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Wednesday, November 30, 2005

revisiting companies 5

revisiting companies 1
revisiting companies 2
revisiting companies 3
revisiting companies 4

HEMA (chart, website, sec) Q3 results announcement and filing: revenues are up a bit from Q2 and prior year. But costs increased even faster and gross profits are down. G&A also increased so they earned only 3 diluted cents in Q3 vs 5 cents in Q2. And share count continues to increase. Cash flow from ops is fairly weak. Large capex. They paid off some loans. This is getting less interesting.
continue following

HFIT (chart, website) sold 1,000 shares preferred B stock for $10 million to acredited investors. Immediately converts into 5.1 million common shares. Also 5-year warrants for 1.5 million shares at $2.40 (plus weighted ave anti-dilution adjustments).

$5.1 million will be used to redeem preferred A stock convertable into 2.2 million shares plus 1.3 million warrants. The rest goes into the business. 3.1 million net shares of dilution for $4.9 million ($1.58 per share cost when the stock was trading around $2.00). Overall, the deal is probably somewhat fair.

A Q3 results press release was piggybacked onto this same 8-K. Here's the 10-Q: The assets are just as odd as they were. Revenue and income was about the same as Q2. They earned $506K.

13 million shares outstanding before this net 3.1 million share dilution. Share count will presumably be 16.1 million. So the earnings per share is 3.1 cents vs 3.8 cents in Q2. For 9 months, earnings are 10 cents, so the stock might be worth $2.00. The ask is $2.12.
continue following

HNNA (chart, website) No news so I assume it still might be worth $18. Best ask is $27.
continue following

MKRS (chart, website) Q3 results: cash down receivables up from Q2. Accrued expenses almost gone while AP nearly tripled. Results about the same. 38% gross margins. Engineering expenses increased by 67% over Q2 due to SBIR Phase II contract from Sept 2004. Net income is only $27K vs $44K in Q3 including a liability writeoff. Cash flow from ops went negative during Q3 due to liabilities. 31.8 million diluted shares. I get this sense that the business is just plain weak and unpredictable.
stop following

MPAA (chart, website) Q2 results: cash, AR, and inventory are up from Q1. They tapped $6.8 million from the line of credit and paid down the credit due to customer by $2 million. Revenues are up something like 40% from Q1 and significantly from prior year. Gross margins are 29% from 17% in Q1 (28% prior year). Earned 19 diluted cents in Q2 (recovering from the 16 cent loss in Q1 which apparently was due to increased costs in opening a manufacturing plant in Mexico for the new busines in Nashville). The 19 cents would be what we'd expect to see in the future, but will there be a decline in the auto industry? Everyone is expecting it.

The stock is selling for $9.65, which is probably at least full price.
continue following

MPAD (chart, website) CEO retires. No other news. Stock went up.
continue following

MEK (chart, website, sec) Cash down, AR down, inventories up from Q2. Revenues down 28% from Q2 (across the board drop). Hurricane related. Operational loss. Equity in unconsolidated affiliate brought earnings positive.

They landed a big account verbal only so far. $45 million in revenues by the end of 2006. This is a full year's worth of revenue for them. They have gross margins of about 30% and let's say 1/3 of the gross profit gets eaten up by other costs. So I'd expect about $9 million in additional earnings in 2006. There are about 13.5 million shares, so I'd expect about 67 extra cents per share in earnings next year. The stock jumped from $4 to $6. This company is always going to be difficult to predict.
stop following

Still need to do these:
MTWD (chart, website)

MHCO (chart, website)

MIOK (chart, website)

Saturday, November 26, 2005

revisiting companies 4

revisiting companies 1
revisiting companies 2
revisiting companies 3

SAUP (chart), this seemed like not a bad investment (quick look) at $6.45 and it's at $5.60 now. Also, the Q3 report is out.

Receivables have been climbing very high to 65% of all assets from about half of assets at year-end 2004. Revenues are up 30% (mostly for export out of China) but operating and net income remained about the same! They claim this is normal! Cash flow is horrible due to the AR increase. Capex is up.

They earned 33 cents in 9 months of 2005.
continue following

AVEE, (chart, website), Q3 results: revenues up 24%, net income up 37% to 2.6 cents per share in Q3, 6.2 cents for 9 months. Balance sheet is great. Very good free cash flow (first 9 months of both years). The stock is probably worth around $2.00 and the ask is $1.38. Stock may deflate lower. It would be worth doing a detailed analysis of AVEE to prepare for any opportunity.
worth looking into

LLNG, (chart, website), this was the Thailand personalized computer cases for women company. Q3 Results: still no revenue, still bleeding off the assets.stop following (which should be easy to do)

GDVI, (chart, website), still selling for around 8 cents a share. The $4 billion construction and repair bond passed the vote. They're going to solve the overcrowding of the Los Angeles school system. Geez, they were overcrowded when I was a student there in the early 1960s, with classes in "bungalos". GDVI will be featured on a SmallCap Television cable show on Jan 1, 2006, but check this out: GDVI paid "Smallcap TV" $40,000 in cash and 2 million shares to highlight GDVI. That's a lot for a business with total assets of $9.3 million and 138 million shares. If the price drops enough, this might be a good investment with the probable new work coming up. Without it, they're worth about 8 cents.
continue following

GNCI, (chart, website) new president, crude oil prices are falling which means this warning is probably not a big problem anymore (note that I had predicted oil prices would drop back down). Nothing else new, so this remains a low priority.
continue following

, (chart, website) stock price is up to $11.00 from $9.50. Q3 results: Revenues are up slightly over Q2 and both are up significantly over 2004. They have a restructuring charge this quarter. 68.1% margins down from 69.2% last year. SG&A is up 3.5% over prior year and as a % of sales. Depreciation is also up significantly. All of this causes operating income to drop 14% from last year. Then there's the increase in interest expense, the loss on early extinguishment of debt (terminated a satellite transponder capital lease) and amortization and write-off of loan and senior notes fees (they admitted a bad loan).

So net income is in the toilet at 4 cents vs 15 cents. No realized stock dilution, even less since they bought back some stock. Less potential dilution since end of 2004. Free cash flow is zero for the year.

Reorg will be done Jan 1, 2006. Switching from long distance, cable, local access, and internet to consumer, commercial, carrier and managed broadband. This makes sense. Recent results: long distance and cable service revenue higher (wow) in fact all categories are higher. This is a good sign.

Verizon is merging with MCI (a major customer). No way to predict how this will impact the business (probably badly).

There's a lot of stuff here that I'm not looking at.
continue following

GNSM, (chart, website) shares are down slightly to $1.90. Q3 results: AR is way down. So are current liabilities. Based on this, I suspected revenues were way down and they are. Q3 revenues are down 28% from last year and down 31% from Q2 2005. SG&A is up from last year. Net loss of $1 million or 14 cents a diluted share. Cash flow from ops is positive due to the drop in AR (i.e. the pipeline is draining).

The decrease in revenues was across the board and not due to anything in particular.
continue following

GLMA, (chart, website) management changes. No new results. Share price is $1.70 at the ask (not much change).
continue following

GSCP, (chart, website) Q3 results: "Cute FTP" application. Share price up to $1.80 ask.

Revenues up 27% over last year but down some from Q2 (but Q2 was huge and I was worried it was a temporary blip). SG&A up from Q2. Earned 2.5 cents fully diluted in Q3 (vs 4 cents in Q2). Free cash flow is very good. No taxes. 14.3 fully diluted shares.

Cute FTP revenues increased only 1%. "Enhanced File Transfer" (introduced in late 2004) is increasing to 17% of revenue. "Secure Server" software increased to 22%.

I believe this business is an asymetrical risk. The odds of losing to some future application (possibly from Microsoft or some other big player) is fairly high. The odds of winning big are fairly small, although it could happen. Therefore I believe it's not worth the trouble of following this stock.
stop following

GSHO, (chart, website) stock price is down to $1.30 ask. Q3 results: Revenues still climbing. Gross margins are only about 10%. Earned 4 cents diluted for the quarter (9 cents for the first 9 months). Free cash flow so far this year is great (last year wasn't).

POSCO (PKX) the Korean steel company has way higher margins (24% operating margins, 19% net margins) and is selling very cheap. I need to do work on POSCO very soon.
stop following GSHO

HCAR, (chart, website, sec) New and used car sales. Q3 results: AR down from Q2. Revenues down from Q2 and prior year. Gross margin 14.2% (down from 14.3% in Q2). 1.6% operating margins. Earned 2 cents vs 13 cents in Q2 and 8 cents prior year. Not much dilution. Cash flow from ops very high due to assets and liabilities.

Q3: new car comps up 3.4% in dollars, 3.8% in cars sold.
Q3: used car comps down 0.8% in dollars, 7.5% in cars sold.
Q3: wholesale used comps up 11.3% in dollars, down 2.8% in cars sold.
Q3: parts comps up 5.7%
Q3: total comps up 3.1% in dollars.
Toyotas are selling well. Lincoln, Mercury down... why the hell do people still buy those things?
Cars with good gas mileage sold well.

New car inventories are down due to handing over the Westwood, NJ dealership to the 3 Vergopia family members (former executives and directors) as settlement of a legal issue. $4 million. HCAR received 940K shares of stock recorded at fair value of about $1.11 per share (equity reduced by $1.04 million). Transferring the assets resulted in a gain of $600K. HCAR also wrote off the goodwill associated with Westwood.

HCAR named along with 1,667 others in a class action suit for charging too much for registration etc. Doesn't surprise me.

Restatement needed for Q2, just added a breakdown of floor plan notes payable into trade and non-trade components and moved cash flow of non-trade portion as financing and not operations.

Warranties: Balance at the start of the year was $208K. $890K added. $800K deducted.

Stock is at $1.50 ask. The drop in revenues is largely due to the loss of the Westwood dealership... and it ain't coming back. The stock is now worth less, perhaps $1.20.
continue following

Friday, November 25, 2005

China Finance Online (JRJC) vs China Finance, Inc (CHFI)

China Finance, Inc. has CIK #1123440. This is a BDC assisting in reverse mergers. The ticker symbol is CHFI on OTC BB.

China Finance Online has CIK #1297830. They do the web portal stuff. The ticker symbol is JRJC on NASDAQ.

JRJC has US$63 million in cash with $2.8 million total liabilities. They have 100 million shares diluted and earned about 1.2 cents diluted with 1/3 from interest, 1/3 from exchange rate, and 1/3 from operations. They have the Tao of Wealth. JRJC is trading at $6.13 which is expensive. Here's their Q3 conference call transcript. I think it was probably a good idea to drop them as an investment. It's a short term trading type focus.
not interested

CHFI has two business segments: 1) Surety Guarantee (agreeing to be responsible for the debts or obligations of another) for small and medium sized private Chinese businesses seeking to do reverse mergers. 2) Loan Gaurantee for the same businesses and individuals seeking short term loans from Chinese banks for business operations or personal use. The borrower will generally put up collateral.

The first surety transaction was with China Digital Communication Group (CHID covered here earlier) where CHFI was paid entirely with 2,171,573 shares of CHID stock which was 4% of the business. The stock price has slowly deflated since then and CHFI sold a bunch of it in Q3 2005. This was nearly all of the revenue for 2004. There was almost no revenue so far in 2005.

20 employees. Unqualified audit opinion. Rotenberg & Co. Extremely solid balance sheet (mostly cash and CHID stock with almost no liabilities). 58 million shares at end of 2004. They issued stock worth $507K for services.

Q3 2005: As of Sept 30, 2005, they had $611K worth of CHID stock remaining, which would be about 1.3 million shares. So CHFI has about $11.7 million cash, $247 loan receivable, 1.3 million shares of CHID (now worth 44 cents each), and $22.8K of liabilities. They have 57.7 million shares outstanding. So today the CHFI stock is worth 21.7 cents per share. The bid is 33 cents and the ask is 51 cents.

This stock is really not worth following unless something interesting happens to CHID and there's an arbitrage opportunity (which is unlikely).
not interested

Thursday, November 24, 2005

even more companies

JEWLF, make jewelry, incorp British Virgin Islands, revenues hopping around over the years ($19, $23, $26, $22, and 2004 is $28 million). Gross profits have hovered around $5 million (about 20%). Net profits have averaged zero. 2.6 million shares. Cash flow is very bad. They lost a 20% customer in 2004 but managed to do well for the year. The big loss was 2003 due to both dropped sales and high returns, possibly related to the lost customer in 2004. Other than the huge loss in 2003, average earnings are about 8 cents per share.
not interested

JLMC, wholesale bridal gowns, just went dark. Business has been deteriorating rapidly over 3 years. Stock isn't cheap.
not interested

JLWT, freight forwarding, customs, etc. with Asia. 61 employees: half in NY, the rest scattered around the US. Assets are almost entirely AR while liabilities are almost entirely AP (think Charlie Babbitt's car import business in Rain Man). Increasing revenue. Increasing earnings. Earned 1.5 cents in 2004. Might top that in 2005, but not by much. Selling for $1.03.
not interested

JSDA, Jones Soda Co., new age soft drinks. Unqualified audit opinion. Increasing AR and inventory (totally killed cash flow in 2004). Otherwise, balance sheet is fine. 36% revenue growth in 2004. 35% gross margins. 4.6% net margins with no taxes. 21.4 million shares on March 25, 2005. 2 million options outstanding at end of year 2004. Assume 25 million shares totally diluted. Earnings growth was extremely high in 2004. Earned $1.33 million in 2004.

2005: AR and inventories continue to grow. Revenue growth slowing down. Same gross margins of 35%. 9.3% net margins still with no taxes. Still no cash flow due to AR and inventory increases. G&A increased in 2005 causing losses during the first half. Earned what should be about $580K if there were taxes during Q3. If it weren't for the ominous lack of cash flow, the business would be worth $1.40 just based on Q3 numbers, probably more like $2.00. Selling for $5.32. Note: the CFO resigned. Nov 16, 2005, they're going to NASDAQ.
worth following

KBLH, new business, no operations, very skilled at earning interest on a huge pile of cash. Degree of difficulty: 0.00001
not interested

KICH, mortgage loan broker: GSE loans, sub-prime and jumbo loans (non-GSE), commercial.
not interested

KINV, investors including mortgage loans
not interested

KNVA, customer relationship mgmt software. Steadily improving earnings and revenues over the years, hit breakeven in 2005. Odd auditor opinion, but unqualified. New infusion of equity from note conversion. Rock solid balance sheet now. 62% gross margins. Steady fixed costs. Excellent cash flow up to 2005. PP&E humorously depreciated into the dust.

2005: AR increasing. Acquisition of Kanisa. Killed the business for now. This may change after restructuring. Stock is selling for $3.40. 8.74 million shares outstanding on Nov 11, 2005. Assume about 9.75 million shares totally diluted. Market cap would be $33 million, which is about 1 year of revenues.
not interested (but something tells me I might be underestimating them, not sure)

KORH, serial acquirer, 1980s windmill farm (half of them are broken), etc. mortgage, etc.
not interested

KPCG, PR and IR services. Serial acquirer. Anthem Blue Cross, Cablevision, Domino Foods, Jiffy Lube, some others. Unqualified audit opinion. Very weak balance sheet. 6.4% operating margins. Income tax benefit. Maybe 10 cents per share of reliable income (probably less totally diluted). Terrible cash flow. Went dark. I know I looked at this company before. I remember their crappy website and ironic lack of investor relations (being an investor relations business).
not interested

KSCI, frozen Asian foods. 22% gross margins (down from 27% prior year). At net breakeven. Unqualified audit opinion. Weak balance sheet (improving into 2005). The only reason results weren't terrible in 2005 was due to life insurance on CEO.
not interested

LWLL (was KSRE), Don Kirschner's Rock Concert turned K-12 intranet software turned Chinese reverse merger. Shanghai Likang Disinfectant Co., Ltd. Hospital disinfectants. XueLian Bian owns 54.7% (controlling interest). Wei Guan owns 32.8%. All executives and directors own 87.5%. CIK #1042463. Ticker symbol: LWLL.OB

Q3 2005: Balance sheet is ok. 59% gross margins. Net margins killed by "beneficial conversion feature - preferred stock". 49 million shares. Cash flow stinks due to AR. Annual revenues of about $5 million. Revenues increased by 15%. Another 15% would have them earning about 1/2 cent. Stock is selling for 27 cents.
worth following

DND Technologies (yahoo, sec, website) also known as ASI or Aspect Systems is a semiconductor equipment, parts, and services company. Licensing agreements with Lam Research, which I've looked at before, and Axcelis Technologies. ASI is OEMing Lam AutoEtch, Rainbow, and TCP plasma etch systems and others. FYI: Lam's overall gross margins are 49%. DNDT's gross margins are 40%.

DNDT had a net income of $1.24 million in 2004.
This $3,971,280 increase in net income is primarily the result of a $770,642 decrease (see further discussion under Cost of Revenues-Slow Moving and Obsolete Inventory) in our reserve for slow moving and obsolete inventory, compared to a $2,401,221 increase in our reserve for slow moving and obsolete inventory during 2003, plus an 81% increase in revenue and improved operating efficiencies achieved through a higher level of business activity, offset by an increase in commissions and royalties due to the increased sales for the year ended December 31, 2004.
Cash flow from ops was only $917K due to increases in AR and inventories. Depreciation was $180K and capex was $59K.

If we jump ahead to Q3 2005, they're back to losing money for both the quarter and the year so far in 2005. It's all about timing of purchases by customers and I think this business isn't all that profitable overall. On the plus side, free cash flow is slightly positive so far in 2005 (right around zero if you use depreciation instead of capex).
not interested

Strathmore Minerals (STM.V) update

Strathmore Minerals (website) is continuing work on their Athabasca Basin properties.

The spot price of uranium U3O8 yellowcake climbed to US$34.25.

Strathmore President and COO explained the uranium mining market here.
David Miller, who was previously interviewed by StockInterview.com in June 2004 (view article), reflected on last year’s forecast, “I thought $30/pound was sufficiently high to encourage enough new production around the world.” But there are major issues with supplying the increasing appetite of the burgeoning nuclear power industry. Miller warned, “The problem with encouraging new production is you don’t turn these things on and off. The only uranium, coming onto the market in addition to what’s already planned right now, will come from the already-discovered deposits”

Two years from now, Miller thinks the spot price of uranium could double again. “There are going to be a lot of people trying to put uranium mines into production, but it is not an easy process.” Permitting requirements in countries where most uranium is mined are roughly comparable. “If you haven’t done any work, after a discovery, it still will take about four to six years to mine in any of those areas.”

In early 2004, there were probably less than twenty uranium producers and exploration companies. Since then, the number of uranium exploration companies has jumped to more than 200. Miller warns investors that it could take up to 12 years for a grass roots project to begin mining yellowcake. Miller explained, “Starting, finding, permitting and mining a project is probably going to take a minimum of 12 to 20 years. From the start of the exploration program to defining the ore body, after you make a discovery, to starting the background and permitting process, to development and then finally mining – it’s going to take a long time.”...

But, what about the world’s richest concentrations of uranium in Canada’s Athabasca Basin? Will they help stem the rising uranium price? In a nutshell, Miller says no. He explained, “The next one to come online is Cigar Lake, but it was discovered over 20 years ago. Cigar Lake may come online in 2007 or 2008. There is another one called Shea Creek, which was discovered by Cogema more than a dozen years ago. They are having some very good results on that.” Could they start the permitting process on that one in the near future? “Absolutely,” Miller responded. “But you are talking about 8-10 years before that one could come online. It might be close to 2015 before it could bring any uranium to the world market.”

David Miller argues that some of that uranium production is likely to come from the smaller, but well-capitalized, companies, such as Strathmore Minerals. “Our strategy from day one, and we haven’t veered from this at all, has been to acquire as many known uranium deposits as we possibly could,” explained Miller. “We started early in this uranium cycle in 2003. We were out there before 95 percent of these other uranium companies even thought of starting uranium companies. We were able to pick up some very good deposits in New Mexico and Wyoming. These are known, drilled-out uranium deposits in the country that’s produced as much as uranium anywhere else on earth. We’ve taken all that exploration information, where they discovered these old deposits, and have acquired a number of those old deposits. Now, we have opened a permitting office in New Mexico and starting the permitting process to put those into production, somewhere down the road. We don’t know if we can do it in four years or six years. It’s a long process and all kinds of studies must be done to get these fully permitted and into production.”

But there is a second part to the Strathmore Minerals strategy. Miller announced, “Don’t ignore the richest uranium province on earth, which is the Athabasca Basin in Canada. Strathmore is the Number One landholder in the Athabasca Basin., even larger than Cameco. We control approximately 3 million acres in Canada, and nearly all of that is in the Athabasca Basin. We have dozen different individual projects in the Basin. We are starting the exploration process on all of those. As I said earlier, exploration takes a long time. We have not made any discoveries yet, and it may be three to five years before we make a discovery.”
The enormous demand/supply imbalance is still in place as the chart at the beginning of that article shows. Demand is way above supply and it is increasing (441 working reactors in the world today, with 30 more being added). Supply takes a very long time to increase. Uranium is extremely inelastic because the cost of uranium is such a small percentage of the cost of running a nuclear reactor. If prices hit $100 a pound for yellowcake, it still won't put a dent in demand.

Downblending weapons grade uranium has worked very well to keep the demand/supply equation in imbalance and caused uranium mining to effectively shut down for over a decade. But that source is running out and with Korea, Iran, and possibly others jumping into the nuclear arena, there's going to be a lot of reluctance to downblend too much weapons grade uranium. We may enter another nuclear cold war. Downblending produces cash, but it takes a lot more money to rebuild HEU supplies than you get from downblending and selling them off.

I don't like relying on these demand/supply imbalance gambits for investments since they can take an unknown amount of time to play out. Level 3 is still waiting for the Great Pumpkin to stop the constantly falling bandwidth prices and it's been 3 years. As far as I know, Buffett is still waiting for silver prices to go up. But in this case, the prices are already high enough and they just keep going higher. They've been above $100 in the 1970s, but only about $43 in today's dollars.

UPDATE Nov 30, 2005: The price of U3O8 went up yet again to $34.50. Also, the US Nuclear Regulatory Commission renews Millstone Power Station's operating license for another 20 years.

UPDATE Dec 7, 2005 ("a day that will live in infamy"): The spot price of U308 is now $35.25.


Today we give thanks for the laws of physics, the laws of economics, the scientific method, mathematics, the complexities of human nature, our world populated with plants and animals, and our existance itself. And God made the animals out of meat because, geez, how could anyone stand a world populated with nothing but whiny arrogant vegetarians.

Tuesday, November 22, 2005

more companies

PPLCE, company based around Japanese handwritten letters (not caligraphy) that are faxed (like a point-to-point fax based network) for rural Japanese who use "cabins" to access the service. Huge deferred assets and liabilities (I don't know what to make of that). Low margins and getting lower. Sales are declining. It looks like they earned about $1.3 million in 2005. Terrible free cash flow (ops generated $3 million with $4 million depreciation and $7 million in capex). 18 million shares. Maybe the stock is worth $1, but demographics will eventually kill the business. Stock is selling for $4.25. Prior years had earnings of 43 cents, 34 cents. The rest of 2005 was continued deterioration.
not interested

PRAC, metal stamping equipment maker, emphasis on flexibility of equipment (good). Constantly late in filings. Q3: weak balance sheet. Low equity. Low gross margins. Barely making a living. Basically losing money. Uneven cash flow. Market cap is $600K. $2.8 million in equity. About $20 million in revenues per year. This is like Berkshire Hathaway before Warren Buffett (a terrible tar pit for investors).
not interested

PRGF, enterprise software (bad). 49 employees. Unqualified audit opinion. Weak balance sheet. Increasing revenues. Operational loss. Positive cash flow entirely due to depreciation. Acquisition crazed. Large capitalized software development costs (which hides a lot). Sold debt, sold equity. Looks like the business venture just has bad economics.
not interested

PTNX, (Seems to be some confusion about ticker symbols here PTNX is a NASDAQ stock, PRNI is a pink sheets stock. The CIK number here is for PTNX), supply-chain printing solutions. Labels, transactions, bar codes, forms, reports, diagnostics and management of it all. Open systems architecture so it can drop into different systems. RFID smart labels (excellent). PRNI was first to develop RFID solutions for Wal*Mart/DOD compliance requirements. Market leader in UHF Electronic Product Code printer market in 2004. Working with Impinj Inc. on Gen 2 interoperability. 57% market share in worldwide line matrix market, excluding Japan. Let's see if the numbers back this up.

Revenues are fairly steady between 2001 and 2005. Net income is all over the map. 30 cents 2005, 11 cents 2004, 51 cents 2003, 39 cents 2002. Lost 22 cents in 2001.
RFID is ramping up fast, but still small.

Unqualified audit opinion. Fairly capital intensive. PP&E cost was 2/3 of total assets. Heavily depreciated. Very strong balance sheet. 39% gross margins. 2% operating margins. Heavy, but stable R&D costs which means... lots of stock options. Free cash flow is consistently very high, way above earnings ($7 million 2004, $3 million 2003, $8 million 2003). About 630K stock options outstanding at end of 2004. About 6.4 million shares outstanding on Sept 24, 2004.

Q2 2005: Balance sheet still very strong. Revenues dropped somewhat. 37% gross margins. Operational loss in Q2! Lost 26 cents. Lost 22 cents for the year. Free cash flow burned up $2 million. Share count seems about the same with options. Assume about 7 million shares.
Second quarter sales were down mostly due to lower sales to the automotive
and general manufacturing industries in the United Kingdom, Germany and
France, and a lengthening of the sales cycle that resulted in sales not
closing as expected in the U.S. market. RFID revenue during the quarter was $0.8 million compared with $0.9 million in the same quarter last year as industry RFID deployment of Gen2 technology created some uncertainty in the market. The loss in the second quarter was incurred due to the lower level of sales, increasing expenses for Sarbanes-Oxley compliance and increased sales expenses from a changeover of both our line matrix and thermal product lines to entirely new models, which we expect to be completed in our third fiscal quarter.
So if we assume these are unusual times (might not be), then the business might actually make about $5 million in free cash flow per year, making the business worth about $75 million or $10.70 per share. That's a high number so I'd only want to look at it more closely if it was selling for say half of that. They announced a 7 cent dividend to anyone owning the stock on Dec 1, 2005.

I knew something was wrong when I looked at the stock price and it was less than a tenth of a cent (PRNI). PTNX is selling for $15.36. It seems Yahoo has this mixed up. The pink sheets website shows no SEC filings, news, or reports for PRNI.
not interested

PRRO, financial planner, pension, retirement planning (bad). Strong balance sheet. Rapidly rising revenues, totally gouged by commissions and compensation. 3.3% operating margins. They made money gambling in the stock market which shows up as earnings. They really earned about 9 cents in 2005 for shareholders. Amazingly officers and directors own 91% of the business.

Q3: balance sheet still strong. 4.5% operating margins. Earned about 4 cents in 9 months. Cash flow matches earnings. Apparently no stock options.

The business might be worth 75 cents. It's selling for $5.25. That seems very odd.
Apparently the 10-K is erroneous in some unspecified way.
not interested

PRRR, a short line railroad company plus railroad equipment leasing. GWR Genesee & Wyoming is my gold standard for short line railroad businesses. I should have bought them back when I was looking at them in, what, early 2003?

Anyway, PRRR has 17.9% operating margins on their railroad operations (about the same in 2003, too). Genesee only makes 16.5% and it hasn't changed that much over the years. PRRR earns about 30 cents a year in earnings. They've been doing share buybacks. Free cash flow is very high (depreciation greater than capex). They've been paying off debt. The CEO owns 55.9% of the business. They're going dark, no wait, they're going private! Paying $2.85 per share. Shares sell for $2.70, which is about right for arbitrage. This sucks because $2.85 represents of P/E of about 9.5. Imagine if you bought the stock for $3 (which would still be cheap). This is why I don't like owning stocks where insiders control the business.

Monday, November 21, 2005

The Iraqi Stock Market

The Iraqi Stock Market

There are currently 112 stocks on the Iraqi stock market.

Some examples:
Al-Hadder for Film and Television Production (not yet trading)
Al-Karkh Entertainment City (KARK) trading at 1/2 a US penny. They claim to be getting a high return on assets from 2000 to 2003. Incorporated in 1989, IPOed in 1992.
Al-Mosul for Entertainment Cities and Tourist Investments (MENT) also trading at 1/2 a US penny.

An article in the Christian Science Monitor.
American investors can't buy shares of Iraqi companies and most foreign firms doing work there are too big for their Iraq business to contribute much to the bottom line.
You can't invest in it yet, due to Iraqi law right now, but this is likely to change (the US lifted the investment ban in 2004).
Definitely our most asked question, as of 08/17/2005, the answer is "soon". The legal framework has been put in place by the Interim Iraqi government, but the final approval has yet to be given by the Iraqi Securities Commision. This approval appears to be waiting on the completion of the formation of the newly elected Iraqi government, which is taking some time to complete.As soon as this final approval is granted, the ISX will formally announce that trading will open to foreigners, and we will announce it as well through our member newsletter and on our front-page.
There's a stock picking contest underway.

The Coalition Provisional Authority law on the Iraq securities market.
The Baghdad Stock Exchange was replaced with the Iraq Stock Exchange, a not-for-profit, member-owned, self-regulatory organization, independent of the Iraqi Government and Ministry of Finance.

Listed companies must:
  1. Have held an annual meeting
  2. Submit publicly available financial statements not more than 6 months old.
  3. The Depository must certify the securities based on fuzzy and unclear requirements.
  4. The securities are not subject to legal restrictions on transfer.
  5. Vague requirement for public disclosure of information that might affect the stock price.
  6. The Exchange can remove a company's securities from trading.
  7. Unaudited quarterly results with balance sheet, income statement, and cash flows using GAAP standards that are totally unspecified right now.
  8. Audited annual results "in accordance with international accounting standards to the extend permissible under the standards in force in Iraq." What standards? The company has 150 days to file, with possible extensions. Wow, that's a long time.
  9. Annual report has comparative information to prior year.
  10. Auditor must sign report and give an opinion.
  11. Annual meeting within 60 days of audited results.
  12. The Exchange can impose additional requirements.
  13. The Board of Governors may adopt separate rules for listing and trading.
  14. You can't trade outside the exchange except for gifts and inheritance to relatives etc.
  15. Then there are various rules for brokers, such as having a high school education or equivalent.
  16. Oversight rules seem to be not very well spelled out.
  17. They do cover clearing and such.
  18. They have the usual officers and 10%er rules.
  19. The Exchange "shall have" a Business Conduct Committee which does enforcement.
Signed L. Paul Bremer (who is gone now)

This is one of those cases where you can write down whatever you want, but what counts is a functioning system with proven enforcement and actual compliance. I wouldn't expect this to be working well right out of the chute. And all those rules are going to be re-written soon.

I'd say the best way to benefit from the Iraq Stock Exchange would be to act as an analyst or a broker and get established as a source of knowledge and a focal point.

Iraqi Traders Complain about New Trade Policy
A general manager at the Iraqi trade ministry said that small Iraqi firms lacked the financial muscle to compete for tenders worth millions of dollars, and that previous dealings with them had been difficult.
Internet Cafe's spreading
Oil for Fraud
A Bahrain bank invests in Bank of Baghdad. I'd be curious to see their financial statements and how they compare to banks I've looked at in the US in terms of things like non-performing loans, interest rate spread, etc.
A former U.S. occupation official in Iraq bought real estate, cars, jewelry and home improvements with the kickbacks he received from a businessman who won more than $13 million in reconstruction work, federal authorities say.
He had a prior conviction in the US.

USAID is still doing lots of seminars to bootstrap the Iraqi private sector, which is important.

It's funny, you look at (scroll down to the bottom) the news from the local Iraq news sources and it's the basic stuff you expect to see from a functioning community, like reading a local newspaper. Then you look at the US news sources and it's all political posturing.

Revisiting Companies 3

revisiting companies 1
revisiting companies 2

BKBO: BakBone Software dropped for a while. I tried to buy some but the price went up more than I was willing to pay. It's now $1.74. Continue following.

LVWD: LiveWorld dropped after the bad announcement. I actually sold some stock in the mid 40's but I'm holding onto the rest. Continue holding.

BOJF: Bank of the James jumped up to $21 on Friday but on insanely low volume. They issued their 10-Q on Nov 9. Assets are up and they're pretty much fully leveraged now. They earned 29 cents diluted in Q3. Stop following.

BANI: FDIC #35462, Bay National climbed to $22.50 since I looked at it in June at around $18. Earnings for Q3 were 37 cents vs 22 cents in Q1 when I looked at it. Stop following.

SCCB: FDIC #57428 Seacoast Community Bank. I actually bought shares in this briefly. The stock dropped from around $11 or so to $10. You have to ask them for an annual report (which I got). Results for Q2 deteriorated even more than Q1 (they're losing money). Stop following.

BonusAmerica BAWC: filed an NT 10-Q for Q3, no real reason given, they were late last time. As indicated before, Q2 showed revenues down and an annualized 1.4 cents per share per year with an 8 cent stock price. Stock price is now 11 cents. Continue following.

Looking at other community banks, FDVA dropped in price, CPFB dropped for a while but then went up when they hit profitability. Stop following all community startup banks.

Bowlin Travel Centers (BWTL): Dropped to a $1.75 ask from $2.00 in Sept. No additional news. Continue following.

Brand Partners (BPTR): Lots of big red flags with these guys, but I've still been following them. I figured they really earned 20 cents in Q2. Q3 results are out. AR continues to climb, but inventories and pre-paid are down. Revenues are down from Q2. Net loss due to taxes. Even without taxes, earnings were close to zero. Cash flow is terrible. Stop following.

Bulldog Technologies (BLLD): They won an account with Pfizer and other stuff. And a Middle Eastern win, too. Looks like certain stockholders are selling up to 6.4 million shares from warrants and convertables. The Wall St Journal wrote an article on them. But they're way overdue to file a 10-Q on the quarter ending 8/31/05 and no NT was filed! The stock had dropped about 20% until the last few days. Now it's back to where it was. Continue following.

Burnham Holdings (BURCA): Q3 results AR and inventories are up. Revenues down slightly. Earned 63 cents in Q3 (vs 71 cents prior year) but only 2 cents for 9 months. Cash flow is terrible due to AR etc. They lost 21 cents in Q2 (vs 23 cent gain prior year) and they lost 40 cents in Q1. It was all due to reduced industry demand and raw material prices and energy prices. They announced price increases where needed (pricing power, great!). They pay a hefty dividend of about $1.20. The stock is at about $23.50. In normal times, they earn about $2.20 a share fairly consistently. Book value is around $20 a share at this point. Financial highlights. The stock is cheap but Continue following.

Butler National (BUKS): Stock dropped from around 50 cents to around 34 cents. In November they did their first installation of the RVSM upgrade that was planned for Learjet 35 and 36 planes. This was the one-time upgrade that will temporarily (2 years) improve results. They're traveling to PRC, which could be interesting. Q1 2006 results: Revenues down. Net income down (these guys have low margins). Follow this company only for big changes.

Experimental Agency (XAIN): Q3 results: High gross margins, low operating margins. Tiny net income. Cash flow is good. Stop following this company: crappy + illiquid.

Yi Wan Group (YIWA): website expired 28 cents on the ask (no chart available) down from 39 cents. They're due for next quarter's filing soon. No news or info. Continue following.

Schuff International (SHFK): The stock went up even more but is back to where it was when I re-checked it (up to $6 and change from $3.50 when I first looked at it). Q3 results: Restricted cash got unrestricted. AR is up a lot (equally contracts in progress and unbilled retentions), inventories are down some. They're selling some assets (a San Diego fab). Revenues are up 68%, mostly due to two Las Vegas projects. The Arizona Cardinals stadium project accounts for most of the rest. Also an Orlando resort added some. 18% gross margins are higher than last year, actual dollar amount doubled over last year. SG&A increased 32% due to bonus programs and a one-time cost of cancelling employee stock options. They earned 84 cents diluted in Q3 (vs 20 cents prior year). $1.69 earnings for 9 months (vs 33 cents prior year). Free cash flow is way higher in both years. Results are going to be lumpy, they say. Gross profits are actually negatively impacted by higher steel prices. It's difficult to do a valuation on this company. It's probably fairly cheap right now. But they were selling for about $1.20 in 2003. The time to buy a company like this is when all hell is breaking loose. Continue following and wait for a good price.

Solitron Devices (SODI): Stop following.

American Dairy (ADY) ...in China. This dropped as low as the mid $5 range, but is back to $6.87. Q3 results: Inventories doubled! More debt. Revenues are down from Q2, but way up over last year. They earned 14 cents per diluted share vs 21 cents last quarter and 9 cents in the prior year. In 9 months, they've earned 49 cents per diluted share. Cash flow is terrible due to receivables and inventories. They acquired another Chinese business and the subsidiary structure is fairly complicated. This needs more work.

Big Apple Bagels (BABB): Q3 results: Balance sheet looks a bit better. Revenues down. Operational costs are down slightly. Earned 2 cents a diluted share vs 4 cents in prior year (and 4 cents in prior quarter). Free cash flow matches earnings. Low depreciation. 4 of 151 franchised stores closed during the quarter. Dilution not a problem. A VP is retiring. They've been paying out excess cash in dividends very well. Stock is priced about right. Continue following.

China BAK Battery (CBBT): No chart, the ask is at $6.50. No news. Way too expensive. Continue following.

Triangle Multimedia (QBID): They have 19.5 billion shares outstanding and wondering why the stock price is so low. And if they want people to stop saying "gay" as a derogatory term, they might start acting at least slightly like a public company and not a gay male stereotype. They claim their 2,000 film library is worth two billion dollars. Did you pay two billion dollars for it? Investor info. The market cap is roughly $10 million, which means I'd expect earnings of about $667K just to support the current price. They have 1,000 hours of original programming which they expect to bring in $400K per year (revenues? at what operating margins?). They're attempting to buy some business that will bring in up to $400K per month "forever". But this is silly because they're buying it. They'll end up paying full price or more in an acquisition.
I believe that as we continue to announce what we are doing, the stock will go up. We currently have an appraised market cap of $150-$200 million and we are trading way below that cap, we have recently been offered a nine digit figure for our company and tangible assets of over $1,000,100,000. This is not bad for a company that started with nothing.
So they've taken a billion dollars in assets and destroyed 80% of the value, making them currently worth $200 million based on an anonymous valuation that they're proud of.

I think I'll wait for the audited results. Continue following for entertainment value.

China Digital Media (CDGT): Q3 results: AR went up 50% from Q2 and is now 20% of the assets. Revenues doubled since Q2, but gross profits only went up 63%. Operational income went up 91%. There's a huge gain from "Volume discounts earned" which is bigger than operational income. It wasn't there in Q2. They earned 11 cents with that huge gain, probably 5 cents without it. Oh yeah, I forgot, they have a massive dilution issue (an order of magnitude). Stop following.

China Evergreen (CEEC): Q3 results: Revenue down from prior quarter (can't really compare prior year). Gross margins are silly high: 93.8%. Low tax. 25.3% net margins. Earned $317K in Q3 and $1.15 million in 9 months. Insanely high dilution: 64 million shares from Sept 05 placement. 140 million shares as of Nov 14, 2005. So assume about 200 million shares, which might even be low. Annualized diluted earnings would be about 3/4 of a cent, making the shares worth about 11 cents. The stock is selling for 25 cents.

Balance sheet seems stable. As you'd expect from the dilution, cash flow was terrible. Operations ate up nearly $1 million. Capex was $3.7 million. Dilution produced $5.3 million. Too expensive, but continue following.

portfolio accounting

I believe it's important how you account for your investments because the foundation of being able to think correctly about market prices must rest on an intuitive framework for how to account for the difference between the current market price, past market prices, and the value of the investment. This is my view. Rather than "marking to market", or holding at the lower of cost or market, or constructing a contra-asset such as depreciation, this best fits what I want to accomplish.

When I buy a stock, I'm moving assets from cash into two other assets. The first is the market price for the investment. The other is the "value beyond market price" (which would be negative if a stock is selling for more than its intrinsic value).

The market price is fairly liquid and can be converted into cash, but doing so will cause the equivalent "value beyond market price" asset to be written down to zero. It can be used as collateral to secure debt. It is widely recognized as an asset.

The "value beyond market price" is an intangible asset which is much lower on the balance sheet and should probably be considered a non-current asset since it's not particularly likely to be converted into cash in less than one year (technically it's one business cycle, but who's counting). This asset can't be converted into cash, it can't be used as collateral for anything, and most people don't recognize it as an asset. Why would they? They could buy the stock for the market price alone. But on my own balance sheet, I recognize it as an asset.

The market will unpredictably shift assets between these two accounts, independent of anything I do. Unpredicted changes in the business will cause the "value beyond market price" to increase or decrease. I've had cases where it went from positive to negative in which case I dumped the stock ASAP.

I like this approach because it helps keep these two things very separate. And it's easy to imagine changes in value affecting a single asset rather than both an asset and its associated contra-asset, although using a contra-asset is a lot more GAAP-like.

But this is no replacement for the Mr. Market analogy, which I find very useful.

Saturday, November 19, 2005

another batch of companies

NPTI, cremation services. Unqualified audit opinion. Assets are totally dominated by "Names and reputation" as 62% of assets! Only a small amount of equity. 80% gross margins. 8.4% operating margins. Some monkey business in net income. Very low income tax. Realistic earnings per diluted share are about 22 cents. Cash flow is great due to deferred sales tax, non-cash interest and amortization, deferred charges and other stuff. They use stock for toilet paper. They offer "at-need" services, which means people with a dead relative pay for cremation. They also offer "pre-need" services where you sign up for cremation before death and they take care of everything. In 2005, the financials deteriorated for some reason. They started losing money, cash flow was terrible, the balance sheet gains a huge asset and an equal liability presumably assocated with the pre-need business. It doesn't matter because they're going private.

NRCNA, going private

NROM, 1,300 franchise pizza shops at hospitals, military bases, universities, RV parks, hotels, etc. 29 full time employees, 34 part time. Non-frightening lawsuit. Slowly but steadily increasing revenues. Operating income is a bit less solid. Share count has been very consistent. Earning about 7 cents a share in last 2 years.

Balance sheet has large deferred tax asset (more than 50% of total assets), large AR. High current ratio. 3 years of cash flow is excellent. That plus the reason for lowered earnings in 2004 lead me to believe earnings are closer to 8 or 9 cents. They're paying significant taxes.

They had a monster source of other income in 2005 from settlement of a lawsuit with an investment business. Cash flow is still great in 2005. The business is probably worth about $1.35. Stock is selling for $1.00. Reached a low of 63 cents.
worth following

NWRG, Einstein Bros and Noah's restaurants. Also some older ones that have been closing. Total restaurant count declined to 690. Older non-significant legal stuff. Gross margins hover around 18% over the years. Operational margins had been negative until 2004, when SG&A declined, but so did depreciation. Interest expenses are killing them and they lost money in 2004. They continued losing money into 2005... why is this on the list??
not interested

NXUSF, stolen vehicle recovery and roadside assistance services. Israel, plus Argentina and Mexico. Revenues jumped in 2004 due to huge steady increase in services going back to 2001. There are two very different businesses mixed together. The increasing one has good fundamentals. They're losing money, but less and less every year. In 2003, the pattern was disrupted by a huge gain from discontinued operations, but overall the business has been improving. However, share count exploded in 2004.

Unqualified audit opinion (looks like a change of auditors?). Balance sheet is terrible at end of 2004. Additional paid-in capital.
Nov 15, 2005: being re-listed on NASDAQ. Damn!

Q2 2005: balance sheet is still terrible, current ratio is 1/2. Services revenue continues to climb rapidly. They're just reaching operational break-even. 2.5 million shares. I have no idea what they're worth at this point. Very rough guess might be $10. Selling for $8.75. Am I good, or what? (I didn't peek)
worth following

OHRI, occupational health, prevention and treatment of work-related injuries. Revenues fairly steady. Operating margins 14%, but had been lower for a couple years. Lost money in those two years (14 and 36 cents). In 2004 they made 25 cents. Before the losses, they made 1.08, but 17 cents before that. Directors and executives own 20%. Odd audit opinion without qualifications.

Weak balance sheet with huge amount of AR (which increased from previous year) and goodwill. 3.1 million shares with 1.4 million options outstanding (more are exercisable) and more available to issue. Average free cash flow tends around $2.5 million (aided by depreciation and provision and deferred tax, partly offset by the AR increase). Net income is only $789K.

Q2 2005: balance sheet got a bit better (current debt decreased, that's all). 6 month net income $925K. Annualizes to 41 cents a share for the year. Free cash flow is huge at nearly $3 million, aided by depreciation, minority interest, deferred tax expense. Probably worth about $6 a share. Selling for $10.
worth following

OISI, makes technology equipment for ocular industry: fluorescein angiography (blood is dyed, camera looks at retina, creates a "road map" for laser treatment). Revenues are increasing well. 60% gross margin. SG&A is high and increasing. But 16% net margin. Earned 10 cents a share fully diluted. Free cash flow is a bit lower.

Unqualified audit opinion. More than 24% return on assets. OK balance sheet. 15 million shares. 2.3 million options outstanding. 17.3 million fully diluted shares.

Q3 2005: balance sheet gets stronger. Revenues keep increasing. $1.33 million annualized net earnings based on 9 months. Cash flow still a bit weak due to AR etc. Stock is probably worth about $1.50. Selling for $1.26.
worth following

POLGA, Emerged from Chapter 11 in 2003. Textiles, yuck. But they're pushing the technology and are apparently a large player in their niches. Let's see the margins. 18% gross margins in 2004. Large interest expense. They're at a net breakeven.

Q3 2005: balance sheet is ok. Still losing money.
not interested

PONN, security alarm services for mostly residential, also commercial, wholesale. 62% gross margins. Large SG&A. Operating loss and net loss every single year. Weak balance sheet. Still losing money into 2005. Why was this on the list?
not interested

PPDA, merchant payment processing services and software (15,000 merchant customers). Revenues increased 50% in 2004. 20% gross margins. Just reached operational breakeven during 2004, still underwater due to interest expense. Cash flow is crappy due to AR. Unqualified audit opinion. Balance sheet is ok. 26 million shares. 3 million options outstanding. Assume 30 million fully diluted shares.

Q3 2005: Balance sheet improved. Additional paid-in capital. Revenue still climbing. Gross margins up to 26% now for 9 months. Earned about $257K in 9 months (had more due to tax benefit). Earned about $180K in Q3 alone.

Now there's 28 million shares outstanding. 7 million options outstanding. 35 million fully diluted shares. Worth about 41 cents if growth is real and somewhat sustainable. Selling for 94 cents.
worth following

Wednesday, November 16, 2005

HQSM Q3 results

HQSM released their Q3 results with no balance sheet or cash flow. Here's Q2 for comparison. 10-K post, overview post.

Revenues are up nicely. Selling and distribution costs continued to drop. They finally put some provision for doubtful accounts! $197K. Profits are good, even with the provision added. They earned 1 cent, about the same as Q3 last year if you take away last year's exceptional gain on recovery. It's also about the same as Q2. Share count is about what I expected. Nothing really happened with the stock after the announcement at about 1:00 PM today. The bid and ask are 45 and 46 cents. Conclusion: I still believe it's worth about 50 cents.

Unrelated: here's a 175 year old tortoise, born in 1830, just 4 years after Thomas Jefferson died.

YaSheng Group (YHGG) methanol update

YaSheng issued another press release to clarify their methanol deal.

Key points:
The only thing that's new is that they're using some by-product gas. And that doesn't even matter because their cost is exactly what I expected. If I were in charge at YaSheng, I'd stop the project immediately, even with the contributions from the Chinese government.

How to think about corporations

Glenn Reynolds of Instapundit fame, has an outstanding article on corporations.
One of the things we teach law students is that a corporation isn't really a thing, but a web of contracts. A big corporation is a bigger web of contracts than a small one, but lots of times the differences aren't as significant as they might seem. A small corporation that contracts out its design work to another company, its manufacturing to various others, and relies on other corporations to do the actual retail selling is doing pretty much the same things as a big corporation that keeps all those activities under one roof. The shape is different, but the web of contracts is just as big either way.

I've noticed this for a while now and it's clear to me that size is once again an impediment, where it was a benefit during the Industrial Revolution but not before or after. Every corporation I've been in has found it easier to get an outsource-able task done outside the company than by another group within the same company. It's all about accountability and recognizing the customer. One company did a lot to improve this by having other groups that are customers provide input to performance reviews.

In other news:
Open Source Media debuts today: a huge collaborative news effort by a combination of blogs led by Charles Johnson and Roger Simon.

UPDATE 7:30 PM same day:
The Open Source Media launch really sucked. I listened to part of it while I was updating a zillion files to work both stand-alone and with a threaded multi-tasking core. The website isn't any better so far. I hope they focus on improvement.

Tuesday, November 15, 2005

again more companies

PHST, pharmarketing and consulting. Looks bad. Revenues are growing steadily. Gross margins are over 50%. Operating expenses have been steadily declining. Net lossess slowly improved to net income. They earned 8.4 cents fully diluted in 2005 (free cash flow is only about 40% of that due to AR). Share count has been fairlys steady in recent years. Unqualified audit opinion.

Balance sheet is ok. They have lots of cash, but also a deficit. It's the services part of their revenues that are growing the most. 32.5 million effective diluted shares including convertable pfd. Maybe they're worth $1. Stock is selling for $1.60.

Everything continued into Q1 and Q2 of this year, except that operating expenses went up too much and earnings dropped this year, especially in Q2. Cash flow from ops is terrible due to AR, prepaid, and deferred revenue.
worth following

PACI, franchised auto service centers. Unqualified audit opinion. Strong balance sheet with almost totally depreciated PP&E and lots of goodwill, also a deferred tax asset. Increasing franchise revenues, except during 2005. 16% operating margins. Massive benefit from income taxes. Lots of share dilution. Earned about 5.2 cents a share totally diluted. Free cash flow matches this. (they claim to earn 16 cents diluted, but it contains lots of stuff I don't like to include).

Q1: they earned about $0.008 totally diluted with taxes paid and no one-time benefits. Great free cash flow. The market seemed somewhat shocked by the results (they shouldn't; it was all there to see well beforehand). Stock is selling for 75 cents and it's worth about 75 cents.
worth following

PASW, Internet and web software and development tools (yuck), shifting to some other business in 2000, etc. etc. Probably sharp people in search of something useful to do. They repriced their warrants. Going concern qualification. They earned 1 cent royalty income in 2004, but had no operations. All revenues are from one former customer of NRCJ subsidiary (customer is in Japan). The licensing fee has decreased, but the increases in their sales have more than offset it. Zero cost of revenues. They also have substantial NOLs.

Looking at Q3 2005, they still have a fairly strong balance sheet. Royalty revenues are higher: $57K vs $34K in Q3 2004. They earned half a cent in Q3 diluted, 1.5 cents during the 9 months. They do have foreign currency translation gains/losses (with gains and losses when you'd expect them). Cash flow is good.

This is a great example for someone to do a DCF analysis. $250K of cash. $18.8K of AR (no allowance). Almost exactly 5 million shares. They have about 5 cents cash right now and they earned 1.5 cents during the first 9 months of this year. Maybe it's worth 8 cents or so (maybe more, but that's gravy), but it all depends on what they do with the cash. They should just pay it out as in dividends or liquidate in the future. Without knowing the answer, it's worth zero. Unfortunately, the stock is selling for 11 cents. Maybe it would make a good shell company.
worth following

PCLP, document management software (yuck). Directors and executives own 73% of the company (bad). 3.4 million options. Going concern qualifier. Very weak balance sheet. Insanely low operating margins (negative for 2004 and 2005).
not interested

OPTO, business software. Revenues are stable and not growing. Gross margins are increasing every year, currently 77% (up from 75% and 70%). SG&A are killing them, leaving only 5% operating margins (3% in 2003, -19% in 2002). Net income is 6% (5%, -17%). Unqualified audit opinion. Fairly strong balance sheet. Earned 7 cents diluted in 2004. Some dilution from options. Also recent acquisition. Cash flow from ops is about right, but free cash flow is low at perhaps 5 cents in 2004 (not really sure, could be more). The first half of 2005 has been much worse, earning about 1 cent and very little cash flow from ops. I really can't tell what the business is worth, but it's selling for $1.07 which seems way too much.
worth following

OPCO, pet supply maker of all sorts of stuff, sells to Wal*Mart (10%'er), Kmart, Petsmart (10%'er), Petco, Sam's Club, Safeway, Friskies, Ralston Purina, and others. NOT DIRECTLY, but through distributors. No real selling power. They have some patents, most after 2000, some are design patents. 13 employees. Several non-frightening lawsuits (including one which has the name "Boneybone" in the title). Unqualified audit opinion. Strong balance sheet. 27% gross margins (obviously these aren't particularly strong brands). 1.2% operating margins. Negligible net earnings. Debt for equity swap in 2003. About $100K free cash flow on 12 million shares.

Inventories (and to a lesser extent AR) climbed during 2005 which killed cash flow, apparently due to the sales promotion. Tooling PP&E also increased. Earned about $170K during the first 9 months on higher revenues (again, sales promotion). Capex matched depreciation. Maybe they're worth 10 cents? Selling for 42 cents.
worth following

more companies

PIHC, rehab and gambl-o-holic centers. Revenues have been steadily growing, but so have expenses. They track a lot of interesting metrics. Unqualified audit opinion. Balance sheet is ok. Operational margins are about 10%. Earned 17 cents in 2004, but lost 2 cents in 2003 and made 7 cents in 2002. Free cash flow is fairly crappy in 2004, and not all that great in the other years. They've been doing stock options, warrants, and private placements.
Earned 2 cents in Q1 and free cash flow matches it. They're probably worth about $1.10 or so. It's selling for $2.02. Overall it doesn't seem like a great business at all.
not interested

PLNT, alergy avoidance products (air filters, bedding, etc). 9 full-time employees. They seem to rely on telemarketing. Yuck. Revenues declining 48%. Losing money horribly. Why was this on the list?
not interested

PGRA, spatial information management system (that could be anything from astronomical databases to porno). Actually, it's for land analysis, crop management, environmental stuff, military planning, and marketing analysis. Directors and executives own 27.4% of the company. Going concern qualified audit statement by... anonymous auditors? They don't list who they are. I'm sure it must be somewhere.

Weak balance sheet. Wait a minute, this is for the period ending 9/30/2003! They actually filed an NT 10-K earlier in the year. Here's a press release for some later results. They've got cash flow problems. They lost money in 2004. 2005 is supposedly better with higher margin stuff selling more. Revenues declined due to delays in project activity in the US and China (China municipal government had a reorg in one case). They expect to report a very small loss for the 9-months of 2005. It's selling for 1 cent, but this is just too iffy right now.
worth following

PHCCA, specialty biopharmaceuticals, and stuff like that to doctors. They have over 5,000 SKUs. That can either be bad or, if the SKUs are all fairly active, it can help retain a niche. Some: PEG-Intron®, Rebetol®, Pegasys®, Copegus®, Remodulin®, Actimmune®, Epogen®, Xolair®, Apokyn™

Revenues have been consistently growing. Gross margins are 11% and are consistent over time. Operating margins are about 4.5%, 5.7% in 2003, 5.0% in 2001. 2004 diluted net earnings of $1.01 were hurt by a 3rd party settlement and restructuring charge. Would have been about $1.14 without them. 2003 earnings were $1.15 (.98 in 2002, .62 in 2001, .65 in 2000). Share count has been very steady over the years.

Strange auditor opinion. Fairly strong balance sheet. Cash flow from ops has been bad for the last 3 years (a little over half of earnings)! Free cash flow is really pretty lousy and getting worse: $6 million in 2004, $10 million in 2003, $12 million in 2002.

In the first half of 2005, they earned 47 cents diluted, but this was on higher revenues with higher SG&A. AR keeps going up. Cash flow from ops is hugely negative due to AR and inventory.

I don't know, maybe it's worth $6? It's selling for ??? There seems to be no symbol, no stock. Apparently, they merged with someone.

PHCO, California worker's compensation HMO type regulated business. Unqualified audit opinion. Strong balance sheet. Low 10% operating margins. Very low tax. $154K 2004 earnings ($58K in 2003). About 16.6 million totally diluted shares. Just under 1 cent per share. Over the past 2 years, free cash flow has been good. Huge loss of $200K in the first half of 2005 due to slightly lower revenues and higher SG&A. Cash flow is about the same. This has eaten away at the balance sheet somewhat.
Workers' compensation costs in California continue to remain excessive which motivates employers to search for ways to control this cost. Although revenues for the six months ended June 30, 2005 fell short versus the same period of 2004, the Company expects to see new growth in the sign-up of MPN customers.... While the Company believes that revenues will increase throughout the next two quarters of 2005, it also believes that expenses will correspondingly increase at a similar rate, which the Company anticipates will result in future increases in income from operations at a rate less than increases in revenue.
So this business will continue to suck despite high future revenues. And then there's the risk that the People's Republic of California will somehow confiscate any profits the company might happen to make because it's a soft sector (i.e. bureaucracy rather than a hard sector competing in an unregulated market).
not interested

Eternal Technologies (ETLT) new 10-Q

ETLT released their Q3 10-Q today. But they had some problems with EDGAR so they issued an NT-10-Q with this to say:
Because the EDGAR filing system was apparently overloaded during the last hour for filing on the due date, the Company, despite repeated attempts was unable to get the system to accept its filing until after the closing time for filing.
So would you say that EDGAR ate your homework?

As of Nov 14, 2005, there were 40 million shares outstanding. In August 2005 there were 31 million shares outstanding. This increase was after the reporting period for this 10-Q. Most of this is the E-Sea acquisition which I know is accretive to free cash flow and value. I believe there's an additional 3 million shares for something else, possibly raising US dollars for the expansion in the US (which they talked about needing to do).

Balance Sheet
All changes are from year end 2004.
Cash decreased to $24 million from $27 million.
AR increased to $9 million from $1.5 million.
Inventories dropped to $374K from $621K.
Net fixed assets increased to $7 million from $6 million.
Total assets increased by $5 million to $45 million.

Nothing too interesting in current liabilties.

There was a [currency?] translation adjustment/benefit of $1 million additional equity.

Equity increased to $43 million (about $1.38 per share equity, but only $1.07 based on the Nov share count) from $38 million, including a small conversion of promissory notes of 234K shares.

Equity in Q2 was $40.5 million (about $1.30 per share equity). The decrease in equity per share is due to the huge increase in shares in Nov 2005 (which is subsequent to the Q3 report).

Oh yeah, they now have 53.7 cents of net cash per share, even including the subsequent dilution that took place ($24.2 million cash minus $2.7 million in total liabilities equals $21.5 million, which divided by about 40 million shares as of Nov 14, results in 53.75 cents). And the stock is now selling below that price. So the market says, "You'd have to pay me 3.75 cents per share just to take the ETLT operations off your hands."

Income Statement
3 month numbers vs Q3 2004:
The market is not going to like this. Revenues decreased to $5 million from $9 million in 2004's Q3.
This decrease resulted from a decrease in the sale of lamb meat of
$2,877,600, in cattle embryo transfers of $1,518,951 and the sale of sheep of $92,723 which was partially offset by an increase in sheep embryo transfers of $441,609.
Gross margins were 30% vs 37% in 2004.
The gross profit margin from the sale of mutton was 28.7%, the gross profit (loss) margin from the sale of sheep was (17.3%) and the gross profit margin on embryo transfers was 43.9%. SG&A decreased by 29% vs 2004.
SG&A dropped quite a bit.
This decrease [$120K] resulted from a decrease in penalty expense of $93,878 and a decrease in management expenses of $23,329 which was offset by small decreases in other categories.
No taxes again (remember that this tax holiday probably expires in July 2008).
Net income was $1.1 million vs $2.7 million: a diluted 3 cents vs 9 cents. Note that equity actually increased by 8 cents per diluted share.

Cash Flow Statement
Cash flow from operations was clobbered by the $7.6 million increase in AR although they seem to have forgotten to mention it in the discussion.
Capex was $1.5 million.
$331K of equity was contributed.

Other Stuff
The company entered into subscription agreements in 2003, but was late in registering the shares with Form SB-2. ETLT issued convertable notes as payment of the penalty, but one subscriber, Bristol refused and is taking legal action. This is old stuff.

No change on the Limestreet Securities lawsuit.

Certifications listed as expected.

I really hadn't expected revenues to drop like that. We knew that lamb meat sales were decreasing. Quickly looking back at the 10-K, it seems like this might just be timing issues and normal lumpiness of revenues. In 2004, they had a $4.5 million decrease in sheep embryo transfers. This quarter it went up $442K. But it calls into question what are the overall average revenues going to look like in each segment and in total?

Need to do more work on this.

UPDATE 11:34 AM same day: The price dropped to 52 cents. I bought more at 53 and 54 cents.

I also started buying CXTI, but I ended up chasing the price up and I gave up. I have some stock, but not a lot.

UPDATE 3:30 PM same day: I added some more text to the share increase at the top. I continued trying to buy more CXTI at times today with only some luck.

UPDATE 8:46 PM same day: I added a net cash calculation, showing that you can't even give the business away for free, according to Mr. Market.

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