to make substantial cash payments that cannot be supported by the current level of operations.

EPA Superfund site issue:

The Company is currently engaged in negotiations with the United States Environmental Protection Agency ("USEPA") to resolve the Company's alleged liability to USEPA at the following sites: Solitron Microwave Superfund Site, Port Salerno, Florida; Florida Petroleum Reprocessors Superfund Site, Fort Lauderdale, Florida; City Industries Superfund Site, Orlando, Florida; Forty-Third Street Bay Drum Superfund Site, Tampa, Florida; Casmalia Resources Superfund Site, Santa Barbara, California; and Solitron Devices Superfund Site, Riviera Beach, Florida. At a meeting with USEPA on March 23, 2001, USEPA contended that the Company's alleged share of liability at four (4) of the sites totals approximately $7.65 million, which USEPA broke down on a site by site basis as follows: Solitron Microwave, Port Salerno - $3.8 million; Florida Petroleum Reprocessors - $150,000; Casmalia Resources - $2.7 million; and Solitron Devices, Riviera Beach - $1 million.

and this:

The Company contends that the claims of USEPA and the Casmalia Resources private party group referenced above were discharged in bankruptcy pursuant to the Bankruptcy Court's Order Confirming Solitron's Fourth Amended Plan of Reorganization, entered in August 1993. Nevertheless, the Company is negotiating with USEPA to settle its outstanding liability at all sites based on an ability to pay ("ATP") determination.

Following a settlement conference on October 24, 2003, the Company received a final ATP Multi-Site Settlement Agreement from USEPA on January 23, 2004. The substantial provisions of the Agreement obligate the Company to pay to USEPA the sum of $74,000 over two years, in equal quarterly payments, plus interest. In addition, the Company is obligated to pay to USEPA the sum of $10,000 or 5% of Solitron's net after-tax income over the first $500,000, if any, whichever is greater, for years 3-7 following the effective date of the Agreement. The Company signed the Agreement and returned it to USEPA for execution on January 26, 2004. After receipt of the signed Agreement, USEPA notified the Company that additional edits to the Agreement may be necessary. The Company expects to complete negotiations with USEPA in calendar year 2005. Once the agreement becomes effective, it is anticipated that USEPA will recommend to the PRP group at the Casmalia Resources Superfund Site that the group release the Company from further liability at the site upon the Company's compliance with the Agreement.

There's another one in Tappan, New York on 2002, with an agreement entered in March 2005.

This is too much uncertainty overhanging and the company isn't so great to start with.

Conclusion: Not a good investment.

UPDATE: Stop following

I'm hitting a dry spell in searching right now. It's amazing how many loser companies are out there. I ran into one company (forgot which one) where they announced the CFO was arrested for some sort of fraud.

Someone opened a small pet shop in the neighborhood around here in an obscure location in a shopping plaza... in the same location where a small candy store went out of business. How can they compete with Pet Smart (4 miles away) or the local grocery store (less than 1000 feet away)? Unless they're selling monkeys and sugar gliders (and more importantly Purina Monkey Chow and specialized sugar glider food), they would have nothing: no reason for someone to spend much money in the store. I've got a better idea: animal luxury items. They should sell very high priced, high margin stuff for animals, like fancy little sweaters, fancy food bowls, very obscure and boutique animal food. Make it so your customers might have just come from Pet Smart but they still have a reason to shop in your store. Maybe even add an animal photography studio with props and backdrops of every sort. Maybe move somewhat into the service business with animal walking and feeding when people are away.

YaSheng Group has certainly gone up in price. I've got a 50% gain in a little over a week. Someone big is establishing a position. It's up to $3 and it's still worth $6.

UPDATE: I had to add this quote.
"...at the heart of every non-financial management person is the quiet belief that they are really doing much better than the accounts show."
-- Elias Fardo --

In the mail: Blink: The Power of Thinking Without Thinking

Yet another bank doing well and priced about right: SFGP

UPDATE Tues.: Holy crap! Every f'king company that starts with the letter S is f'king incapable of even a single f'king dollar of f'king profit (you'll notice that Strathmore is no exception). I've looked at some of the most ridiculous forms of business, I'd be embarrassed to put my name on some of these financial statements. In other news, wow, what's up with YaSheng! Up yet another 15% today. I've never had that happen.

This is a low-ball guesstimate (and I mean GUESSing) of pounds of U3O8 per fully diluted share of Strathermore Minerals that can be removed from the ground at normal mining costs.

Duddridge Lake
0.5 million pounds

Dieter Lake
40 million pounds

Athabasca Basin
no idea, with the information given, I'd say 30 million pounds

Waterbury Lake
no idea, I'd say assume zero

Comstock
no idea, I'd say assume zero

Peru
5 million pounds

Roco Honda
9 million pounds

Church Rock
5 million pounds

Powder River Basin
no idea, I'd guess 0.5 million pounds

Cedar Rim
no idea, I'd guess 0.5 million pounds

Copper Mountain
12 million pounds

Northeast Wyoming
no idea, I'd say 1 million pounds

Chord
8 million pounds

That's a total of about 110 million pounds. The total share dilution is probably going to end up with around 70 million shares. So I would assume about 1.5 pounds per share of U3O8.

Given that the price of Strathmore stock is less than US$1.50, this is essentially a call option on the price of U3O8 with a strike price of maybe US$28 a pound and an option purchase price of US$1 a pound. The call option doesn't really expire, although it's probably a good idea to assume an expiration of about 8 years from now (who knows what factors might change after this time?).

UPDATE:
Here's the website of a competitor in the Athabasca basin. They do nothing but lose money, even in recent quarters. More ominously, they talk a lot about how technology is making exploration a lot faster and more effective. I'm thinking seriously about dumping this stock.

UPDATE Jan 4, 2006:
Strathmore just released an update on Church Rock. They finished an independent technical report which raises the estimate of U3O8 to 11.8 million pounds (from 6 million pounds), with an additional 3.5 million pounds inferred.

The report was prepared by David C. Fitch, C.P.G., who is a qualified person under National Instrument Policy 43-101. Mr. Fitch has over 17 years of uranium experience in the Grant's Mineral Belt, which was the largest producing uranium district in the world during the last uranium cycle.

The deposit is within sandstone units which should support in-situ mining.

BakBone Software (sec, website)

first entry
bad news
last year's 10-K 2004
2004 10-K continued
8-K statements
re-stated 2003 10-K
The right way to deliver bad news, June 23, 2005
EMEA resignation
Another open letter, Oct 17, 2005
Yet another open letter, June 13, 2006
more waiting, June 28, 2006
open letter to shareholders, July 27, 2006
BakBone Software update, Aug 9, 2006
vague strategic deal with Sun Microsystems, Dec 21, 2006
BakBone Software update, Feb 8, 2007
re-examining BakBone Software, Feb 13, 2007
three executives fired, Mar 10, 2007
Sun deal, April 24, 2007 (not posted till April 28) 90 million fully diluted shares
Sold BakBone, July 26, 2007 (closed out investment at a slight gain)

LiveWorld (website)

first entry
community websites
Bruce Dembecki
client services
Chris Christensen
Peter Friedman
prospectus notes
prospectus notes (continued)
press release
key shareholders
Q2 results
Q3 results
Q4 results closed position

YaSheng Group (website)

12/05/2005 YaSheng's Q3 Results closed out position
11/16/2005 YaSheng Group (YHGG) methanol update
11/12/2005 Another quick look at YaSheng Group (YHGG)
11/11/2005 YaSheng Group (YHGG) methanol
10/21/2005 YaSheng Group (YHGG) new auditor
10/09/2005 YaSheng Group (YHGG) update
7/19/2005 YaSheng (YHGG) press release
7/18/2005 More about the Chinese legal system for business
7/17/2005 YaSheng Group (YHGG) 10-Q
7/17/2005 YaSheng Group (YHGG) other stuff
7/17/2005 YaSheng Group (YHGG) Consolidated statements for 2004, 2003

Strathmore Minerals (website) and recent uranium prices

2004 audited results
2004 audited results continued
Q1 2005 results
press releases
uranium
what ended up being a not-so-useful investment report
pounds of U3O8 per share estimate This is a horrible estimate, see below for a better one
press release Aug 18, 2005
November update
uranium prices 12/21/05
What can go wrong
article on China
more news Feb 8, 2006
Church Rock Feb 15, 2006
trying to hide bad news Feb 27, 2006
overheated uranium Feb 28, 2006
yet another press release Mar 1, 2006
Canadian press release for April 2006
supply/demand imbalances and intrinsic value
spot price jumps up a dollar, Mar 8, 2006
Strathmore finds more Roca Honda uranium
raising more money, May 9, 2006
Misc thoughts on ETLT, CXTI and Strathmore
Strathmore buries the bad news, June 9, 2006
Huge jump in uranium spot price, June 14, 2006
Updated uranium estimate, June 24, 2006
Strathmore stakes a claim, Aug 21, 2006
Uranium jumps another notch, Aug 29, 2006
Strathmore encounters uranium, Sept 1, 2006
uranium spot price jumps to $52, Sept 5, 2006
yet another huge jump in spot price, Sept 20, 2006
another jump in spot price, Oct 3, 2006
Cigar Lake mine flood, Oct 25, 2006
Strathmore jumps over 20%, Oct 30, 2006
Strathmore stakes another claim, Nov 2, 2006
Strathmore wants a mill, Nov 20, 2006
US Government uranium, Dec 12, 2006
uranium feeding frenzy, Dec 16, 2006
uranium chatter, Jan 14, 2007
Strathmore starts to monetize properties, Jan 30, 2007
Strathmore plans to spin off Canadian properties, Jan 31, 2007
New uranium website, U3O8.biz, Feb 6, 2007
Uranium spot price hits $85, Feb 21, 2007
What is Strathmore Worth according to NOT Sprott, Feb 25, 2007
Ranger mine flood, Mar 7, 2007
Ranger mine flood update, Mar 12, 2007
poor quality valuation, Mar 14, 2007
yet another uranium post, Mar 17, 2007
misc thoughts, Mar 21, 2007
uranium spot price $95, Mar 25, 2007
uranium observation, April 1, 2007
uranium jumps to $113 a pound, April 7, 2007
uranium futures, April 18, 2007
uranium continues climbing to $120, May 6, 2007
more thoughts on uranium, May 11, 2007
uranium update, June 2, 2007
uranium, July 9, 2007
yet another uranium post (tsunami), July 14, 2007
Roca Honda joint venture with Sumitomo, July 26, 2007
reality check, Aug 7, 2007
press releases, Sept 19, 2007
humorous press release and annual report, Oct 2, 2007
Strathmore surges ahead, Nov 1, 2007
Uranium, May 17, 2008
Strathmore pummelled, July 29, 2008
uranium stock prices drop, Sep 10, 2008

Search for uranium news

StockInterview.com's uranium web page.

Sprott's interview from 2004

An excellent article on measuring uranium in the ground (I found it here). I intend to do a detailed write-up of this. Also, the real bottleneck in uranium mining seems to be mining engineers and a shorter term bottleneck in drilling equipment (which someone on VIC reported not long ago). Also here.

UPDATE 5/4/06: Given my fear above about mining engineers as bottlenecks, it's good to see that Strathmore is hiring a "Senior Landman" and a new graduate geologist.

commodity prices.

This report was written by some random person I don't know anything about, so it has no inherent authority of its own.

The company spent several years accumulating assets and people while the uranium industry was completely out of favor. That foresight has given the company a strong team... Strathmore has a big lead on most other companies....

I'm not so sure I completely agree with that. They didn't do enough while uranium was out of favor because they've been scrambling lately to do acquisitions. Now maybe they had these acquisitions in the pipeline for a long time, I don't know.

Strathmore's strategy has been to acquire uranium properties on which previous work has outlined deposits. The company had a lot of projects to choose from, as decades of exploration work came to a near complete stop when the uranium price cratered after 1997.

This must be a typo because the real collapse of uranium prices happened over a long time period from 1979 until the early 1990s. I suppose there was a little increase in the 1990s and a drop in 1997, but it was very small. Most of the exploration work on Strathmore's properties was done in the 1970s and 1980s.

The report mentions Robert Quartermain and claims that he is a director of Strathmore, but he is actually just on the Executive Advisory Board.

I read the rest of the report and it's really better to get this information first hand.

This is a great paper on u mining: Canada has the most mining (29%). Mining only covers 60% of demand. The rest comes from reserves (and has been for decades). Mining supplies about 40K tonnes (this has actually been decreasing in the last 4 years). Mining has consolidated so that 8 companies produce 82% of the world's mined uranium.

You can see from the chart that uranium mining production peaked around 1960 and again around 1981. Prices since 1981 have been in the toilet and mining has greatly decreased. Look at the faint black line in the chart showing reactor requirements. Demand has been dramatically increasing over the decades, but mined supply has been decreasing.

Here's a description of the in situ leaching method. ISL tends to be cheaper and more environmentally friendly, so long as the uranium ore resides within the right kind of permeable rock. Either an acid or alkaline is pumped into the ground at one point, and pumped out of the ground about 90 feet away. Acids tend to have about the same pH as vinegar. Side located pumps check for any movement of fluid outside the mining area. It takes about 6 months to a few years to get most of the uranium out (they get about 80% of it out). Reading the whole thing, you can't help but be impressed by how far business has come in being friendly to the environment and to the indiginous people.

Here's a description of the supply/demand situation. Production only supplies 55% of power utility use (ok, now it's up to 60%). A lot of the shortfall was supplied by ex-military uranium. Efficiency has improved to where there has been a 25% reduction in uranium demand per kWh of electricity.

Because of the cost structure of nuclear power generation, with high capital and low fuel costs, the demand for uranium fuel is much more predictable than with probably any other mineral commodity. Once reactors are built, it is very cost-effective to keep them running at high capacity and for utilities to make any adjustments to load trends by cutting back on fossil fuel use. Demand forecasts for uranium thus depend largely on installed and operable capacity, regardless of economic fluctuations. For instance, when South Korea's overall energy use decreased in 1997, nuclear energy output actually rose, to replace imported fossil fuels.

So uranium is essentially economically inelastic. The same amount will be used regardless of price.

And also:

Looking ten years ahead, the market is expected to grow slightly. Demand thereafter will depend on new plant being built and the rate at which older plant is retired. Licensing of plant lifetime extensions and the economic attractiveness of continued operation of older reactors are critical factors in the medium-term uranium market. However, with electricity demand by 2030 expected (by the OECD's International Energy Agency) to double from that of 2004, there is plenty of scope for growth in nuclear capacity in a greenhouse-conscious world.

They claim the stockpiles of uranium are "now largely depleted." Secondary sources are:

• recycled uranium and plutonium from spent fuel
• re-enriched depleted uranium tails
• ex military weapons-grade uranium
• civil stockpiles
• ex military weapons-grade plutonium

Only about the equivalent of 2000 U3O8 tonnes of fresh mixed oxide (MOX) fuel is used each year. Weapons grade uranium is about 97% U-235, which is diluted about 25:1 with depleted uranium (or 30:1 with enriched depleted uranium) to about 4% U-235 for reactor food as part of a balanced breakfast.

From 1999 the dilution of 30 tonnes such material is displacing about 10,600 tonnes per year of mine production.

Military Warheads as a Source of Nuclear Fuel

Highly-enriched uranium from weapons stockpiles is displacing some 10,000 tonnes of U3O8 production from mines each year, and meets about 15% of world reactor requirements.

And this:

World stockpiles of weapons-grade plutonium are reported to be some 260 tonnes, which if used in mixed oxide fuel in conventional reactors would be equivalent to a little over one year's world uranium production.

MegaTons to MegaWatts

Surplus weapons-grade HEU resulting from the various disarmament agreements led in 1993 to an agreement between the US and Russian governments. Under this Russia is to convert 500 tonnes of HEU from warheads and military stockpiles (equivalent to around 20,000 bombs) to LEU to be bought by the USA for use in civil nuclear reactors.

In 1994, a US$12 billion implementing contract was signed between the US Enrichment Corporation (now USEC Inc) and Russia's Techsnabexport (Tenex) as executive agents for the US and Russian governments. USEC is purchasing a minimum of 500 tonnes of weapons-grade HEU over 20 years, at a rate of up to 30 tonnes/year from 1999. The HEU [high enriched uranium] is blended down to 15,259 t of LEU [low enriched uranium] at 4.4% U-235 in Russia, using 1.5% U-235 (enriched tails), to restrict levels of U-234 in the final product. USEC can then sell the LEU to its utility customers as fuel. By mid-November 2001, Russia had dispatched 137 tonnes of HEU to USEC, (4,031 tonnes of LEU) arising from 5481 nuclear warheads.

For its part, the US Government has declared just over 174 tonnes of HEU (of various enrichments) to be surplus from military stockpiles. Of this, USEC has taken delivery of 14.2 tonnes in the form of uranium hexafluoride (UF₆) containing around 75% U-235, and 50 tonnes as uranium oxide or metal containing around 40% U-235. Downblending of the UF₆ was completed in 1998, to produce 387 tonnes of LEU. Some 13.5 tonnes of the HEU oxide or metal had been processed by September 2001 to produce 140.3 tonnes of LEU. The rest should be processed by 2005.

Overall, the blending down of 500 tonnes of Russian weapons HEU will result in about 15,000 tonnes of LEU over 20 years. This is equivalent to about 152,000 tonnes of natural U, or just over twice annual world demand [or about 4 years worth of mining deficits].

The process for dealing with Russian downblended material has been problematic because the natural uranium feed (eventually owned by Russia) can't be sold at a sufficiently high price, so 11,000 tonnes has accumulated at USEC. The US reached a deal in 1999. 163K tonnes of U3O8 feed is to be supplied [to who?] over the next 15 years. The various oligarchs of mining have signed exclusive options to buy 118K tonnes. The rest is "available to Tenex".

It sounds like there's still a lot of uranium floating around. I'm surprised the spot price has gone up to $29.50 with all this supply.

There is also 150-200 tonnes of weapons-grade plutonium. This could end up as MOX fuel for reactors. In 2000, the US and Russia agreed to dispose of 34 tonnes of it by 2014. A lot of this is going to be MOX, but it will take time and a special plant to do the conversion.

The World Supply and Demand Scenario chart is a good picture of the present and future for uranium sources.

In East and South Asia, there are currently about 100 reactors, 20 more are under construction, and there are plans to build another 40. China is supposedly planning to build 2 reactors per year. A lot of reactors will be replacing retiring ones (one third?). [This article is from 2003 and seems out of date]

QuickFacts from Canada
There were 439 reactors worldwide at the end of 2004. As of May 2005, there were 24 new reactors under construction and another 40 being planned, 73 proposed

ValueInvestorsClub has an outstanding writeup and Q&A on Strathmore, but I can't link to it because registration at the very least is required. It argues that from 1985 to 2003, 339K tons more uranium was used than mined. Cost of mining was far higher than the price, which killed exploration and development. President Clinton transferred 28.6K tons from the national stockpile to USEC (USU:NYSE) and IPO'ed it. Russia sold 20K tons to the US. The remaining 90K tons was sales from Russia's stockpiles directly to utilities. During the currency crisis of 1997, Russia needed currency and signed a contract to deliver 9K tons per year. The US also sold off more of the stockpile. With the new tensions in the world, there are a lot of reasons why the US would curtail selling off the stockpile.

At first Strathmore simply bought properties which already had some work done on them, but Strathmore conserved capital for more mineral rights purchases and did not further pursue the exploration and development. Now that uranium prices are high, Strathmore is starting to do the work to develop the properties. They also raised a bunch of cash to ensure they can get the work done. Most of the exploration and development work done long ago on Strathmore properties was before the more stringent Canadian rules for declaring reserves, so they can't really rely on what they have. But you can go through the table and get a pretty good idea for roughly how much uranium they have.

One of the ValueInvestorsClub members (not the one who pitched Strathmore) talked at length with David Miller, the top geologist consultant at Strathmore. The investor was very impressed with Miller, but Miller seemed too dismissive of two items: 1) the potential for increased production (Miller said China won't find much because its geologists are underpaid), 2) environmental opposition [this seems to be rapidly changing [hat tip Vijay on the links] as the greens of the world realize nuclear power is the best solution for rapidly growing power consumption worldwide].

One of the ValueInvestorsClub members had mentioned the South Park underpants gnomes analogy. The thing is that I had read this before actually seeing that episode and I totally forgot all about it. My using the underpants gnomes analogy may have been unconciously inspired by seeing it here, but I doubt it. Any investor with experience would recognize how well it captures bad business plans.

Apparently, weapons grade HEU costs $3 million per pound to produce. Since each pound of HEU translates to 30 pounds of reactor food, this means $100K per pound of cost. Anyone selling off HEU must consider this if they ever sell too much and need to produce more.

Strathmore has a number of in situ leaching properties that can get into production in only 24 months (a relatively short time period).

Some of the existing US reactors have applied for 20 year extensions on their 30 year permitted life cycle. None have been turned down.

Insiders are selling because for 5 years, no one would finance them and they had to use their life savings to keep the company going. Now they want to scale that back to a more reasonable investment.

July 19, 2005: Strathmore receives funds from Quebec's SIDEX to conduct ongoing exploration at its Dieter Lake Project
SIDEX is a Quebec government agency with a C$50 million budget (over 5 years) to fund mining exploration and development. Strathmore sold 114K units (same terms as before). The investment doesn't show up on SIDEX's website yet. The amount would be about C$228K which is a medium sized investment for SIDEX.

The various historical resource estimates range from 20 million pounds to 110 million pounds of U3O8.

In June, field crews went to the property to do exploration: re-logging an old drill core, mapping, sampling, ground geophysical surveys, Fugro Airborne Surveys to conduct GEOTEM 1000 electromagnetic survey (which hasn't been done before at Dieter).

July 11, 2005: Strathmore adds to Powder River Basin Properties
They bought 165 unpatented mining claims in Powder River Basin in Wyoming (about 3,300 acres). Known, drill indicated uranium. Part was fully permitted until the late 1990s. Company will issue 100,000 shares for the property.

April 27, 2005: Strathmore explores Dieter Lake
They put a bunch of specialized huts at Dieter Lake for an all-weather camp (photos on their website). The exploration apparently will all take place during 2005.

Previous exploration at the Dieter Lake Property identified a mineralized bed within Sakami Formation sediments, generally ranging from 0.2 to 3 metres thick, but locally up to 5 m in thickness. The sedimentary bed containing the uranium mineralization has been outlined over an east-west distance of 5 km and a north-south distance of about 2.5 km. Mineralization remains open in all directions. The main zones of uranium mineralization thusfar identified include the Lake Vivian, Nancy I, Nancy II, and Bert's Lake zones. Anomalous grades have been reported up to 0.22% U3O8 over 1 m in the Bert's Lake Zone, 0.34% U3O8 in the Nancy I Zone and 0.56% U3O8 in the Lake Vivian Zone.

There's also this statement:

With respect to the Company's New Mexico properties, and in light of the recent announcement of the Navajo Tribal Council to restrict uranium development on tribal lands, the Company wishes to clarify that none of its New Mexico properties occur on the Navajo Reservation. All Company acquisitions to date are on New Mexico State owned lands or US Federal lands managed by the Bureau of Land Management. The Company is in the process of opening a technical and permitting office in New Mexico and plans for development of its New Mexico properties are moving forward.

And they promoted a guy to CFO:

The Company is also pleased to announce that Mr. Patrick Groening [not to be confused with Matt Groening] has agreed to be the Chief Financial Officer of the Company. Mr. Groening has previously been the Controller of Strathmore. Mr. Groening obtained his Chartered Accountant designation in 1999 and is a member of the Institute of Chartered Accountants of British Columbia. He also holds a professional accounting designation as a Certified Public Accountant and is member of the Illinois Board of Examiners in the United States. In addition to being an auditor for several years, Mr. Groening has provided business advisory, information technology, and financial accounting services to many medium and large size organizations.

April 14, 2005: Strathmore comples acquisition
1.9 million acres at two different locations in Athabasca Basin. Davy Lake is 1.5 million acres along northern part of the basin. Previous investigations did not provide clear visibility into the uranium in the ground. Apparently, they did an aerialmagnetic test.

Hall Lake is 400K acres in the southern part of the basin. Electromagnetic tests in 1979 showed [uniform?] layer of uranium at depths of 300 to 800 meters at the western edge of the property. On the southeastern edge, Formation Capitol Corp reported 13.86% U3O8 over 2.5 meters.

April 4, 2005: Strathmore to do airborne survey of Athabasca Basin
Waterbury Lake (100K acres) to be surveyed (northeast part of Athabasca Basin). They probably also did the property mentioned in the April 14 press release at the same time. Fugro did the survey. Kit [Christopher] Campbell, Principal Geophysicist [over 3 decades of experience] of Intrepid Geophysics Ltd. was retained by the Company to supervise the survey and review the data.

Previous exploration by other companies on the Waterbury Lake Property indicates that the basement unconformity is at depths of between about 200 and 500 m. Exploration between 1970 and 1994 included a number of airborne geophysical surveys (radiometric, magnetic and electromagnetic), which in some cases only covered parts of the property. In addition, ground geophysical surveys, boulder litho-geochemical surveys, and some drilling identified a number of conductors and geochemical anomalies. For example, a conductor identified near the north end of the property was tested by a 1996 drill hole and intersected strong hydrothermal alteration immediately above the basement unconformity, with associated uranium values of 219 parts per million Uranium across 1 meter.

March 15, 2005: 2 Guys Promoted
One has 30 years uranium mining experience, registered geologist in WY, lots of relevant experience. The other also has over 30 years experience in key roles in the uranium industry.

March 31, 2005

cash increased from C$9 million to C$23 million (net C$15.4 million cash from stock issue)
mineral properties increased from C$2.7 million to C$3.9 million.
accounts payable increased from C$63K to C$248K.

Stock based compensation increased to C$195K from C$150K.
Trade shows and conferences increased from C$6K to C$56K.
Office and misc increased to C$115K from C$23K.
Regulatory fees increased.
Travel and promotion dropped more than half.

Big jump in future income taxes (C$356K).
Accounts payable increased by C$183K.
Deferred exploration costs increased by C$597K.

Changes in mineral property rights:
Athabasca property: +$203K (the additional 100K shares were apparently issued)
Chord: no change (now the Company is required to pay 50K shares or US$10K per year till 2009)
Comstock: +C$166K (100K shares were issued in Q1, 100K more to go in 2005)
Dieter Lake: +C$406K (200K shares issued in Q1, another 100K to go in 2005)
Duddridge Lake: no change
New Mexico: no change
staked properties, Canada: no change
staked properties, Peru: no change
Wyoming: +C$413 (more properties bought, now an addition 775K shares to be issued over 2 years)
pre-acquisition costs: down by C$24K

49.2 million shares end of Q1.

In Feb 2005, 10,000,000 shares were issued in private placement at C$1.50 per unit (1 share 0.5 warrants at C$1.75 till Feb 2006 thereafter at $2.00 till 2007). Also, options on 1 million shares with the same terms as the warrants above.

2.3 million options and warrants exercised in Q1. 17.4 million remaining.

C$50K related party payments (Randhawa, Khan, Hemmerling). An officer bought 8K shares for C$12K.

C$1 million gained by selling off flow-through shares, apparently selling off the NOL.

1.2 million options and warrants were exercised between March 31 and May 31. [that's all?]

During the first quarter of 2005, uranium prices continued their uptrend [to $29] and the company continued to acquire additional properties in Saskatchewan, Alberta, New Mexico and Wyoming. Investment markets were very favorable towards funding uranium companies and Strathmore took advantage of the opportunity by completing a larger private placement financing and raised a total of $15,000,000. These funds are primarily for general working capital, the acquisition of additional uranium properties and the exploration and development of the Company's uranium properties. The Company is planning to commence a number of work programs this summer to advance both the exploration and development of targeted properties.

C$1.2 million in property acquisition costs in Q1. Expect C$2.2 million in exploration and development costs in 2005, mostly in Canada (C$1.7 million vs C$500 million in US). C$597 spent in Q1.

G&A increased from C$177K to C$455K cash due to activity to take advantage of high uranium prices. This will continue to increase.

Management Discussion and Analysis

Management believes that the development of uranium properties presents an opportunity due to recent uranium supply shortfalls and the potential increase in demand for uranium from developing countries. As those countries begin to establish new nuclear power plants, increased demand for uranium is expected during the next few years. Increased demand and higher prices should stimulate new exploration and development at both new and previously explored uranium properties....

During the first 2 quarters of 2003, the price of uranium remained low. However, by the third quarter of 2003, the price of uranium had increased to a point where management decided to aggressively pursue the acquisition of new uranium properties....

In order to finance these activities, the Company completed a number of private placement financings during the year....

These funds are for general working capital, the acquisition of additional uranium properties and the exploration and development of the Company s uranium properties....

Estimates of U3O8 on the various properties:
[I can't seem to get rid of this huge gap of empty space on most browsers]

location	reference	historic classification	lbs U3O8
Duddridge Lake	Stewart (1975)	Geologic Tonnage Estimate (1)	753,924
	Thor Explorations (1977)	Minable Tons (1)	590,070
	Thor Explorations (1979)	Reserves (2)	12,000,000
Dieter Lake	Uranerz Expl. & Mining (1980)	Possible Resource (3)	55-82,000,000
	Uranerz Expl. & Mining (1980)	Possible Resource (3)	110,000,000
Macusani, Peru	Arroyo (1987)	Inferred Resource (2)	7,370,000
Roco Honda, New Mexico	Smouse, D. (1993)	Demonstrated Resource (4)	11,321,200
	Smouse, D. (1993)	Inferred Resource (4)	1,497,600
	Smouse, D. (1993)	Undefined Potential (4)	500,000
Churchrock, New Mexico	Smouse, D. (1995)	Demonstrated Resource (4)	5,502,000
		Potential Resource (4)	500,000
Copper Mountain Wyoming	Anaconda Uranium Corp (1977)	Inferred and Indicated Resource (4)	24,607,800 14,361,600

(1) Historic resource estimate considered to be relevant and reliable.
(2) Historic resource estimate considered to be relevant but unreliable based on amount of data reviewed to date by the Company.
(3) Historic resource estimate considered to be relevant, but insufficient information is available to confirm the reliability of the resource estimate.
(4) Historic resource estimate considered to be relevant, and is presumed reliable based on the volumes of work completed. The company has not done sufficient work to verify the resource estimate.

...prepared on behalf of the company by Jody Dahrouge, P.Geol. of Dahrouge Geological Consulting Ltd., Edmonton, Alberta. Mr. Dahrouge, is the Qualified Person (QP) responsible for the review of the historical resource estimates. Also, the company wishes to reiterate that the foregoing resource estimates were quoted from third party publications, and not all the original reports are currently available for consultation, hence the historical resource estimates should not be relied upon.

During Sept 2003, the uranium price went over $12 and the company decided to get serious about buying properties quickly. During 2004, the pace continued. G&A started climbing and it will continue during 2005.

During 2005, the Company will probably spend C$2.2 million on exploration and development, mostly in Canada.

Q4 2003, there was a writeoff of mineral properties.

Financing is pretty obvious: stock. [The value per share is probably best measured by pounds of U3O8 per share, which is around 3 pounds. If the Company can issue stock for more than 3 pounds per share, it's a good deal for existing shareholders.]

More related party stuff: C$62K paid to Dev Randhawa (president). C$39K paid to director Khan. C$46K paid to Hemmerling. Directors also were part of private placement of shares.

UPDATE: 23M and 23M15 topographical maps [Dieter Lake] on order.

This company (website) owns uranium mining properties. Incorporated in British Columbia, Canada. Warning: Canadian dollars, not US dollars in use!

Clean auditor statement by "Chartered Accountants" Check up on who it is.

There are no operations, just buying mining properties and doing preparation work. $9 million cash on the balance sheet. Everything else is minor. Equity is about $12 million which is also nearly the total assets.

Expense breakdown (C$2 million total) only significant expenses listed:
stock based compensation: 46.7% (fair value method)
consulting fees: 16.7%
trade shows and conferences: 8.1%
office and misc: 6.0%
business development: 4.7%
property investigation: 3.7%
professional fees: 3.7%
regulatory fees: 3.2%
travel and promotion: 2.6%
actual cash drain was only C$1 million (quarter million in 2003)

Big increases from 2003 (C$441K) are:
consulting fees
office and misc
property investigation
business development
professional fees
regulatory fees
stock based compensation
trade shows and conferences
travel and promotion

Exploration costs are capitalized (at cost). No impairments yet. Estimated future costs of maintaining mineral rights are not accrued. Future tax liabilities (beyond NOL) due to flow-through share arrangements are recorded by a reduction in capital stock (cumulative earnings part of equity?). From the Canadian EIC-146:

Canadian tax legislation permits an enterprise to issue securities to investors whereby the deductions for tax purposes relating to resource expenditure may be claimed by the investors and not by the enterprise. These securities are usually referred to as flow-through shares.

Stock option dilution is computed using the treasury stock method. Evaluate dilution by assuming the proceeds of exercized options are used to purchase shares on the open market, so the net result is that you only count the market price - strike price as dilutive.

The titles to all properties have been investigated.

Properties and total capitalized costs (Canadian dollars!):
"staked properties", CA: $798K
New Mexico properties, US: $618K (plus 450K more shares to be issued over two years)
Wyoming properties, US: $328K (plus 450K more shares to be issued over two years)
Athabasca property, CA: $257K (plus 100K more shares to be issued) some non-U mineral royalties attached
Duddridge Lake property, CA: $191K (plus 100K more shares to be issued during 2005)
Comstock property, CA: $130K (plus 200K more shares to be issued during 2005)
Chord property, US: $125K has 2% gross royalty attached (plus 50K shares or US$10K per year till 2009)
"staked properties", Peru: $70K
Dieter Lake property, CA: $16K (plus an additional 300K shares, another 200K shares if more than 60million pounds of U3O8 is found)
pre-acquisition property costs: $156K (to be assigned to properties under consideration or written off if not purchased)

36.2 million shares existed at the end of 2004
1.8 million shares from above
10.1 million options (68 cent average strike)

Related Party hey, invite your friends and family!
$102K paid to director for consulting fee (understandable given the expertise on the board)
$46K paid to Secretary of Company, consulting
200K shares issued to directors and a company controlled by director
$65K loan paid during 2003

$3.3 million in NOL, expire end of 2014. Other stuff as well related to exploration ($4.4 million). Company issued flow-through shares for $1million.

Subsequent to Dec 31, 2004:
250K options at $1.75, expire Jan 14, 2007
issued 30K flow-through shares, $1.95
issued 10million units at $1.50 (one share + half-a-warrant of $1.75 expiring Feb 21, 2006, thereafter $2.00 expiring 2007).
issued 2.5million shares (exercised options and warrants)
acquired option to buy more Wyoming property for US$30K and 500K shares over 3 years.
issued 575K shares to buy more property

I think I know why the stock has been depressed lately.

[next up, Mgmt Discussion and Analysis]

Schuff International (website) is...

a fully integrated fabricator and erector of structural steel and heavy steel plate. We fabricate and erect structural steel for commercial and industrial construction projects such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas, shopping malls, hospitals, dams, bridges, mines, and power plants. We also manufacture short- and long-span joists, trusses, and girders as well as specialize in the fabrication and erection of large-diameter water pipe, water storage tanks, pollution control scrubbers, tunnel linners, pressure vessels, strainers, filters, separators, and a variety of customized products.

Mostly operate in Southwest and Southeast (AZ, NV, TX, FL, GA, south CA, CO).

Customers: Hunt Construction, Fluor Daniel, Bechtel, Perini Corp.

Subsidiaries:

• Schuff Steel 1976
• Schuff Steel -- Atlantic (formerly Addison Steel) 1998
• Quincy Joist 1998
• Schuff Steel -- Gulf Coast (formerly 6 different companies) 1998, Texas
• Schuff Steel -- Pacific (formerly Bannister Steel) 1998
• Schuff Steel Management Company -- Southwest (formerly On-Time Steel Management) formed 2001
• Schuff Steel Management Company -- Northwest 2002 (Washington), closing due to weak construction market in Seattle, wrapping up projects
• Schuff Steel Management Company -- Southeast, formed Feb 2005 (NC, SC, GA)
• On-Time Steel Management Holding, formed 2002

Jan 6, 2005, voluntarily went dark. They will continue to issue annual reports and other shareholder info.

They describe the sales process, project management, etc. in reasonable detail.

We believe that a key factor in our success has been our ability to provide valuable input and assistance to general contractors, engineering firms, and other customers with respect to overall project design of fabrication and erection sequences and other critical project decisions. This early-stage involvement often results in project cost savings and efficiencies and helps to solidify key customer relationships. In addition to our centralized project management, we use skilled erection employees local to projects and utilize advanced scheduling systems to enhance our project management services to customers.

In this business, you get a lot of "erection" jokes.

We have achieved a Level Three certification by the American Institute of Steel Construction (AISC) with respect to our fabrication operations, the highest level of certification available from AISC. In addition, our welding employees are certified in accordance with the American Society of Mechanical Engineers (ASME) Section IX, Non-Destructive Examination Inspector Certification to Society Non-Destructive Testing TC-IA Standards. We have developed project-specific and company-wide quality assurance and quality control programs, and utilize sophisticated X-ray and ultra-sonic systems to inspect weld seams. Substantially all joist manufacturing projects require companies to be members of the Steel Joist Institute (SJI). We are one of only 19 companies in North America that are members of the SJI.

Most projects are fixed price, not cost-plus or unit cost (payment for amount of steel shipped). Price and schedule are the primary factors for customers. Projects are generally 1 to 12 months. Bonding requirements (providing payment and performance bonds) gives them an advantage over small steel companies.

We believe that there is an increasing trend in the construction industry toward complex, fast-track, designbuild projects.... These projects require that all phases of construction be accomplished in accordance with compressed time schedules that involve us at early stages of the project.... These projects also are characterized by numerous design changes requiring that all construction participants coordinate their efforts in order to respond quickly and efficiently in implementing these changes.... We believe that we have gained a reputation in the industry as a reliable, fully integrated provider of design-build, engineering, detailing, fabrication and erection services with the ability to complete large, complex projects on a timely, cost-efficient basis.

[STOP]

I've decided this is not a good investment. No matter how good these people might be, they really have no pricing power. So the results of the last 5 years are probably typical of what to expect in the future. Earnings on average are going to be about 25 cents a share. The company is worth maybe $4. It's selling for about $3.50.

UPDATE: I noticed ValueInvestorsClub had a writeup on SHFK. Scott265 seems to believe it's worth $9.60.

UPDATE Aug 3: naughty Schuff answers to the SEC

While the press release tries to spin it as a positive (new person assigned to role), buried in the release is the real news...

Ross replaces Patrick Clarke, former vice president of EMEA, who recently left the Company to pursue other interests.

LiveWorld posted Q2 results.

Quarter over quarter revenue growth:
Q2 '04 over Q1 '04: 26%
Q3 '04 over Q2 '04: 21%
Q4 '04 over Q3 '04: 6.4%
Q1 '05 over Q4 '04: 42%
Q2 '05 over Q1 '05: 9%

A 9% gain on top of a 42% gain is great.

Ordinary income is up 50% over Q1 and we finally see some serious real income.

Net income is 1.41 cents a share (with tons of stock options waiting in the wings) and more than the entire earnings of 2004. If we take the number of stock options outstanding (vested and unvested) at the end of Q1 and add a ton more, we could probably say the net income per eventually diluted share is at least .7 cents a share. If we were going to annualize that and then give the company a P/E of 15, it would be worth 42.3 cents which is about what it's selling for now. Given the growth rate, it's probably worth a P/E of about 25, putting it worth about 70 cents a share. But all that is way too simplistic considering the nature of operational leverage at this particular revenue point.

Cash is about the same as the end of Q1, which could mean anything, due to timing of cash flows, but it does put a slight damper on things.

Ok, people on the message board pointed out that if I'm going to count stock options so much, I need to factor in the cash when they're exercized. Ok, fine. Also, there's a ton of NOL still outstanding. If anything it's important to remember that this is currently baked into the numbers and it will eventually run out.

YaSheng Group's Vinylon Division to Increase Production Due to Export Demands

Due to new International regulations implemented by the WTO earlier this year, export quotas have been lifted resulting in a sharp increase of sales for the Vinylon division.

Over the past several years, products from the Vinylon Group were all allocated towards the export market due to higher profit margins. The increase in production will result in additional product lines and higher output catered for the International Markets. Products from the Vinylon Group include: low-elastic polyester, a water-soluble industrial insulating fiber, and a comprehensive line of Vinylon fibers.

The LanZhou Vinylon Company, Ltd. produces only about $15 million worth of exported goods per year right now while the total revenues for YaSheng Group is over $600 million. Even if they quintuple Vinylon exports to $75 million, it would only be a 10% increase in overall revenues. The claim is that they're high margin goods, so perhaps the effect on earnings would be greater. But my thinking here is not a quintupling of revenue, but maybe a doubling at best.

My estimate based on insufficient information is that this is a non-event. Nothing changes except the fact that they seem desperate to generate press releases. At best, it simply correctly matches up with the 10-Q information [the products produced by Vinylon] and doesn't cause a red flag.

UPDATE: Well the stock is certainly rising fast, $2.20 today. I still have more to buy, unfortunately.

This is pulled directly from YIWA's 10-K. I wanted it in a separate posting.

There are three investment vehicles for foreigners doing business in China

1. Equity joint venture
2. Cooperative or contract joint venture
3. Wholely foreign-owned enterprise

All of these three are "Foreign Invested Enterprises".

General laws: PRC foreign economic contract law.
Accounting: PRC Accounting Law. Laws Concerning Enterprises with Foreign Investments. The General Accounting Standard for Enterprises. The Specific Accounting Standards.
Equity Joint Venture: PRC Sino-Foreign Equity Joint Venture Law. PRC Sino-Foreign Equity Join Venture Law Implementing Regulations.
Cooperative Venture: PRC Sino-Foreign Cooperative Joint Venture Law. Detailed Rules for the Implementation of the PRC Sino-Foreign Cooperative Joint Venture Law Regulations.

The practical effect of the People's Republic of China legal system on our business operations in China can be viewed from two separate but intertwined considerations.

First, as a matter of substantive law, the Foreign Invested Enterprise laws provide significant protection from government interference. In addition, these laws guarantee the full enjoyment of the benefits of corporate Articles and contracts to Foreign Invested Enterprise participants. These laws, however, do impose standards concerning corporate formation and governance, which are not qualitatively different from the General Corporation Laws of the several states. Therefore, as a practical matter, a Foreign Invested Enterprise needs to retain or have ready access to a local Chinese law firm for routine compliance purposes.

Similarly, the People's Republic of China accounting laws mandate accounting practices, which are not co-existent with U.S. Generally Accepted Accounting Principles. The China accounting laws require that an annual "statutory audit" be performed in accordance with People's Republic of China accounting standards and that the books of account of Foreign Invested Enterprises are maintained in accordance with Chinese accounting laws. Article 14 of the People's Republic of China Wholly Foreign-Owned Enterprise Law requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal reports and statements to designate financial and tax authorities, at the risk of business license revocation. As a practical matter, a Foreign Invested Enterprise must retain a local Chinese accounting firm that has experience with both the Chinese standards and U.S. Generally Accepted Accounting Principles. This type of accounting firm can serve the dual function of performing the annual Chinese statutory audit and preparing the Foreign Invested Enterprise's financial statements in a form acceptable for an independent U.S. certified public accountant to issue an audit report in accordance with Generally Accepted Accounting Auditing Standards.

Second, while the enforcement of substantive rights may appear less clear than United States procedures, the Foreign Invested Enterprises and Wholly Foreign-Owned Enterprises are Chinese registered companies which enjoy the same status as other Chinese registered companies in business-to-business dispute resolution. Because the terms of the respective Articles of Association provide that all business disputes pertaining to Foreign Invested Enterprises are to be resolved by the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm, Sweden applying Chinese substantive law, the Chinese minority partner in our joint venture companies will not assume a privileged position regarding such disputes. Any award rendered by this arbitration tribunal is, by the express terms of the respective Articles of Association, enforceable in accordance with the "United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)." Therefore, as a practical matter, although no assurances can be given, the Chinese legal infrastructure, while different in operation from its United States counterpart, should not present any significant impediment to the operation of Foreign Invested Enterprises.

Incorporated in Florida, May 1999. 16,861,250 shares issued.

Agriculture subsid ceased in Dec 2001, sold off in Dec 2002. Always in Dec? Last minute thing?

Jiaozuo Yi Wan Hotel Co, Ltd. (Henan province) 90% acquired Jan 1, 2000 (the rest owned by Shun'ao Industry and Commerce Co. in China, and formerly owned by them and Marco Wan Da Contruction of Macao had 30%). President owns 41.7% of Shun'ao. Everyone is now a shareholder of the Company. There are all sorts of complicated capital investment requirements which are resolved by the deal already done.

Originally formed in 1996 by purchasing the Tengfei Hotel from the city government. The purchaser did extensive renovation, added a 150K sq ft lobby. Added a 17th floor restaurant in 2002. Added a sauna etc. Added a 16th floor restaurant. Hotel has the usual features. 158 rooms, 22 floors. 27 suites. Typical Western stye layout. Usual conference room stuff with an additional 460 seat auditorium. Two full restaurants, buffet coffee shop, lobby bar. Traditional Chinese decor and food service. Largest single food and beverage facilities in Jiaozuo. Also VIP restaurant with 24 private suites (enclosed, 10-30 people, plus karaoke and private bathroom). They're looking into outside expansion. They give some interesting examples of conferences and stuff they've hosted: good mix. They are the only 4-star (no 5-stars), two 3-stars (like Holiday Inn express). Only 3-star and above can host foreign tourists. The two 3-stars are state owned and need lots of renovation to upgrade.

License expires 2027. Currently and permanently taxed at 33%. 612 full time employees, 95 management people.

Qinyang Yi Wa Hotel Co, Ltd. (Henan province) [80%] acquired on Mar 20, 2001? Joint venture set up with Quinyang Hotel (OLD QINYANG). They have an official license now after audit by the Jiaozuo Foreign Trade and Economy Cooperative Bureau.

Shun de Yi Wan Communication Equipment Plant Co. Ltd. (Guangdong province) acquired 100% on Jan 1, 2000. Mfg exchange distribution equipment. Classified as Wholely Foreign Owned Enterprise. Previous owner was Shun De Zhiyuan Developing Co. Same complicated capital requirement structure which was met by the investment made by the Company, except apparently for an additional $500K. They keep getting extensions to delay it.

Yi Wan Beijing Hotel Mgmt Co Ltd, established July 2004 to be in compliance with Chinese law for expansion. Two PRC citizens own 50% of Yi Wan Beijing (Trustees). The Trustees signed agreement not to sell, pledge, hypothecate, encumber or dispose of the equity, any breach causes transfer of ownership back to the Company. They will forward any capital distributions to the Company. Irrevokable proxy transfered to two directors of the Company for voting rights (which can be transferred to a different member of the Company). This is truly bypassing the intent of the law. The Chinese citizens have absolutely no ownership whatsoever.

15 year business license for Wholely Foreign Owned Enterprise. [This part of the business is crap, anyway]. It seems like Chinese authorities could get weird at the end of the term if they wanted to. It would make sense to limit China exposure in my portfolio.

UPDATE: I'm going to put a hold on looking at YIWA for now. Maybe they'll throw out their telecom business and the stock will tank some more and it'll be a lot easier. Maybe I'm spoiled by YaSheng.

This company (no website) says:

We were incorporated to explore the feasibility of acquiring interests in several businesses located in China in which our president, Mr. Cheng Wan Ming, had an ownership interest.

So the president owned a bunch of stuff and he created a company to buy it all. At what price? How do we know whether it was an arm's length quality transaction?

On January 1, 2000, we acquired controlling equity interests in three such China registered companies, which had ongoing business operations in the hotel, agriculture, and communications industries in China. Our agriculture subsidiary ceased operations in December 2001. In December 2002, we sold our agriculture subsidiary to a third party

Anyway, here are the hotels:

JIAOZUO YI WAN HOTEL CO., LTD. On January 1, 2000, we acquired a 90% controlling interest in Jiaozuo Yi Wan Hotel Co. Ltd., a Sino-Foreign Joint Venture company that was originally formed in China in 1996. The remaining 10% equity interest in our hotel subsidiary is owned by Shun'ao Industry and Commerce Company, a company registered in China. Our president has a 41.7% ownership interest in Shun'ao Industry and Commerce Company.

QINYANG YI WAN HOTEL CO., LTD. On March 20, 2001, we entered into a joint venture agreement with the Qinyang Hotel. This agreement provides for the establishment of a Joint Venture Limited Liability Company, the Qinyang Yi Wan Hotel Co., Ltd., which operates the Quinyang Yi Wan Hotel in Qing Yang City, Henan Province, China. The joint venture agreement provides that the joint venture will provide up-scale lodging, food and beverage, entertainment, and meeting and conference facility services. We entered into this joint venture agreement with Qinyang Hotel (OLD QINYANG), a third party to set up Qinyang Yi Wan Hotel Co., Ltd. According to the joint venture agreement, the registered capital of QINYANG is approximately $2,413,389 (RMB20,000,000). On June 3, 2002, the Jiaozuo Foreign Trade and Economy Cooperative Bureau issued a temporary license to Qinyang Yi Wan Hotel Co., Ltd. In 2003, the Jiaozuo Foreign Trade and Economy Cooperative Bureau conducted the audit and issued the official license.

SHUN DE YI WAN COMMUNICATION EQUIPMENT PLANT CO. LTD. On January 1, 2000, we acquired 100% of the equity interest in Shun de Yi Wan Communication Equipment Plant Company, Ltd., which in 1993 was originally established as a foreign investment joint venture in China. Our telecommunications subsidiary manufactures exchange distribution frames equipment

YI WAN BEIJING HOTEL MANAGEMENT CO., LTD. In order to expand our restaurant and food services and still be in compliance with the regulations of the People's Republic of China ("PRC") with respect to restaurant services, in July 2004, we established Yi Wan Beijing Hotel Management Co. Ltd. ("Yi Wan Beijing"), a variable interest entity through two persons who are PRC citizens and who each legally owned 50% of Yi Wan Beijing ("Yi Wan Beijing Interest Holders") to operate our restaurant business. Pursuant to an Equity Trust Agreement, we transferred RMB$100,000 to the Yi Wan Beijing Interest Holders which was used to form and capitalize Yi Wan Beijing. The Equity Trust Agreement provides that the Trustees are to hold the equity interest in Yi Wan Beijing (the "Equity Interests") in trust for the benefit of Yi Wan Group, Inc. The Yi Wan Beijing Interest Holders have agreed to not sell, pledge, hypothecate, encumber or otherwise dispose of the Equity Interests. Any such transfer will result in a breach of the Equity Trust Agreement and the Yi Wan Beijing Interest Holders will be required to transfer the Equity Interest to the Company. Further the Yi Wan Beijing Interest Holders have agreed to promptly distribute any and all dividends, distributions or other payments received from Yi Wan Beijing with respect to the Equity Interest to the Company. Finally, the Yi Wan Beijing Interest Holders granted irrevocable proxies to two directors of the Company to exercise all voting rights such Yi Wan Beijing Interest Holders have with respect to their ownership interest in Yi Wan Beijing. The irrevocable proxies further provides that if such two directors cease to be an employee of the Company, the Yi Wan Beijing Interest Holders agree to immediately terminate the proxy and to grant a proxy to another person designated by the Company.

The details of the hotels is pretty extensive, including things like what beer they serve and where it comes from (YaSheng?). It looks like the telecom business is going down the toilet. They have a large amount of money loaned out to a related party.

Revenues since 2000 have been fairly constant, declining if anything. Earnings per share are all over map: 21 cents, 16 cents, 6 cents, 10 cents, 4 cents. The 4 cents last year was due to telecom and starting up a restaurant (YiWan Beijing restaurant business).

Needs more work.

For the quarter ended Sep 30, 2004.

checkmarks, ok.

AR way higher, inventories way lower, PP&E way lower than the 2004 year-end numbers. AP way higher, short term loans higher.

Again, they spend about all of their operating cash flow on capital expenditures.

Straight-line depreciation (shorter of useful life or term of lease). Long term assets are reviewed annually for impairment. Advertising costs increased from $1.9million to $2.9million for 9mo 2004 vs 2003. Farming related stuff is not taxed, everything else is taxed at 33%. Max loan maturity is in 2007 at $40.9 million.

Employee welfare fund 14% of payroll. National and community insurance agents 20% of payroll. Unemployment 1% of payroll. Housing surplus reserve 10% of payroll.

In 2004, YaSheng acquired 54% of Nicholas Investment Co on a stock swap basis. The company is now a reporting US public company. Seeks to be listed after audit.

100,000 acres of farmland owned by YaSheng. Working on new technologies for agriculture production, working with Israel Netafim, Mexico's International Wheat and Corn Improvement Ctr. Improving yields and qualities. 2,500 acres of hops, 5,300 acres of fruit orchards (apple pears), apples, grapes, etc., 6,000 tons of potatoes, etc. Process 30,000 tons of super grade malt and 2,000 tons granulated hops. Long term contracts with Qingdao Beer, Yanjing Beer, Zhujiang Beer, etc. Major shift to modern agriculture methods. 10,000+ head of cattle, 10,000+ pigs. 100,000 kg eggs for markets in Lanzhou.

Algae propagation, extraction for natural carotene. 1,500 kg used in food, beverages, natural medicine.

Large mirabilite and industrial salt production. ISO9002 sodium sulfate (85% exported), ISO9002 low-iron, low-carbon sodium sulfide plant (largest in China). Also textile dying, cement production, food processing, beverage production, electricity production.

LanZhou Vinylon Co, Ltd, formerly "first class" state-owned company, produces chemical and synthetic fiber. low-elastic polyester, water-soluble industrial insulating fiber, and vinyl fibers. ISO9002. domestic and export. $15 million.

Gansu Tiaoshan Liquor Co., Ltd. 5,000 tons. ISO9002.

New agricrops with 50% yield increase compared to last year. Result of harvest will shift into Q4 this year.

Company was able to shift $3 million in shipping charges to customers, supposedly due to increased demand.

$2.6 million reduction in G&A due to restructurings.

Will open distribution center(s) in Western Europe as in Victorville, Calif.

No legal proceedings.

YaSheng Group became a registered supplier to the UN.

They're hosting the 50th International Hop Grower's Congress in China. Also YaSheng registered with the US FDA to export hops and nutraceuticals to the US. North American exports should boost YaSheng's export sales by 20% this year.

Products are sold nationally and exported regularly to the U.S., Canada, Australia, Pakistan, Iran, and many major countries in Europe and Asia. Major exports include sodium sulfate, sodium sulfide, vinyl fibers, barley, hops, fine spirits, licorice root, black melon seed, livestock, and many more agricultural, biotechnology, and industrial products.

Revenues from exports to the US should start to be recognized in Q2. They're building a distribution center in Victorville, Calif.

This document covers more detail than the 2004 and 2003 financial statement below.

Results were audited (with unqualified opinion) by qualified auditers in China, but not an external auditor which is PCAOB registered. The company is working on it, expects to begin the audit in Q2 2005. Overall, this document is very straightforward and readable, but is missing a lot of details I'd expect (employees, better description of business, legal proceedings, etc.), most of this is found in other documents.

Grammar error:

At such time, and amendment to the 10-K will be filed....

Substantially all of the companies operations are in China (but a California company). Agriculture, chemicals, textiles, construction materials, livestock, new argriculture technology, genetic biology. Headquarters are Lanshou City, PRC. Company is run via China GAAP, translated to US GAAP for reporting.

farming related income: $241 million
chemicals income: $173 million
trade income: $118 million
dyes income: $104 million
beverage income: $24 million

Numbers are in US Dollars. Year ends Dec 31.

Current assets are mostly AR ($75M) and inventories ($70M) and cash ($45M). Non-current assets are PP&E ($1.1Billion), other ($49M), and intangibles (know-how, mining rights, technology xfer expense, SW) ($17M).

PP&E breakdown is mostly machinery, farm facilities, and land. Also buildings/improvements and contruction in prog ($140M). About 1/3 depreciated. Changes from 2003 seem rational.

Inventory breakdown is mostly raw materials. Also goods-in-trade, finished product.

Current liabilities are mostly short term loans ($71M), AP ($64M), and other stuff. Non-current liabilities are loans ($90M), and some other stuff.

Huge amount of retained earnings ($883M). Total equity $1 billion. Total assets $1.4 billion.

Revenues $631M for 2004 ($605M for 2003). Gross margins 19%. Operating margins 9%. Net income 9.7%. Substantially similar for 2003. EPS 40 cents (39 cents in 2003).

Operating cash flow is $203 million ($277 million in 2003). Capital expenditures were $202 million ($209 million in 2003). Why so much???? Deprec is $140 million. Could the real economics be deteriorating?

No rampant options (no apparent options?).

Depreciation lengths:

• buildings & improvements: 20-40 years
• farming facilities: 10 years
• machinery and equip: 7 years
• transportation & other facilities: 3 years

The note about accounting methods is all very standard and straight forward.

Chinese law for profit distribution covers prior years deficit coverage, 10% off for legal surplus, 5% off for legal welfare fund, any portion of earning surplus, dividend distributions. This seems to match up fairly closely with Article 8. NOTE 8 covers the expenses fairly well, all social programs.

Bizarre error in notes: liability details show years 2003 and 2003, not 2003 and 2004.

AR bad debt is written off in the year identified. Allowances method is pretty standard.

Shares of stock are consistent around 155 million.