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Sunday, October 16, 2005

Advant-E Corporation (AVEE) high level overview

Advant-E Corp (sec, website) is "changing the way business does business." Despite that incredibly crappy motto, I've decided to look into this company.

First, let's skip directly to the numbers:
Half their assets are cash and their entire liabilities are about half of that. This balance sheet is the Rock of Gibralter, despite having a retained earnings deficit.

2004 revenues are $3.6 million (vs $2.9 for 2003)
Gross margin is $2.36 million (65.6% vs 61% in 2003)
Net income is $469K or 7 cents/diluted-share (vs $215K or 4 cents in 2003)
The dilution is mostly from conversion of convertable notes.

Free cash flow is about $900K (vs about $300K in 2003)
Financing is all paying off debt and paying costs of securities registration.

No legal proceedings.
37 employees (21 technical, 11 sales+marketing, 5 admin/finance)
GroceryEC.com allows its subscribers to send and receive electronic purchase orders, invoices, price changes, item information, promotional contracts, advance ship notices, and other documents via a web-based service. The grocery retailing industry has changed dramatically due to technological advances with EDI making many of these changes feasible. The strength of the Company’s business model is that the party that has a large influence on the buying decision, the major grocery retailers (“hubs”), is not the party that pays for the service; the suppliers (“spokes”) who use GroceryEC.com pay for it. The large retailers increase the return on their existing EDI investment, and smaller and medium-sized suppliers gain efficiencies at a very reasonable cost. At March 1, 2005, web-EDI supported more than 120 retailers and had approximately 3,000 production customers (primarily GroceryEC) generating transaction revenues.
Q2 revenues are $1 million (vs $851K)
Gross margin is $702K (65% vs 63%)
Net income is $120K or 2 cents diluted (vs $107K or 2 cents diluted)
SG&A and taxes ate up the gains

6 month free cash flow is about $407K (vs about $416, the differences are many)
At June 30, 2005 the Company has 970,000 outstanding warrants for the purchase of the Company’s common stock, as follows: 700,000 shares at $1.205 per share; 250,000 shares at $1.25 per share; and 20,000 shares at $1.48 per share. The warrants expire as follows: 875,000 warrants between September 27, 2005 and December 13, 2005; 75,000 warrants through December 5, 2006; and 20,000 through June 25, 2006. Warrants for 50,000 shares at $1.205 per common share were exercised in February 2005.
6,294,917 shares were outstanding on June 30, 2005.

CFO promotion on April 25, 2005

Based on this, I'd say they're worth at least a dollar per share. Shares are selling for $1.20, which puts this one on the borderline for further investigation. The real question is how much additional market share they'll get/steal.

UPDATE Dec 24, 2006:
A quick look at their Q3 2006 results and I'd say the stock is worth over $2.00 per share. Earnings have gone up by 40% from the prior year. Balance sheet looks pretty good. Cash flow looks pretty good. Of course the stock has gone up to over $2.00. This is what happens when you focus on only getting the low hanging fruit: you miss a lot of good stuff. So here I am, about to make another pass through the pink sheets and this makes me wonder if I should be spending more time looking at a smaller set of companies in greater detail. Is AVEE going to double again in the next year? I have no idea. Investors who have put any significant amount of time into looking at AVEE can pretty much ignore what I've written: they already know more than I do about it.

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