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Tuesday, December 27, 2005

Another two companies

USNU (sec), operates stereostatic radiosurgery centers, utilizing the Leksell Gamma Knife technology. This is for brain tumors and other brain malformations requiring surgery. Kansas City (1994), NYU (1997).

Revenues have held fairly steady at about $2.5 million, but there has been a decrease in the last two years (they were down for a month in 2003). Net income has been declining due to slowly increasing G&A offset somewhat by decreasing interest expense. This interest expense will go up again due to a big capex replacement. 2004 had a significantly higher net income.

CEO owns 14.5% of the common stock.

Balance sheet is ok. Current ratio is slightly better than 1. The big Gamma Knives equipment is very heavily depreciated ($1 million left out of $8 million).

We might expect net income to be around $90K on average with 7.7 million diluted shares (1.1 cents). Cash flow from ops is amazingly weak when backing out depreciation. For the last 3 years, they've provided no cash from operations if you set aside the depreciation. After buying the big monster machine upgrade, they've been losing money outright during 2005.

The stock is selling for 15 cents, which I guess makes sense based on earnings. But this seems far too capital intensive and not nearly profitable enough. If you give me $7 million, I can easily get more than $90K in free cash flow per year without buying some gigantic piece of machinery that could become obsolete or break.

Times have changed since the heyday of the industrial revolution. In the glory days, if you could create or buy a miracle machine, you'd get a tremendous return on your investment. Nowadays, you'd be better off with US Government bonds. Yep, times have changed, indeed.
not interested

USOO (sec), interstate trucking holding company. Normally uses independent agents arranging with independent truckers. Revenues have grown strongly over the years since 2000, but operating income peaked in 2002 and has dropped since then. They had a $1.7 million litigation judgement (car accident) in 2004 which destroyed the entire year's earnings. Normal earnings would be around $1.5 million. But net margins have decreased over the years. NOLs are running out so assume about $1 million in earnings in the future. Assume about 8.3 cents earnings per share.

Net margins with NOLs are around 1.2%, declining from 1.4% in 2003 and 2.2% in 2002.

Assets are essentially all AR. Current ratio is a bit over 1.
Assets $26 million. $3.6 million equity. $143 million revenues.
12,018,224 shares outstanding on Nov 9, 2005.

Cash flow from ops was low due to AR. Historically over 3 years it's a bit low, although capex has been lower than depreciation, so free cash flow was probably fairly close to earnings.

Q3 2005: Geez, AR just keeps climbing. PP&E is almost entirely depreciated. Equity is up by $3.5 million.

Revenues are up in 2005 by about 18%. It looks like they got that $1.7 million litigation payment back. Taxes are starting to kick in. Earnings for 9 months (without the $1.7 million) are about $2 million or about 16.5 cents per share.

Cash flow from ops ($1.2 million) in 2005 is terrible due to AR again! They had to borrow $1.1 million during 2005 because of it.

The results of 2005 make it difficult to value the stock and very unlikely to be selling cheap. I'm going to assume about 9 cents earnings and figure the stock is worth $1.35. It's selling for... drum roll... $1.35 on the ask. I swear I don't cheat when I do that.
worth following

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