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Sunday, April 09, 2006

Revisiting companies 12

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revisiting companies 11

FAME (sec website) Flame-retardant coatings and sealants. Flamemaster. They went dark (last results Q1 2005). Website has results. Stock is selling at $5.15.

Q1 2006 (ending Dec 31, 2005): revenues up 27.5%. 10% net margin (vs 3.5%). Net income was 12 cents (vs 4 cents). Higher labor costs. Higher raw material costs. Lower regulatory reporting costs (from going dark). There's no balance sheet info, no cash flow statement, no notes, no nothing.

The last audited financial statement was their amended 10-K for the year ending Sept 30, 2004. The balance sheet was ridiculously solid (net cash of $1.79 million with total assets of $4.3 million). Cash flow from ops matched or exceeded earnings. Very low capex and depreciation. Directors and officers own 27.7% of the stock, but management has control (for now) of 45%.

Full year ending Sept 30, 2005: revenues up 6.6%. Earnings 51 cents diluted (vs 43 cents). In April 2006 they announced a 3.4 cent dividend (65th consecutive quarterly dividend).

Stock is not selling cheap enough, and disclosure is extremely limited. Continue following, but I'm wondering if I'll ever be able to invest in this.

GACF (sec) Airplane repair business. Stock is at $1.70 They're late in filing their 10-K: new auditor and a new 30% owned subsidiary.

Ok, they filed their 10-K a day later and I didn't get around to seeing it until 4/23/06.

10-K: 38.7 million shares on 3/22/06. 1.3 million options. 40 million fully diluted shares. Comparing to prior 10-K. Employee count jumped to 173+27 (from 150+20). Customer concentration is down (but still significant). Single location concentration is down to 73% (from 97%).

New lawsuit initiated against a customer for non-payment ($185K), will probably be settled. Former independent contractor Mr. Tarus Woodall filed a sexual harassment (I'm picturing in my mind... "Dude, stop being such a dick and do you damn job") and religious discrimination (his religion was allegedly mocked... wait, it's coming to me... "and shut up already about Scientology/Islam/Baptists, just do your damn job") suit against the HAT subsidiary. HAT says he was late a lot of the time and had job performance issues.

81 shareholders of record, up from 57 last year.

The HAT subsidiary purchased the inventory held on consignment belonging to Jetran International. plus a DC9-82 for $2.9 million. They say this should result in $10 to $15 million of revenue (hopefully with good margins!). This was paid for in part by 7.2 million shares issued when Barron Partners exercised stock options.

New 5-year contract with the Mexican airline Avolar. 30 aircraft fleet growing by about 1 aircraft per month through 2008.

New joint venture, Jetglobal. Acquire a fleet of 26 Boeing 737-200 jets from Jetran. Global's share of the 2005 net income was $1.1 million in 2005.

New credit line finalized. $5 million and also $7 million for acquiring aircraft. Interest rate reduced from LIBOR+3.5 to LIBOR+3 (which is still somewhat crappy, but not for these garbage pail companies).

New director added (accountant independent), none disappeared. Executives and directors own 11.38% of the stock, down from 17.7% (due to dilution). Barron Partners owns fewer shares now.

Balance sheet: AR is up slightly. Inventory way more than doubled when you include non-current inventory (see purchase above). Huge $6.3 million jump in the joint venture asset. Total assets more than doubled. AP is way up. Current ratio dropped to about 1.3. About $4 million additional paid-in capital. $3 million increase in retained earnings.

Income statement: Revenues are up over 33%. 5.8% operating margins (up from 4.3%). Net income includes equity in income of unconsolidated affiliate of $1.1 million (see joint venture above). Net income is $3.1 million, 7.75 cents per fully diluted share.

Huge amount of dilution in the last few years. 7.2 million shares to Barron Partners at 68 cents per share (options). Around 12 million in 2004 at prices in the range 34 cents to 52 cents.

Cash flow from operations in negative for two years in a row. Half of 2004's income was gain from renegotiating a contract.. Huge increases in AR and inventory (part of the inventory increase is known and expected). Capex is above depreciation. Issuing stock paid for all this, plus some net bank loans.

I'd say the stock is worth about $1.00.

DAAT (sec) Gun cleaning and safety equipment business. Stock is around $2.20 (at least fully priced, maybe overvalued).

10-K: 6.3 million shares on Mar 27, 2006. No stock options. Inventories are up. AR is up. PP&E is up. Factored a big chunk of receivables each year. Very strong balance sheet. $5.5 million in assets.

Revenues up 43% to $13 million. Gross margins 35% (down from 37%). Selling costs up 50%. Operating margins 16.4%. Net margin 8.8%. Earned 18.7 cents per fully diluted share.

Cash flow from ops is only 10% of earnings due to inventories, AR, AP. Free cash flow is pretty much zero. Prior year was far worse due to factoring receivables, inventories, and AR.

Bad vibes.

DEWY (sec) Dewey Electronics. Two segments: 1) military systems, 2) ski resort snowmaking equipment. "There are no intersegment sales." Stock is around $4.25.

This is a hardscrabble business.

Q2 ending Dec 31, 2005: 1.4 million shares on Feb 10, 2006. Balance sheet is strong, mostly equity. Revenues up, gross profits down. SG&A up. Operating loss. Net loss. Negative cash flow from operations.
Stop following

DFNS (sec) Body armor, car armor, etc. There were issues with Zylon based bullet proof vests that would probably benefit DFNS. Stock is down to 29 cents.
Revenues:          2005     2004
Civilian $907K $655K
Israeli military $580K $359K
Export military $505K $2,167K
The export military revenues going forward are difficult to predict. Gross margins are likely to drop even more due to raw material costs going up.

They're late in filing their 10-K. No real reason given. But they amended that late filing.
The Registrant expects to report that its net revenues for the year ended December 31, 2005 decreased to approximately $11,450,000 from $12,036,404 in the year ended December 31, 2004, a decrease of 4.9%. The Registrant believes that it will report a net loss of approximately $26,000 for the year ended December 31, 2005 as compared to net income of $381,169 for the year ended December 31, 2004.
I guess we wait and see.

DSCI (sec) Bandages, wound closure, fasteners, skin care. They had blatantly accelerated the vesting of their options. Stock is at about 84 cents.

10-K: 12.3 million shares of stock on Feb 28, 2006. Strong balance sheet, mostly equity. $10.6 million of assets. Revenues up 18% to $23.5 million. Gross margin 29% (vs 26%). Big goodwill impairment of $911K. Without impairment, they would be at break even. Prior year was a huge loss. Large provision added for bad debts and rebates. Increased provision for obsolete inventory. Seems like they're cleaning up. $3 million in cash flow from ops. Capex of $224K is about half of depreciation. They paid down a bank line of credit by $1.7 million. Also paid down some debts. Issued stock for $522K. Maybe $2.7 million in free cash flow, maybe $1.5 million is for real (that's a wild guess, mind you).

About half of the growth in revenues was due to a one-time benefit related to the sale of inventory on hand to fill the pipeline. US sales dropped by 1.9% due to the loss of a catheter fasterner exclusive and skin care competitive forces, partially offset by continued growth of private label business, stabilization of Dermagran business.

I'm thinking the improvement last year will be at least partially reversed, so the stock isn't really worth as much as it might seem from free cash flow.

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