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Saturday, October 22, 2005

several "G" companies

Normally, I don't show the second tier of effort on the blog (at least not in the last couple of months). But I decided to drop these here because some of them have more than the usual tier-2 analysis (originally I called this tier-1, but that's actually incorrect). It's possible for good investments to get thrown out and it's also possible for bad investments to get through this phase. My only goal is to generate smaller and smaller lists with higher and higher concentrations of potential investments.


an ISP (yuk), but the good news is they're serving a niche business of rural people without other choices. Despite that, it's no accident they have steadily declining revenues. They earned 22 cents in 2003, 11 cents in 2004, 1 cents in the last 9 months. Their assets are almost entire "OTHER ASSETS", which is very odd. Balance sheet is also weak. $4 million in equity. They had layoffs. They bought 5 other ISPs this year for $1 million. A director resigned.
not interested

They create modular stuctures (temp classrooms, offices, etc.). Holding co. with 2 subsidiaries. They restated 2004 financials. Capital heavy, but strong balance sheet, half equity at year end. Balance sheet is weakening in Q1 with uncontrolled AR and inv growth. Total assets $9.3 million. Business is ramping up. Low gross margins of about 30%. 138 million shares with slowing growth in share count. Crappy cash flow due to AR and inventory (expected with massive revenue growth). They've been winning Calif K-12 business. But the baby echo boom is ending? Is this business sustainable? They plan to expand into commercial. The real question is the competitiveness of these two companies vs the industry. Need gross margin comparisons, and scope out who's providing modular stuff. MINI may even be a competitor. A lot of the growth has been through acquisitions, so beware. Probably not as good as it looks. It's selling for about 8 cents a share, which may be about right.
keep it around

manufacture vitamins, minerals, sports nutrition stuff. 28% gross margins. Sales increased by about 17% in 2004. Assets are about evenly split between AR, inventory, and PP&E. Current ratio is ok. $1.4 million equity. $4 million assets (way up from $2.6m year before). Net margins look kind of thin. 2004 results boosted by a currency exchange gain. Real earnings were about 13 cents (19 cents in 2003). Very little dilution. Cash flow ugly in 2004 (AR and inv), ok in 2003. Capex was consistently higher than depreciation. Maybe it's worth $1.50, which is almost exactly what it's
selling for. Q2 05 results are worse, mostly due to a big Q2 G&A hit which was poorly explained in the 10-Q. About 50% sales to one customer. Bad vibes from this business.
not interested

retail sports superstores (only 2) in Chicago and Ohio. Started in 1984 as a Honda dealer, expanded via acquisitions (bad). Bought a business in 2004. Assets are mostly inventory. Liabilities are mostly notes payable. $1.3 million equity. $19 million debt. Is this a frickin bank? Seems way over-leveraged. But loans seem to average about 7%, meaning the motorcycle companies might be stuffing the channels? Gross margins are 12%. SG&A nearly doubled in 2004. There's a $6 million increase in floorplan liability. What's that? Market cap about $11 million undiluted. 8 cent diluted earnings, stock selling for $1. This could be interesting to analyze, but otherwise, not interested. Not crappy/unstable enough to short.

Heavy machinery for highway construction, located in US and UK. Business goes back to the 1960. Revenue has fallen every year since 1998. Earnings are all over the place. Assets are inventory as PP&E as you'd expect. Current ratio is close to 1. Equity $15 million. Assets $42 million. Very little dilution. Cash flow totally sucks in 2002, 2003, 2004, and 2005 so far. They own 45% of Carbontronics and 25% of Carbontronics Fuels. These investments cost them nothing, so they don't show up on the balance sheet. Here's the invisible wild card. The IRS put a stop to cash distibutions while it did investigations. Result was fine. Payments resumed. If oil prices remain high (which I consider unlikely, I think there's an oil price bubble), then these investments seem to become worthless.
low priority

Oh geez, the 10-K starts out with a telecom dictionary. That's a bad way to begin. The last thing I want is a techie telecom business. Alaska telecom business. At least they have cable TV business.

Revenues increasing every year since 2000. So has net income (net margins increasing to about 9%). Earnings per share: 34 cents in 2004, 24 cents in 2003, 8 cents in 2002, 5 cents in 2001, 29 cent loss in 2000. And half their revenues are in long distance service. This might not last. Subscribers and potential subscribers haven't changed in 2004 (except for a 42% increase in cable modem subscribers, but the base is very low). Revenues in 2004 were helped by Olympic and national election advertising. capex $35 million 2004 (across the board increases) capex $19 million 2003 assets dominated by PP&E obviously strong balance sheet income taxes growing fast (good sign) very little dilution cash flow is strong. At least capex is funded by operations. $234 million equity, $850 million assets Revenues continue to grow in 2005, but operating income is flat due to SG&A and depreciation and COGS increases. This is a sign that growth lately has been totally unprofitable? They'll probably earn 35 cents this year. The stock is selling for $9.50, so this is clearly not going to be a good investment at this price. But things change.
worth following

business management software. Customers include Dow Chemical, Du Pont, Emerson, Exxon, Siemens, Shell, Toyota, US Dept of Defense, NASA, Mitre, Motorola CSC. That's a serious customer list. Sales are 50% in the US with the rest in Europe and some elsewhere. Half direct sales, half channel partners. Revenues have been fairly constant since 2000. Operating and net income have been improving roughly. Balance sheet is mostly AR and then cash, with some PP&E. Current ratio is 1 (but almost all liabilities are current, and not due to default). $1.6 million equity, $9 million assets. Cash flow matches income fairly well (which you'd expect). Heavy dilution. 7.6 million shares (1.8 million options outstanding). I'd expect an average of about 8 cents of cash flow per share per year. That's really rough, tho. The company would be worth $1.20. It's selling for $2.06.
worth following

oil and gas company service provider. 3.2 million options (I thank them for putting that up front). revenues up 20%. balance sheet is mostly AR with cash and PP&E.
current ratio is a bit less than 1. negative equity. very low margin business. They earned a lot in 2003 due to a one-time gain on financial restructure. Otherwise, it would have been 10 cents earned vs 16 cents lost this year. Lousy cash flow. They barely squeaked out positive earnings in Q2 05.
not interested

fiberglass maker. Losing money on slightly increasing revenues with positive cash flow from ops. Earned 5 cents in the first 9 months of 05, but selling for $1.75.
worth following

Artwork management services to corporations and healthcare facilities in New England. I didn't know there was a market for such a thing. I thought the highest ranking person in the building had their artsy daughter go around and find artwork for the building.

Revenues and income is going to be lumpy, which is fine. Gross margins are about 40%. Their office is more or less in Springfield, MA (provided by CEO free of charge). The founder/CEO is essentially the business. Her salary in 2003 was $97K but declined to $43K in 2004. She owns, get this, 93.88% of the business. Why bother being public?

The balance sheet is terrifying. Revenue declined from $449K to $209K in 2004. 6 million shares. Small loss vs small profit, all less than 1 cent. Cash flow is kind of humorous.

Damn, I didn't see that they did a reverse merger so this old stuff is worthless.

Losing money on declining revenues with negative cash flow from ops.
not interested

These guys are just looking for money from someone to continue doing whatever they were doing. No financial statements, no accountability, no thanks.
not interested

By some miracle, they managed to make money in 2004 after losing huge amounts in the 3 years before that. Enough stock options to make earnings drop to 0 cents per share. Business seems to be picking up and they earned 5 cents in the first half of this year. They're selling for $1.60, so the market has priced that in already. But revenues continue to grow and they landed a military account.
worth looking into (update: stop following)

Chinese steel company. Looks fully valued. Plus the steel industry in China is a bit overheated.
worth following (update: stop following)

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