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Tuesday, November 15, 2005

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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