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Monday, May 22, 2006

Eternal Technologies (ETLT) 10-K

pink sheets, yahoo, sec, website
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(Pink Sheets location is temporarily here)

2005 10-K
2004 10-K
2005 Q-3

Diluted Share Count

As people who read my writing here know, I tend to account for dilution from stock options by backing out any charges against earnings from options and then assuming that all options will end up turning into shares with zero capital contributed (i.e. I assume stock options have a strike price of zero except in some cases where that greatly distorts the view). My reason for doing that is because I'm only going to be buying stocks that are very cheap... or at least that's my intent. Therefore, most stock options issued are going to be highly dilutive compared to my valuation of the business, assuming that I'm going to invest in it. So if the stock is in fact not cheap, I'll end up being too pessimistic and arriving at a value that's too low, but I don't care because I wouldn't want that stock anyway (this is a case where the grapes really are sour).

The exception is the case where the stock options strike prices are very high relative to the current stock price, which happens when a stock has recently fell out of favor. It's important to watch for those cases. Another exception is toxic convertables, which I've recently received an education in. In that case, I think a fair approach is to guess what price the stock might fall to (or could reasonably be manipulated down to by someone skilled in the art of stock manipulation) and assume a conversion at that price.

So I'd like to come up with my estimate of a totally diluted share count. According to this 10-K, there were 40.6 million shares outstanding on May 16, 2006. There were 39.9 million shares outstanding on Dec 31, 2005. There would appear to be 5.5 million options outstanding on Dec 31, 2005. However, if you read the text on page 43, they say that all 2.5 million options have been exercised. Pause to let that sink on.

These guys get approval to issue 2.5 million options and in less than 6 months
They obviously haven't learned the fine art of at least pretending to treat the options in the manner they're intended (a carrot for the future based on employee performance to increase the value of the business over an extended period of time).

Somewhat toxic convertables are extremely small.

I'm going to assume 49 million totally diluted shares because these people are frickin out of control.

Short-Term Investment

Cash decreased to $18.2 million (from $24.2 million). However, short-term investment appeared in Q4 at $9.9 million. Note that the company never provides any detail about what this short-term investment is, and that bothers me. It makes me slightly nervous that accounts receivable was $9.2 million at the end of Q3 and then this short-term investment of nearly identical size appears in Q4 (while AR drops a bit in Q4). If this was a factored receivable, it should show up as such on these audited financial statements.

According to Wiley GAAP 2002, short-term investments are readily marketable securities acquired through the use of temporarily idle cash. Note that is not cash equivalents which are short-term investments that are 1) readily convertable into known amounts of cash and 2) are so near their maturity (three months or less) that they represent negligible risk of changes in value due to interest rates. ETLT's short term investments are therefore not readily convertable into known amounts of cash and/or have risk of changes in value.

Since the short-term investment on the ETLT balance sheet is classified as current, this means ETLT is willing and able to sell it to meet current cash needs or that it will mature within 1 year. These investments are either held-to-maturity or available-for-sale (depending on obvious factors). ETLT doesn't need to explain the category on the balance sheet. If the short-term investments are in two groups, then the Notes must provide more detail. Since ETLT's notes don't provide this detail, I'm assuming the short-term investment is a single category.

In theory, the short-term investment could be stocks, bonds, warrants, various options. There's $189K of interest income for 2005, $50K of that was in Q4 ($42K in Q3, $48K in Q2, $49K in Q1). So it doesn't seem like the short-term investment is something paying high interest like a junk bond. Whatever it is, it falls outside the scope of cash equivalents.

Q3 vs Q 4

The first thing I want to do is compare Q3 2005 with Q4 2005.

Balance Sheet
Cash decreased from $24.2 million to $18.2 million
Short term investment appeared at $9.9 million
Cash+short term investment increased to $28 million from $24 million
AR decreased by $2 million
Inventories decreased to $135K (from $375K)
Total current assets increased by $2 million (cash+invest partially offset by AR decrease)

ETLT advanced $520K to distributors, which is non-current.
net PP&E increased to $7.3 million (from $6.9 million, presumably from E-Sea acquisition, partially offset by depreciation)
net Land use rights decreased only slightly (25 year lifetime) to $4.8 million (amortization seems slightly different from the amounts stated in Q3)
Intangible asset from E-Sea of $1.3 million

AP dropped by half to $707K
Amount due related party decreased
The all-important Derivative financial instrument liabilities appears at $563K
Total current liabilities decreased to $2.0 million (from $2.7 million).
All liabilities are current

39.8 million shares outstanding on Dec 31, 2005 (nearly all were outstanding on Nov 14, 2005), a big jump from the 30.7 million outstanding on Sept 30, 2005.

Additional paid-in capital increased by $2 million (about 22 cents per additional share?)

Retained earnings increased by $1.7 million.

Total equity (including currency translation gains) increased by $4.86 million.

Income Statement for Q4 2005 (vs Q3 2005)
note: some numbers won't add up due to accumulated rounding differences

Sales: $5.74 million (up from $5.03 million)
Cost of Sales: $3.05 million (down from $3.51 million)
Gross Profit: $2.69 million (up from $1.51 million)
Gross Margin: 47% (up from 30%)

SG&A: $1.14 million (down from $2.95 million)
Depreciation and Amortization: $0.27 million (up from $0.19 million)
Interest Income: $49K (up from $42K)

Change in Value of Derivative: $245K (not shown in Q3, although it would have existed)

Net Income: $1.03 million (probably an increase from what might be roughly $0.8 million)

Based on my totally diluted share count of 49 million shares above, which means backing out the $245K of derivatives value change, I'd say the earnings per share for Q4 are 2.6 cents per share, which would tend to portray the shares being worth $1.56 each annualizing it and slapping on a P/E of 15. Obviously, you'd discount that quite a bit for all the issues about China and such. But this doesn't assume anything about the future, it's just a mindless formula that I tend to use for gauging things.

Equity Statement
visual format

Shares at start of year ****************************** 29.9 million shares
stock issued for services +
stock issued to employees ++.
E-Sea acquisition ++++++
reclassification of unregistered stock +
Shares at end of year **************************************** 39.9 million shares

Cash Flow Statement for Q4 2005 (vs Q3 2005)

Net income: $1.03 million
Depreciation+Amort: $0.27 million
Derivative valuation adjustement: $0.25 million
Stock compensation for services etc.: $0.25 million
Inventories: $0.25 million
AR: $2.62 million
Prepaid stuff: ($0.14 million)
AP: ($0.91 million)
AP to related party: ($0.18 million)
Cash flow from operations: $3.36 million (remember, this is all for Q4 only)

Purchased $9.9 million short term investments
It's not clear what happened with capex due to reclassification, it might have been around $400K.
Sold a patent for $321K.

Sold stock for $1 million
Got $80K from presumably stock options.

Description of Business
There are some minor changes to the text from last year, plus the addition of E-Sea stuff. The Inner Mongolia farm now truly has impediments (the text changed "may have" to "have). They leased out the farm to a tree farming business for $572K per year for 15 years. Considering that the land use rights cost ETLT $6 million covering 25 years, that averages out to a cost of $240K per year. This means ETLT is making a profit by leasing the property out to the tree farm. So the land use rights deal in 2000 was not a bad thing.

The animal genetics business is still competing with Smithfield Foods from the US and Sumitomo Corp of Japan (the 2004 10-K mentioned them as well).

E-Sea has competition from General Electric and Siemens.

ETLT believes their animal business is in compliance with various new regulations from the WTO entry. But the rules are always changing.

E-Sea has a lot of regulation from the Chinese government and exports have regulations by other governments.

68 full-time employees, up from 26 last year.

The E-Sea facility is 120K sq ft. Monthly payments are $4.6K. Lease expires August 2007.

The Western Securities Corp legal proceeding is still outstanding.
The Company believes that this matter will be resolved during 2006 and that the Company will prevail on all counts.
The Bristol Investments legal proceeding was dismissed. Bristol re-filed the lawsuit with no changes.

Management's Discussion

ETLT won't be selling hay since there's now a ban on mowing the grasses.

Historically, nearly all revenue was in Q4 with the embryo sales. Q1, Q2, and Q3 in future years will have lamb meat sales, and embryo transplants into dairy cattle (which apparently can occur outside of Q4).

Land use rights are amortized straight-line over the estimated useful life or lease term. They're sending 4% through the income statement per year ($240K, which is only about half of the income the rights generate).

The whole derivatives accounting stuff is mentioned. They're revalued at the end of each quarter, with changes pushed through the income statement just to screw everything up. So when you have a good quarter, the stock price goes up, making the derivatives more valuable, causing the next quarter's results to be worse, causing the stock to decline, causing the derivatives to be less valuable, causing the next quarter's results to be better, causing the stock to go up, repeated forever in an endless loop.


Revenues up 36% ($6.2 million) due to...
Offset by a decrease of $3.7 million in sale of lamb meat, i.e. innocent baby sheep with weepy sad eyes
Offset by a decrease of $6K in sale of sheep embryos

Lower gross margins (32.1%) are due to mutton sales instead of lamb meat sales (2004 gross margins were 38.8%). Partially offset by the good feeling of slaughtering adult sheep rather than babies.

The higher depreciation is due to E-Sea.

SG&A is up due to a $212K increase in salaries (the top employee salaries were extremely low in 2004, around $20K), $439K increase in professional fees, other increases of $191K. These were slightly offset by other stuff.

The "other income (expense)" decreased by $330K due to the $245K derivative valuation change (vs a gain of $192K), an increase in interest expense of $28K, etc.

They claim capex really was $1.2 million.

Here's an irrational statement worth quoting:
Although the Company has a cash and cash equivalents balance of $18,224,488 and short-term investments of $9,909,084, management believes that the best return for such cash and short-term investments is in the People's Republic of China. Therefore, if the Company is to expand outside the PRC, as it anticipates doing, it will have to sell additional shares of its stock or borrow funds from third parties. However, because of the loosening of currency restrictions in the PRC, it can pay its non-PRC obligations from its funds held in China. Therefore, in the opinion of management, it has sufficient funds to carry out its business plans for the next twelve months.
Ok, so the best place to utilize the cash and short term investment is within PRC. However, the company will invest outside of PRC. Therefore it will need to sell shares or borrow money to do so. But wait! Because PRC is loosening currency restrictions, it can use the funds held in China, so it won't need to sell shares or borrow money. So everything is fine. The big news here is that the cash is not restricted to investments in China. So that net 65 cents per share of cash and short term investments looks a lot better, doesn't it?

Financial commitments are small.

The focus for 2006 will be...
If successful, these should increase revenues and profit margins.


Ham Langston Brezina, LLP
Houston, TX

I looked at these auditors in a previous post here.

They also audited:
Environmental Safeguards, going concern qualifier in 2003 for good reason, but not in 2002. There were no subsequent restatements of 10-Ks.

Amegy Bancorporation They audited the 11-K issued in 2005 and 2003 (wow, that's one better than a 10-K... actually it's typically an employee stock purchase plan), PWC did the 10-K for 2004, 2003, 2002.

Core Laboratories Again, the 11-K but PWC did the 10-K.

PetroSearch Energy They audited a recent prospectus, unqualified opinion despite massive losses and negative cash flow. Also the 10-K for 2005.

US Dataworks 10-K for 2005 and 2004 and a prospectus (incorporated by reference). The 10-K was amended to remove the going concern qualifier, because subsequent to the end of the year, the company got more funding (Notes 3 and 11). Ok, fine, but they burned up $4 million cash, current assets are only $2.4 million and they only raised less than a million to save the company.

There are others, like North American Technologies Group, FBO Air. They resigned from Endovasc in 2005 with 2 years of going concerns. They were auditors for Trans Max Technologies in 2004, going concern... later the company went bankrupt.

I don't get any bad vibes in the googling for these guys.

They don't show up in the list of biggest auditors.

Financial Statements

I already covered much of this above in the Q3 vs Q4 section.

Balance Sheet
Current Assets
Cash and equiv ******************
Short-term investments **********
Accounts Receivable *******
Inventories .
Prepayments etc. .
Total Current Assets ************************************

Advances to Distributors *
PP&E, net *******
Land Use Rights *****
Intangibles (E-Sea) *
Total Assets **************************************************

Current Liabilities
Notes Payable .
Accounts Payable etc. .
Amounts Due Related Parties .
Derivative Liabilities .
Total Current Liabilities **

Equity ************************************************

Income Statement
Sales                      **********************************************
Cost of Sales *******************************
SG&A *****
Depreciation and Amort. ***
Net Income ********

Cash Flow Statement

Net Income ********
Depreciation +++
Derivative Valuation Adjust +
Stock Issuances +
Inventories +
Accounts Receivable ----------
Accounts Payable -
Misc -
Net cash provided by ops .

Short Term Investment --------------------
Capex --
Purchase of E-Sea --
Sale of Patent +

Sale of Stock ++
Capital Contributed +

Net Decrease in Cash <--------------->

The numbers in the cash flow from investing activities don't add up. If you add the individual entries up, you'll see the result understates the cash used by $63,473.

The cash flow from finance activities shows $1,000,000 proceeds from the sale of stock along with $410,399 capital contributed. The equity statement shows $1,200,000 from "Common stock issued for cash and as compensation to employees". They issued 2.5 million shares (options which seem to have vested immediately) supposedly at 40 cents per share (which would have raised $1,000,000). These probably would have been exercised in cashless transactions in late 2005, which would explain the stock drop during that time. I'd label this corporate abuse.

The "Reclassification of unregistered common stock to paid-in capital" resulted in an increase in equity of $563,991 and an increase in shares of 790,827. This is part of the restatement in Note 20. This all pisses me off because it's extremely difficult to follow. It doesn't help me as a shareholder because it creates an area where bad stuff can hide.


Essentially identical to prior year

Identical to prior year

Details of the actual bank account holding the cash removed.

Still no allowance for doubtful accounts
: I'm more bothered by the reason stated than the fact that the allowance is zero.
No allowance for doubtful accounts has been established, as management believes all amounts are collectible.
The Fardo principle states that management will always think things are wonderful. GAAP allows for two methods of determining a valuation allowance. The first is using a percentage of sales based on the historic ratio of bad debts and credit sales. The other method is "aging the accounts" and assigns different percentages to debt of various ages. Neither of these relies on a simple guess of what management believes.

I would have expected at least some rationale why management believes that all debt will be collected.

The depreciation schedule has been stated in terms of years to fully depreciate rather than percentage to depreciate in any given year (it's all straight-line).

Land Lease Rights:
Changed "Land lease rights in Mainland China were stated...." to "land lease rights in were stated...." Oops!
I was correct that the amortization expense was slightly different from last year.

Added some boilerplate on intangible assets (which arrived with the E-Sea acquisition).

Added some boilerplate about currency exchange and the income statement. Also the new floating exchange rate.

Changed "In accordance with Staff Accounting Bulletin No. 104 (SAB 104), revenue...." to "In accordance with Staff Accounting Bulletin No. 104, revenue...." You wonder how much additional delay in filing was caused by little things like that.

A new advertising statement was added: indirect advertising costs are charged to operations the first time the advertising takes place. I know this is correct because I looked it up for CXTI just recently. However, the cost is not significant.

A section was added for derivative financial instruments since they now need to jump through hoops for the toxic convertables (as well as regular options and warrants). Pretty much any weird financial instrument needs to be split into its basic component parts which are looked at individually.

Any agreements which can impose penalties (such as stock warrants with a penalty for failing to register underlying common stock by a defined date) can cause the financial instrument to be accounted for as a derivative, even if it wouldn't have been otherwise. Same thing if the company can't control the embedded conversion or exercise of options (if I understand correctly, that's pretty much always).

If proceeds from the derivatives are less than the initial fair value of the derivatives, then the difference is charged to income.

Derivatives are fair-valued on the balance sheet for every reporting period. Additional costs due to adding derivatives to otherwise normal debt/equity is amortized over the life of the derivative (what about cases where the life is unknown?) as it trickles through the income statement. And these things need to be re-assessed at the end of every reporting period to see if they've morphed into some other animal.

Derivatives are classified as current or non-current based on obvious criteria.

ETLT uses Black-Scholes pricing.

People, this is what happens when accountants rule the world. Everything gets over-analyzed and bifurcated to maximize the profits of accountants. They won't admit that this is happening, just as any dictator believes they're doing the right thing ("Ah, now I can change everything the way it ought to be!").

The revised version of SFAS No. 123, SFAS No. 123(R), will kick in starting in Q1 2006. This makes share based payment even more complicated, causing accountants everywhere to do even more finely tuned accounting and get more money for it to boot. Probably the worst part of it is that any share based payment where services weren't completely rendered before Jan 1, 2006 will get really complicated.

NOTE 4: Inventory
This year we get a breakdown of inventory.

Sheep and cows are gone now (they were $231K of inventory in prior year). [They aren't gone, see Note 6]
Sheep and cow embryos are almost all gone, too (they were $364K of inventory in prior year).
Other raw materials increased to $122K (from $26K)

If I didn't read that ETLT is predicting a better year for 2006, I'd be a bit worried here. The amount of inventory at the end of Q1 will be very important, as will the actual revenues and profits for Q1.

However, if we go back and look at the 2004 10-K, we see that there is a lot of volatility in inventory. At the end of 2003, sheep and cows were only $76K while they increased to $231K in 2004. Of course sheep and cow embryos were $1.1 million in 2003.

NOTE 5: Property Held for Sale and Impairment
I'm hoping they aren't holding any property for the purpose of impairment.
No change from prior year.

They added $41K of office equipment in the US.

Aha! Here are the cows. So this means ETLT is saying that these cows are not held for sale but rather they're equipment. I guess this makes sense because these are crappy cows to be used to implant and give birth to better cows based on imported embryos from the US. I recall that they can do roughly 10 embryo implants per cow before the cow gets presumably all worn out. So I would guess there's a 10% depreciation of the cow per embryo?

Otherwise, the PP&E looks about the same as the prior year, with presumably about $900K added due to the E-Sea acquisition. It's not clear.

NOTE 7: Intangible Assets
This is $1.3 million for a patented dialysis technology (apparently from E-Sea) with very little depreciation.

NOTE 8: Notes Payable
Unchanged from prior year.

NOTE 9: Stock Options Etc.
Oct 6, 2004 stock plan: max 1.3 million shares. 1.29 issued (40 cents)
July 27, 2004 option plan: max 500K shares. None granted
Sept 20, 2005 stock plan: max 560K shares. All have been issued.
Sept 20, 2005 option plan: max 2.5 million shares. All have been issued. But page 43 shows they haven't been issued. And the equity statement shows that they've been issued, raising $1.2 million. The cash flow statements shows it, too, but with a different amount raised?

NOTE 10: Taxes
The only real difference is that the agricultural tax is gone.
Also E-Sea will be taxed at 15% ($70K so far).

NOTE 11: PR Agreements
No change. What about Heron?

NOTE 12: Concentration of Credit Risks
No change.

NOTE 13: Fair Value Stuff
No change. Boilerplate stuff.

NOTE 14: Stock, Warrants, Convertables
Stock sold in 2003 with warrants and agreement penalties. Warrants have a ratchet price, making the number of shares indeterminate. This stuff becomes derivatives with all the associated headaches.

Registration rights penalties through May 24, 2005 were settled by issuing convertables. The treatment of all this stuff is treated like mezzanine financing (see ACAS and ALD for mezzanine details).

Finders' fees and agent fees have registration rights and ratchet prices (not quite as bad as toxic convertables), making them derivatives which will convert into equity eventually. The exercise price of warrants were reduced from $1.54 down to 40 cents back in 2004.

May 24, 2005, convertables were issued to settle registration rights and penalties due. Most of these notes have already been converted, with a balance of $113K fair value. These are toxic convertables apparently with limitations (manditory conversion on certain price and volume criteria).

The sooner these things are gone, the better.

NOTE 15: Operations Concentration
The usual PRC issues.

NOTE 16: Related Party Stuff
The amount due Ji Jun Wu has decreased to $51K (from $106K).
No related party transactions in 2005!

Note 17: Major Customers and Suppliers
There is substantial concentration of suppliers, but the amounts change significantly every year. Same thing for customers. I'm not too terribly worried about it except to note that the business is going to be "lumpy" in the Buffett sense. Results from any given quarter (or even any given year) are not going to be all that representative, which makes it much harder to value the business.

NOTE 18: E-Sea Acquisition
ETLT bought the assets of E-Sea, including the dialysis patent (which I consider worthless).
Price was 5.7 million shares plus $8.5 million.

Assets of E-Sea at the time of purchase:
Cash: $1.5 million
Misc Current: $551K
PP&E, net: $529K
Intangible: $1.6 million
Misc nonCurrent: $519K

Current (and total) Liabilities: $89K

They bought it for exactly book value.

If E-Sea had been owned for the full year, ETLT's net income would have been $6.0 million (vs $4.1 million).

NOTE 19: Commitments, Contingencies
One legal proceeding (the Western Securities proceeding from prior year). Outcome should not be material as the expected liabilities are already recorded.

The old R&D contract with Towering International Trade Corp ("Towering Inferno") fell off the map and is gone now.

The penalties for not registering shares back in 2003 is still on the balance sheet as a liability ($277K).

NOTE 20: Restatement of 2004
This added a $318K current liability to the balance sheet.
Additional paid-in capital was decreased by $1.6 million while retained earnings were increased by $687K, resulting in a decrease in equity of $882K. (stock par value was changed slightly)
A gain of $192K was added to 2004 income, resulting in a slightly higher net income for the year.

The quarterlies were also changed.

NOTE 21: Non-cash investing and financing
In 2004, they had issued stock for notes payable and received inventory in exchange for property held for sale. In 2005, there was just the convertable notes converted into stock. Plus stock used in the purchase of E-Sea.

NOTE 22: Segments
Removing corporate overhead, ETLT's core business has operating margins of 21%. E-Sea had operating margins of 37%.

Auditor Changes

ETLT dismissed Thomas Leger on July 12, 2005 based on unspecified recommendations from the board, presumably due to the troubles in acquiring E-Sea.

All the usual stuff follows. The new auditors were engaged on July 8, 2005.

Controls and Procedure

Thomas Leger reported two weaknesses in ETLT.
  1. The screw-ups surrounding the initial attempt to acquire E-Sea showed weaknesses in controls over closing procedures and accounting for non-routine transactions.
  2. ETLT had to re-state 2002 to reflect merger costs correctly.
Management has supposedly taken corrective action regarding these weaknesses.

Ham Langston Brezina reported two weaknesses in ETLT.
  1. Lacked expertise to account for non-routine transactions.ETLT had to re-state 2004 for accounting for derivatives.
  2. ETLT probably needs additional steps to fix the underlying problem.

Executives and Directors

Jijun Wu 69 Chairman of the Board of Directors (owns 4.4% of stock, including options)
Jiansheng Wei 53 President, Chief Executive Officer and Director (owns $1.6%, incl options)
Shien Zhu 49 Director
Genchang Li 66 Director
Shicheng Fu 42 Director
Rui Zhai 38 Secretary
Zheng Shen 38 Chief Financial Officer

CFO is new. PhD in management (accounting and auditing) from Tianjin University of Finance and Economics (founded 40 years ago), also a professor there. Held positions in an unspecified Chinese accounting firm. Worked at two unspecified companies.

The secretary is new. B.A. in computer science. Was head of ETLT's US office since Feb 2005. Was a system analyst for EB Electronic Engineering Company. No apparent reason for being involved in ETLT. $60K salary.

Directors now gone:
Tielian Liu: Appointed to the board briefly on the first E-Sea acquisition attempt. No surprise that this director is gone.
Xingfa Xu: Independent director.
James Wang: Independent director.
The salary for the Chairman (not CEO), increased to $100K from $20K plus the usual 80K shares of stock.

Shareholders approved the 2005 stock option plan (2.5 million shares) in August 2005.

5,536,442 options outstanding with 1,882,053 which can still be granted.

Audit fees: $144K (vs $142K for 2004), both Leger and Brezina
Audit related fees: $13K (vs $39K for 2004), both Leger and Brezina
No other fees

Big Picture Stuff

Ok, so taking a step back and seeing the big picture...

I can't believe audited results include a cash flow statement where the numbers literally don't add up.

The company has gone on a stock option rampage like nothing I've seen before. Plus insiders dumped a huge amount of stock. Why is the strike price 40 cents when it doesn't seem like there was a closing price that low between Oct 1 and Nov 14 when most, if not all, of those options granted, vested, and exercised (based on the share count of 39,583,407 listed in the Q3 report vs 39,854,026 reported for Dec 31, 2005 in the 10-K)? Because the 10-K lists 37 cents as the lowest price in Q4 and they wanted to use a round number?

I don't understand why there's a $200K discrepency between cash flow from investing activities, the equity statement, and various details.

As others have pointed out here, the pro forma results for the full year for E-Sea include the bogus net income that includes contributed capital. Worse yet: this didn't get cleaned up by the audit.

I don't like the lack of detail on the short term investment.

I'm glad to see how the gigantic Wulugai ranch worked out. It was one of many worries. Hay sales from the farm have ended, but they don't seem to be much.

I'd like to have a better understanding of the future cattle embryo project. I don't like the fact that the company is claiming that the returns from the project will be surprisingly low (covered in an earlier post). The operations tend to be lumpy and largely non-recurring/opportunistic?

What I like about E-Sea is that it helps provide a lower bound on what the business is worth.

The cash is apparently no longer restricted, but the company made that bizarre irrational statement about the US investment.

I've decided to sell all of my shares of ETLT. That was a difficult decision because the stock is arguably very cheap and there's an enormous amount of bad news already priced into it. But I just don't feel comfortable owning this stock.

Unrelated Stuff

Here's an interesting discussion of ETLT at Investment Analysis Group at the Stern School of Business at NYU. I found that they covered pretty much every issue I've had with ETLT. The guy arguing against ETLT is particularly good. It's troubling to see that kids in a non-professional investment club are able to ferret out all of the pros and cons that I've found in a tiny, obscure company halfway around the world. This means any advantage I would have over them would be due to making better decisions based on the same information. The discussion begins at around 30 minutes.

UPDATE same day:
The auditors got back to me on my two questions.

  1. The final edgarized version picked up the incorrect total. The amount should be (11,623,919).

  2. The $200,000 difference is a non-cash charge for the difference in what the employees paid versus the market value of the stock on the date of issuance.
They're contacting legal counsel and EDGAR service to address the first point.

Also I fixed the video discussion link. You should watch it. It's great (but long).

Hello Bruce,

Great post! I enjoy reading your blog - thx for that.

Yesterday I tried to see if I could dig up (google) some additional information (not widely known) about the company. I didn't find anything of value - I also found the discussion from IAG you refer to :)

Have you considered sending the company an email with the questions you raise?

Best Regards,
John Nielsen
Oh yeah ... I forgot, your link to the discussion from IAG is to a .jpg picture, not the .pdf presentation.
"Have you considered sending the company an email with the questions you raise?"

You betcha! I sent it to both the auditors and Heron who handles ETLT's IR. I mentioned two points: 1) why do the cash flow from investing numbers not add up, 2) why is there a $200K difference in cash/equity raised from the 2.5 million shares from the 2.5 million options?

If you click on the picture, doesn't it take you to the presentation? If not, rats.
Maybe I should send them the same questions, then they can almost qualify for the Frequently Asked Questions part of the company webpage ;)

(In my IE browser the picture doesn't link to the IAG presentation - for other readers of the blog: http://pages.stern.nyu.edu/~iag/presentations/2005-2006/etlt.pdf )
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