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Monday, August 15, 2005

China Cable & Communication (CCCI)

What could be better than being the only foreign cable company in China? Having crappy numbers and only hopes of ever taking off. But this company has those hopes. They had to write off a $3 million deposit that the recipient might not be able to repay (Doh!). Hong-Tao Li owns 61% of the business via some British Virgin Islands holding company. There are a number of related-party transactions, but they're all favorable to the company: executives picking up the tab for the company and hoping to get paid with no interest, nothing to secure the loan, free rent, that sort of thing. As a result the company has nearly $10 million in current liabilities with about $1 million in current assets. What's not to like about a 1-to-10 current ratio? Cash flow from operations was actually positive $2.6 million (due entirely to the writeoff).

Sales kicked in during 2004 at $4.7 million with a gigantic net loss of $6.8 million. Revenues for Q1 2005 were $1.5 million (with a half million dollar loss) vs $0.9 million in Q1 2004 (with a $1.6 million loss). Positive cash flow from operations on both, even after factoring in capital expenditures.

Revenues increased over last year entirely due to sales of set-top boxes and cable modems and premium services that they didn't have last year.

There are 77 million shares and 200,000 cable subscribers: 385 shares per current subscriber. They intend to expand (including a subsequent joint venture that doesn't seem terribly promising, but who knows). The share count will almost certainly increase as they need to pay off a $4 million litigation settlement related to preferred shares. There's a good chance that the company will go into bankruptcy depending on the outcome.

The price for this wonderful opportunity is a mere 10 cents a share, for a market cap of $7.7 million. $38 per subscriber.

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