Pink Sheets

I'm working on some other things, so nothing is showing up here right now. I suspect it might take a week before I'm back evaluating companies.

UPDATE: Tuesday: Still working on the side issue.

A collection of categories of businesses. Most businesses are a combination of multiple categories. For example, Mousetrap+Niche+Ghost Ship=Underpants Gnomes.

1. Toll Bridge: Anyone who wants to do a particular thing must use your product or service, and lots of people do this thing regardless of how much you charge (within reason). This is the ultimate business to own.
   
2. Habitual brand: People buy your product/service out of habit and they have a clear preference for your brand. The purchases are repetitive and small costs. Coca Cola and Marlboro are good examples (well we all know cigarettes are actually bad).
3. Safety Brand: People buy your product/service because they trust it and anything else has enough uncertainty to warrant paying more for the known brand. Branded restaurants or hotels are good examples.
4. Status Brand: We all know about these.
5. Fight Club: Bare knuckles competition with no advantages other than brute force competition. Wal*Mart actually won this way, but there's only one Sam Walton and he's dead.
   
6. Niche: A company dominates a small market no one else cares about.
7. Bank: any highly leveraged financial institution working with interest rate spreads. Extremely dangerous if not run correctly.
   
8. Mine: A hole in the ground owned [or managed] by a liar. (Mark Twain?)
9. Mousetrap: A company based around some clever gimmick that no one wants, often with a patent (especially if it's the CEO's patent and it's framed hanging on the wall)
   
10. Ghost Ship: A company without any sense of direction or purpose, drifting on past success.
    

Solitron Devices (website) Makes military and aerospace semiconductors (bipolar and MOS). 93% US Government (mostly through contractors such as Raytheon, Lockheed Martin, Smith Ind, harris, Northrup Grumman), the rest are still military related. Ground radar, airborne radar, power dist, missles, missle control, spacecraft (manned and unmanned).

2005 10-K
period ending Feb 28, 2005
Delaware inc. 1987, originally New York 1959

Power transisitors: 17% (0.1amps to 150amps, 30V to 1000V)
Hybrids: 60% (passive and active components)
Field effect transistors: 5%
Power MOSFETs: 18%
numbers seem to be fairly consistent.
only analog devices (hey, what would I know about analog devices?)
Company has been certified since 1990 and qualified since 1995 under MIL-PRF-38534 Class H, which is the standard military level, although there are lower levels. Class K is actually higher and applies to at least some space applications.

ISO 9001 in March 2000, recertified this past year after two additional surveillance audits. Now qualified for ISO 9001-2000 which may result in additional business.

90% custom products. This is actually a good thing as it avoids commoditization.
Some new demand from Motorola, non military.
All the usual military standards.

In the US: 6 sales people, 2 stocking distributor organizations in 39 locations with 270 sales people.

International: 2 representative organizations in 2 countries with 4 sales people, mixed with distribution. "Several" sales, marketing, and apps engineers for key accounts.

Raytheon accounted for 46% of net sales! Was 41% previous year. 61 new customers this past year out of 172 total customers. US Gov was only 8% vs 11% previous year. No other 10+% customers. But 15 customers were 87% of sales.

Due to changes in Congressional appropriations and military spending, Company had a 19% decrease in net bookings this past year. This doesn't look good, but in the later 10-Q for the first quarter of 2006, the book to bill ratio went up to 1.08 from 0.91 and sales continued to increase.

33 patents, all expired. No material impact. "The Company believes that engineering standards, manufacturing techniques and product reliability ar emore important to the successful manufacture and sale of products than the old patents that it had." which is probably true.

The Company is not in direct competition with any other semiconductor manufacturer for an identical mixture of products; however, one or more of the major manufacturers of semiconductors manufactures some of the Company's products. A few such major competitors (e.g., IXYS, Motorola, Intersil, Fairchild, among others) have elected to withdraw from the military market altogether. However, there is no assurance that the Company's business will increase as a result of such withdrawals. Other competitors in the military market include International Rectifier (the Omnirel Division), Microsemi (the NES Division), MS Kennedy, Natel and Sensitron. The Company competes principally on the basis of product quality, turn-around time, customer service and price. The Company believes that competition for sales of products that will ultimately be sold to the United States government has intensified and will continue to intensify as United States defense spending on high reliability components continues to decrease and the Department of Defense pushes for implementation of its 1995 decision to purchase COTS standard products in lieu of products made in accordance with more stringent military specifications.

91 employees (up from 90): 65 in production, 4 in sales/marketing, 6 executive/admin, 16 technical support, 5 of 91 are part time. No unions.

Diminishing number of suppliers for raw materials. Costs going up. They rely on 3-inch wafers.

Key suppliers: Egide USA Inc., Platronics Seals, Kyocera America, Coining, Kilburn Isotronics, IXYS, Purecoat International, Stellar Industries, and others.

No R&D expenditures over the last 2 years. Special design costs are borne by customers directly or indirectly.

Usual hazmat materials of a semiconductor company.

This is particularly bad and could make this a non-investment:

However, the Company has significant obligations arising from settlements in connection with its bankruptcy that require the Company to make substantial cash payments that cannot be supported by the current level of operations.

EPA Superfund site issue:

The Company is currently engaged in negotiations with the United States Environmental Protection Agency ("USEPA") to resolve the Company's alleged liability to USEPA at the following sites: Solitron Microwave Superfund Site, Port Salerno, Florida; Florida Petroleum Reprocessors Superfund Site, Fort Lauderdale, Florida; City Industries Superfund Site, Orlando, Florida; Forty-Third Street Bay Drum Superfund Site, Tampa, Florida; Casmalia Resources Superfund Site, Santa Barbara, California; and Solitron Devices Superfund Site, Riviera Beach, Florida. At a meeting with USEPA on March 23, 2001, USEPA contended that the Company's alleged share of liability at four (4) of the sites totals approximately $7.65 million, which USEPA broke down on a site by site basis as follows: Solitron Microwave, Port Salerno - $3.8 million; Florida Petroleum Reprocessors - $150,000; Casmalia Resources - $2.7 million; and Solitron Devices, Riviera Beach - $1 million.

and this:

The Company contends that the claims of USEPA and the Casmalia Resources private party group referenced above were discharged in bankruptcy pursuant to the Bankruptcy Court's Order Confirming Solitron's Fourth Amended Plan of Reorganization, entered in August 1993. Nevertheless, the Company is negotiating with USEPA to settle its outstanding liability at all sites based on an ability to pay ("ATP") determination.

Following a settlement conference on October 24, 2003, the Company received a final ATP Multi-Site Settlement Agreement from USEPA on January 23, 2004. The substantial provisions of the Agreement obligate the Company to pay to USEPA the sum of $74,000 over two years, in equal quarterly payments, plus interest. In addition, the Company is obligated to pay to USEPA the sum of $10,000 or 5% of Solitron's net after-tax income over the first $500,000, if any, whichever is greater, for years 3-7 following the effective date of the Agreement. The Company signed the Agreement and returned it to USEPA for execution on January 26, 2004. After receipt of the signed Agreement, USEPA notified the Company that additional edits to the Agreement may be necessary. The Company expects to complete negotiations with USEPA in calendar year 2005. Once the agreement becomes effective, it is anticipated that USEPA will recommend to the PRP group at the Casmalia Resources Superfund Site that the group release the Company from further liability at the site upon the Company's compliance with the Agreement.

There's another one in Tappan, New York on 2002, with an agreement entered in March 2005.

This is too much uncertainty overhanging and the company isn't so great to start with.

Conclusion: Not a good investment.

UPDATE: Stop following

I'm hitting a dry spell in searching right now. It's amazing how many loser companies are out there. I ran into one company (forgot which one) where they announced the CFO was arrested for some sort of fraud.

Someone opened a small pet shop in the neighborhood around here in an obscure location in a shopping plaza... in the same location where a small candy store went out of business. How can they compete with Pet Smart (4 miles away) or the local grocery store (less than 1000 feet away)? Unless they're selling monkeys and sugar gliders (and more importantly Purina Monkey Chow and specialized sugar glider food), they would have nothing: no reason for someone to spend much money in the store. I've got a better idea: animal luxury items. They should sell very high priced, high margin stuff for animals, like fancy little sweaters, fancy food bowls, very obscure and boutique animal food. Make it so your customers might have just come from Pet Smart but they still have a reason to shop in your store. Maybe even add an animal photography studio with props and backdrops of every sort. Maybe move somewhat into the service business with animal walking and feeding when people are away.

YaSheng Group has certainly gone up in price. I've got a 50% gain in a little over a week. Someone big is establishing a position. It's up to $3 and it's still worth $6.

UPDATE: I had to add this quote.
"...at the heart of every non-financial management person is the quiet belief that they are really doing much better than the accounts show."
-- Elias Fardo --

In the mail: Blink: The Power of Thinking Without Thinking

Yet another bank doing well and priced about right: SFGP

UPDATE Tues.: Holy crap! Every f'king company that starts with the letter S is f'king incapable of even a single f'king dollar of f'king profit (you'll notice that Strathmore is no exception). I've looked at some of the most ridiculous forms of business, I'd be embarrassed to put my name on some of these financial statements. In other news, wow, what's up with YaSheng! Up yet another 15% today. I've never had that happen.

This is a low-ball guesstimate (and I mean GUESSing) of pounds of U3O8 per fully diluted share of Strathermore Minerals that can be removed from the ground at normal mining costs.

Duddridge Lake
0.5 million pounds

Dieter Lake
40 million pounds

Athabasca Basin
no idea, with the information given, I'd say 30 million pounds

Waterbury Lake
no idea, I'd say assume zero

Comstock
no idea, I'd say assume zero

Peru
5 million pounds

Roco Honda
9 million pounds

Church Rock
5 million pounds

Powder River Basin
no idea, I'd guess 0.5 million pounds

Cedar Rim
no idea, I'd guess 0.5 million pounds

Copper Mountain
12 million pounds

Northeast Wyoming
no idea, I'd say 1 million pounds

Chord
8 million pounds

That's a total of about 110 million pounds. The total share dilution is probably going to end up with around 70 million shares. So I would assume about 1.5 pounds per share of U3O8.

Given that the price of Strathmore stock is less than US$1.50, this is essentially a call option on the price of U3O8 with a strike price of maybe US$28 a pound and an option purchase price of US$1 a pound. The call option doesn't really expire, although it's probably a good idea to assume an expiration of about 8 years from now (who knows what factors might change after this time?).

UPDATE:
Here's the website of a competitor in the Athabasca basin. They do nothing but lose money, even in recent quarters. More ominously, they talk a lot about how technology is making exploration a lot faster and more effective. I'm thinking seriously about dumping this stock.

UPDATE Jan 4, 2006:
Strathmore just released an update on Church Rock. They finished an independent technical report which raises the estimate of U3O8 to 11.8 million pounds (from 6 million pounds), with an additional 3.5 million pounds inferred.

The report was prepared by David C. Fitch, C.P.G., who is a qualified person under National Instrument Policy 43-101. Mr. Fitch has over 17 years of uranium experience in the Grant's Mineral Belt, which was the largest producing uranium district in the world during the last uranium cycle.

The deposit is within sandstone units which should support in-situ mining.

BakBone Software (sec, website)

first entry
bad news
last year's 10-K 2004
2004 10-K continued
8-K statements
re-stated 2003 10-K
The right way to deliver bad news, June 23, 2005
EMEA resignation
Another open letter, Oct 17, 2005
Yet another open letter, June 13, 2006
more waiting, June 28, 2006
open letter to shareholders, July 27, 2006
BakBone Software update, Aug 9, 2006
vague strategic deal with Sun Microsystems, Dec 21, 2006
BakBone Software update, Feb 8, 2007
re-examining BakBone Software, Feb 13, 2007
three executives fired, Mar 10, 2007
Sun deal, April 24, 2007 (not posted till April 28) 90 million fully diluted shares
Sold BakBone, July 26, 2007 (closed out investment at a slight gain)

LiveWorld (website)

first entry
community websites
Bruce Dembecki
client services
Chris Christensen
Peter Friedman
prospectus notes
prospectus notes (continued)
press release
key shareholders
Q2 results
Q3 results
Q4 results closed position

YaSheng Group (website)

12/05/2005 YaSheng's Q3 Results closed out position
11/16/2005 YaSheng Group (YHGG) methanol update
11/12/2005 Another quick look at YaSheng Group (YHGG)
11/11/2005 YaSheng Group (YHGG) methanol
10/21/2005 YaSheng Group (YHGG) new auditor
10/09/2005 YaSheng Group (YHGG) update
7/19/2005 YaSheng (YHGG) press release
7/18/2005 More about the Chinese legal system for business
7/17/2005 YaSheng Group (YHGG) 10-Q
7/17/2005 YaSheng Group (YHGG) other stuff
7/17/2005 YaSheng Group (YHGG) Consolidated statements for 2004, 2003

Strathmore Minerals (website) and recent uranium prices

2004 audited results
2004 audited results continued
Q1 2005 results
press releases
uranium
what ended up being a not-so-useful investment report
pounds of U3O8 per share estimate This is a horrible estimate, see below for a better one
press release Aug 18, 2005
November update
uranium prices 12/21/05
What can go wrong
article on China
more news Feb 8, 2006
Church Rock Feb 15, 2006
trying to hide bad news Feb 27, 2006
overheated uranium Feb 28, 2006
yet another press release Mar 1, 2006
Canadian press release for April 2006
supply/demand imbalances and intrinsic value
spot price jumps up a dollar, Mar 8, 2006
Strathmore finds more Roca Honda uranium
raising more money, May 9, 2006
Misc thoughts on ETLT, CXTI and Strathmore
Strathmore buries the bad news, June 9, 2006
Huge jump in uranium spot price, June 14, 2006
Updated uranium estimate, June 24, 2006
Strathmore stakes a claim, Aug 21, 2006
Uranium jumps another notch, Aug 29, 2006
Strathmore encounters uranium, Sept 1, 2006
uranium spot price jumps to $52, Sept 5, 2006
yet another huge jump in spot price, Sept 20, 2006
another jump in spot price, Oct 3, 2006
Cigar Lake mine flood, Oct 25, 2006
Strathmore jumps over 20%, Oct 30, 2006
Strathmore stakes another claim, Nov 2, 2006
Strathmore wants a mill, Nov 20, 2006
US Government uranium, Dec 12, 2006
uranium feeding frenzy, Dec 16, 2006
uranium chatter, Jan 14, 2007
Strathmore starts to monetize properties, Jan 30, 2007
Strathmore plans to spin off Canadian properties, Jan 31, 2007
New uranium website, U3O8.biz, Feb 6, 2007
Uranium spot price hits $85, Feb 21, 2007
What is Strathmore Worth according to NOT Sprott, Feb 25, 2007
Ranger mine flood, Mar 7, 2007
Ranger mine flood update, Mar 12, 2007
poor quality valuation, Mar 14, 2007
yet another uranium post, Mar 17, 2007
misc thoughts, Mar 21, 2007
uranium spot price $95, Mar 25, 2007
uranium observation, April 1, 2007
uranium jumps to $113 a pound, April 7, 2007
uranium futures, April 18, 2007
uranium continues climbing to $120, May 6, 2007
more thoughts on uranium, May 11, 2007
uranium update, June 2, 2007
uranium, July 9, 2007
yet another uranium post (tsunami), July 14, 2007
Roca Honda joint venture with Sumitomo, July 26, 2007
reality check, Aug 7, 2007
press releases, Sept 19, 2007
humorous press release and annual report, Oct 2, 2007
Strathmore surges ahead, Nov 1, 2007
Uranium, May 17, 2008
Strathmore pummelled, July 29, 2008
uranium stock prices drop, Sep 10, 2008

Search for uranium news

StockInterview.com's uranium web page.

Sprott's interview from 2004

An excellent article on measuring uranium in the ground (I found it here). I intend to do a detailed write-up of this. Also, the real bottleneck in uranium mining seems to be mining engineers and a shorter term bottleneck in drilling equipment (which someone on VIC reported not long ago). Also here.

UPDATE 5/4/06: Given my fear above about mining engineers as bottlenecks, it's good to see that Strathmore is hiring a "Senior Landman" and a new graduate geologist.

commodity prices.

This report was written by some random person I don't know anything about, so it has no inherent authority of its own.

The company spent several years accumulating assets and people while the uranium industry was completely out of favor. That foresight has given the company a strong team... Strathmore has a big lead on most other companies....

I'm not so sure I completely agree with that. They didn't do enough while uranium was out of favor because they've been scrambling lately to do acquisitions. Now maybe they had these acquisitions in the pipeline for a long time, I don't know.

Strathmore's strategy has been to acquire uranium properties on which previous work has outlined deposits. The company had a lot of projects to choose from, as decades of exploration work came to a near complete stop when the uranium price cratered after 1997.

This must be a typo because the real collapse of uranium prices happened over a long time period from 1979 until the early 1990s. I suppose there was a little increase in the 1990s and a drop in 1997, but it was very small. Most of the exploration work on Strathmore's properties was done in the 1970s and 1980s.

The report mentions Robert Quartermain and claims that he is a director of Strathmore, but he is actually just on the Executive Advisory Board.

I read the rest of the report and it's really better to get this information first hand.

This is a great paper on u mining: Canada has the most mining (29%). Mining only covers 60% of demand. The rest comes from reserves (and has been for decades). Mining supplies about 40K tonnes (this has actually been decreasing in the last 4 years). Mining has consolidated so that 8 companies produce 82% of the world's mined uranium.

You can see from the chart that uranium mining production peaked around 1960 and again around 1981. Prices since 1981 have been in the toilet and mining has greatly decreased. Look at the faint black line in the chart showing reactor requirements. Demand has been dramatically increasing over the decades, but mined supply has been decreasing.

Here's a description of the in situ leaching method. ISL tends to be cheaper and more environmentally friendly, so long as the uranium ore resides within the right kind of permeable rock. Either an acid or alkaline is pumped into the ground at one point, and pumped out of the ground about 90 feet away. Acids tend to have about the same pH as vinegar. Side located pumps check for any movement of fluid outside the mining area. It takes about 6 months to a few years to get most of the uranium out (they get about 80% of it out). Reading the whole thing, you can't help but be impressed by how far business has come in being friendly to the environment and to the indiginous people.

Here's a description of the supply/demand situation. Production only supplies 55% of power utility use (ok, now it's up to 60%). A lot of the shortfall was supplied by ex-military uranium. Efficiency has improved to where there has been a 25% reduction in uranium demand per kWh of electricity.

Because of the cost structure of nuclear power generation, with high capital and low fuel costs, the demand for uranium fuel is much more predictable than with probably any other mineral commodity. Once reactors are built, it is very cost-effective to keep them running at high capacity and for utilities to make any adjustments to load trends by cutting back on fossil fuel use. Demand forecasts for uranium thus depend largely on installed and operable capacity, regardless of economic fluctuations. For instance, when South Korea's overall energy use decreased in 1997, nuclear energy output actually rose, to replace imported fossil fuels.

So uranium is essentially economically inelastic. The same amount will be used regardless of price.

And also:

Looking ten years ahead, the market is expected to grow slightly. Demand thereafter will depend on new plant being built and the rate at which older plant is retired. Licensing of plant lifetime extensions and the economic attractiveness of continued operation of older reactors are critical factors in the medium-term uranium market. However, with electricity demand by 2030 expected (by the OECD's International Energy Agency) to double from that of 2004, there is plenty of scope for growth in nuclear capacity in a greenhouse-conscious world.

They claim the stockpiles of uranium are "now largely depleted." Secondary sources are:

• recycled uranium and plutonium from spent fuel
• re-enriched depleted uranium tails
• ex military weapons-grade uranium
• civil stockpiles
• ex military weapons-grade plutonium

Only about the equivalent of 2000 U3O8 tonnes of fresh mixed oxide (MOX) fuel is used each year. Weapons grade uranium is about 97% U-235, which is diluted about 25:1 with depleted uranium (or 30:1 with enriched depleted uranium) to about 4% U-235 for reactor food as part of a balanced breakfast.

From 1999 the dilution of 30 tonnes such material is displacing about 10,600 tonnes per year of mine production.

Military Warheads as a Source of Nuclear Fuel

Highly-enriched uranium from weapons stockpiles is displacing some 10,000 tonnes of U3O8 production from mines each year, and meets about 15% of world reactor requirements.

And this:

World stockpiles of weapons-grade plutonium are reported to be some 260 tonnes, which if used in mixed oxide fuel in conventional reactors would be equivalent to a little over one year's world uranium production.

MegaTons to MegaWatts

Surplus weapons-grade HEU resulting from the various disarmament agreements led in 1993 to an agreement between the US and Russian governments. Under this Russia is to convert 500 tonnes of HEU from warheads and military stockpiles (equivalent to around 20,000 bombs) to LEU to be bought by the USA for use in civil nuclear reactors.

In 1994, a US$12 billion implementing contract was signed between the US Enrichment Corporation (now USEC Inc) and Russia's Techsnabexport (Tenex) as executive agents for the US and Russian governments. USEC is purchasing a minimum of 500 tonnes of weapons-grade HEU over 20 years, at a rate of up to 30 tonnes/year from 1999. The HEU [high enriched uranium] is blended down to 15,259 t of LEU [low enriched uranium] at 4.4% U-235 in Russia, using 1.5% U-235 (enriched tails), to restrict levels of U-234 in the final product. USEC can then sell the LEU to its utility customers as fuel. By mid-November 2001, Russia had dispatched 137 tonnes of HEU to USEC, (4,031 tonnes of LEU) arising from 5481 nuclear warheads.

For its part, the US Government has declared just over 174 tonnes of HEU (of various enrichments) to be surplus from military stockpiles. Of this, USEC has taken delivery of 14.2 tonnes in the form of uranium hexafluoride (UF₆) containing around 75% U-235, and 50 tonnes as uranium oxide or metal containing around 40% U-235. Downblending of the UF₆ was completed in 1998, to produce 387 tonnes of LEU. Some 13.5 tonnes of the HEU oxide or metal had been processed by September 2001 to produce 140.3 tonnes of LEU. The rest should be processed by 2005.

Overall, the blending down of 500 tonnes of Russian weapons HEU will result in about 15,000 tonnes of LEU over 20 years. This is equivalent to about 152,000 tonnes of natural U, or just over twice annual world demand [or about 4 years worth of mining deficits].

The process for dealing with Russian downblended material has been problematic because the natural uranium feed (eventually owned by Russia) can't be sold at a sufficiently high price, so 11,000 tonnes has accumulated at USEC. The US reached a deal in 1999. 163K tonnes of U3O8 feed is to be supplied [to who?] over the next 15 years. The various oligarchs of mining have signed exclusive options to buy 118K tonnes. The rest is "available to Tenex".

It sounds like there's still a lot of uranium floating around. I'm surprised the spot price has gone up to $29.50 with all this supply.

There is also 150-200 tonnes of weapons-grade plutonium. This could end up as MOX fuel for reactors. In 2000, the US and Russia agreed to dispose of 34 tonnes of it by 2014. A lot of this is going to be MOX, but it will take time and a special plant to do the conversion.

The World Supply and Demand Scenario chart is a good picture of the present and future for uranium sources.

In East and South Asia, there are currently about 100 reactors, 20 more are under construction, and there are plans to build another 40. China is supposedly planning to build 2 reactors per year. A lot of reactors will be replacing retiring ones (one third?). [This article is from 2003 and seems out of date]

QuickFacts from Canada
There were 439 reactors worldwide at the end of 2004. As of May 2005, there were 24 new reactors under construction and another 40 being planned, 73 proposed

ValueInvestorsClub has an outstanding writeup and Q&A on Strathmore, but I can't link to it because registration at the very least is required. It argues that from 1985 to 2003, 339K tons more uranium was used than mined. Cost of mining was far higher than the price, which killed exploration and development. President Clinton transferred 28.6K tons from the national stockpile to USEC (USU:NYSE) and IPO'ed it. Russia sold 20K tons to the US. The remaining 90K tons was sales from Russia's stockpiles directly to utilities. During the currency crisis of 1997, Russia needed currency and signed a contract to deliver 9K tons per year. The US also sold off more of the stockpile. With the new tensions in the world, there are a lot of reasons why the US would curtail selling off the stockpile.

At first Strathmore simply bought properties which already had some work done on them, but Strathmore conserved capital for more mineral rights purchases and did not further pursue the exploration and development. Now that uranium prices are high, Strathmore is starting to do the work to develop the properties. They also raised a bunch of cash to ensure they can get the work done. Most of the exploration and development work done long ago on Strathmore properties was before the more stringent Canadian rules for declaring reserves, so they can't really rely on what they have. But you can go through the table and get a pretty good idea for roughly how much uranium they have.

One of the ValueInvestorsClub members (not the one who pitched Strathmore) talked at length with David Miller, the top geologist consultant at Strathmore. The investor was very impressed with Miller, but Miller seemed too dismissive of two items: 1) the potential for increased production (Miller said China won't find much because its geologists are underpaid), 2) environmental opposition [this seems to be rapidly changing [hat tip Vijay on the links] as the greens of the world realize nuclear power is the best solution for rapidly growing power consumption worldwide].

One of the ValueInvestorsClub members had mentioned the South Park underpants gnomes analogy. The thing is that I had read this before actually seeing that episode and I totally forgot all about it. My using the underpants gnomes analogy may have been unconciously inspired by seeing it here, but I doubt it. Any investor with experience would recognize how well it captures bad business plans.

Apparently, weapons grade HEU costs $3 million per pound to produce. Since each pound of HEU translates to 30 pounds of reactor food, this means $100K per pound of cost. Anyone selling off HEU must consider this if they ever sell too much and need to produce more.

Strathmore has a number of in situ leaching properties that can get into production in only 24 months (a relatively short time period).

Some of the existing US reactors have applied for 20 year extensions on their 30 year permitted life cycle. None have been turned down.

Insiders are selling because for 5 years, no one would finance them and they had to use their life savings to keep the company going. Now they want to scale that back to a more reasonable investment.

July 19, 2005: Strathmore receives funds from Quebec's SIDEX to conduct ongoing exploration at its Dieter Lake Project
SIDEX is a Quebec government agency with a C$50 million budget (over 5 years) to fund mining exploration and development. Strathmore sold 114K units (same terms as before). The investment doesn't show up on SIDEX's website yet. The amount would be about C$228K which is a medium sized investment for SIDEX.

The various historical resource estimates range from 20 million pounds to 110 million pounds of U3O8.

In June, field crews went to the property to do exploration: re-logging an old drill core, mapping, sampling, ground geophysical surveys, Fugro Airborne Surveys to conduct GEOTEM 1000 electromagnetic survey (which hasn't been done before at Dieter).

July 11, 2005: Strathmore adds to Powder River Basin Properties
They bought 165 unpatented mining claims in Powder River Basin in Wyoming (about 3,300 acres). Known, drill indicated uranium. Part was fully permitted until the late 1990s. Company will issue 100,000 shares for the property.

April 27, 2005: Strathmore explores Dieter Lake
They put a bunch of specialized huts at Dieter Lake for an all-weather camp (photos on their website). The exploration apparently will all take place during 2005.

Previous exploration at the Dieter Lake Property identified a mineralized bed within Sakami Formation sediments, generally ranging from 0.2 to 3 metres thick, but locally up to 5 m in thickness. The sedimentary bed containing the uranium mineralization has been outlined over an east-west distance of 5 km and a north-south distance of about 2.5 km. Mineralization remains open in all directions. The main zones of uranium mineralization thusfar identified include the Lake Vivian, Nancy I, Nancy II, and Bert's Lake zones. Anomalous grades have been reported up to 0.22% U3O8 over 1 m in the Bert's Lake Zone, 0.34% U3O8 in the Nancy I Zone and 0.56% U3O8 in the Lake Vivian Zone.

There's also this statement:

With respect to the Company's New Mexico properties, and in light of the recent announcement of the Navajo Tribal Council to restrict uranium development on tribal lands, the Company wishes to clarify that none of its New Mexico properties occur on the Navajo Reservation. All Company acquisitions to date are on New Mexico State owned lands or US Federal lands managed by the Bureau of Land Management. The Company is in the process of opening a technical and permitting office in New Mexico and plans for development of its New Mexico properties are moving forward.

And they promoted a guy to CFO:

The Company is also pleased to announce that Mr. Patrick Groening [not to be confused with Matt Groening] has agreed to be the Chief Financial Officer of the Company. Mr. Groening has previously been the Controller of Strathmore. Mr. Groening obtained his Chartered Accountant designation in 1999 and is a member of the Institute of Chartered Accountants of British Columbia. He also holds a professional accounting designation as a Certified Public Accountant and is member of the Illinois Board of Examiners in the United States. In addition to being an auditor for several years, Mr. Groening has provided business advisory, information technology, and financial accounting services to many medium and large size organizations.

April 14, 2005: Strathmore comples acquisition
1.9 million acres at two different locations in Athabasca Basin. Davy Lake is 1.5 million acres along northern part of the basin. Previous investigations did not provide clear visibility into the uranium in the ground. Apparently, they did an aerialmagnetic test.

Hall Lake is 400K acres in the southern part of the basin. Electromagnetic tests in 1979 showed [uniform?] layer of uranium at depths of 300 to 800 meters at the western edge of the property. On the southeastern edge, Formation Capitol Corp reported 13.86% U3O8 over 2.5 meters.

April 4, 2005: Strathmore to do airborne survey of Athabasca Basin
Waterbury Lake (100K acres) to be surveyed (northeast part of Athabasca Basin). They probably also did the property mentioned in the April 14 press release at the same time. Fugro did the survey. Kit [Christopher] Campbell, Principal Geophysicist [over 3 decades of experience] of Intrepid Geophysics Ltd. was retained by the Company to supervise the survey and review the data.

Previous exploration by other companies on the Waterbury Lake Property indicates that the basement unconformity is at depths of between about 200 and 500 m. Exploration between 1970 and 1994 included a number of airborne geophysical surveys (radiometric, magnetic and electromagnetic), which in some cases only covered parts of the property. In addition, ground geophysical surveys, boulder litho-geochemical surveys, and some drilling identified a number of conductors and geochemical anomalies. For example, a conductor identified near the north end of the property was tested by a 1996 drill hole and intersected strong hydrothermal alteration immediately above the basement unconformity, with associated uranium values of 219 parts per million Uranium across 1 meter.

March 15, 2005: 2 Guys Promoted
One has 30 years uranium mining experience, registered geologist in WY, lots of relevant experience. The other also has over 30 years experience in key roles in the uranium industry.

March 31, 2005

cash increased from C$9 million to C$23 million (net C$15.4 million cash from stock issue)
mineral properties increased from C$2.7 million to C$3.9 million.
accounts payable increased from C$63K to C$248K.

Stock based compensation increased to C$195K from C$150K.
Trade shows and conferences increased from C$6K to C$56K.
Office and misc increased to C$115K from C$23K.
Regulatory fees increased.
Travel and promotion dropped more than half.

Big jump in future income taxes (C$356K).
Accounts payable increased by C$183K.
Deferred exploration costs increased by C$597K.

Changes in mineral property rights:
Athabasca property: +$203K (the additional 100K shares were apparently issued)
Chord: no change (now the Company is required to pay 50K shares or US$10K per year till 2009)
Comstock: +C$166K (100K shares were issued in Q1, 100K more to go in 2005)
Dieter Lake: +C$406K (200K shares issued in Q1, another 100K to go in 2005)
Duddridge Lake: no change
New Mexico: no change
staked properties, Canada: no change
staked properties, Peru: no change
Wyoming: +C$413 (more properties bought, now an addition 775K shares to be issued over 2 years)
pre-acquisition costs: down by C$24K

49.2 million shares end of Q1.

In Feb 2005, 10,000,000 shares were issued in private placement at C$1.50 per unit (1 share 0.5 warrants at C$1.75 till Feb 2006 thereafter at $2.00 till 2007). Also, options on 1 million shares with the same terms as the warrants above.

2.3 million options and warrants exercised in Q1. 17.4 million remaining.

C$50K related party payments (Randhawa, Khan, Hemmerling). An officer bought 8K shares for C$12K.

C$1 million gained by selling off flow-through shares, apparently selling off the NOL.

1.2 million options and warrants were exercised between March 31 and May 31. [that's all?]

During the first quarter of 2005, uranium prices continued their uptrend [to $29] and the company continued to acquire additional properties in Saskatchewan, Alberta, New Mexico and Wyoming. Investment markets were very favorable towards funding uranium companies and Strathmore took advantage of the opportunity by completing a larger private placement financing and raised a total of $15,000,000. These funds are primarily for general working capital, the acquisition of additional uranium properties and the exploration and development of the Company's uranium properties. The Company is planning to commence a number of work programs this summer to advance both the exploration and development of targeted properties.

C$1.2 million in property acquisition costs in Q1. Expect C$2.2 million in exploration and development costs in 2005, mostly in Canada (C$1.7 million vs C$500 million in US). C$597 spent in Q1.

G&A increased from C$177K to C$455K cash due to activity to take advantage of high uranium prices. This will continue to increase.

Management Discussion and Analysis

Management believes that the development of uranium properties presents an opportunity due to recent uranium supply shortfalls and the potential increase in demand for uranium from developing countries. As those countries begin to establish new nuclear power plants, increased demand for uranium is expected during the next few years. Increased demand and higher prices should stimulate new exploration and development at both new and previously explored uranium properties....

During the first 2 quarters of 2003, the price of uranium remained low. However, by the third quarter of 2003, the price of uranium had increased to a point where management decided to aggressively pursue the acquisition of new uranium properties....

In order to finance these activities, the Company completed a number of private placement financings during the year....

These funds are for general working capital, the acquisition of additional uranium properties and the exploration and development of the Company s uranium properties....

Estimates of U3O8 on the various properties:
[I can't seem to get rid of this huge gap of empty space on most browsers]

location	reference	historic classification	lbs U3O8
Duddridge Lake	Stewart (1975)	Geologic Tonnage Estimate (1)	753,924
	Thor Explorations (1977)	Minable Tons (1)	590,070
	Thor Explorations (1979)	Reserves (2)	12,000,000
Dieter Lake	Uranerz Expl. & Mining (1980)	Possible Resource (3)	55-82,000,000
	Uranerz Expl. & Mining (1980)	Possible Resource (3)	110,000,000
Macusani, Peru	Arroyo (1987)	Inferred Resource (2)	7,370,000
Roco Honda, New Mexico	Smouse, D. (1993)	Demonstrated Resource (4)	11,321,200
	Smouse, D. (1993)	Inferred Resource (4)	1,497,600
	Smouse, D. (1993)	Undefined Potential (4)	500,000
Churchrock, New Mexico	Smouse, D. (1995)	Demonstrated Resource (4)	5,502,000
		Potential Resource (4)	500,000
Copper Mountain Wyoming	Anaconda Uranium Corp (1977)	Inferred and Indicated Resource (4)	24,607,800 14,361,600

(1) Historic resource estimate considered to be relevant and reliable.
(2) Historic resource estimate considered to be relevant but unreliable based on amount of data reviewed to date by the Company.
(3) Historic resource estimate considered to be relevant, but insufficient information is available to confirm the reliability of the resource estimate.
(4) Historic resource estimate considered to be relevant, and is presumed reliable based on the volumes of work completed. The company has not done sufficient work to verify the resource estimate.

...prepared on behalf of the company by Jody Dahrouge, P.Geol. of Dahrouge Geological Consulting Ltd., Edmonton, Alberta. Mr. Dahrouge, is the Qualified Person (QP) responsible for the review of the historical resource estimates. Also, the company wishes to reiterate that the foregoing resource estimates were quoted from third party publications, and not all the original reports are currently available for consultation, hence the historical resource estimates should not be relied upon.

During Sept 2003, the uranium price went over $12 and the company decided to get serious about buying properties quickly. During 2004, the pace continued. G&A started climbing and it will continue during 2005.

During 2005, the Company will probably spend C$2.2 million on exploration and development, mostly in Canada.

Q4 2003, there was a writeoff of mineral properties.

Financing is pretty obvious: stock. [The value per share is probably best measured by pounds of U3O8 per share, which is around 3 pounds. If the Company can issue stock for more than 3 pounds per share, it's a good deal for existing shareholders.]

More related party stuff: C$62K paid to Dev Randhawa (president). C$39K paid to director Khan. C$46K paid to Hemmerling. Directors also were part of private placement of shares.

UPDATE: 23M and 23M15 topographical maps [Dieter Lake] on order.

This company (website) owns uranium mining properties. Incorporated in British Columbia, Canada. Warning: Canadian dollars, not US dollars in use!

Clean auditor statement by "Chartered Accountants" Check up on who it is.

There are no operations, just buying mining properties and doing preparation work. $9 million cash on the balance sheet. Everything else is minor. Equity is about $12 million which is also nearly the total assets.

Expense breakdown (C$2 million total) only significant expenses listed:
stock based compensation: 46.7% (fair value method)
consulting fees: 16.7%
trade shows and conferences: 8.1%
office and misc: 6.0%
business development: 4.7%
property investigation: 3.7%
professional fees: 3.7%
regulatory fees: 3.2%
travel and promotion: 2.6%
actual cash drain was only C$1 million (quarter million in 2003)

Big increases from 2003 (C$441K) are:
consulting fees
office and misc
property investigation
business development
professional fees
regulatory fees
stock based compensation
trade shows and conferences
travel and promotion

Exploration costs are capitalized (at cost). No impairments yet. Estimated future costs of maintaining mineral rights are not accrued. Future tax liabilities (beyond NOL) due to flow-through share arrangements are recorded by a reduction in capital stock (cumulative earnings part of equity?). From the Canadian EIC-146:

Canadian tax legislation permits an enterprise to issue securities to investors whereby the deductions for tax purposes relating to resource expenditure may be claimed by the investors and not by the enterprise. These securities are usually referred to as flow-through shares.

Stock option dilution is computed using the treasury stock method. Evaluate dilution by assuming the proceeds of exercized options are used to purchase shares on the open market, so the net result is that you only count the market price - strike price as dilutive.

The titles to all properties have been investigated.

Properties and total capitalized costs (Canadian dollars!):
"staked properties", CA: $798K
New Mexico properties, US: $618K (plus 450K more shares to be issued over two years)
Wyoming properties, US: $328K (plus 450K more shares to be issued over two years)
Athabasca property, CA: $257K (plus 100K more shares to be issued) some non-U mineral royalties attached
Duddridge Lake property, CA: $191K (plus 100K more shares to be issued during 2005)
Comstock property, CA: $130K (plus 200K more shares to be issued during 2005)
Chord property, US: $125K has 2% gross royalty attached (plus 50K shares or US$10K per year till 2009)
"staked properties", Peru: $70K
Dieter Lake property, CA: $16K (plus an additional 300K shares, another 200K shares if more than 60million pounds of U3O8 is found)
pre-acquisition property costs: $156K (to be assigned to properties under consideration or written off if not purchased)

36.2 million shares existed at the end of 2004
1.8 million shares from above
10.1 million options (68 cent average strike)

Related Party hey, invite your friends and family!
$102K paid to director for consulting fee (understandable given the expertise on the board)
$46K paid to Secretary of Company, consulting
200K shares issued to directors and a company controlled by director
$65K loan paid during 2003

$3.3 million in NOL, expire end of 2014. Other stuff as well related to exploration ($4.4 million). Company issued flow-through shares for $1million.

Subsequent to Dec 31, 2004:
250K options at $1.75, expire Jan 14, 2007
issued 30K flow-through shares, $1.95
issued 10million units at $1.50 (one share + half-a-warrant of $1.75 expiring Feb 21, 2006, thereafter $2.00 expiring 2007).
issued 2.5million shares (exercised options and warrants)
acquired option to buy more Wyoming property for US$30K and 500K shares over 3 years.
issued 575K shares to buy more property

I think I know why the stock has been depressed lately.

[next up, Mgmt Discussion and Analysis]

Schuff International (website) is...

a fully integrated fabricator and erector of structural steel and heavy steel plate. We fabricate and erect structural steel for commercial and industrial construction projects such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas, shopping malls, hospitals, dams, bridges, mines, and power plants. We also manufacture short- and long-span joists, trusses, and girders as well as specialize in the fabrication and erection of large-diameter water pipe, water storage tanks, pollution control scrubbers, tunnel linners, pressure vessels, strainers, filters, separators, and a variety of customized products.

Mostly operate in Southwest and Southeast (AZ, NV, TX, FL, GA, south CA, CO).

Customers: Hunt Construction, Fluor Daniel, Bechtel, Perini Corp.

Subsidiaries:

• Schuff Steel 1976
• Schuff Steel -- Atlantic (formerly Addison Steel) 1998
• Quincy Joist 1998
• Schuff Steel -- Gulf Coast (formerly 6 different companies) 1998, Texas
• Schuff Steel -- Pacific (formerly Bannister Steel) 1998
• Schuff Steel Management Company -- Southwest (formerly On-Time Steel Management) formed 2001
• Schuff Steel Management Company -- Northwest 2002 (Washington), closing due to weak construction market in Seattle, wrapping up projects
• Schuff Steel Management Company -- Southeast, formed Feb 2005 (NC, SC, GA)
• On-Time Steel Management Holding, formed 2002

Jan 6, 2005, voluntarily went dark. They will continue to issue annual reports and other shareholder info.

They describe the sales process, project management, etc. in reasonable detail.

We believe that a key factor in our success has been our ability to provide valuable input and assistance to general contractors, engineering firms, and other customers with respect to overall project design of fabrication and erection sequences and other critical project decisions. This early-stage involvement often results in project cost savings and efficiencies and helps to solidify key customer relationships. In addition to our centralized project management, we use skilled erection employees local to projects and utilize advanced scheduling systems to enhance our project management services to customers.

In this business, you get a lot of "erection" jokes.

We have achieved a Level Three certification by the American Institute of Steel Construction (AISC) with respect to our fabrication operations, the highest level of certification available from AISC. In addition, our welding employees are certified in accordance with the American Society of Mechanical Engineers (ASME) Section IX, Non-Destructive Examination Inspector Certification to Society Non-Destructive Testing TC-IA Standards. We have developed project-specific and company-wide quality assurance and quality control programs, and utilize sophisticated X-ray and ultra-sonic systems to inspect weld seams. Substantially all joist manufacturing projects require companies to be members of the Steel Joist Institute (SJI). We are one of only 19 companies in North America that are members of the SJI.

Most projects are fixed price, not cost-plus or unit cost (payment for amount of steel shipped). Price and schedule are the primary factors for customers. Projects are generally 1 to 12 months. Bonding requirements (providing payment and performance bonds) gives them an advantage over small steel companies.

We believe that there is an increasing trend in the construction industry toward complex, fast-track, designbuild projects.... These projects require that all phases of construction be accomplished in accordance with compressed time schedules that involve us at early stages of the project.... These projects also are characterized by numerous design changes requiring that all construction participants coordinate their efforts in order to respond quickly and efficiently in implementing these changes.... We believe that we have gained a reputation in the industry as a reliable, fully integrated provider of design-build, engineering, detailing, fabrication and erection services with the ability to complete large, complex projects on a timely, cost-efficient basis.

[STOP]

I've decided this is not a good investment. No matter how good these people might be, they really have no pricing power. So the results of the last 5 years are probably typical of what to expect in the future. Earnings on average are going to be about 25 cents a share. The company is worth maybe $4. It's selling for about $3.50.

UPDATE: I noticed ValueInvestorsClub had a writeup on SHFK. Scott265 seems to believe it's worth $9.60.

UPDATE Aug 3: naughty Schuff answers to the SEC

While the press release tries to spin it as a positive (new person assigned to role), buried in the release is the real news...

Ross replaces Patrick Clarke, former vice president of EMEA, who recently left the Company to pursue other interests.

LiveWorld posted Q2 results.

Quarter over quarter revenue growth:
Q2 '04 over Q1 '04: 26%
Q3 '04 over Q2 '04: 21%
Q4 '04 over Q3 '04: 6.4%
Q1 '05 over Q4 '04: 42%
Q2 '05 over Q1 '05: 9%

A 9% gain on top of a 42% gain is great.

Ordinary income is up 50% over Q1 and we finally see some serious real income.

Net income is 1.41 cents a share (with tons of stock options waiting in the wings) and more than the entire earnings of 2004. If we take the number of stock options outstanding (vested and unvested) at the end of Q1 and add a ton more, we could probably say the net income per eventually diluted share is at least .7 cents a share. If we were going to annualize that and then give the company a P/E of 15, it would be worth 42.3 cents which is about what it's selling for now. Given the growth rate, it's probably worth a P/E of about 25, putting it worth about 70 cents a share. But all that is way too simplistic considering the nature of operational leverage at this particular revenue point.

Cash is about the same as the end of Q1, which could mean anything, due to timing of cash flows, but it does put a slight damper on things.

Ok, people on the message board pointed out that if I'm going to count stock options so much, I need to factor in the cash when they're exercized. Ok, fine. Also, there's a ton of NOL still outstanding. If anything it's important to remember that this is currently baked into the numbers and it will eventually run out.

YaSheng Group's Vinylon Division to Increase Production Due to Export Demands

Due to new International regulations implemented by the WTO earlier this year, export quotas have been lifted resulting in a sharp increase of sales for the Vinylon division.

Over the past several years, products from the Vinylon Group were all allocated towards the export market due to higher profit margins. The increase in production will result in additional product lines and higher output catered for the International Markets. Products from the Vinylon Group include: low-elastic polyester, a water-soluble industrial insulating fiber, and a comprehensive line of Vinylon fibers.

The LanZhou Vinylon Company, Ltd. produces only about $15 million worth of exported goods per year right now while the total revenues for YaSheng Group is over $600 million. Even if they quintuple Vinylon exports to $75 million, it would only be a 10% increase in overall revenues. The claim is that they're high margin goods, so perhaps the effect on earnings would be greater. But my thinking here is not a quintupling of revenue, but maybe a doubling at best.

My estimate based on insufficient information is that this is a non-event. Nothing changes except the fact that they seem desperate to generate press releases. At best, it simply correctly matches up with the 10-Q information [the products produced by Vinylon] and doesn't cause a red flag.

UPDATE: Well the stock is certainly rising fast, $2.20 today. I still have more to buy, unfortunately.

This is pulled directly from YIWA's 10-K. I wanted it in a separate posting.

There are three investment vehicles for foreigners doing business in China

1. Equity joint venture
2. Cooperative or contract joint venture
3. Wholely foreign-owned enterprise

All of these three are "Foreign Invested Enterprises".

General laws: PRC foreign economic contract law.
Accounting: PRC Accounting Law. Laws Concerning Enterprises with Foreign Investments. The General Accounting Standard for Enterprises. The Specific Accounting Standards.
Equity Joint Venture: PRC Sino-Foreign Equity Joint Venture Law. PRC Sino-Foreign Equity Join Venture Law Implementing Regulations.
Cooperative Venture: PRC Sino-Foreign Cooperative Joint Venture Law. Detailed Rules for the Implementation of the PRC Sino-Foreign Cooperative Joint Venture Law Regulations.

The practical effect of the People's Republic of China legal system on our business operations in China can be viewed from two separate but intertwined considerations.

First, as a matter of substantive law, the Foreign Invested Enterprise laws provide significant protection from government interference. In addition, these laws guarantee the full enjoyment of the benefits of corporate Articles and contracts to Foreign Invested Enterprise participants. These laws, however, do impose standards concerning corporate formation and governance, which are not qualitatively different from the General Corporation Laws of the several states. Therefore, as a practical matter, a Foreign Invested Enterprise needs to retain or have ready access to a local Chinese law firm for routine compliance purposes.

Similarly, the People's Republic of China accounting laws mandate accounting practices, which are not co-existent with U.S. Generally Accepted Accounting Principles. The China accounting laws require that an annual "statutory audit" be performed in accordance with People's Republic of China accounting standards and that the books of account of Foreign Invested Enterprises are maintained in accordance with Chinese accounting laws. Article 14 of the People's Republic of China Wholly Foreign-Owned Enterprise Law requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal reports and statements to designate financial and tax authorities, at the risk of business license revocation. As a practical matter, a Foreign Invested Enterprise must retain a local Chinese accounting firm that has experience with both the Chinese standards and U.S. Generally Accepted Accounting Principles. This type of accounting firm can serve the dual function of performing the annual Chinese statutory audit and preparing the Foreign Invested Enterprise's financial statements in a form acceptable for an independent U.S. certified public accountant to issue an audit report in accordance with Generally Accepted Accounting Auditing Standards.

Second, while the enforcement of substantive rights may appear less clear than United States procedures, the Foreign Invested Enterprises and Wholly Foreign-Owned Enterprises are Chinese registered companies which enjoy the same status as other Chinese registered companies in business-to-business dispute resolution. Because the terms of the respective Articles of Association provide that all business disputes pertaining to Foreign Invested Enterprises are to be resolved by the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm, Sweden applying Chinese substantive law, the Chinese minority partner in our joint venture companies will not assume a privileged position regarding such disputes. Any award rendered by this arbitration tribunal is, by the express terms of the respective Articles of Association, enforceable in accordance with the "United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)." Therefore, as a practical matter, although no assurances can be given, the Chinese legal infrastructure, while different in operation from its United States counterpart, should not present any significant impediment to the operation of Foreign Invested Enterprises.

Incorporated in Florida, May 1999. 16,861,250 shares issued.

Agriculture subsid ceased in Dec 2001, sold off in Dec 2002. Always in Dec? Last minute thing?

Jiaozuo Yi Wan Hotel Co, Ltd. (Henan province) 90% acquired Jan 1, 2000 (the rest owned by Shun'ao Industry and Commerce Co. in China, and formerly owned by them and Marco Wan Da Contruction of Macao had 30%). President owns 41.7% of Shun'ao. Everyone is now a shareholder of the Company. There are all sorts of complicated capital investment requirements which are resolved by the deal already done.

Originally formed in 1996 by purchasing the Tengfei Hotel from the city government. The purchaser did extensive renovation, added a 150K sq ft lobby. Added a 17th floor restaurant in 2002. Added a sauna etc. Added a 16th floor restaurant. Hotel has the usual features. 158 rooms, 22 floors. 27 suites. Typical Western stye layout. Usual conference room stuff with an additional 460 seat auditorium. Two full restaurants, buffet coffee shop, lobby bar. Traditional Chinese decor and food service. Largest single food and beverage facilities in Jiaozuo. Also VIP restaurant with 24 private suites (enclosed, 10-30 people, plus karaoke and private bathroom). They're looking into outside expansion. They give some interesting examples of conferences and stuff they've hosted: good mix. They are the only 4-star (no 5-stars), two 3-stars (like Holiday Inn express). Only 3-star and above can host foreign tourists. The two 3-stars are state owned and need lots of renovation to upgrade.

License expires 2027. Currently and permanently taxed at 33%. 612 full time employees, 95 management people.

Qinyang Yi Wa Hotel Co, Ltd. (Henan province) [80%] acquired on Mar 20, 2001? Joint venture set up with Quinyang Hotel (OLD QINYANG). They have an official license now after audit by the Jiaozuo Foreign Trade and Economy Cooperative Bureau.

Shun de Yi Wan Communication Equipment Plant Co. Ltd. (Guangdong province) acquired 100% on Jan 1, 2000. Mfg exchange distribution equipment. Classified as Wholely Foreign Owned Enterprise. Previous owner was Shun De Zhiyuan Developing Co. Same complicated capital requirement structure which was met by the investment made by the Company, except apparently for an additional $500K. They keep getting extensions to delay it.

Yi Wan Beijing Hotel Mgmt Co Ltd, established July 2004 to be in compliance with Chinese law for expansion. Two PRC citizens own 50% of Yi Wan Beijing (Trustees). The Trustees signed agreement not to sell, pledge, hypothecate, encumber or dispose of the equity, any breach causes transfer of ownership back to the Company. They will forward any capital distributions to the Company. Irrevokable proxy transfered to two directors of the Company for voting rights (which can be transferred to a different member of the Company). This is truly bypassing the intent of the law. The Chinese citizens have absolutely no ownership whatsoever.

15 year business license for Wholely Foreign Owned Enterprise. [This part of the business is crap, anyway]. It seems like Chinese authorities could get weird at the end of the term if they wanted to. It would make sense to limit China exposure in my portfolio.

UPDATE: I'm going to put a hold on looking at YIWA for now. Maybe they'll throw out their telecom business and the stock will tank some more and it'll be a lot easier. Maybe I'm spoiled by YaSheng.

This company (no website) says:

We were incorporated to explore the feasibility of acquiring interests in several businesses located in China in which our president, Mr. Cheng Wan Ming, had an ownership interest.

So the president owned a bunch of stuff and he created a company to buy it all. At what price? How do we know whether it was an arm's length quality transaction?

On January 1, 2000, we acquired controlling equity interests in three such China registered companies, which had ongoing business operations in the hotel, agriculture, and communications industries in China. Our agriculture subsidiary ceased operations in December 2001. In December 2002, we sold our agriculture subsidiary to a third party

Anyway, here are the hotels:

JIAOZUO YI WAN HOTEL CO., LTD. On January 1, 2000, we acquired a 90% controlling interest in Jiaozuo Yi Wan Hotel Co. Ltd., a Sino-Foreign Joint Venture company that was originally formed in China in 1996. The remaining 10% equity interest in our hotel subsidiary is owned by Shun'ao Industry and Commerce Company, a company registered in China. Our president has a 41.7% ownership interest in Shun'ao Industry and Commerce Company.

QINYANG YI WAN HOTEL CO., LTD. On March 20, 2001, we entered into a joint venture agreement with the Qinyang Hotel. This agreement provides for the establishment of a Joint Venture Limited Liability Company, the Qinyang Yi Wan Hotel Co., Ltd., which operates the Quinyang Yi Wan Hotel in Qing Yang City, Henan Province, China. The joint venture agreement provides that the joint venture will provide up-scale lodging, food and beverage, entertainment, and meeting and conference facility services. We entered into this joint venture agreement with Qinyang Hotel (OLD QINYANG), a third party to set up Qinyang Yi Wan Hotel Co., Ltd. According to the joint venture agreement, the registered capital of QINYANG is approximately $2,413,389 (RMB20,000,000). On June 3, 2002, the Jiaozuo Foreign Trade and Economy Cooperative Bureau issued a temporary license to Qinyang Yi Wan Hotel Co., Ltd. In 2003, the Jiaozuo Foreign Trade and Economy Cooperative Bureau conducted the audit and issued the official license.

SHUN DE YI WAN COMMUNICATION EQUIPMENT PLANT CO. LTD. On January 1, 2000, we acquired 100% of the equity interest in Shun de Yi Wan Communication Equipment Plant Company, Ltd., which in 1993 was originally established as a foreign investment joint venture in China. Our telecommunications subsidiary manufactures exchange distribution frames equipment

YI WAN BEIJING HOTEL MANAGEMENT CO., LTD. In order to expand our restaurant and food services and still be in compliance with the regulations of the People's Republic of China ("PRC") with respect to restaurant services, in July 2004, we established Yi Wan Beijing Hotel Management Co. Ltd. ("Yi Wan Beijing"), a variable interest entity through two persons who are PRC citizens and who each legally owned 50% of Yi Wan Beijing ("Yi Wan Beijing Interest Holders") to operate our restaurant business. Pursuant to an Equity Trust Agreement, we transferred RMB$100,000 to the Yi Wan Beijing Interest Holders which was used to form and capitalize Yi Wan Beijing. The Equity Trust Agreement provides that the Trustees are to hold the equity interest in Yi Wan Beijing (the "Equity Interests") in trust for the benefit of Yi Wan Group, Inc. The Yi Wan Beijing Interest Holders have agreed to not sell, pledge, hypothecate, encumber or otherwise dispose of the Equity Interests. Any such transfer will result in a breach of the Equity Trust Agreement and the Yi Wan Beijing Interest Holders will be required to transfer the Equity Interest to the Company. Further the Yi Wan Beijing Interest Holders have agreed to promptly distribute any and all dividends, distributions or other payments received from Yi Wan Beijing with respect to the Equity Interest to the Company. Finally, the Yi Wan Beijing Interest Holders granted irrevocable proxies to two directors of the Company to exercise all voting rights such Yi Wan Beijing Interest Holders have with respect to their ownership interest in Yi Wan Beijing. The irrevocable proxies further provides that if such two directors cease to be an employee of the Company, the Yi Wan Beijing Interest Holders agree to immediately terminate the proxy and to grant a proxy to another person designated by the Company.

The details of the hotels is pretty extensive, including things like what beer they serve and where it comes from (YaSheng?). It looks like the telecom business is going down the toilet. They have a large amount of money loaned out to a related party.

Revenues since 2000 have been fairly constant, declining if anything. Earnings per share are all over map: 21 cents, 16 cents, 6 cents, 10 cents, 4 cents. The 4 cents last year was due to telecom and starting up a restaurant (YiWan Beijing restaurant business).

Needs more work.

For the quarter ended Sep 30, 2004.

checkmarks, ok.

AR way higher, inventories way lower, PP&E way lower than the 2004 year-end numbers. AP way higher, short term loans higher.

Again, they spend about all of their operating cash flow on capital expenditures.

Straight-line depreciation (shorter of useful life or term of lease). Long term assets are reviewed annually for impairment. Advertising costs increased from $1.9million to $2.9million for 9mo 2004 vs 2003. Farming related stuff is not taxed, everything else is taxed at 33%. Max loan maturity is in 2007 at $40.9 million.

Employee welfare fund 14% of payroll. National and community insurance agents 20% of payroll. Unemployment 1% of payroll. Housing surplus reserve 10% of payroll.

In 2004, YaSheng acquired 54% of Nicholas Investment Co on a stock swap basis. The company is now a reporting US public company. Seeks to be listed after audit.

100,000 acres of farmland owned by YaSheng. Working on new technologies for agriculture production, working with Israel Netafim, Mexico's International Wheat and Corn Improvement Ctr. Improving yields and qualities. 2,500 acres of hops, 5,300 acres of fruit orchards (apple pears), apples, grapes, etc., 6,000 tons of potatoes, etc. Process 30,000 tons of super grade malt and 2,000 tons granulated hops. Long term contracts with Qingdao Beer, Yanjing Beer, Zhujiang Beer, etc. Major shift to modern agriculture methods. 10,000+ head of cattle, 10,000+ pigs. 100,000 kg eggs for markets in Lanzhou.

Algae propagation, extraction for natural carotene. 1,500 kg used in food, beverages, natural medicine.

Large mirabilite and industrial salt production. ISO9002 sodium sulfate (85% exported), ISO9002 low-iron, low-carbon sodium sulfide plant (largest in China). Also textile dying, cement production, food processing, beverage production, electricity production.

LanZhou Vinylon Co, Ltd, formerly "first class" state-owned company, produces chemical and synthetic fiber. low-elastic polyester, water-soluble industrial insulating fiber, and vinyl fibers. ISO9002. domestic and export. $15 million.

Gansu Tiaoshan Liquor Co., Ltd. 5,000 tons. ISO9002.

New agricrops with 50% yield increase compared to last year. Result of harvest will shift into Q4 this year.

Company was able to shift $3 million in shipping charges to customers, supposedly due to increased demand.

$2.6 million reduction in G&A due to restructurings.

Will open distribution center(s) in Western Europe as in Victorville, Calif.

No legal proceedings.

YaSheng Group became a registered supplier to the UN.

They're hosting the 50th International Hop Grower's Congress in China. Also YaSheng registered with the US FDA to export hops and nutraceuticals to the US. North American exports should boost YaSheng's export sales by 20% this year.

Products are sold nationally and exported regularly to the U.S., Canada, Australia, Pakistan, Iran, and many major countries in Europe and Asia. Major exports include sodium sulfate, sodium sulfide, vinyl fibers, barley, hops, fine spirits, licorice root, black melon seed, livestock, and many more agricultural, biotechnology, and industrial products.

Revenues from exports to the US should start to be recognized in Q2. They're building a distribution center in Victorville, Calif.

This document covers more detail than the 2004 and 2003 financial statement below.

Results were audited (with unqualified opinion) by qualified auditers in China, but not an external auditor which is PCAOB registered. The company is working on it, expects to begin the audit in Q2 2005. Overall, this document is very straightforward and readable, but is missing a lot of details I'd expect (employees, better description of business, legal proceedings, etc.), most of this is found in other documents.

Grammar error:

At such time, and amendment to the 10-K will be filed....

Substantially all of the companies operations are in China (but a California company). Agriculture, chemicals, textiles, construction materials, livestock, new argriculture technology, genetic biology. Headquarters are Lanshou City, PRC. Company is run via China GAAP, translated to US GAAP for reporting.

farming related income: $241 million
chemicals income: $173 million
trade income: $118 million
dyes income: $104 million
beverage income: $24 million

Numbers are in US Dollars. Year ends Dec 31.

Current assets are mostly AR ($75M) and inventories ($70M) and cash ($45M). Non-current assets are PP&E ($1.1Billion), other ($49M), and intangibles (know-how, mining rights, technology xfer expense, SW) ($17M).

PP&E breakdown is mostly machinery, farm facilities, and land. Also buildings/improvements and contruction in prog ($140M). About 1/3 depreciated. Changes from 2003 seem rational.

Inventory breakdown is mostly raw materials. Also goods-in-trade, finished product.

Current liabilities are mostly short term loans ($71M), AP ($64M), and other stuff. Non-current liabilities are loans ($90M), and some other stuff.

Huge amount of retained earnings ($883M). Total equity $1 billion. Total assets $1.4 billion.

Revenues $631M for 2004 ($605M for 2003). Gross margins 19%. Operating margins 9%. Net income 9.7%. Substantially similar for 2003. EPS 40 cents (39 cents in 2003).

Operating cash flow is $203 million ($277 million in 2003). Capital expenditures were $202 million ($209 million in 2003). Why so much???? Deprec is $140 million. Could the real economics be deteriorating?

No rampant options (no apparent options?).

Depreciation lengths:

• buildings & improvements: 20-40 years
• farming facilities: 10 years
• machinery and equip: 7 years
• transportation & other facilities: 3 years

The note about accounting methods is all very standard and straight forward.

Chinese law for profit distribution covers prior years deficit coverage, 10% off for legal surplus, 5% off for legal welfare fund, any portion of earning surplus, dividend distributions. This seems to match up fairly closely with Article 8. NOTE 8 covers the expenses fairly well, all social programs.

Bizarre error in notes: liability details show years 2003 and 2003, not 2003 and 2004.

AR bad debt is written off in the year identified. Allowances method is pretty standard.

Shares of stock are consistent around 155 million.

These people (website) do event management. They have top name clients...
ABN AMRO, Accenture, Aegis Insurance, Alberto-Culver, American Council of Life Insurers, Ameritech, Amoco, Anchor Food Products, Aramark, Astrazeneca, AvenueQ, Bank Calumet, Bank One, Biora,Black Clawson, Bristol-Myers Squibb, Burberry, Capri Capital Advisors, Cellular One, Chicago Stock Exchange, Citadel Investment Group, Clinical Insights, ComEd, Coors Brewing, Del Monte, Discount Tire Company, Enterprise Rent-A-Car, Ernst & Young, Eurex, ewireless, Exelon, Fairmont Hotels, The Fashion Group, Fleet Mortgage, Gardner Publishing, Chicago Gateway Green, GE Capital, General Growth Properties, Gilead Sciences, GlaxoWellcome, Goldman Sachs, Heartland Advisors, Heitman Real Estate Investment Management, Hermès, Human Rights Campaign, HK Systems, Hotel 71, Industrial Development Board for Northern Ireland, Information Technology Resellers Association, Integrated Communications, Inter-Continental Hotels, JetForm Corporation, Johnson & Johnson, Jones Lang LaSalle, Kemper Securities, Kensington Marquette Partners, Kiplinger's Personal Finance, LaSalle Bank, LaSalle Investment Management, Lederle Laboratories, Liberty Mutual Insurance,M. Shanken CommunicationsManaged Funds Association, MCI, McDonald's Corporation, McGladrey & Pullen, LLP, Mecalux, The Merchandise Mart Properties, Merrill Lynch, Mitsubishi Electric Automation, Montgomery Ward(?), Motorola,Movers International, Munich Convention Bureau, Mutual Life Of Canada, National Beer Wholesalers Association, Navistar, Nortel Networks, Northwestern University, Novartis, Organon, Pontiac/GMC, R & D Magazine, Renaissance Hotel Corporation, Robert Morris College, Royal Alliance, RREEF DB Real Estate, RREEF Funds, Salvatore Ferragamo, Scholastic,Seagram Companies, Searle, Sears, Roebuck and Company, Security Capital, Seko Industries, Smith, Bucklin & Associates, Inc., Song Airlines, Starwood, The Money Store, The Taubman Companies, Tiffany and Company, Topco Associates, Toshiba Medical, Tribune Company, Vogue Magazine, UBS Warburg, United Airlines, W Hotels, Whirlpool, Yaskawa Electric America, Zurich Kemper, Zurich-American Insurance

The event management industry is claimed to be fragmented and they're doing consolidation (although they're not exactly a financial powerhouse).

They bought "Musters & Company" on Jan 3, 2005.

Results have been pretty crappy, but it's not clear to me yet whether this is because the industry and/or company is crappy or if they're simply ramping up. If they're ramping up, the stock would be worth at least 70 cents. It's currently selling for about 43 cents.

UPDATE: Stop following

This company (no website) is due to release the 10-K within a few weeks. It'll be worth reading. The company claims to be doing lots of business lately, but it's a one-time thing:

...has experienced a great deal of success in sales and delivery of Reduced Vertical Separation Minimums (RVSM) for the Learjet 20 Series airplanes in the Latin American market. The AVCON team has upgraded 15 airplanes with AVCON Group Solution. The AVCON team has an additional 5 orders booked or pending.

From the 2004 10-K:

Effective January 2005, the FAA is requiring that all aircraft planning to operate between 29,000 and 41,000 feet within the United States air space be RVSM compliant. RVSM stands for Reduced Vertical Separation Minimums and means that in the future aircraft will be separated by 1,000 feet vertically instead of the current 2,000 feet.

Market cap is about $26 million. Net income in recent years doesn't justify that much.

This company (website) sells air conditioners, and various HVAC stuff. They seem to be run well.

Sales have been increasing over the last 10 years (only 2002 was a down year). Gross margins took a hit this year with the spike in materials costs. They view it as a short term effect and I would tend to agree.

25% gross margins
7% operating margins
3.8% net margins

Assets are mostly PP&E (about half depreciated), inventories, AR, other assets. Debt/euity is about 0.33. Not much in stock options. Pay out a significant dividend, increasing routinely. Cash flow is kinda ugly. Small pension liability: expected return of 8.50%, not much underfunded, this is not an issue from what I see so far.

Sales took a hit in Q1 and expenses were up. 40 cents a share loss. They're expanding a plant (consolidation move). Book value is over $20/share. Earnings average about $2.20/share. Dividends are $1.12. Stock is worth about $33. Shares are selling for $25.

Not cheap enough, but definitely worth following.

This company (website) makes post-911 security devices for cargo transport.

Bulldog's proprietary technology employs a monitoring system that detects suspicious activity on a real-time basis. Thus, our technology can prevent the illegal entry of port storage cargo containers, theft of mobile or in-transit shipping containers as well as covertly tracking high value cargo.

They're just starting to have revenues and the business needs to ramp up to profitability. It's worth looking at later.

What struck me about these guys was their "balance" sheet.

Cash: $15,528
Accounts Receivable: $18,901
Total Current Assets: $34,429
Total Assets: $869,138

Total CURRENT Liabilities: $2,224,069

You may ask yourself, how is this possible? For an individual, it would be the equivalent of having next month's bills totalling up to $50,000 while the sum total of everything you have is only $30,000. I'm amazed their stock sells for as much as 10 cents (6.6 million shares outstanding). Maybe they could earn some money by improving this company's website. I've been watching that site for hours and nothing's happening.

This complaint was supposedly submitted to the SEC (by our-street.com). I went through this in more detail and had picked it apart much better, but blogger messed it up and I couldn't publish it.

Anthony J. Cataldo was appointed Executive Chairman in May 2002. He is the person we believe is most responsible for planning and directing the illegal activities we allege in this complaint. Mr. Cataldo has held similar positions
in the following other public companies, namely 1st Miracle Entertainment, Senetek PLC and Management Technologies, Inc. It should be noted that 1st Miracle Entertainment was and may still be the subject of an investigation by the SEC for activities during the period Cataldo was in control of the company.

The worst allegation is probably this one:

On September 16, 2003, Calypte, Cataldo and Oyakawa published a statement [which has since been removed from their website] announcing that “Calypte Biomedical Corporation, the developer and marketer of the only two FDA approved HIV-1 antibody tests that can be used on urine samples, as well as an FDA approved serum HIV-1 antibody Western blot supplemental test announced today that it has received a letter from World Vision Africa, one of the largest NGOs (non-government organization) in Africa, outlining an intent to purchase $4 million of Calypte's urine based HIV/AIDS tests. In a letter dated September 16, 2003, Mr. Dida Guyo, Procurement Officer for World Vision's Africa Regional Office in Nairobi, Kenya, stated that World Vision Africa spends over $1 million quarterly on HIV tests and that World Vision Africa commits to change this quarterly purchase of HIV tests from the standard blood tests to Calypte Biomedical's urine based HIV/AIDS test.”

On October 16, 2003, World Vision published a statement announcing that “September 16 announcement from Calypte Biomedical Corporation reporting that World Vision intends to purchase $4 million worth of its urine-based HIV/AIDS test kits is incorrect. World Vision has no agreement and does not anticipate any agreement with Calypte for purchasing such kits in the future. World Vision has extensive programming to prevent HIV infection as well as care for those affected by AIDS in Africa, Asia and elsewhere. However, it generally relies upon government health agencies to perform HIV tests and does not purchase testing kits independently.”

Our-street.com received an email from John McCoy, the Media Relations Manager of World Vision International. In the email Mr. McCoy wrote “A letter was allegedly faxed from a World Vision procurement officer in Nairobi, indicating that World Vision had an interest in purchasing $4 million worth of Calypte's kits. Our purchasing officer denies sending the letter and, in fact, would have had no authority to sign such a letter of intent to purchase HIV testing kits from Calypte. He alleges that his signature was forged on WV stationary. We are continuing to investigate the matter. There was no consultation with us before Calypte sent out the Sept. 16 press release. If Calypte had bothered to talk with us, we would have told them that such a purchase was highly unlikely. Calypte soon conceded that, in fact, World Vision had no intent to purchase testing kits. In fact, World Vision does not routinely do HIV testing as part of its work. We asked for a correction. Calypte dragged its feet, asking that a clarification be part of another release on authorization of its kits in Kenya. Language that was presented to us to correct this error was unsatisfactory. Hence we issued our own release yesterday.

On October 28, 2003 Our-Street.com received another email from John McCoy, the Media Relations Manager of World Vision International. Mr. McCoy wrote “Below is our official comment on the alleged letter of intent. I should point out that, following our internal inquiry, the procurement officer continues to be employed by WV in Nairobi. A letter was allegedly faxed from a World Vision procurement officer in Nairobi, indicating that World Vision had an interest in purchasing $4 million worth of Calypte's kits. Our purchasing officer denies sending the letter and, in fact, would have had no authority to sign such a letter of intent to purchase HIV testing kits from Calypte. He alleges that his signature was forged on WV stationary, while Calypte's agents in Nairobi assert that the WV officer authorized them to issue the letter. We have no conclusive proof, but based on our review we believe that our employee's denial of involvement is accurate.

There's also this one:

On October 2, 2003, Calypte, Cataldo and Oyakawa published a statement announcing that “Calypte Biomedical Corporation, the developer and marketer of the only two FDA approved HIV-1 antibody tests for use with urine samples, announced today that Marr Technologies Limited had increased its ownership in Calypte Biomedical through the open-market purchase of approximately 5.2 million shares of the company's common stock.

The [5.2 million] shares acquired on September 1, 2003 were the result of conversion to common stock of a convertible debenture dated September 1, 2003.

I'll do more digging later on.

UPDATE: The SEC reviewed and commented on an 8-K from BrandPartners:

1. Amend the report to include the required letter from the
formeraccountant. See Item 4 of Form 8-K and Item 304 of Regulation S-K.File the amendment under cover of Form 8-KA and include the ITEM 4.01designation, including the letter from the former accountant filed as an Exhibit 16.

2. When you engage a new accountant, please report the engagement in a new Form 8-K and comply with the requirements of Regulation S-KItem 304 (a)(2). In making any disclosures about consultations withyour new accountants, please ensure you disclose any consultations up through the date of engagement.

BrandPartners Group (website)

Going through the 8-Ks:
Conference call good.
annual meeting, authorized more shares (from 5 million to 8 million for stock incentive plan). Ugh.
Grafico transaction. They are involved in branding efforts for sub-prime lenders.
New loan and revolver, conference call talks about this. LIBOR+2.5, unknown covenants, expires May 5, 2008.
Company terminated letter of engagement with Trilogy for marketing, PR, IR. No penalty. Was payable in warrants. Trilogy totally stopped supporting all BPTR information such as here and here.
Entered agreement with Bristol IR, $5K/month.

14-A:
Anthony Cataldo, Chairman, 54, gets $30,000 a month! and huge options!

Mr. Cataldo has held management positions with a number of emerging growth and publicly traded companies. In February 2005 he was appointed Non-Executive Co-Chairman of the Board of MultiCell Technologies, Inc. (OTC BB: MUCL) a supplier of functional, non-tumorigenic immortalized human hepatocytes. He served as Executive Chairman of Calypte Biomedical Corporation (AMEX: HIV), a publicly traded biotechnology company, involved in development and sale of urine based HIV-1 screening test from May 2002 through November 2004. Mr. Cataldo has also served as the Chief Executive Officer and Chairman of the Board of Directors of Miracle Entertainment, Inc., a Canadian film production company, from May 1999 through May 2002 where he was the executive producer or producer of several motion pictures. From August 1995 to December 1998, Mr. Cataldo served as President and Chairman of the Board of Senetek, PLC (OTC BB:SNTKY), a publicly traded biotechnology company involved in age-related therapies. From 1990 to 1995, Mr. Cataldo held various positions including Chairman and Chief Executive Officer with Management Technologies, Inc., a manufacturer and seller of trading system and banking software systems. He has also held the position of Executive Vice President of Hogan Systems, a banking software manufacturer and retailer. Mr. Cataldo has also served as President of Internet Systems, a pioneer in the Internet banking arena. Mr. Cataldo served in the United States Air Force from 1969 to 1973.

Richard Levy, Dir, 70, real estate guy.
J. Weldon Chitwood, 40, investment guy.
James F. Brooks, 42, CEO, was COO of Willey Brothers (subsid). Fairly good background.
Changed auditors, no adverse opinion or disclaimer.
compensation is ok, except lots of options, sheeesh the options are extreme!
Robert S. Trump (Trump Management) owns 13.4% of the company. United Way donor, wife is ballet trustee, $100K donation to a charity, some lawsuit with Financial Performance Corporation
Longview Fund owns 9.8% [apparently not anymore]
Cataldo owns 13.5% (with options) [4.1 million shares based on latest 4/A]
Brooks own 10.1% (with options)
Suzanne M. Verril, CFO, came from Willey Brothers. DEC, WPI Termiflex. 3rd tier education.
Willey Brothers transaction could use some checking.

Latest 10-Q (March 31, 2005):
much of the assets are in AR and costs+estimated earnings in excess of billings
extreme amount of goodwill
significant, but not extreme long term debt.
weak balance sheet
there had been some unusual income items in 2004 (I figured earnings roughly 20 cents)
quarter earnings 5 cents (diluted, but not counting overhang, see below)
about 40 million shares "diluted" (see below for actual diluted share count)
operating cash flow is ugly due to increases in noncash assets, blamed on timing.
Three BIG customers: 32%, 17%, 10%.
Stock based compensation using BS pricing would have wiped out nearly all earnings!
Brand Partners Europe just started in January.
$9.3 million NOLs
Feb 2004 private equity placement (12.4 million shares). Also $7.5 million
Willey seller notes cancelled and forgiven including late interest, promissory notes replaced ($2 million) which were paid off in Apr and Jul of 2004. Also a landlord payoff of cash and shares.
Need crisp details on capital structure.

10-K:
Dec 31, 2004
Delaware inc, office in Rochester NH
check marks normal
Aug 2001, increased shares to 100 million common + 20 million blank check pf.
purchased all of Willey Br common on Jan 16, 2001.
mostly branding program mgmt, doing the footwork, logistics, light production, and design
also office furniture dealer
mostly banks of all sizes, and other finance companies
backlog is signed orders, no revenue ($31 million at 2004 end, $21 million at 2003 end)
signficiant customers: varies from year to year, in 2004 two 11% customers, in 2003 one 16% customer, in 2002 one 14% customer.
145 employees, no unions.
small clients don't have RFP cycles, large ones do
other competitors also focus on same customer base, but haven't been as holistic
73K sq ft office, 36K sq ft warehouse. leases expire 2006 have 5 yr optionnew design center in NY 3K sq ft, exp 2007.
Inventory: they claimed they didn't have any, now they say they do
no legal proceedings (stuff in the past)
they sometimes pay for services with shares
conference call has good info on what's going on with the business
revenue recognized using %-of-completion (conf call has some duration info on projects, generally fairly short). Anticipated losses recognized immediately without %-of-completion
merchandising recognizes rev when shipped or service rendered.
G&A are period charges, not associated with projects
not much detail on AR
apparently 2003 and 2002 were restated but the original auditors are gone.
Restated 2003 and 2002 have not been audited

Revenues from continuing operations increased 50% or approximately $16,946,000 for the twelve months ended December 31, 2004. The improvement was due to strength in the industry, an increase in merger activity, and improved visibility to the variety of Willey Brothers' offerings offset by project delays because of permitting issues, weather conditions and property availability. These delays resulted in shifting revenues to a future fiscal period. [this could explain some or all of the $10 million increase in backlog]

Obsolete inventory charge of $987,000 in 2003 (I thought they didn't have inventory???)
SG&A decreased due to headcount drop, lease settlement, fulfillment of agreement with former Willey Bro shareholders, sales growth (operational leverage)
Interest expense dropped due to (see conf call for better details)
2003 results look sane except: unrealized loss on put warrant? settlement of lawsuit?
Jan 2004 subordinated note payable: covenants waived, reduction of interest (from 16% to 8% cash, 2% PIK), warrants issued
July 6, 2004: Company negotiated $1 million prom note payable Oct 2004,
50% extendable to Jan, 12% plus warrants. etc. etc. (page 16)
[Man, they really did some serious tap dancing]
The risks all look expected (unstated number of outstanding warrants), previous warrant holders want repriced options (like 4 million)
A single auditor ("I have audited...")
6,846,764 anti-dilutive shares on Dec 31, 2004.
43,321,427 shares total on Dec 31, 2004.
Therefore, the 5 cents earnings in Q1 are really 4.2 cents, call it 4 cents for safety
Annualizing Q1 results in $2.40 value.
Balance Sheet:
Assets are goodwill, AR, cash, inventories (I thought they didn't have inventories), costs+est earnings in excess of billings, etc.
Liabilities are debt, AP, billings in excess of cost+est earnings
current ratio is less than one, always a sign of balance sheet weakness
Income Statement:
gross margin is 31%
operating margin is 12%
There's a $9 million gain on forgiveness of debt [covered earlier]
Equity Statement:
The shares really jumped during 2003 due to using equity for toilet paper.
Cash Flow:
$3.3 million flow from ops
$0.8 million used in investing
financing was a wash, but over $2 million went from debt to equity
NOTES:
revenue recognition is the same as what I wrote earlier
inventory is lower of cost or market, nearly all finished goods, $1.3 million total inv.
Deprec 3-7 years on prop+equip, usual for leasehold improv, website and stuff is capitalized as required: computer equip+SW=$3.1 million, furn etc. $1.5 million, leasehold impr $678K, construction $388K, mostly depreciated.
Not much said about goodwill impairment, just stated the rules, seems kind of odd with goodwill being the largest asset
warranty costs: $138K in 2004, $71K in 2003
nothing in derivatives anymore (was in interest rate cap)
AR due in 30 days.
On Sept 21, 2004, they purchased a 15% Membership Interest in some 3rd party entity for $250K.
Lots of debt details showing the various conversion of debt to equity and varying terms.
19 million stock options outstanding, average strike $1.69.

Under the terms of the warrant agreements entered into as part of our private placement completed in February 2002, the Company was obligated to reset the exercise price of the warrants issued, if during the two-year period immediately following the closing of the sale of common stock and warrants to a subscriber were issued, other than pursuant to a stock grant or stock options to employees or consultants on or in connection with merger or acquisition activities, any shares of common stock or equivalents at a price or exercise price per share that was less than the market price as defined in the warrant agreements. The Company subsequently issued securities in a private placement that closed January 20, 2004, which as a result of the prior warrant agreements, resulted in the ratcheting down of the exercise price of certain warrants issued in the placement completed in February 2002, provided the warrants were issued in a closing that occurred less than two years prior to January 2004. Specifically, a total of 681,985 warrants issued in closings that occurred in the final two traunches of the placement completed in February 2002 were eligible for an adjustment of the exercise price to $0.537 per share as the January 20, 2004 share issuance occurred within two years of the closing for those warrants. Certain holders of 4,232,421 warrants that were issued in closings more than two years prior to the January 20, 2004, date have also requested that their warrants be reset or ratcheted down. The Company contends that these warrants should not be reset by virtue of the terms of their warrant agreements.

Related Party stuff:
2002 advance of $78K to 2 officers, both repaid in full, one after an extension
BrandPartners Europe started with 1 employee, no lease (i.e. some guy in his home)
end of 10-K

Misc:
Cataldo exercised 400,000 stock options at $0.20 on 6/30/05.

Jan 3: $2.6 million signed contracts.

Jan 11: $1.7 million more.

Most notably, a Northeastern-based credit union has engaged Willey Brothers in a two-phase project to design and build a new 3,000 square foot full service retail branch office. The project is scheduled to begin in early March and includes two drive-up lanes, ATM and a financial library/cafe housed within the branch facility.

Was it Washington Mutual who started this whole trend?

$4 million more in Feb, and $3.6 million in March. In May, they announced $3.2 million in new contracts. for a total of $16 million in signed new contracts so far for the year. In general, when a company is announcing every little thing like this, it does NOT give me a warm fuzzy feeling at all, like the thing I said in a previous post about announcing that "today, most of our employees showed up for work."

This latest build contract marks the fifth such project that this particular financial services company has engaged BrandPartners to complete, and we are excited to continue to support their latest expansion initiative.

Watts Wacker whacks 'em at the recent company sponsored symposium on retail banking trends, "We are entering the Age of Uncertainty, where the only constancy is uncertainty." Is he certain about that? Wacker (I'll bet he wrote that bio himself) left SRI to create the FirstMatter coven, I mean company, specifically on Halloween 1997.

One day after their tupperware party (see previous paragraph), the company announces what is apparently 30 contracts for about $83K each. Wacker must have gotten to them. This just seems odd. 30? all at once? There were 40 attendees, so I guess it's possible. Perhaps most of them were some sort of nominal service peddled at the symposium. Grand total signed new contracts for the year so far: $18.5 million (plus there's presumably most of the $31 million in backlog from last year). $14.6 million were recorded as revenue in Q1 2005.

The latest round of contracts includes a dozen new clients and a solid mix of repeat business, which is a key component of our business strategy. As a result of our integrated platform and marketing efforts, we believe that most of our clients see BrandPartners Retail as a one-stop shop for all of their retail environment needs. Consequently, our objective is to establish long-term relationships with our clients and help them with new challenges every year.

UPDATE:
It would be my luck that some newsletter highlights this stock just a few days before I find it. Oh well.

UPDATE:
It should be fairly obvious that the more I write and the more details you see here, the more interested I am in the investment. Obviously this one is very interesting.

UPDATE: Stop following

This is a long time family owned business which originally was centered around "trading post" stores associated with Native Americans in New Mexico. They now have several of these locations. They consistently do about 10 cents a share in earnings. Capital expenditures have been large lately associated with opening up a new state-of-the-art "travel center" (aka truck stop / vacation rest area), Picacho Peak Plaza between Tuscon and Phoenix.

For over 90 years, the Bowlin family has taken pride in serving the traveling public with Southwestern tradition and hospitality. Their business venture actually began in 1912 when Claude M. Bowlin began trading with the Native American Indians of New Mexico and began learning their languages and customs. After World War I, from 1919 to 1935, Mr. and Mrs. Bowlin bought and sold several trading posts in the Gallup and Farmington areas of New Mexico. In 1935 they built the Old Crater Trading Post at Bluewater, New Mexico. It was named for the extinct volcano (or crater) to the north of the store. The wagon wheel-rutted road leading to the trading post later became Route 66. This store was closed in 1973 due to the construction of the new Interstate 40, which bypassed it. Bowlin's Bluewater Dairy Queen Travel Center now serves this area.

I have to wonder how much capital investment is needed to keep these places competitive in the long run. Maybe it's not such a good business. The CEO is a Bowlin family member with 61% of the stock.

It's trading at about $1.80, which is a bit much unless the new stop is going to make that much of a difference. I have no idea. As of April 30, it's not doing squat, but maybe it will have a positive impact during the Summer.

Another investment blog gets underway. Shai Dardashti blogs forth.

These guys are trying to get their TradeDragon and related operations going on a shoestring, renting out Hong Kong and China mailing lists. It's worth keeping an eye on it, but they have their work cut out for them.

In the "companies most in need of a name change" department, this would seem like a good investment (website) selling for less than 50 cents with a 14 cent profit, but I did some checking and their patent was issued in 1990 and will be expiring soon (4,968,359):

A method of stress relieving metal parts that includes the steps of applying mechanical cyclic vibration energy to a part over a test frequency range while monitoring the damping effects of energy flowing into the part as a function of frequency. A plurality of orders of harmonic vibration absorption peaks are identified, each consisting of a plurality of vibration absorption resonant peaks, employing a vibration transducer having a response that is dampened to distinguish the harmonic peaks from the resonant peaks. A sub-harmonic stress relief frequency is identified as a function of such frequency response and the composition of the part in question, and mechanical cyclic vibration energy is applied to the part for an extended time period at the sub-harmonic frequency so identified.

I only found that one patent assigned to "bonal".

UPDATE: Today they just happened to announce a 4 cent dividend, sending the shares up to 90 cents, more than a 2-bagger.

Bogen Communications (website) might be worth perhaps $6.50. Recent asks were at $5.05. It's not often you see a company where the pro-forma net income after adjusting for stock based compensation is actually larger.

This Rhode Island company is pretty much totally converted into cash.

Assets:
cash $21.7 million
prepaid stuff $0.5 million
restricted cash $0.4 million

Liabilities:
accounts payable etc. $1 million

net cash: about $20 million
shares outstanding: about 3 million
net cash per share: about $6.67

best ask trading price: $6.70

fully valued. end of story.

This company's (website) latest 10-K says $41.4 million equity, 2,327,086 shares outstanding, meaning $17.62 book value per share. Recent sale price $27. 1.53 times book. Value is probably around $22.

Net interest income last 3 years:
2004: $17.2 million
2003: $16.9 million
2002: $16.3 million

I've looked at a lot of banks and I'm surprised at the lack of bargains, given how small and far removed they are from the main capital markets. Founders buy a dollar of equity for perhaps $1.30 of investment. By the time the shares are public and results are even slightly well established, the stock price is fully valued. Those lucky to start up a bank that rapidly becomes profitable will perhaps double their money.

Perhaps someday later this will all be useful to me. But for now, it was a detour. Back to the pink sheets.

My thinking was that a bank during the startup phase doesn't look very attractive to most investors. They lose money, equity slowly disappears. But as the bank ramps up, it becomes successful and the stock price rises to a full value.

I can take any number of banks and look at all the details during each phase of the startup cycle to get a good sense for what a succesful (and unsuccessful) startup bank looks like. If I can find a new bank where I have confidence that it is ramping up very well, but the stock price is low, then I can make money. This can be tricky because while the bank is ramping up, it's losing equity.

The problem that I see is that community banks seem to have a loyal group of investors and they don't run and panic when the bank loses money during the first year or two. I was hoping to find lots of choices to invest in, but I haven't found them yet. The problem with perhaps finding a single good investment out of 430 potential investments is that the odds become higher that there's something wrong with that one bank that I'm not seeing. I don't like scraping the bottom of the barrel.

Still going with the community bank startups.

Professional Business Bank, #57148, v : PBBK

1.8 million shares. $32 million market cap. $14.7 million equity (2.18 p/b). Selling at 2.3 times book. Assets growing fast. Equity increased 40%, some kind of 2ndary offering in Q4 04. Net interest margin 4.63%. ROA 0.51%. ROE 4.63%. Efficiency 88%. Equity/assets 10.87%.

Uniti Bank, #57120: UIBK

1.86 million shares. $33.4 million market cap. $16.4 million equity (2.03 p/b). 4.10% net interest margin. ROA 1.2%. ROE 10.53%. Equity/assets 11.26%.

Mirae Bank (Korean), #57332: MAEB
Affinity Bank of Pennsylvania, #57478: stock not public, Tina (610) 898-7700
Port City Capital Bank, #57350: public stock but no details found
Liberty Bell Bank, #57524: LBBB

1.3 million shares. $8.75 million market cap. $6.79 million equity (1.29 p/b). $77 million assets. Pretty much fully leveraged, but losing money (consistently $500K+ per quarter) and not improving. Net interest margin 1.74%. Worthy of selling cheap.

Trinity Bank, #57543: TYBT

1.1 million shares. $16 million market cap. $9.8 million equity (1.6 p/b).

Indiana Business Bank, #57713: IBBK
Granite Community Bank, #57315: GCBK
Landmark National Bank, #57324: LMRK

1.16 million shares. $15 million market cap. $6.28 million equity (2.39 p/b).

1.43 million shares. $22 million market cap. $13.9 million equity.

Mariner Bank, #57499: less than 0.908 million shares, not sure about trading
Landmark Community Bank, #57112: LDKC
Apple Valley B&T, #57138: AVBK
Orange County Business Bank, #57338: OCBB

4.18 million shares. $67 million market cap. $44.6 million equity (1.5 p/b).

CommerceWest Bank, #57176: CWBK yet another Orance County bank

2.64 million shares. $34 million market cap. $17.7 million equity (1.9 p/b).

Discovery Bank, #57136: DVLB

1.04 million shares. $16 million market cap. $10.4 million equity (1.5 p/b).

Cardinal State Bank, #57172: CSNC

1.28 million shares. $15.89 million market cap. $18.5 million equity (0.86 p/b). $9.45 million new equity last year. Annual report says $8.11 book value per share. Recent stock price is $12.42 (actual p/b is 1.53). $142 million assets (40% increase over last year). 33 employees ($4.3 million per emp). Equity/assets 13.0%. Total risk-based capital ratio 18.0%. Net interest margin 3.74$. Non-interest income 0.30%. Non-interest expense 3.28%. Efficiency crappy at 81%. ROA 0.59%. ROE 4.47%. Loss allowance to loans 1.3%. Non-current assets 0.14%. Total risk-based capital ratio 18%. 27% real estate residential loans (mostly first liens). There are some chargeoffs ($8K loan to individual). Comparing to peer group of small banks in NC, looks pretty good except: provisions are lower, interest income lower, non-interest expense higher, net income lower.

Freedom Bank of Virginia, #57184: FDVA

872K shares. $10 million market cap. $6.97 million equity (1.4 p/b).

Mission Valley Bank, #57101: MVBS

1.09 million shares. $19 million market cap. $9.6 million equity (2.0 p/b).

California Community Bank, #57533: CABK

1.21 million shares. $18 million market cap. $8.6 million equity (2.1 p/b) .

Pacific City Bank, #57463: PFCY Korean?

1.79 million shares. $33 million market cap. $17.4 million equity (1.9 p/b).

Pacific Commerce Bank, #57065, v : PFCI Japanese

766K shares. $9 million market cap. $7.9 million equity (1.1 p/b). $51 million assets growing fast. Brought in $4.7 million equity last year. This seems to be included in the 776K shares equity, but I'm not positive. Still losing money after 2+ years in operation. Terrible efficiency despite high assets/employee. Results are steadily improving. Still not fully capitalized. I don't like this one.

Legacy Bank, #57536: LBKC?
Integrity Bank, #57557: IGYB (Yahoo says it's a PK, Pink Sheets doesn't recognize it)
Capital Pacific Bank, #57562: CPFB

1.51 million shares. $18 million market cap. $12.1 million equity (1.5 p/b).

Longleaf Community Bank, #57544: no ticker
Washington Business Bank, #57167: no ticker, call (360) 754-1945
Cedar Stone, #57684: no ticker, call (615) 443-1411
Diablo Valley Bank, #57551: DBVB

2.48 million shares. $65 million market cap. $13.1 million equity (5.0 p/b).

Commerce National Bank, #57566: CNBF
Security Business Bank of San Diego, #57357: SBBK

1.76 million shares. $27 million market cap. $15.3 million equity (1.8 p/b).

Calnet Business Bank, #57314: CLNB (specialized bank: contribution mgmt, fundraising)
Pathfinder Bank, #57497: PBHC

2.45 million shares. $35 million market cap. $3.5 million equity (10.0 p/b).

Community Bank of Orange, #57145: CBOG
Oregon Coast Bank, #57373: OCOB
Ventura County Business Bank, #57441: VCBB

1.1 million shares. $16 million market cap. $8.66 million equity (1.84 p/b).

Willamette Community Bank, #57513: WMCB

552K shares. $8.3 million market cap. $4.6 million equity (1.8 p/b).

Suffolk First, #57487: SUFB

2.06 million shares. $24 million market cap. $14.7 million equity (1.6 p/b).

Alarion Bank, #57845: no ticker yet
Rivergreen Bank, #57467: RVGR

420K shares. $11 million market cap. $6.9 million equity (1.6 p/b).

County Commerce Bank, #57423: CNYB

I had to move some of the banks to a separate entry because it was expanding too much. The quotes are my notes.

Pacific West Bank, #57872,v : PWBO

These guys are ramping up fast. No easily found share count (have to call to send details). More focus on commercial/industrial loans. Some real estate loans (all the single family stuff is home equity). Most deposits are money market. Some unused commitments (tiny revolver, mostly other). Obviously no derivatives. Nothing past due. Very little leverage at this point: equity to assets is 61%. Too soon to say much about the bank. Trading range is $11.75 to $12.

Maryland Financial, #57821, may issue common stock at some point
Main Street Bank, #57742: unregistered common stock
Bank of Santa Clarita, #57816: BSCA

Approx 1,796,296 shares outstanding. They're looking to issue another $7 million in stock in a 2ndary. 17 employees (13 last quarter). 2 quarters of operations. $13.75 million IPO. $12.3 million equity in Mar 05. $31 million assets. $15.6 million loans. $10.3 million real estate loans, mostly commercial and construction. Nothing past due. $18.6 million deposits: $10 million interest bearing. $1.2 million unused commitments. High provisioning (50% of net interest income). $530K loss ($797K loss last Q). Net interest margin good so far. Low assets per employee at this point. Equity/assets = 40% (down from 58%).

Q2 results announced 7/7/05: assets now $39 million (not much of an increase from $31 million). $26 million in deposits (40% increase). $24 million in loans (56% increase). Revenue up to $377K (70% increase). Net loss $457K, $162K was loss reserves. Equity is now $11.99 million.

Recent stock price about $21. Market cap about $37 million (book value is less than $9). More equity will be raised. The stock price jumped from about $11 to $20 after the Q1 results were announced. Dropped about 75 cents after the Q2 results.

Citizens Community Bank, #57563: call (201) 670-8484
San Diego Trust Bank, #57608: SDBK

San Diego Trust Bank (OTCBB:SDBK) was recognized by the California Bankers Association and Carpenter & Company during their annual Strategic Summit, for having achieved the highest stock appreciation of any bank in California over the last year, in the asset class $50 million to $100 million. The award, "Market Cap Champion", was presented to Michael Perry, the Bank's President & CEO, in recognition for having achieved a 170% increase in the value of the company's stock during the past year. The Bank's stock steadily climbed from its initial offering price of $10.00 per share to $27.00 per share as of December 31, 2004. Since that time, the company's stock has continued to perform well closing at $37.75 as of Friday, May 13th.

So much for that, although it is back down to $25.25.

Pascack Community Bank, #57215: PCCB

1.07 million shares (supposedly), recent market cap $11.4 million. Latest equity $8.6 million. Latest income: positive. Ok, so what's going on...

$65 million in assets, up from $45 million last year. $44 million in loans ($447K allowance). $36 million real estate loans: $22 million commercial, $8.5 million residential. All increased significantly over last year. $56 million deposits: $17.5 milion transaction accounts, $38 million non-trans accts, $11.3 million time deposits. $10 million unused commitments ($5million revolver, $2.9 million commercial real estate). $835K past due, all residential real estate 30-90 days. No chargeoffs or recoveries. 3.75% net interest margin. 3.30% non-interest expense. ROA 0.51%. Efficiency 80%. Assets per employee $5.87 million. Net loans/leases to deposits 78.41%. Equity to assets 13.28%.

Comparing them to the template bank (BOJF) at the same point in the startup cycle, PCCB is yielding 5.36% vs cost of 1.61% (=3.75% net interest margin) compared to BOJF yield of 8.44% vs cost of 4.01% (=4.43% net interest margin). PCCB has 0.33% non-interest income vs 1.08% for BOJF. PCCB non-interest expense is 3.3% vs 4.31%. Net income is 0.51% vs BOJF's 0.86%. Not as much of a difference as I expected to find. BOJF efficiency was 78%, not much better, but with only $1.76 million per employee. Loss allowance is about the same. Capitalization ratios are very similar.

Now here's something interesting: looking at a peer group of all banks with less than $100 million in assets in New Jersey, PCCB is significantly better across the board. The peer group actually had a loss in Q1 05!!! Small banks in NJ routinely have crappy results over the years.

I don't know what to think about that... except that I'm not about to invest in something that has a 3.59% return on equity for more than book value.

Towne Bank of Arizona, #57697: TWNB
Commonwealth National Bank, #57201: CWEA

2.11 million shares, $24 million market cap. Crappy results. Too much residential real estate in a bubble region.

After dealing with some details of LiveWorld and BakBone Software, it's time to get back to the banks. Going through pretty much every single community bank in the US founded in the last 5 years with between $10 million and $100 million in assets (about 430 of them), the list below contains just about all of the ones which are public or somewhat-public companies and aren't totally retarded, not including stuff I've already looked at. The next step is going to be doing a very rough valuation on these and look for potential investments.

recent community bank investor conference and the previous one
America's Community Bankers. These people seem to use the term "community bank" somewhat loosely: it's still M&A and consolidation, just on a smaller scale. A lot of them are terrible at presenting. Most are totally full of themselves and phoney. But my sense is that in the long run, that sort of hybrid bank structure is probably the way to go: everything the customer doesn't see gets done in a central location on a large scale. The individual banks are only there as a customer interface.

Worth looking into: GBTB, OCFC. There could very well be a Sam Walton out there somewhere.

WARNING: Only those entries with a green v have been verified with highest certainty that the FDIC cert, website, and stock ticker are all for the same banking entity. In some cases the holding company covers more than the banks listed. I'll generally throw those out except for some special cases.

1st Regents Bank (Alliance Bank Shares Corp),v #57157: ticker?

Good numbers, net int margin. 70% built. under-provisioned? Need to find the holding company (not ABVA).

United American Bank (Amtrust),v #57447: UABK

efficiency is bad, high non-interest expense.

Beach Community Bank (Beach Community Bancshares),v #57131: BCBF

$332million assets. fully leveraged. not bad numbers. Maybe worth $50 million.

Bridge Bank (Bridge Capital Holdings),v #57086: BBNK

Again, too much assets for what I'm looking for. Might be overpriced. Net interest margin is above 6% in Q1. Currently about 6.15 million shares. Market cap about $98 million, $15.95 per share ($5.58 in book value per share). This is a P/E above 30!

Napa, BofMich, Sunrise, BLV, Pt Loma, Escondido (Capitol Bancorp),v Ltd: CBC
T Bank (First Metroplex), #57703: FMPX
First Bank of Henry County (Firstbank Financial Services),v #57017: FBHC
Frederick County Bank (Frederick County Bancorp),v #57255: FCBI
Western Security Bank (Glacier Bancorp),v #57248: GBCI, GBCIP
Hancock Bank of Florida (Hancock Holding Company),v #57819: HBHC
Arizona Bank and Trust (Heartland Financial Usa 1206546),v #57620: HTLF
[enough with the holding companies for now, I'll verify these if I need them]
Heritage Bank (Heritage Bancshares) #57548: HBKSE
Lakeview Bank (Lakeland Bancorporation) #57785: LBAI
Franklin Community Bank (Mainstreet Bankshares) #57259: MREE
Marco Community Bank (Marco Community Bancorp) #57586: MCBN
New Century Bank of Fayetteville (New Century Bancorp) #57609: NCBC
New Southern Bank (Nsb Holdings) #57213: NSBG
Premier Commercial Bank (Prem. Comm. Bankcorp) #57231: PCBP
Rockford B&T, (Qcr Holdings) #57927: QCRH
Cedar Rapids B&T (Qcr Holdings) #57244: QCRH
Republic Bank & Trust Company of Indiana (Republic Bancorp) #57146: RBCAA
The Bank of Southern Connecticut (Southern Conn. Bancorp) #57251: SSE
SNB Bank of Wichita (Southwest Bancorp) #57583: OKSB
Cohutta Banking Co of Tenn (Synovus Financial) #57913: SNV
Synovus Bank of Jacksonville (Synovus Financial) #57725: SNV
United Bank & Trust - Washtenaw (United Bancorp) #57133: UBCP
Advantage National Bank (Wintrust Financial Corp) #57013: WTFC
Beverly B&T (Wintrust Financial Corp) #57701: WTFC
Bucks County Bank (Yardville National Bancorp) #57804: YANB

Parkway Bank #57158,v : PKWY

They got some sort of recent infusion of equity. Numbers got better this last year. ROA 1.18%. Net interest margin 4.18%. Efficiency 72%. Assets per emp 2.81m. Equity to assets 15.21%. Total risk-based capital ratio 20.23%. Earnings about $1million/yr. Equity $11.5million. 1.178 million diluted shares. Recent price $12.50 (book value per share is $10.02). P/E based on Q1 earnings would be 15.6.

Connecticut River Community Bank, #57475,v : CRCA

Damn computer locked up before I saved the info (and it's Linux!). Anyway, net interest margin is low 3.93%. ROA is 0.4%. They just cleared breakeven. There was some large infusion of equity (like PKWY). I can't figure out much without having a fully diluted share count. Equity now is $10.8 million. They aren't yet fully leveraged. Not a stellar bank from what I can tell.

Recent stock price $11.

Golden State Business Bank, #57585,v : GSBB
Ojai Community Bank, #57850,v : OJCB
Santa Cruz County Bank, #57591,v : SCZC
Commonwealth Business Bank, #57873,v : CWBB
Cortez Community Bank, #57625,v : COTZ
Stonegate Bank, #57934,v : SGBK

This bank has only 1 quarter of history. Very "de novo". The shares are trading around $12, but there aren't any easily obtainable financial statements from the company.

Stonegate Bank is traded on the bulletin board. Our symbol is SGBK. If you want to inquire more about the stock, please contact one of our market makers listed below.

Sam Haskell
Sterne, Agee, and Leach, Inc.
1 (866) 378-3763

Curtis Thompson
Moors and Cabot Capital Markets
1 (800) 436-2330

FIG Partners, LLC
Eric Lawless
1 (866) 344-2657

CenterState Bank Mid Florida, #57334: ???? (not CSFL)
Nature Coast Bank, #57773: NCBF
Pacific Valley Bank, #57740: PVBK

PVBK, 1,237,500 weighted ave shares outstanding for 2004 (unchanged during the year). 371,250 reserved for options, 10 year expiration, market price. All were granted in 2004. Ave strike about $12.31. Vesting is in thirds. Recent stock price is $18 to $20. Market cap is about $25 million.

Q1 05: $38 million assets (up from $28 million Q4 04, $14 million Q3). 15 employees holding steady. $18.7 million net loans. $15.6 million in real estate loans: $3.4 million single residential, $6.6 million multifamily. Very little commercial loans, $2.5 million farm loans (no farm land). $0.63million fixed assets. $27.5 million deposits (up from $16.6 million), nearly all interest bearing (mostly in money market, then time deposit 100K+, then other time, then savings, then NOW: most mature in 2005). $19.5 million deposits over $100K. $10.9 million equity (net of $1.4 million losses). No derivatives. $1.3 million unused commitments (mostly commercial real estate). Zero loans past due. Net loss trending well, currently $0.335 (4% of assets). 1.1% provision. Yield on earning assets 4.4%. Cost of funding earning assets 1.38% (net interest margin 3.02%). Equity/assets 28%. Loans/deposits 68%. Total risk-based capital ratio 61%. NOLs of $0.547million. $800K related party loans. Director's company did the construction. Expenses look standard.

Stock price is a bit on the high side.

First Community Bank of Jolliet (already covered earlier on this blog)
Embassy Bank, #57228: call (610) 882-8800 for buying/selling shares
Century Bank, #57720: CBAO
First Sound Bank, #57799,v : FSWA

Another very new bank. Only 3 quarters. Still way under leveraged. 2 million shares outstanding. Shares trade around $13.50: market cap around $27 million. Around $18 million equity. Losses for the last three quarters (in reverse time order): $0.575million, $0.581million, $0.790million. Liabilities: $38million, $28million, $4.8million.

Private Bank of the Penninsula, #57510,v : PBPC

1,843,000 shares outstanding. 161,250 options outstanding. Assets nearly doubled in the last year (though not much this last quarter). Cost of earning assets is extremely low, 23.6% equity to assets, 83.6% net loans and leases to core deposits, 22.6% transaction accounts, 15% non-interest bearing deposits. So why is the cost of earning assets 0.88%? Anyway, net interest margin is 3.5%. Non-interest expense is close to 6%. Total risk-based capital ratio is 33%. They can pretty much double their assets with the current structure. Everything is trending well over the last year. 0.43% assets are past due (commercial/industrial loan, less than 90 days), their first non-performing asset. 12% of assets are 1-4 family real estate loans (6% home equity, 2.4% junior liens). 17 employees (2 added this year). If they weren't located in Palo Alto, ground zero of the real estate bubble, I'd roughly say the stock is worth around $7.5. But being where they are, it's totally off limits. It's selling for $13.50.

River City Bank (already covered earlier on this blog)

Ok, so they finally defined "The Company" somewhat correctly.

ADIC, Exabyte, Network Appliance, and Overland Storage have disppeared from the list of certified hardware!

Revenues for 2002 were $9.9 million and not $6.6 million (they must have read it upside-down... hehe) as stated in the latest 2004 10-K. The original 2003 10-K had a somewhat higher revenue for 2003 ($18.2 million vs $17.9 million). It also had the correct $9.9 number for 2002!

The licensing revenues for each region match up ok. Service in Asia for 2003 was revised down to $0.532 million from $0.71 million. Everything else matches up.

Based on everything I've read, Sony and Network Appliances didn't pan out much (at least not by Mar 2004).

R&D was restated upwards for 2002, but not 2003. Sales & Marketing costs were restated upwards for 2002. Gross margins for 2002 revised upwards. Goodwill amortization for 2002 restated downwards. [geez, this is a mess]

They tried unsuccessfully to sell the IP (for what, $166,000?). The restatement is much more clear about what happened and when.

1. revenues were flat in Q1-Q3 of 2002. Q4 decreased significantly.
2. BKBO did an impairment analysis in Q4. Charged $2.5 million in that year.
3. BKBO threw more money at MagnaVault. Results got worse.
4. Nov 2002 end-of-life decision, only customer support would continue.
5. Layoffs and closing of Maryland office.
6. Previous item triggered an impairment analysis of MagnaVault goodwill.
7. Step 1 (preliminary screening) in the analysis showed an impairment and, thus, required step 2
8. Step 2 (direct test) showed impairment, BKBO took a charge of $442,000 in Q3 2003 to bring the asset down to fair value of MagnaVault IP.
9. During Q3, BKBO tried to sell MagnaVault IP. As of Dec 31, 2002, it appeared likely to sell [i.e they're trying to cover their posterior for why the next part happened in the next quarter].
10. March 31, 2003, BKBO gave up trying to sell it. This caused another trigger event.
11. BKBO did the CICA two-step (3062.56) and took another charge of $446,000 in Q4 2003, writing MagnaVault intangible assets to zero. They incorrectly call it goodwill, even in the restated-restatement 8-K: Canadian CICA (1581.48 and 1581.49) says it's not goodwill if it 1) results from contractual or other legal rights (regardless of whether they're transferrable) [YEP], 2) capable of being separated or divided from the acquired enterprise [YEP].

Revenue differences:

• Mar-03: from $5,604 to $5,521, G&A revised up to $1,504 from $1,537, They had screwed up by not amortizing the non-goodwill intangible assets, and they probably didn't discover it until they impaired the goodwill and planned on selling the MagnaVault IP. At that point, the auditors would have detected the problem. Again they're calling it "goodwill" in the financial restatement.
  
• Dec-02: from $4,932 to $4,832
• Sep-02: from $4,024 to $3,980, G&A difference
  
• Jun-02: from $3,630 to $3,585, G&A difference
  
• Mar-02: unchanged ($3,087), G&A difference
  

Stock based compensation went up from $326,000 to $536,000.
Accrued liabilities went from $1.1 million to $1.4 million.
Deferred revenue went from $3.9 million to $4.1 million.

(below are in thousands)
On the balance sheet (2003), goodwill is split out into pathetically small intangibles (MagnaVault IP) and goodwill. The total dropped as well by $233. Accrued liabilities are somewhat higher (lower in 2002).

Deferred revenue has been split into a current portion and a non-current portion [smack forehead], plus the total deferred revenue is slightly higher (less than $100).

Accounts payable is higher by $33.

At this point, any sane person would give up and walk away from this nightmare. At least the number of shares is unchanged.

Now, let's look at the all-important cash flow statement.
Depreciation has changed (the tangible depreciation is the same in the notes). Stock based compensation has changed. Everything else is fine.

NOTES:
The depreciation details have not changed.

Before: "For the years ended March 31, 2003 and 2002 and the eleven months ended March 31, 2001, 8,252,631, 10,561,095, and 14,579,746 potential common shares, respectively, were excluded from the computations of diluted loss per share as their effect was anti-dilutive."

After: "For the years ended March 31, 2003 and 2002 and the eleven months ended March 31, 2001, 4,878,147, 4,962,725, and 5,986,703 potential common shares, respectively, were excluded from the computations of diluted loss per share as their effect was anti-dilutive."

See below for why this changed.

RESTATEMENT NOTE:

In connection with the Company’s 53% step acquisition of BakBone KK in March 2002, the Company recorded 100 percent of BakBone KK’s deferred revenue balances that existed on the date of the step acquisition. An adjustment was made to record these deferred revenue balances at fair value on the date of the acquisition, which led to corresponding adjustments that decreased service revenues by $178,000 in the year ended March 31, 2003. These adjustments were made to conform to accounting rules and interpretations regarding acquisition transactions that require recognition of deferred revenue only to the extent it represents a legal obligation assumed by the acquiring entity.

Furthermore, the Company determined that revenues totaling $94,000 recognized initially during the year ended March 31, 2003 should have been deferred as of March 31, 2003 and recognized during the year ended March 31, 2004.

Adjustments to stock-based compensation were $210,000 for the year ended March 31, 2003. The Company identified instances where certain equity instruments granted to non-employees during the year ended March 31, 2003 were valued using a Black-Scholes model assumption that was incorrect. The Company re-calculated these amounts and recorded an additional $210,000 in stock-based compensation during the year ended March 31, 2003.

The Company determined that aggregate expense adjustments of $255,000 and ($222,000) for the years ended March 31, 2003 and 2002, respectively, should have been recorded. The $255,000 restatement adjustment included in the year ended March 31, 2003 represents the recognition of $255,000 in additional general and administrative expenses. The additional general and administrative expenses relate to $33,000 in previously unaccrued legal expenses and the recognition of $222,000 in rent expense associated with a lease liability recorded originally as of March 31, 2002 in connection with an unused facility liability; however, the criteria for liability and expense recognition were not met as of March 31, 2002. Thus, the $222,000 in rent expense was reversed for the year ended March 31, 2002 and recorded for the year ended March 31, 2003.

The $55,000 restatement adjustment included in the year ended March 31, 2003 for other expense is related to the amortization of separately identified intangible assets. The original purchase price of the Company’s 53% step acquisition of BakBone KK allocated no value to separately identified intangible assets. The Company has since determined that $222,000 in amortizable intangible assets should have been recorded, with the intangible assets being amortized over the assets’ useful life of four years.

Here's why the shares dilution changed:

The Company determined that the number of weighted-average shares outstanding, which is used to calculate basic and diluted earnings per share, required adjusting for the years ended March 31, 2003 and 2002 and for the eleven months ended March 31, 2001. Historically, the Company considered certain shares to be contingently issuable for purposes of calculating the number of weighted-average shares outstanding. In accordance with [CICA] Section 3500, Earnings Per Share , contingently issuable shares are included.... Upon further review, the Company determined that these shares were improperly classified as contingently issuable....

BakBone's financial statements are a mess!

June 23, 2005: The one I mentioned earlier.

May, 3, 2005: More delays. Some results: $19.5 million cash. Free cash flow (from ops) positive for all of 2005. 1000 new global customers.

• In Pac Rim: Ministry of Land Resources (China) and Shell Malaysia and Brunei (SE Asia), State Warehousing and Distribution (Australia), Sasken (India), Ministry of Constructions and Transportations (Korea), Toppan Printing, Sumitomo Trading and Hitachi Joho, a subsidiary of Hitachi IT Systems (Japan)

• In North America (NA): Whole Foods Markets, AZ Biltmore, Tradeware, Mind Institute, Citadel Software, University of Virginia, Americhem, Whitman College, Dark Horse Comics and eHealth

• In Europe, Middle East, Africa (EMEA): Christian Dior, Versatel, Enertel, Takeda Pharma GmbH Aachen, Luftfahrtgesellschaft Airlines GmbH, the best known airlines in Germany after Lufthansa Airlines which is already a NetVault customer

They expanded the relationship with Network Appliance. SnapVault 2.1 (OSSV v2.1)

New support for Mac Tiger OS.

NetVault 7.4 due in Q4 05.

They want to get re-listed.

Feb 11, 2005: delisted!

Jan 31, 2005:

First, coming into an organization that had recently restated prior financial statements, changed its independent audit firm, and continues to face delays in its financial reporting has been a challenge, but not an insurmountable one. As a result of these delays, some shareholders, customers and especially competitors have questioned the viability of our business and our growth prospects.

$19.2 million in cash, no debt, positive cash flow from ops so far.

• In Pac Rim : Daum Communications Corp., Korea’s largest Internet provider, Tokyo University, Mitsubishi Electronics, SONY Computer Entertainment, Oil and Gas Corp of India, China DongGuan Government Information Center, Coca Cola, ABN AMRO Morgan, and the State Bank of Vietnam

• In North America (NA) : Primus, Texas A&M University, North Texas Tollway Authority, Plexus Corp., Coram Healthcare, and the City of Durham

• In Europe, Middle East, Africa (EMEA) : Shell Oil in both the NA and EMEA regions, Trinity Mirror Group, Tupperware, Ricoh Germany, Hannover Leasing, and Brighton University

• 25 percent of the total value of new bookings in NA was derived from repeat customers with 75 percent coming from new customers – this compares to 10 percent from repeat customers and 90 percent from new customers just one year ago – a clear indicator that current customers are continuing to buy BakBone products. Specific to the competitive landscape in NA, the majority of all transactions continue to be Veritas replacements.

• Our operating system breakdown for bookings in the US and EMEA regions reflect Microsoft at 55-60 percent, Linux at 30-35 percent, Unix at 5-10 percent, with the balance representing other operating systems.

• BakBone continues to be an industry leader in the worldwide backup and recovery for Linux deployments with a market share of 79 percent in Japan, according to Techno Systems Research. With its announcement of support for Novell’s SUSE Linux Enterprise Server 9, BakBone continues to embrace a first-to-market approach to operating system and platform support. Today, NetVault currently supports more Linux distributions (12 worldwide) and architectures (x86, Opteron x86-64 extended systems, IBM Power PC4 and OpenPower) than any of our competition.

I thought they already had 10 Linux distributions. SuSE 9 is a fairly major one (I'm using it right now to do this blog).

• We announced strategic product relationships with both IBM and Sun Microsystems moving us closer to building stronger ties to tier one hardware players. Additional announcements with Snap Appliance/Adaptec and Network Appliance continue to reinforce our strength in network attached storage (NAS) environments.

• the Company is doing additional analysis to review and determine the fair value of the various software components it sells and the allocation of discounts given to individual customers. This analysis must be completed prior to finalizing the revenue recognition review specific to these two areas. We are making progress with this analytical study, albeit extremely time and labor-intensive, which potentially may include thousands of transactions on a global basis. Once this analysis is complete, the results will be provided to our independent auditors for their review.

Take your time. I'm in no hurry.

Dec 23, 2004: Re-statement! The pf stock conversion benefit was calculated wrong, among other problems.

The beneficial conversion feature amount should be calculated based on the difference between the conversion price of the Preferred Stock and the fair value of the common stock into which the Preferred Stock is convertible (the “Intrinsic Value”)....

The amount of the beneficial conversion feature should have been determined based on the date the Company received shareholder approval for the issuance of the Preferred Stock (the “Measurement Date”), as opposed to the date the Company formally entered into the Preferred Stock financing arrangement with the preferred shareholder. In addition, the amount of the beneficial conversion feature should be based on the Intrinsic Value on the Measurement Date, as opposed to basing the amount on an allocation method that effectively allocated the Intrinsic Value between the Preferred Stock and the underlying beneficial conversion feature. The original beneficial conversion feature amount calculated and recorded by the Company was approximately $7.2 million. The Company estimates that the corrected calculation will result in an amount of approximately $13.6 million.

On December 17, 2004, KPMG advised the Company it believes that revenue recognized during the first fiscal quarter ended June 30, 2004, the final quarter reviewed by KPMG in its capacity as the Company’s independent auditor, was recorded in error.

...related to a single end user contract and was recognized upon the execution of a contract amendment with the end user customer in April 2004. KPMG has advised the Company that it believes the related amount should have been recorded in deferred revenue on the Company’s balance sheet as of June 30, 2004. The Company has not completed its assessment of the revenue recognition on the related amount which is estimated to not exceed $500,000.

Terrible. And there's never just one cochroach.

Dec 10, 2005: Delisted in Canada!

Nov 2, 2005: "Resignation"

Effective as of October 31, 2004, Keith Rickard resigned as our President and Chief Executive Officer....

Don't let the door hit you on the way out.

Jim Johnson is now in charge.

Mr. Johnson was most recently chief technology officer of SoftBrands, Inc., and president of SoftBrands, Inc. Hospitality Group, a privately held software company specializing in the hospitality and manufacturing markets. Prior to joining SoftBrands in 2001, Mr. Johnson was senior vice president of Sterling Commerce, Inc., a former NYSE-listed company specializing in electronic commerce software and services that was acquired by SBC. Mr. Johnson was also the president of the Asia Pacific Group of Sterling Commerce. Mr. Johnson also held numerous senior positions with Sterling Software, Inc. prior to its acquisition by Computer Associates, including senior vice president, president of the Asia Pacific Group, executive vice president of business development, and president of Sterling’s Softlabs Division.

Oct 25, 2004: Deloitte and Touche are the new auditors.

Oct 12, 2004: KPMG resigned as auditors, giving no reason.

We were previously principal accountants for BakBone Software, Inc. and, under the date of June 25, 2004, we reported on the consolidated financial statements of BakBone Software, Inc. as of and for the years ended March 31, 2004, and 2003. On October 5, 2004, we resigned. We have read BakBone Software, Inc.’s statements included under Item 4.01 of its Form 8-K dated October 12, 2004, and we agree with such statements, except we are not in a position to agree or disagree with the Company’s statements made in the penultimate paragraph or the attached Exhibit 99.1 [the press release from BakBone].

Aug 31, 2004: Errors in financial statements for 2002 and 2003! Restated 10-K

These financial statements did not properly reflect the treatment of certain revenue recognition, stock-based compensation charges, and operating expenses relating to a lease liability. Several additional adjustments were also identified.

(See next post for the diff between original 10-K and restated version)

UPDATE: 7/5/05: Wow, the stock jumped 15.79% today. What's up with that?

// posted by Bruce @ 8:47 PM 0 comments