Tuesday, April 25, 2006
Revisiting companies 13
revisiting companies 2
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revisiting companies 12
IDIB (sec, website) Stock plummetted to 5 cents due to a very recent announcement of a Chapter 11 bankruptcy for itself and two subsidiaries. Internet Development Inc, IDI Technology Inc, Sports Media International Inc, and Worldwide Recruiting Solutions Inc are not in Chapter 11. However, since the overall company is going into Chapter 11, I would expect that any economic benefits from those subsidaries are controlled by the court (don't know for sure, however). The problem is a large uncollectable receivable from New Connexions ($1.1 million) and huge write-down for impaired goodwill ($1.5 million on Sports Media International, $1.8 million on HG Marketing as well as Mentoring of America, $1.3 million on Chief Financial, plus other smaller writedowns). Total goodwill impairment is $4.8 million.
HG Marketing as well as Mentoring of America started a lawsuit against IDIB. IDIB says the allegations have caused substantial damages, including the loss of hundreds of thousands of dollars in net operating income that have been allegedly misappropriated and diverted from the call center they're apparently supposed to be supported.
A big shareholder, HG Marketing, Inc, was selling 6.9 million shares in an offering. They accepted the shares in Jan 2005 as payment for some of HG Marketing's assets.
The material components of the purchase price for the assets were (i) the assumption of certain liabilities of the sales and marketing operation; (ii) $1,800,000 in cash; (iii) warrants to purchase up to 2,500,000 shares of IDI Global's common stock which become exercisable between 2008 and 2012 at exercise prices escalating annually from $0.80 to $1.80.; and (iv) 4,356,436 shares of restricted IDI Global common stock which shares shall be released to the sellers based upon the performance of the sales and marketing operation over the first two years of operations.IDIB apparently guaranteed $150K/month operating profit for the first two years. It looks like the assets were sales leads and such.
In this latest transaction, the share count increases by 2.5 million shares to 26.3 million shares. I don't really get it because the net operating income for the first 9 months of 2005 are below the target based on the Q3 results.
The 10-K is out now (it was late). But considering the issues going on with this company, it's totally out of my circle of competence.
MHJ (sec) Man Sang Holdings. Freshwater and cultured pearls. Distribution. They earned about 38 cents in 2005. See the main post. Stock is up to $5.70 (it made a huge jump just after I last looked at it).
100K preferred shares have voting rights of 3.2 million common shares.
Mr. Cheng Chung Hing, Ricky, CEO and Chairman of MHJ has shared dispositive power over 3.4 million shares, which is 53.9% of the common stock. I'm not sure I understand this, but later on Dec 23, 2005, he acquired 9.589% of the total shares of MHJ.
An independent, non-executive director and Chairman of the audit committee resigned on Jan 13, 2006. Replaced by Mr. Wong Gee Hang, Henry.
Q3 Results ending Dec 31, 2005:
6.4 million shares on Valentine's Day 2006. I don't know the options outstanding.
Huge amount of cash (slightly more than prior quarter). Current ratio is 10. Large net cash, but also huge minority interests, almost 1/3 of assets and nearly 100% of equity!
Revenues are down slightly from prior year and prior quarter. Low margins. Operating margin is around 5%. Minority interests claim over half the profits. Net income (which is nearly 1/3 interest income from the cash) is US$322K for the quarter.
9 month cash flow from operations is actually lousy. If you back out the minority interests, you get cash flow from ops of about $1 million (vs income of $1.44 million). AR and inventories increased. Capex matches depreciation. They issued stock for $763K.
The biggest buyers of their pearls are in the US and Germany. One 16% customer, one 13% customer, one 11% customer.
The drop in revenues is due to a drop in high-priced South Sea pearls to the US due to an increase in precious metal prices (which results in less jewelry being sold). But that could evenually mean more pearls and less metal. Europe is picking up some of the slack. Bad debt provisions were lowered. Higher interest rates add to profits due to the large cash position.
Seems like about 20 cents of free cash flow per share. Solid balance sheet. Industry dynamics are interesting. The stock might be worth $3.00. The stuff below is what appears to be a new joint venture into PRC.
Subsequent stuff: A very strange 8-K where they bought 1 share of Smartest Man Holdings Limited, which is the sole share of stock, for US$7.31. Yep, seven dollars and thirty-one cents. The sole asset of this company is its 49% legal and beneficial interest in China Pearls and Jewellery [sic] City Holdings Ltd., which entered into an Establishment Contract with Zhuji City Shanxizhu Town Government and Zhuji Municipal Government (supervising party) to establish a wholely foreign-owned enterprise. Man Sang will contribute US$14.7 million into the company. The enterprise was formed with US$20 million registered capital and a US$40 million total investment. So Man Sang bought a 49% interest in this existing jewelry retailer(?) and Man Sang is putting up around US20 million in capital to match what is presumably worth another US$20 million. How do I know their part is worth US$20? Color me skeptical.
Another half million shares for options.
MLR (sec) Miller Industries (covered here earlier). This was the Chattanooga area based manufacturer of vehicle towing and recovery equipment. Seems like a good company in a potentially bad competitive situation. The stock is up to $26. Their 10-K is out, but it's been amended already to change fix amendments 31.1, 31.2, and 31.4.
11.3 million shares on March 10, 2006. 321K options outstanding. Assume 12 million totally diluted shares.
Balance sheet is fairly strong, but AR and inventories are up (they're by far the biggest assets). About half equity. Not much debt (fairly good interest rates).
Revenues are up 48% over prior year (which was up 15% from the year before that, which was down about the same dollar amount from they year before that, which itself was down again from 2001). Operating margins are really bad: 5.3%. And that's far better than the prior year. Share count has grown quite a bit in the last few years in debt for equity swaps and private issue in 2004. Earnings are $1.55 per totally diluted share.
Cash flow from ops is fairly weak due to large increase in AR (and smaller increase in inventories). Discontinued operations chewed up some cash. Ignoring the discontinued operations, free cash flow was around $13 million vs $18.6 million in earnings.
The stock is probably worth around $22.
HOOB (sec) Tiny business leasing out Paramus, NJ buildings to Sports Authority and CompUSA. Stock is down to $36 (I had figured it was worth around $28 plus the excess long-term value of the land).
Balance sheet cash is way up, but "trading assets" (yikes) are down for a net increase of about $200K. Revenues are exactly flat (as expected). They had some trading gains (still yikes). Rental expenses are up somewhat, but SG&A is down by more. Net income is $95K but I'll back out about $30K of that as non-recurring trading gains. 270K shares on 2/9/06. Unknown dilution, but probably not much. That's about 24 cents per share for Q1.
Looking at cash flow, large amounts of money are being traded in some sort of market. Cash flow is all over the map, but looks ok. They only gained $15K in trading for the full year 2005 (it wasn't a loss). They've been paying down mortgage principal every year.
Looking back at the years 1999-2003 (page 14 here), they've never lost money in those years and the worst earnings were 58 cents. Average was about 70 cents. They dumped that medical business and lost some money on that, but overall they did fine.
HYDI (sec) Hydromer polymer R&D for medical, commercial, cosmetics, veterinary. Stock is around $1.30. They successfully defended their cow teat dip patent (yes, you read that correctly). $150K judgement.
Balance sheet cash is down. AR down. Balance sheet still strong. Assets are half PP&E, half current (inventory, AR, cash). Huge mortgage payable liability. Half equity.
Revenues are down 13.7%. A patent expired and royalties disappeared (they reached new agreements with all 4 licensees and revenues will be back up to nearly the prior level, I can't figure out why; "supply and availability agreements"). Gross margins are down slightly due to product mix. There's a benefit from income taxes. Net loss of 3 cents vs profit of 1 cent. A lot of this loss is due to R&D investment being made.
4.6 million shares on New Year's Eve. 523K options outstanding on June 30, 2005 (Note 10 in 10-K). 5 million fully diluted shares.
Cash flow is even worse due to deferred income tax, AP decrease, and some minor stuff. Capex is a bit lower than depreciation. Big purchase of short term U.S. Treasury bills. Paid off some long term debt. That's why they burned off some cash. They're certainly acting like the loss is a temporary blip.
Historically, they earn 3-5 cents per share. Cash flow lately has looked good, but was crappy in 2002-2003. A lot of that was the same kind of investment as the R&D lately. So based on what I see (I haven't looked at them closely like most of these companies being followed), I'd guess they might be worth $1.00.
DYSL (sec) Dynasil. Optical components for lasers, analytical devices, semicondutor devices (photomasks, microwave), spacecraft, aircraft, energy. But this stuff is via a recent acquisition. Stock is around 88 cents.
3.8 million shares on Feb 10... 2005!?!?! Oops, they screwed up, should be 2006. Balance sheet cash is down from year end, AR down, inventories up slightly, net PP&E down slightly, bank line down, AP down, long term debt down slightly, equity up very slightly.
Revenues are up nearly double (acquisition of the optical business stuff). Gross margins 31% (vs 26% prior year). SG&A way the hell up: Operating margin is only 3.3%! And interest ate up a big chunk of that. Only $25K of net income on $1.55 million in revenue which grew from $781K revenue. Profit would have been twice that, but they screwed up a fused silica order.
Free cash flow is better, but still crappy overall. They paid down some debt.
Ok, the real comparison would be to, say, Q3 of last year. Revenues were $1.6 million (higher than Q1 of this year). Gross margin was slightly better than Q1 at 31.8%. SG&A was slightly better than Q1. Operating margin was 5%. Net income was $50K. So without the fused silica screw-up, Q1 would look a lot like Q3 of last year. Cash flow stunk in Q3. They paid $700K in cash for the acquisition (plus $178K in stock, but they assumed $529 million in liabilities). They might have been better off putting the $700K in bonds.
DWVS (sec) point-of-sale activation of "high shrinkage" (aka often stolen) products like cash cards, phone cards, prepaid wireless time. Most of their business is up in Canada, eh. 54 million shares on Feb 17, 2006. 3 million options (see Q3 link). Fully diluted shares are 57 million.
Cash is up. AR is up. Inventories are way up (mostly PINs and cellular phone time). Assets are mostly AR, inventories and cash, with some goodwill and machinery (vending equipment, POS equipment) thrown in. Current ratio is just over 1. Not much equity.
Revenues climbing. Gross margins are 33% (down a couple of percent). Operating margins are 5.0% (up from 4.7%). G&A was 13% (up from 11.5%). Sales and Mar was 5.3% down from 8.3%. $394K net income (up only slightly from $381K). 0.67 CENTS per fully diluted share.
Cash flow from ops was great due to huge increase in AP (mostly PINs and cellular phone time) offset partially by increase in inventories. Capex was about half of depreciation. Very little financing.
10 largest customers were 68% of revenues (up from 60%). Single customers: 19% and 11% (vs 17% and 10%).
Why do I get this feeling like the market for this stuff could disappear 5 years down the road? Well, keep following for now.