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Thursday, July 27, 2006

BakBone Software (BKBO) open letter to shareholders

BakBone Software issued yet another open letter to shareholders today.

Bookings are up 28% over last year at this time and equal to the Q4 bookings (Q1 bookings are traditionally lower). $716K cash was spent on severance and capex.

NetVault: Replicator is doing well. It was designed for Linux. With Linux in Japan, BakBone has a 70% market share. Sugoi!

Maintenance attach rate remains at 100% in North America. Also doing very well with Mac OSX installations. Over 190 customers.

They're still working on the internal financial review process which won't be done until late August at the earliest (they'll give an update at that time).

Wednesday, July 26, 2006

Short Interest!

Today is the first day, after 4:00 PM EDT, when the short interest numbers are released for pink sheets and OTC BB stocks. For now, I'm looking at them on the OTC BB site. UPDATE: Here's the Pink Sheets short interest site.

Here are the short interest numbers I'm interested in.
ETLT: a paltry 1,374 shares short. 1 day to cover.
CXTI: 134,281 shares short. 1 day to cover.
EPLN: only 10 shares short!
BKBO: 5,810 shares short. 1 day to cover.

ADY: 2,548 shares short.
CESV: 53,507 shares short.
SUWN: 1,832 shares short.
YHGG: 1,797 shares short.
LVWD: 929 shares short.
HQSM: 205,299 shares short. 1.58 days to cover.

Some notables:
China Kangtai Cactus (CKGT) 28,679 shares short, 26 days to cover. I looked at them a while back.
Bulldog Technologies (BLLD) 471,160 shares short! I just looked at them like a week ago or so.
BAM Entertainment (BFUN) 143,143 shares short. I looked at them last year.
China Evergreen (CEEC) 100,000 shares short. I looked at them last year.
Coca Cola Amatil (CCLAY) 37,075 shares short. I looked at them a while back.

No info for STHJF

Here are some really hugely shorted stocks.
Paivis Corp PAIV: 239,455,555
Tele Norte Cellular P: 100,800,000
Calpine, of course
Sun Hung Kai PPTYS SMMW: 49,820,000
China Construction Bank CICHF: 8,025,000
China Cosco Holdings CICOF: 4,980,000

Going by days to cover, here are the insanely shorted stocks (with like a year or more to cover).

who said you can't print on water?

Tuesday, July 25, 2006

Yet another big jump in the uranium spot price

Concerning Strathmore Minerals:
After 4 weeks at $45 per pound of U3O8, the spot price jumped another $1.75 to $47.50 according to UxC. Of course the spot market isn't terribly liquid and the quoted price is an average, but I figure it's good news just the same.

A potential new reactor at Clinton, Ill is moving ahead slowly. The NRC completed an environmental impact study and in fact they're establishing an office of new reactors.

I've read a bit about the impossibility of getting new uranium mine permits in Australia due to the "no-new-mines" policy. The Labor party leader is pushing for ending it.

EMGP, ELDO, both bad

EMGP (sec) Emergent Group owns PRI Medical Technologies acquired in 2001. Rent-a-stethascope: providing medical equipment on a fee basis to small medical providers and even some large ones. No customer concentration. 81 employees.

10-K, Q1 10-Q: revenues are increasing. 36% gross margins (and climbing, 38% in Q1). 9% operating margins (14% in Q1). 8% net margins (11% in Q1 but some tax benefit). Not much tax in that net margin. Balance sheet is fair. Equipment is like 2/3 depreciated in Q1. Cash flow from ops is good. However, depreciation is huge, meaning this is capital intensive. But it's not clear whether medical equipment inflation would be harmful or helpful or neutral. If leasing prices follow equpment costs closely, then it would actually be helpful.

There's a strange pair of entries in the investment cash flows regarding cash flows with limited liability companies, the amounts of medium sized. Need the "bad story" on that stuff.

Lots of stock issued for various things. 5.5 million shares on May 10, 2006. 431K options on March 31, 2006.

A P/E of 15 would put the stock at $2.50. It's currently trading at $3.00 which is probably a good estimate of full value.

ELDO (sec) Eldorado Artesian Spring Water. Colorado. Bottled water company: 5-gallon, 3-gallon to local grocery stores (probably like King Soopers). Also rented coolers.

10-K: They own property with a water spring, allegedly surrounded by government land. Water rights are junior to other water rights in the region and drought conditions in Colorado can cause a "senior call" meaning someone comes in and takes their water temporarily. But hey, when is there ever a drought in Colorado? They're working on alternatives. They also rent out a single-family home (this is the "resort" they operate?)

3 million shares on June 16, 2006. 500K options! 1 million warrants!

Weak balance sheet. Huge PP&E. Lots of debt. Revenues going up. Gross margins are high (obviously). SG&A is way high. They're right at breakeven. Cash flow from ops is good due to large depreciation (bad). Capex is low, but we would expect that. The nature of their capex will be rare but massive. Debt maturity is pretty far into the future (nearly all after 2011).

Maybe the stock is worth $1.00? It's selling for well over $2.00.

Monday, July 24, 2006

DEWY, DGIX, EIUS, all bad

Today, we're playing a round of Mad Money. I've looked at all of them before, but perhaps not all were posted on the blog.

DEWY (sec) 2kW generators for military, also 90 acres in Bergen County NJ which they're trying to sell. Long term prospects aren't so good. Don't bother.

DGIX (sec) Dyna Group International. Pewter trinkets with NASCAR license, NFL, MLB, NHL, some universities, etc. Looked at them here. Went dark and seem to have disappeared. Not interested.

EIUS (sec) Entertainment Is Us. They buy up entertainment properties. Issued 8.3 million shares to buy Sunkyo, a Japanese pachinko parlor and developer. 5 million shares were accidently issued to consultants. OOOPS!
The shares were to be issued to each such consultant only if the consultant successfully performs all such services. As of the date of this report, the consultants have not located any suitable merger candidates, nor has any such transaction been consummated. As a result, the Company does not believe these shares were earned by the required performance by these consultants under their Independent Contractor Agreements. On February 22, 2006, before the issuance of these shares was completed, the Company's Chief Executive Officer sent instructions to the Company's transfer agent attempting to prevent the issuance of these shares or any other shares that would cause dilution to the Company's stockholders without appropriate consideration to the Company. Despite these instructions, the 5,000,000 shares were subsequently issued. The Company is currently considering its alternatives to obtain the return of these shares, money damages or other remedies.
The pachinko gambling business rakes in 14.8% of wagers (which was a net $7.8 million in the quarter ending March 31, 2006). The machines are good for 2-3 years, but can be less if the latest fads change too quickly.
Ginza Kaikan is a company that operates entertainment facilities for pachinko and slot machines. Ginza Kaikan is owned by Mrs. Kyoko Kanayama, the wife of Noriyuki Kanayama. Mrs. Kyoko Kanayama is a director and the majority stockholder of Ginza Kaikan. Ginza Kaikan owns four entertainment facilities in the city of Shizuoka. The Company sends employees to Ginza Kaikan and shares some parts of their salary with Ginza Kaikan. The Company also rents property to Ginza Kaikan.
And then there's this weird press release:
Entertainment Is Us, Inc. (OTC BB: EIUS) today announced that it has recently been approached by certain shareholders claiming to have been contacted by organizations not authorized to act on the Company's behalf. Among other inappropriate actions, one firm has allegedly contacted certain EIUS shareholders in an effort to seek payment for removing legends from unregistered shares in order to make them freely tradable. This firm is purportedly offering to charge a fee that is not warranted, and this organization has no authority to act in this capacity.
Oh, and there's a guy running around claiming to be an officer of the company:
Entertainment Is Us, Inc. (OTC BB: EIUS) recently became aware that Peter Voss appeared at an April 28, 2006 Small-Cap Conference sponsored by RedChip Companies, Inc. and falsely claimed to be an officer of the Company.
The stock has recently dropped from $1.50 to around 13 cents, but I think I'll pass.

I'm thinking of a Japanese word... and the word is "yakuza". In reality I have no idea, it's just a thought.

DAC Technologies (DAAT)

DAAT (sec) Gun cleaning and safety equipment business. Wal*Mart is a big customer.

Last time I had bad vibes. Are those vibes any better now?

10-Q for period ending March 31, 2006:
Still 6.3 million shares as expected.
AR is up, still have a "due from factor" asset, inventories are down.

Revenues are up somewhat. 35% gross margins. 7% net margins. Cash flow from ops is still negative: inventories and AR to blame. Yeah, I still don't like it.

Edac Technologies (EDAC)

EDAC (sec)

Prior posts
9/10/2005 Edac Technologies (EDAC) misc stuff
9/10/2005 Edac Technologies (EDAC) 10-Q
9/10/2005 Edac Technologies (EDAC) 10-K

10-Q for quarter ending April Fools Day 2006:
4.5 million shares on April 25, 2006. 492K options outstanding.
Comparing to the July 2, 2005 10-Q I last looked at...

Cash is up. Balance sheet is still strong. Still heavy on PP&E. Significant debt. Less than half equity.

Revenue is up somewhat, but SG&A is up a lot (expansion of mfg plant). They now have taxes. Net income of $293K. Jet engine sales are up, non-aerospace sales are down due to a single consumer products company customer. Overall revenues are up significantly over prior year. Backlog is up. Commercial jet engine sales look good.

Cash flow from operations for the quarter are significantly negative due to an increase in AR (from the year end). Huge capex for the quarter. Borrowed a lot of cash via an equipment line of credit.

I don't like this company because of the industry, the fact that too much of their success is not under their own control. This just isn't what I'm looking for. Compare this to Epolin, what a difference!

Gensym Corp (GNSM) revisited

GNSM (sec) Rule engine software for mission-critical real-time applications. Manufacturing, utilities, communications, transportation, aerospace, finance, etc. Lots of vertical market effort, it seems.

CEO employment agreement: $288K plus 50% bonus [based on what?], 300K options $1.80 strike (three year vesting schedule), plus benefits and another $144K bonus for actual results.

Some guy owns 18% of the stock. Another guy owns 13% of the stock. Executives and directors, by the way, own 16%.

Results for Q4 ending Dec 31, 2005. They had a profit of $179K (almost no taxes). For the year they lost money. Balance sheet isn't very strong. AR heavy assets, but not much else besides cash.

72% gross margins. Barely crossing above breakeven in operating and net profits.

10-K for the period ending Dec 31, 2005.
7.5 million shares on March 24, 2006. 1.7 million options. Figure on about 11 million totally diluted shares.

Revenues are flat from the prior year.
2005: $17.7 million
2004: $17.6 million
2003: $14.6 million
2002: $17.5 million
2001: $20.2 million

They've been hovering around breakeven for years. They've been free cash flow positive for two years, but not by much.

The stock is around a dollar, for a totally diluted market cap of $11 million. Unless there's something good in their future, I'd say they're selling for about what they're worth. But I really don't know.

Sunday, July 23, 2006

Bulldog Technologies (BLLD) revisited

BLLD (sec) This is the container security company which is pretty much just starting up. They started operations in Mexico and was working with Mexico to do security for a new port expansion to offload Los Angeles.
Last looked at them here.

Let's see what's happened since Jan 26, 2006:
An anonymous Fortune 500 health care company ordered some MiniBOSS units (BLLD has both MiniBOSS and RoadBOSS GTS). BLLD launched a web-based tracking system called BOSStrack. They reached some vague profitability milestone. An anonymous retailer with 500+ stores purchased MiniBOSS. Trellus Management Company owns 6.58% of the stock.

At the end of Feb 2006, BLLD issued a bunch of toxic convertibles. Looks to be $2 million toxic amount plus around 3 million shares. The stock price went from about $1.10 to 43 cents where it is now. The principal is $2 million and the market price conversion is based on 20 trading days (the conversion is at 90% of that). Right now, the market cap is around $10 million so at this price, the investors will get something around 18% of the company.

Associated with the toxic convertibles, people bailed out of 6.4 million shares, at least a big chunk of it was repriced convertibles and stuff associated with the new toxic converts. And it continues.

A VAR agreement with Smart Cargo Soluciones Integrales in Ecuador. $1.4 million in revenues. And then three more VAR agreements in Latin America: Chile, Venezuela, and Mexico. No dollar amount. Then another press release with a dollar amount of $195K plus $72K in airtime services in Venezuela.

Launched the RoadBOSS GTS.

Late 10-Q filing for period ending Feb 28, 2006.
25 million shares plus all those godamn toxic convertibles, warrants, and whatever. 5.5 million options outstanding.

No surprise that the balance sheet improved due to the huge dilution. But they now have an equity deficit thanks to the unlimited nature of the convertibles. $5 million in assets (up from $2 million in August 05).

Tiny revenue. Huge expenses. Their cash burn rate seems to be over $850K per month. $3.4 million proceeds from convertibles, but operations burned up $2.5 million.

They're going to have huge expenses (est. $4.59 million for 12 months) going forward and it's not clear to me if this puppy will float. And if the stock price drops enough, the dilution will be enormous.

I'd assume something like 40 million totally diluted shares... and even that might be optimistic.

BLLD is working with the Port of Manzanillo in Mexico. It's Mexico's biggest Pacific port. They also are working with the Port of Ensenada.

Director resigns. And then a re-org: CEO steps down to focus on Latin America, CTO becomes acting CEO. CFO is terminated. A consultant will be used. And then, new CEO.

They raised a paltry $750K for 90 days secured by all the assets of the company. Sounds like cash flow panic time.

The latest 10-Q is late.

I'd say the company is worth following just to see what happens, but I'm definitely not buying any shares.

American Dairy (ADY) Q1 results

ADY sec

Q1 10-Q:
Quarter ends March 31, 2006

Balance sheet:
Cash decreased somewhat.
AR overall is largely unchanged, but trade is up somewhat.
Advances to suppliers is up.

P&E* construction is winding down
Another $666K deposit on land use rights.

The deferred income current liability has dropped back down by more than half.
Current ratio is now above 1.
Equity is up by about $5.8 million (some additional paid-in capital)

Income statement:
Revenue is $25.9 million, up from around $24.5 million in Q4.
Gross margin 52%.
Operating margin 19% which is also roughly net margin.
$4.8 million net income ($5.3 million total comprehensive income due to currency translation)

I figure a reasonable totally diluted share count is about 25 million shares which would result in about 19 cents per totally diluted share.

Cash flow statement:
Cash flow from operations was totally clobbered by deferred income (i.e. they were paid in cash previously and are delivering the goods now... the deferred income liability dropped appropriately). Operations burned $761K of cash.
Continued capex. $666K deposit on land use rights.
Minor financing activity.

$4.2 million advertising for the quarter!

US cash balances down to only $11K.

Income tax would have been $1.7 million for the quarter.

$434K stock option expense.
2.5 million warrants outstanding.

$2.8 million construction commitments, land and building $670K, land use rights of $273K, future advertising costs $294K. They just keep expanding. Not sure if it's too fast or in wrong areas or whatever.

April 2006, $3 million convertible debt converted to roughly 400K shares ($8.00).

Revenue increases had largely the same causes as mentioned in the 10-K for the year. Revenues were not up all that much vs Q4, the previous quarter. This is probably why the stock is down somewhat.

Gross margins were up to 52.2% from 46.2% or 48.3% last year due to lower costs of whey (purchased rather than created within company), partially offset by increases in sugar and fat-free powder.

I had seriously considered ADY as an investment, but I have a problem with the CEO owning 62.8% of the stock. I'm going to pass on this.

* There's no land ownership in China so I figure PP&E is more correctly called P&E.

Saturday, July 22, 2006

Epolin (EPLN) Q1 results

I like this company. It's simple. Their communications with shareholders are direct and clear. They've demonstrated a responsiveness to the owners/shareholders. Margins are excellent. Returns are excellent. They recognized a clear need to improve marketing, they made the needed changes, and the results are great. While the company isn't particularly cheap, I still own the stock because I believe they will perform well far into the future.

10-Q for the quarter ending May 31, 2006.
12 million shares on July 1, 2006. 421K options outstanding (only 160K exercisable), weighted ave strike of 42 cents. 418K options available for future grants.
Assume 12.7 million shares totally diluted.

31K options exercised. They repurchased 5K shares at 91 cents (too high, in my opinion).

Don't really need a lot of notes here. The 10-Q is straight forward and easy to scan.

When I looked at the 10-K here, I covered Q4 results. Q4 revenue was $1.07 million. Q1 was $1.09, not much more. The newer areas were strong. Overseas sales were stagnant but US sales increased $337K over Q1 of the prior year. So overseas sales dropped from last year since total revenues increased slightly less than that.

In Q4, SG&A was 45% of sales. In Q1 it is down to 27.1% (prior year Q1 was 31.1%). Absolute dollar SG&A increased due to officer salaries, benefits, commissions (but commission has been restructured and reduced somewhat).

Gross margin is up due to higher revenues despite a 1% increase in material costs. Operating margin is 32.8% and net margin is 20.6%. Excellent.

Taxes are way up ($143K vs $75K) due to sales and expenses.

Cash flow from operations are expected to fund the business going forward for the next year+.

The accountants did a review (which is less stringent than an audit, but still useful). No qualifications.

Balance Sheet:
Cash is up to $1.7 million.
AR increased to $631K from $450K.
Inventories are down slightly.
Gross building and improvements increased by $62K over last year's Q1. Gross lab equipment increased by $50K. Gross office equipment increased by $15K. PP&E is depreciated by about half.
Accrued expenses are up to $322K from $74K. Tax liability increased as well.
Current ratio is insanely high: more than 6.
Net cash is $960K (7.6 cents per totally diluted share).

Income Statement:
(mostly covered above)
My estimate of net income is $264K (I back out stock based compensation expense because I account for it via totally diluted share count), or 2.08 cents per totally diluted share.

Cash flows:
Operating cash flow is more than double net income due to taxes still payable, stock based compensation expense, AR decrease from Dec 31, etc. partly offset by inventory increase and deferred compensation agreement obligation (expense jumped from $52K to $272K).

Capex was $23K (depreciation was $14K).

$239K dividends paid. The stock options and repurchase I already mentioned above (very small impact).

Regulatory compliance costs were $3.8K (vs 7.2K prior year's Q1).
Advertising costs were $4.5K (vs $5.7K prior year's Q1).

No big commitments in future years.

Customer concentration: 41% of sales go to three customers. 30% go to two customers. This is down from 44% and 39%.

R&D went up slightly.

The new CEO gets 10% of any increase in net income for the year ending Feb 28, 2006. The board will determine future bonuses.

US revenue: $816K (vs $479K last year)
Asia revenue: $216K (vs $235K last year)
Europe revenue: $57K (vs $81K last year)

I'd say the stock is clearly worth more than $1.05. I'm thinking revenues will slowly increase faster than inflation and my estimate of the value is along the lines of $1.30 or so.

Miller Industries (MLR) revisited

MLR (sec) I last looked at MLR here. "This was the Chattanooga area based manufacturer of vehicle towing and recovery equipment. Seems like a good company in a potentially bad competitive situation."

They announced Q1 results, 10-Q. Period ending March 31, 2006.
11.4 million shares on April 28, 2006. Based on no new options in Q1, my estimate of totally diluted shares remains at 12 million.

AR is up. Inventories are up. Balance sheet continues to be strong.

Revenues are up 21%. Gross margin is up to 15.1% (from 11.7% in prior year) and it's up for apparently good reasons. SG&A is up 20%, unfortunately, but at least it's down as a percentage of net revenues. 8.1% operating margin (vs 4.5% in prior year).

Increased backlog.

They paid down some (not much) junior debt and approved some more paydown. Senior debt interest rate decreased from LIBOR+2 to LIBOR+1.75.

But the market only seems to care about this:
While we continue to increase production of our commercial lines, the timing of the receipt of additional military trailer orders and the chassis delivery dates for add-on military wrecker orders will have short-term effects on timing of production and revenues over the remainder of the year. As a result, we anticipate revenues in the second quarter could be somewhat lower than the first quarter.
And perhaps even worse is this:
However, we continue to feel substantial price pressure from our suppliers across a wide range of products, including aluminum, steel and all petroleum based materials, making further margin expansion more difficult in the coming quarters.
Ah, inflation. This is where you need pricing power to pass those costs on.

They had a conference call, but I think I missed it.

Net income was $5.88 million, but with no taxes paid. NOL valuation is $6.8 million. They provisioned for 12.6% tax (vs 10.5% last year), increased due to foreign income.

AR and inventories and prepaid stuff killed cash flow from operations. But it stunk far worse during the same period last year. Capex about matches depreciation. Some long-term debt was paid off.

No stock options issued during the period.

Senior credit facility (big revolver, smaller term loan) is LIBOR+(1.75 to 2.5). Revolver expires June 15, 2008, term loan expires 2010. Secured by all assets. $11 million in debt expires in 2009.

Bill Miller loaned the company some money as junior debt. 9.0% interest. After Q1, MLR decided to borrow more senior debt to repay $5 million of this related party junior debt.

There's a bunch of other related party details.

In 2004, MLR started a project with DataPath (satellite communications) for mobile trailer communications. This ramped up to $4 million from $2.9 million in the prior Q1 but with substantial accounts receivable. DataPath had little impact on the revenue increases seen here. Most of the increase was due to general market conditions (i.e. not an increased market share or new markets).

Hotchkis and Wiley Capital Management owns 10.4% of the stock.

They'll be expanding manufacturing in Ooltewah, TN and in Hermitage, PA due to increased demand for products. Cost is $10 million to be funded by operating cash flow and unused senior credit.

I had estimated the stock to be worth $22 and I suppose that still holds. Demand might be increasing, but cost of materials is increasing and I still fear Asian competition. The last stock trade was at $18.26, so it's not cheap enough.

Friday, July 21, 2006

Liberty Bell Bank (LBBB)

Izzy's idea.
website, chart, no sec filings, I have no idea how many shares are outstanding.
FDIC #57524

2099 Route 70
Cherry Hill, NJ 08003
(856) 489-8401

Q1 2006 results (from the FDIC database)
$97 million in assets, up from $77 million at Q1 2005. If assets grew that much, I'm guessing that they aren't yet (or weren't) fully leveraged. Looking at the capital ratios, I see this is correct. Equity capital to assets is 14.35% (actually higher than the year before, so did they infuse the business with equity?). Tier 1 risk-based capital ratio is over 20%. Total risk-based capital ratio is over 21%.

Going back to assets and liabilities, equity jumped to $14 million from $6.8 million in the prior year. Again, why? It ain't because of profits because they went deeper in the red since last year.

Back to assets: 32% securities, almost all US Gov obligations, about half of that is Fannie Mae/FHLMC and the other half is non-mortgage but still GSEs (no further breakdown). 57% net loans, mostly real estate, half of it commercial with a large amount of non-apartment building residential, also some commercial and industrial loans.

Ok then, let's look at their assets past due. 0.43%, which isn't horrible, down from 0.9% a year earlier. Looking at 2006, half of it is farm loans. Only 0.08% (all farm loans) past due 90+ days (none last year). No chargeoffs.

Ok, how about income and expense? Net interest income is 2.58% of assets, but non-interest expenses are high at 3.87% of assets (much of it salaries plus premesis and equipment). They're losing money but not as bad as last year. Net interest margin is only 2.82%.

If we compare this bank to all banks in New Jersey with less than $100 million assets, their net interest margin is 3.17% although their yield on earning assets is actually slightly lower. Looking at net income, the average small New Jersey bank lost money in Q1 2006. Ok, so let's check the full year 2005. They lost money there, too, but not as much as Liberty Bell (as a percentage of total assets).

Announced Q1 results
The press release says they issued 1.4 million shares in April 2005, which would explain the big increase in equity capital. Total shares outstanding at Q1 2006 were 2.7 million. 3 full-service offices. This is their third year, they're doing pretty good then.

The last stock trade was for $7.67 which would give them a market cap of $20.7 million. Total equity is $14 million.

So what is Liberty Bell worth? I have no idea. But just guessing, let's say they end up with around $120 million in assets which earn about 1% which would be around 40 cents per share. Slap a P/E of 15 onto that and you've got $6.67 per share which is a bit lower than the recent trade. So the real value will depend on how well they perform as a bank. Ideally they should scale the assets up to $200 million or more. Will they do that? I have no idea.

Wednesday, July 19, 2006

Animal Cloning Sciences (ANML)

2 year chart, sec

69930 Highway 111
Suite 100
Rancho Mirage, CA 92270

10-K report
"The company has no employees. The officers of the Company do not work exclusively for the Company." They're basically inactive... or so they say.
The Company had been conducting research on cloning horses and evaluating license agreements to distribute equine DNA for equine clones. The Company was focusing its research on a cloning method that would lend itself to commercialization of equine cloning.

In early 2003, the Company was informed by the USDA that its license to import frozen embryos, which was expected to be issued, would not be forthcoming because of concerns arising due to the tragic events occurring on September 11, 2001. As a result, the Company ceased its efforts at cloning and disposed of assets used for cloning in the third quarter of 2003.
I'm not sure I understand the connection between 9/11 and horse embryos. but I suppose it could show up in the next Oliver Stone movie.
As of September 3, 2003, the Company is considered to have re-entered the development stage.
...if by "development" they mean zero assets and $830K liabilities. The good news is that they're at cash flow break-even (think about it).

But I hear that whenever there's a lightning storm in Rancho Mirage, a bolt of lightning always strikes that building on Highway 111 followed by all sorts of mad animal noises. And doesn't it seem odd that the CFO's name is "Mork"?

Looking back at the 10-K they issued in 2002, their business plan seems like it was a bit meaningless.
The Company expects that its research in cloning and freezing horse embryos will have an application in freezing cat and dog embryos.
Texas A & M University has announced the successful cloning of a cat. The university has stated they are close to cloning a dog. So far scientists have cloned sheep, cattle, goats, monkeys, pigs, cats, and mice.

Competition. Thus far nobody has cloned a horse. Animal cloning research is being conducted by many organizations throughout the world. Most research efforts are directed towards farm animals. More than a dozen companies are researching dog, cat, and horse cloning.
Is it just me, or is this totally pointless and without any clear path to profit. Pure "underpants gnomes" type stuff.

Plus, everyone knows that if you clone an animal, it becomes a hideous beast. And the name "Animal Cloning Sciences" is totally boring compared to, say, Genetic Savings and Clone (Investors are still in the doghouse). View the clones if you dare!

UPDATE: Going further with Genetic Savings and Clone, they have an important page on dealing with "Emergencies".
If your pet has been deceased for one or two days and you live in the USA, take the following actions:

1. Refrigerate but don't freeze your pet. [and you probably don't want to marinate with teriyaki sauce or anything like that]

2. Call your veterinarian and schedule an immediate biopsy procedure.

3. Review the PetBank service options, and call us toll-free at (888) 833-6063 to place an order.

After you order, we'll ship a BioBox to your veterinarian along with biopsy instructions and a prepaid return shipping label. When the biopsy procedure is complete, instruct your veterinarian to ship the BioBox to us along with the included paperwork.

Oh man, I want one of those BioBoxes!

American Dairy (ADY) 10-K

ADY sec

10-K for period ending Dec 31, 2005.
Incorporated in Utah. Offices in Beijing, PRC.
14 million shares on March 29, 2006.


May 2003 acquired American Flying Crane Corporation ("AFC") (previously called American Dairy Holdings). Reverse merger with Gaslight, Inc., a shell company inactive since 1991.

AFC owns 100% of Heilongjian Feihe Dairy Co. ("Feihe Dairy") in PRC. Main activity is distribution of milk powder and other dairy stuff. Feihe Dairy has three subsidiaries:
1) 100% of Heilongjian Sanhao Dairy ("Sanhao Dairy") processed milk and soybean products
2) 100% of BaiQuan Feihe Dairy ("BaiQuan Dairy") processed milk and soybean products
3) 60% of Beijing Feihe Biotechnology Scientific and Commercial Co. which does marketing for Feihe Dairy.

Feihe Dairy started in 1962 with Heilongjiang Zhaoguang Hongguang Dairy Plants ("Hongguang Dairy Plant"), a state enterprise distributing powdered milk in China. Production was 5 tons per day, mainly sold in Shangdong Province.

1982, HeilongJiang Zhaoguang Diary Plants was established as a state enterprise. Merged into Hongguang Dairy Plant in 1984, still remained a state enterprise.

1997 re-org. Spun off as a private company in Feb 2000. $894K of registered capital.

March 2001, acquired all of the fixed assets (including land use rights, plants, equipment, buildings) of Kedong Gongmu Dairy Plants. 99% ownership (1% remains in trust by Fu Man Guo), but considered to be a wholely owned subsidiary.

Aug 2001, started new production facilities in Kedong County. Milk powder.

Sanhao Dairy incorporated in March 2001. $433K registered capital. Fu Man Guo holds 1% of this company in trust. Purchased (land use rights included) by Feihe Dairy from Kedong County Economic Committee for $364K. Feihe Dairy added all the fixed assets from Kedong Gongmu Dairy Plants (except for land use rights of 48K sq meters of land) plus an additional $69K. In 2004, ADY merged Sanhao Dairy into BaiQuan Feihe Dairy to consolidate.

April 2004, ADY established the 60% owned subsidiary Shanxi Feihesantai Biotechnology Scientific and Commercial Co ("Shanxi Feihesantai") in Shanxi Province. The 40% is owned by Licheng Shantia Technology Enterprises, unaffiliated. Shanxi Feihesantai makes walnut powder and other walnut products.

June 2005, ADY bought a milk powder processing facility from Nutricia Nutritionals of Hei Long Jiang for $7.3 million and $130K inventory. ADY also picked up 19 milk collection stations.

ADY has supply contracts with lots of small dairy farmers who have cattle grazing rights to about 800 square miles of land (about 2/3 the size of Rhode Island) in Kedong County [which is not far from Harbin]. This is 10 times bigger than the county itself. Here's a closeup map. Note that the grazing area would be about 1/4 of this entire map. The 10-K says about 27% of the acreage is arable pasture land and 30% is planted with beans and corn (ok, now that makes sense). The area below Kedong appears to be typical cattle grazing land similar to the land where my grandparents had their cattle ranch, but it's smaller than the 800 square miles they claim. And here's where it is on a big map relative to North Korea and northern Japan. This area has a subarctic climate. It's actually north of Harbin and Harbin is fricken cold!

ADY has a milk powder processing plant, Sanhao Dairy in Kedong County (bought in March 2001 for $461K), close to 12 acres of land, 59K square feet of factory space. About 8K square feet of office space. Building is 14 years old. 236 employees.

ADY has a milk powder packaging plant, BaiQuan Dairy, in Kedong County. Roughly similar dimensions and age. 62 employees. Acquired in Jan 2003 for $700K. Additional land aquired in March 2004 for $293K.

ADY has another milk powder packaging plant, Feihe Dairy, in Kedong County. Started up in Aug 2001. 134 employees.

ADY built another milk powder processing plant (started in 2004) near Sanhao Dairy. Land use cost $401K. Building cost $4.2 million. Equipment and machines cost $11 million.

Total of 578 employees.

Awarded ISO 9002 QA certificate in Oct 2000.

ADY processes raw mild within 24 to 36 hours vs large dairies which, ADY claims, are typically 3-4 days old. ADY doesn't homogenize the milk (they claim it tastes better that way) and pasteurizes at the lowest possible temp. They use cold separation for clarified milk.

The walnut powder operations started up Oct 2005.

Looking at the operating details, Ca+Zn series milk powder remained flat from 2004 to 2005 in terms of amount sold. CPP series milk powder increased. Soybean products decreased quite a bit. Rice cereal ramped up from zero to 4% of dollar sales.

No customer concentration. That's not true! In the notes, one customer is 15% of revenue during 2005 (however, no concentration during 2003 or 2004). No regional sales concentration.

They look to expand via joint ventures, licensing, or other arrangements.

They're doing lots of advertising in China ($3.4 million in 2005, $2.8 million in 2004, $1.6 million in 2003). The marketing focus is on the premium end. Their prices are higher than [many] competitors, which is good. ADY is less well-known than some competitors. The biggest competitors are state owned dairies (good). Big foreign companies have entered China.

April 2005, ADY issued a convertible note for $3 million. 6.5% interest, convertible at $8.00 per share, fixed. Term of 1 year.

Summer 2005, ADY issued two convertible notes for $5 million total. 7.5% interest, convertible at $10.00 per share, fixed. Term of 2 years. The cash was used for acquisitions.

Jan 2006, new agreement to build a milk processing plant in Gannan County, same general region. ADY gets some big perks with this, lots of government subsidies including the initial costs for farmers to buy up to 200K cows (hopefully bought from ETLT).

No legal proceedings.

3 million shares available for options, none issued. Some warrants were exercised.


Revenues increased 82% in 2005 due to "expanding market areas" (I don't know for sure if they mean that the total available market has expanded or that they have expanded into new markets) and due to new products. The specific reasons they give for increased revenue are:
COGS increased by 115%, more than revenues (i.e. gross margins dropped in 2005). The main factor seems to be a 49% increase in direct materials, due to using more nutritional supplements in higher end products (hey, I thought those had higher margins, not lower margins!!!). Other factors are a tiny fraction of this.

Distribution expenses went up 24% due to advertising, promotion, and the costs associated with adding new market areas (products or geography?).

G&A went up 89%. Depreciation (new buildings, plant, equipment), education, entertainment, office, union, transport, bad debts, salaries, top level consulting services.

Tax reversal of a 2003 actual tax on BiaQuan Dairy which was waived by tax authorities in 2004.

In 2004, revenues were up 40%, net income was up 207%. Much of the same story for that year as for 2005.

Liquidity section: Warrants exercised generated some cash. Negative working capital at the end of 2005.
Total obligations are $10 million, mostly long-term debt (most matures 1-3 years) and purchase obligations for advertising contracts (for one year). These don't seem to be a problem based on what I see in the financial statements.


Murrell, Hall, McIntosh & Co. in Oklahoma where the wind comes sweepin' down the plain.... They've been around since 1973. Two officies, both in OK. There's one Chinese person in their audit division: Zibing Pan (associated with the OK City office), email is zibingp at the company's domain name. According to this cached web page and this, Zibing Pan was working for the Oklahoma Employment Security Commission as recently as 2005. He apparently was associated with the University of Oklahoma in December 2003 and was holding onto a Sam's Club card while someone else (who themselves sold a microwave for $15) was out of town. :-)

They audited...

The Oklahoma Housing Finance Agency in 2000, 2001
Precis Smart Card Systems (sec). 2002 (Norman office), unqualified opinion, which was quite reasonable. Fees were $45K for the audit, $16K for tax services, $7K for misc. But they were soon dismissed by the company. BDO charged an audit fee of $107K and then $230K. I'm thinking the prior auditors were, um, lightweights maybe.

But they audited the Norman town public school system.

Also audited Third Millennium Industries, a real failure.

They audited Energas Resources. April 28, 2006, going concern qualifier. Seems like a good call.

Some art galleries and misc foundations. An oil company or two. They seem like a small-time operation. They might have a wonderful or terrible reputation, I don't know. But they're probably cheap and adequate from ADY's point of view.


Balance Sheet:
   * = $1 million
Current Assets
Cash *************
AR ****** $309K allowance
Inventories **********
pre-paid *
advances to suppliers *
total current assets *******************************

PP&E **************************************-
$3.4 million construction in progress

Total assets *********************************************************************

Liabilities and Equity
AP and accrued expenses ************
advances from related parties *
advances from employees *
deferred income ************
short term debt *******
total current liabil *********************************

Long term debt ******

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

Income Statement:
   * = $1 million
Revenues ********************************************************************
Cost of goods sold ***************************************
Distribution expense *****************
G&A **

Other income --

Net income ************

Cash Flow Statement:
   * = $1 million
Cash flows from Operations
Net income ++++++++++++
Depreciation +
stock issued as compensation +
AR -----
inventories -----
advances to suppliers -
AP +++
deferred income ++

Cash flows from Investing
capex ---------------
misc +

Cash flows from Financing
short term debt +++++++++
long term debt +++++
repaid short term debt -
sale of stock +

Net increase in cash ++++++

Depreciation schedule:
buildings: 33 years
plant and machinery: 20 years (seems a bit high)
motor vehicles: 9 years (actually less than what I often see from Chinese companies)
computers and equipment: 5 years

Revenue is recognized on the transfer of risk/reward, typically when delivered to customers.

Other income includes a state incentive to relocate from previous factory.

In 2003, 2004, 2005, Kendong County Government refunds 50% of the VAT tax as an economic incentive for the local economy. $1.5 million in 2005. $1.1 million in 2004. $943K in 2003.

Product display fees. ADY has agreements with resellers paying to display products. How quickly China adopts the finer details of capitalism.

There's all the usual issues, costs, etc. with Chinese companies.

$206K held in a US bank.

ADY owes Leng You-bin $858K (loan from officer/director)
ADY owes other officers/directors $75K
No interest, due on demand.

Fixed assets: $36 million with $1.4 million depreciation so far.
Buildings: $19.3 million
Plant and machinery: $16 million
Motor vehicles: $787K
Computers/equipment: $392K

Construction in progress: $3.4 million
Feihe Dairy processing facilities: $2.9 million
Shanxi walnut processing facilities: $506K

Note payable to a bank. 6.7% interest, secured by plant and machinery. $3 million
Convertible note. 6.5% interest. Due April 26, 2006. Convertible to common at $8.00. $3 million
Unsecured non-interest bearing note to unrelated company, payable on demand. $1 million
Unsecured non-interest bearing note to county finance dept. $247K
Convertible notes. 7.5% interest. convertible to common at $10.00. $5 million
Note to bank. 5.76% interest. Secured by P&E. 96 months. $635K
Car loan. 60 months. $10K

Minority interest is 40% of equity in Shanxi walnut stuff.

Expected tax expense for 2005 would be $4.4 million. All covered by foreign tax holiday. 7 years granted, expires in 2009. This is about 30 cents per share!

Outstanding warrants: 2.5 million shares (2.5 year life, $2.23 strike price)
3 million shares reserved for stock option plan. A small number were issued for services. No employee options granted.

Signficant future commitments mostly covered above. Nothing odd.

Q4 Results:
Revenue: $24.5 million
Gross profit: $8.2 million
Net income: $4.0 million

Quarter by quarter revenue: Q1=$14.1, Q2=$15.1, Q3=$14.3, Q4=$24.5
Quarter by quarter net income: Q1=$2.6, Q2=$2.8, Q3=$2.2, Q4=$4.0
Q1 2006 revenue is $25.9 million, net income is $4.8 million


Leng You-Bin, 36, Chairman/CEO.
13 years in the industry. 1989-1997 big shot at the predecessor to this company. Researched and patented "liver protection milk powder" (GanBao Milk Powder).

CEO owns 62.8% of the stock.

Liu Hua, 33, CFO
Was CEO of Shenzhen Cima Ltd. CEO of Zhengzhou Huacheng Ltd. CFO or FO in this company since 2000.

Liu Sheng-Hui, 35, Director since May 2003.
Financial guy within ADY. Joined in 1992. Current position since 1998.

Hui-Lan "Tracy" Lee, 56, Director
Assistant VP Taxation of Countrywide Home Loan since April 2003. Tax Manager of Watson Pharm from 1996 to 2003. Worked at Flying Tiger Line, Quotron Systems, Lear Siegler. MBA Indiana U.

Kevil L. Tseng, 42, Director since Feb 2005.
Advanced analyst with Boeing. Assistant prof at Perdue. Research Fellow at U of Mich. Etc.

Kirk G. Downing, 52, Director since Feb 2005.
Lawyer in LA. Also ranching, farming, logging, etc. Portland State, Loyola Law School.

Compensation is embarrassingly low. Highest salary listed in $9,000 per year and 33K restricted stock award.

Pike Capital Partners owns 821K shares (6.1% of the stock).

Related Party Stuff:
CEO and director Liu Sheng-Hui received shares during the reverse merger process. They also traded debt for shares at about $2 per share in 2002.
CEO sold ADY a dairy business.
Former President and director entered into a consulting agreement. $60K, 240K shares, also $12K. Not arm's length.

Audit fees for MHM auditors:
2003: $3.8K
2004: $19K
2005: $42.5K
small amount of audit related fees and tax fees.

Tuesday, July 18, 2006

China Expert Technology (CXTI) Nan'an contract

CXTI just posted this contract with Nan'an City Administrative Electronic Information Management Company Ltd. This is Phase 2. Here's the Shishi contract for comparison.

Starts on Aug 15, 2006. 12 month duration. Like Shishi, the city appoints a supervisor, CXTI appoints a site manager. Quarterly progress reports (Shishi was monthly, but the contracts are somewhat apples and oranges). Daily inspection (ugh! the trick is to bore them to death so they only show up weekly at most).

CXTI submits a technology plan. During installation, testing of each application system. Inspection of the system within 3 business days of completion. 10 days of trial run, then the city has 3 days to submit changes. CXTI has another 10 days to implement. CXTI transfers the project to the city within 5 working days after passing a check.

There's that one year warranty that I worry about in terms of people/money cost. 4 hours notice to get a repair person on site with spare parts or the city does it themselves and charges CXTI. I see costs here. First 30 days has a techie on site full-time [eating donuts and telling jokes, no doubt].

Any 48 hour downtime during the warranty period and CXTI provides backup equipment. There's the usual waiver for stuff caused by the city. The city intends to sign a maintenance contract with CXTI after the warranty period.

Feature creep by the city is negotiated with arbitration, if needed. CXTI assumes all salary and equipment cost risks.

5% of the contract price is reserved for ensuring warranty, service, training, etc.

The city pays CXTI 50% of the total amount within 5 days of signing the contract. Sounds great, but it's similar to the Shishi contract, from what I can quickly tell.

Within 10 days after completed install and test, the city pays CXTI another 20%. Another 25% after passing the check. Then later 10 days after the warranty period they get the remaining 5%.

Acts of God (forces majeure) are borne by the city (except for equpment damage project suspension costs borne by CXTI), with CXTI taking all possible measures to reduce loss. Much like the Shishi contract.

CXTI is liable for:

The city's liabilities:
If either side is unable to meet the contract, the other party can terminate the contract with written notice and be compensated for economic loss. Both sides can mutually terminate.

Disputes go to friendly consultation, then arbitration or the courts.

The city can examine the qualifications of sub-contractors and suppliers.

Social Security and Insurance Systems: 27% of the total contract price
One-Card Communication System: 25%
E-government Application Expansion System (hey because governments always expand): 48%

They have an itemized list of equipment, which is interesting. The biggest items are two "Intel 550T switchboard" units. These are high-reliability ethernet switches/routers with 2 expansion slots. The "T" version CXTI has selected is for mixed bandwidth environments. Hehe. I worked on a network switch many, many years ago that did a lot of work in the area of mixed traffic and managing various Quality-of-Service (QoS) requirements in high-reliability applications. It was a great opportunity to work with some amazing people who went on to great things.

Another item on the list are two ES500MSXSST expansion modules.
1000SX module- Provides a Gigabit Ethernet uplink to individual switches or stacks of switches. It can also be used to link directly to a Gigabit Ethernet Server.
They are also installing an Intel 510T, 24-port switch. Their price is $3.5K. Also a 520T.

There's also a Cisco PIX-515UR firewall. CXTI shows a unit price of around $10K. The website I linked to is maybe half that. Given the liabilities CXTI is taking on, and that it's not the Chinese version, this doesn't seem unreasonable.
The Cisco® PIX® 515E Security Appliance delivers enterprise-class security for small-to-medium business and enterprise networks, in a modular, purpose-built appliance. Its versatile one-rack unit (1RU) design supports up to six 10/100 Fast Ethernet interfaces, making it an excellent choice for businesses requiring a cost-effective, resilient security solution with DMZ support. Part of the market-leading Cisco PIX Security Appliance Series, the Cisco PIX 515E Security Appliance provides a wide range of rich integrated security services, hardware VPN acceleration, and powerful remote management capabilities in an easy-to-deploy, high-performance solution.
We also have a Cisco 3660 router priced at $35K each. These things can have all sorts of bells and whistles like analog and digital voice, ATM (not the bank teller but the datacom standard), dialup. These aren't the little routers you buy at Circuit City for your home PC. Here are two for sale for around $15K, not sure about the features.

They show a Cisco 3640 router for around $26K. Here's a used one for around $4K.

Hehe. They're also buying 28 56K modem modules for something (a router? a headend server?).

A bunch of servers at $46K each. Another bunch of servers at $16K each. A hard drive at around $1,000 (presumably a RAID system).

And, hey, they're buying Windows 2000 Advanced Server OS for around $9K each, Win2K Server at around $2K each.

A DLT tape library system.

An IBM P670 Notebook system. Withdrawn from the [US?] market. In 2002 they listed for anywhere from $175K to $535K. CXTI's price for each is just under $500K.

Medical insurance software. Employment/unemployment insurance software, work-related accident software, and other similar stuff.

I like some of the names of the offices of the city government:
Office of Culture
Warfare Division
Taiwan Affairs office of City (After all, THERE IS ONLY ONE CHINA!!)
The ominous sounding, Disciplinary Supervision Department
And my favorite: Office of Birth Planning of the Directly Related Department
And the enormous "Department of Public Security"
And let's not forget the Communist Youth Party

Ok, I guess I'm done with this. I definitely want to go visit China some time. There's so much to see: the Harbin ice festival, the western hinterlands, the bustling cities like Shanghai, all the cool stuff in Cheng Du, etc. etc.

Monday, July 17, 2006

China Expert Technology (CXTI) amended contract

[pointless exercise below, nothing useful here]
I'm doing a diff on the recently released amended consultant contract agreement vs the original here. I ran diff -u -b on the two contracts and removed some of the trivial stuff. I did the colors by hand instead of using a utility. I think in the future, I should just post the actual diff with automatic coloring and not worry about how it looks.

-red means original contract
+green means amended contract
Bold areas point to changes.

-Party B: FuJian International Consultants Limited
+Party B: Fujian Internet Consultants Limited

In order to speed up the development of Party A’s e-government
-construction projects in various area of Fujian province of China and
+construction projects in various areas of Fujian province of China and
enhance the competitiveness and efficiency in Party A’s e-government
business, Party A has approached Party B since January 2006 to discuss
the feasibility of cooperation and condition to appoint Party B as the
project consultant for Party A. After review and examination, Party A
-confirmed that Party B’s connection and liaising work in Fujian province
+confirmed that Party B connection and liaising work in Fujian province
of China is beneficial to the development of Party A’s e-government
business in the same area.

[why do this when they use a capital elsewhere?]
Party A agrees to appoint Party B as the project consultant for Party A
and Party B agrees to accept such appointment to assist Party A in
sourcing governments as partner for Party A’s e-government project and
-providing a series of services to promote Party A’s e-government
+providing a series of services to promote party A’s e-government
construction projects.

[these were in different locations]
+Party A shall pay Party B such consultant fee in an amount equals to 15%
+of the estimated gross profit of the e-government contract signed by
+Party A that is sourced by Party B. Party A has the sole discretion in
+determining the estimated gross profit amount and Party B cannot object
+to such estimation.

-Party A shall pay Party B such consultant fee in an amount equals to 15%
-of the estimated gross profit of the e-government contract signed by
-Party A that is sourced by Party B. Party A has the sole discretion in
-determining the estimated gross profit amount and Party B cannot object
-to such estimation.

Party A shall pay the consultant fee by way of common stock of its
parent company China Expert Technology Inc. (OTCBB trade symbol: CXTI).
-Both Party A and Party B agree that the common stock will be received by
-the person designated by Party B.
+ Both Party A and Party B agree that the common stock will be received
+by the person designated by Party B.

The value of the common stock to be paid to Party B as consultant fee
-shall be valued at the average of the daily market closing price of
-CXTI’s common stock traded in OTCBB from January 2, 2006 to March 2, 2006.
+shall be valued at the average of the daily market closing price of CXTI
+common stock traded in OTCBB from January 2, 2006 to March 2, 2006.

Upon completion of the first phrase of the e-government under the main
contract signed between Party A and the city government sourced by Party
B, Party A shall be able to continue to construct any further phrases of
-the same e-government project or make nay other construction contracts
+the same e-government project or make any other construction contracts
with the same city government for the constructions of other projects
without the consent of Party B and/or without paying any further
commission to Party B.

[these were in different locations]
-In the event that any situation not contemplated in this Agreement
-occurs, both Party A and Party B may sign supplementary agreement on
-terms agreed upon mutual agreement between the parties herein.

+In the event that any situation not contemplated in this Agreement
+occurs, both Party A and Party B may sign supplementary agreement on
+terms agreed upon mutual agreement between the parties herein.

[these were in different locations]
-This Agreement shall be signed in duplicate, with both Party A and Party
-B keeps one copy respectively. This Agreement becomes effective upon
-signing and sealed by both Parties.

+This Agreement shall be signed in duplicate, with both Party A and Party
+B keeps one copy respectively. This agreement becomes effective upon
+signing and sealed by both parties.

-Party B: FuJian International Consultants Limited

-Address: TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British
-Virgin Island

+Party B: Fujian Internet Consultants Limited
+Address: TrustNet Chambers, P.O.Box 3444, Road Town, Tortola, British
+Virgin Islands

[yeah, I'm working on the Epolin 10-Q, but I've already read it and I'm ok with it. I'm also working on looking at another company in detail, but I've been slow.]

Thursday, July 13, 2006

China Expert Technology (CXTI) lands phase 2 of Fujian

New project for CXTI. No big surprise here. $19 million more revenue thrown onto the pile to be recognized in 2006 and 2007. When they landed the tiny $274K phase 1 project, I noted that more would likely follow.
The contract is for design and planning of an e-government system, so that means this is an early phase of a much larger project. Of course the overall project could fall through, but CXTI has a good success record so far.

This makes the other phases even more likely.

Monday, July 10, 2006

Precision Auto Care (PACI) stop following

PACI (sec) Precision Auto Care. Fast turn-around auto service center franchise. Jiffy Lube on steroids: 6-8 service bays (2-4 drive through with pits), stand-alone building. Cost to open a store is $123K to $208K. Look for management experience plus $70K to $250K in liquid assets to open a store, $250K to $1 million for area developers.

7.5% royalty rates. $25K up-front franchise fee. 9% dedicated to local advertising (1.5% goes to national ads, 7.5% goes to local advertising). 10-year term with 5-year extensions. Additional initial franchise fees are $15K and $10K after that.

These franchise companies always make me nervous, especially if they're growing fast.

Q3 period ending March 31, 2006.
29 million shares on April 18, 2006. Big increase in share count. From 10-K below, 1.7 million options outstanding in 10-K, but probably other sources of dilution here. About 900K more that can be granted.
Cash is up, AR is down, huge PP&E almost entirely depreciated. Lots of goodwill, but strong balance sheet overall. About $2 million net cash.
Revenues up somewhat, but 9 month revenues are down . 8.1% operating margin. About 4% net margin.
About $600K earnings for 9 months.

Cash flow from ops is well above earnings due to non-cash stock option expense and deferred taxes. Capex is above depreciation but not large.

Lawsuits pending.

Reasonably short depreciation schedules.

Master license agreement to open and operate at least 330 Precision Tune Auto Care centers in China over a period of 7 years. "Unforseen circumstances" caused Hung Yue to request additional time to make payments. $2.1 million total obligation (short term is in the 6 figure range). It never happened, Hung Yue defaulted and the individual stores are trying to sue that company. None of the stores has paid their fees to PACI. It looks very bad (see Q3 10-Q).

Also working on expanding in Spain. Hey, why not outsource the work on expending in Spain to China.

Maybe I'm missing something, but I'm not finding anything on the number of stores and how that has changed over time (openings, closings, total stores). Serious HEEBEEGEEBEE factor here. Overall, I get bad vibes from this company.

Stop following

thoughts on CXTI

Continuing from here...

Ok, so the stock jumped to $3.14 today. Oddly enough, a rapidly rising stock price can do more harm than good for me. When the price runs up before the value becomes visible, it can be difficult to justify holding onto the stock. But I'm hanging onto CXTI because the market for their services seems very good. I would like to see some signs that they can increase the number of skilled employees to scale with the business.

International Speedway (ISCB)

ISCB (sec) International Speedway. These guys own Daytona, Talladega, Michigan International, and several others like Watkins Glen.

[It makes me think of Ben Keaton. Pause for a moment of silence.]

10-K period ending Nov 30, 2005
March 29, 2006 press release
10-Q period ending Feb 28, 2006
June 16, 2006 press release revolver facility
10-Q period ending May 31, 2006

Assets are almost entirely PP&E. Way more than half equity. $2 billion in assets (but only $13.8 million in quarterly depreciation).

2nd quarter's revenues are $172 million. This is an asset intensive business.
Revenues are up from prior year. 30% operating margins. 17.8% net margins.
1.5% quarterly return on assets. Looking at the 10-K and checking 4 years of numbers (roughly), they seem to get like a 7% return on assets, probably very inflation adjusting.

Looking at the 10-K, here are the annual revenues:
2001: $502 million (income tax = $61.6 million)
2002: $524 million (+4.4%) (income tax = $65.9 million)
2003: $549 million (+4.8%) (income tax = $66.0 million)
2004: $648 million (+18%) (income tax = $82.2 million)
2005: $740 million (+14%) (income tax = $101.9 million)
Income tax changes can sometimes be a useful measure of profitability.

Q2 revenue growth was "only" 9.6%.

But capex has been pretty high during at least the last three years (more than double depreciation) so there's been investment plowed into the business (hopefully this isn't de facto maintenance capex). Free cash flow has actually been dropping over the last three years as capex has been greatly increasing. Good? Bad? I don't know.

Capex dropped during 2006.

Big debt, sometimes big financing cash flows.

Big question: Is NASCAR a trend? a fad? There may be some short term trendiness, but I believe it's a long term trend going back decades. The last three years have seen big increases in revenues from all sources, which probably has attracted a lot of attention to the stock, so it's probably less likely to be cheap, but you never know. I haven't done a detailed look at it yet.

Diluted shares have held fairly steady over they years at around 53 million (currently 53.2 million). Assume 55 million totally diluted shares.

Maybe they're worth $50 per share, perhaps more. Check closer if they screw up and the stock drops to say $35.

Sunday, July 09, 2006

Navstar Media Holdings (NVMH) revisiting

NVMH (sec) previously looked at them here.

10-K/A for 2005: year ends Dec 31, 2005
21.2 million shares on Dec 31, 2005. Executives and directors own 24%. Other restricted and/or accredited investors own 66%. Only 10% of the stock is float!
Roughly 1 million options.
2.4 million shares being issued in 2006 for an acquisition.

Navstar Media Holdings owns 100% of Navstar Communications Holdings in Hong Kong which owns majority interests in multiple companies specializing in media content production and distribution within PRC. They produce television serials (soap operas?). Revenue is directly from the shows and from advertising as well. There is customer concentration in CCTV and other provincial broadcasting authorities. Navstar's industry is highly fragmented and regional. Navstar plans to continue with acquisitions.

Happy Times Media, Inc. Operating since 1998. Produces content for major national and regional TV stations. Distributes TV series and movies in China. Produces commercials as well. Also cultural events, and other stuff. Also they distributed foreign stuff like TVE (UK), Strawberry Films (France), Miramax (US). Customer base is 300 provincial and local TV stations in China.

Balance sheet is weak! (they raised $1 million in debt during 2006).
Revenues more than doubled to $3.3 million.
Gross margins are 27%. They had a small net loss.
Cash flow from operations is positive due to AP, amortization, and other stuff, partly offset by a large increase in AR.
$921K cash burned in additions to licensed programming. Isn't this operations?
They brought in some cash by selling stock options.

10-Q for Q1:
21.7 million shares on April 25, 2006.
Revenues are down 22% from prior year! Gross margins are 42% vs 56%. SG&A is roughly doubled due to being a public company. There's a (non-cash) finance expense of $340K for the convertibles (see below). Big net loss.
Cash flow from ops is helped by non-cash finance expense.
More burning of cash for additions to licensed programming.
The $1 million raised in debt shows up here, but it's convertible debentures! 1.2 million shares of dilution (shares and warrants).
Humorously enough, the subsidiaries are profitable, so there's a minority interest charge even though the overall business is losing money. Worst of all worlds. You have to wonder who owns that other 30% and are they the ones pulling the strings?

They will need to raise even more cash.

They called off the Dong Fang acquisition, but acquired $500K of programming assets.

They're acquiring 70% of Beijing Broadcasting and Television Media Co. Ltd. for 2.4 million shares (900K are for securing a pre-Olympics mini-series featuring top Chinese athletes). The acquisition is nominally for book value, but it's just numbers written down.

They had a downsizing and re-org at the "Happy Times" subsidiary. They also dropped a movie channel.

Some weirdness going on here with reporting of ownership.

New chief operating officer. CEO Don B. Lee will be resigning.

They're providing content to "the largest out-of-home [public viewing] digital TV media group in Beijing." The 70% owned Happy Times subsidiary will be providing two daily programs to BAMC City TV Co. in Beijing. These guys transmit content via DVB-T digital TV network systems. They're also the only out-of-home TV media licensed by the Beijing Olympic Committee to offer Olympic related content in Beijing. They expect to install 20,000 public TV panels by 2008.

In my opinion, they should get the rights to some already successful Chinese language program from Taiwan or elsewhere (with traditional Chinese subtitles for non-Mandarin coverage). It would probably be too expensive for them. But in my thinking, that kind of thing could be hugely profitable with 1.2 billion Chinese people who like to watch TV.

But I'm really thinking that this company is an unlikely winner in China.

Saturday, July 08, 2006

Imagenetix (IAGX) revisited

IAGX (sec) Imagenetix, Inc. Nutraceuticals and skin care stuff. Their leading product is Celadrin. I looked at this company here.
In a double blind, matched pair topical cream study, conducted at the University of Connecticut, 100% of the osteoarthritic subjects on Celadrin® showed significant improvement in just 30 minutes and cumulative benefits throughout the remaining 30 days of the study. Patients were assessed for range of motion, pain levels, timed up and go, timed stair climbing and muscular endurance tests. Significance was demonstrated in every test.
I have no idea how good/accurate that study is. But you just can't beat bovine tallow oil for what ails ye. It's been approved by the Government of India in Jan 2005, but 96.6% of revenue is within the US.

The company has to restate their Q2 and Q3 results for 2006 due to warrant expense.

10-K: period ending March 31, 2006 restated
10.7 million shares on June 28, 2006
5.2 million options and warrants outstanding. These are mostly old. Granting lately has been somewhat reasonable.
Still, I'll assume 20 million totally diluted shares.

In June 2005 they filed a lawsuit against ABCO Laboratories (a vendor), breach of implied warranty of merchantability, intentional interference with a contractual relationship, unfair competition. They settled in April 2006 by paying them $125K for inventory they held etc. I guess it was one of those "best defense is a good offense" sorta things.

Revenues for the period ending March 31, 2006 were up only 1.0%. Gross margins are 46% (43% in prior year). They had a big net loss due to a huge jump in G&A and consulting expense.

The G&A increase was due to stock options and warrants expensing, some increase in sales commissions, and a writeoff of a Puricell infomercial (yuck). G&A going forward should be somewhat lower. The consulting increase was due to clinical research, selling, changing accountants twice, litigation expense, and a PR expense. This should go down in the future.

Tax benefit due to loss.

Celadrin has only one supplier! They have a 22% customer as well as roughly three 13% customers!

Directors and officers own 30% of the company.

Assets are largely cash (much of it was raised via selling stock recently). Current ratio is insanely high. $4.3 million in net cash. I'd expect them to make about $800K per year going forward. Cash flow from operations is positive due to AR and noncash expenses (options and warrants). Capex is reasonable. Finance includes paying back a related party loan to the company (line of credit of $1 million, interest rate of 12%).

I figure the stock is worth about 60 cents. I don't like the company much.

Thursday, July 06, 2006

Short interest published July 26

Pink Sheets reports that short interest info on OTC stocks will be available on July 26, 2006 and each month after that.
July       07/26/06
August 08/25/06
September 09/27/06
October 10/25/06
November 11/28/06
December 12/28/06

Wednesday, July 05, 2006

Table Trac (TBTC) revisited

TBTC, chart, website, sec

These guys make automated equipment for table gambling games like blackjack. I looked at Table Trac...
2004 10-K
Q1 through Q3 2005
more stuff
Google checking
and reached this conclusion.
The real showstopper with TBTC was covered here: Recurring revenue is too small. They seem to make about $3,500 per month per casino on recurring revenue. You'd need to subtract a fair amount from this for costs of supporting the casino. Let's say the gross profit is $2,500. This means they probably need 40 casinos just to break even. At 70 cents on the ask, I just don't think it's a good investment.
So I figure I'll take another look at the company.

2005 10-K:
4 million shares on March 15, 2006. 500K options.
3 full-time employees (hey, I've looked at companies with zero employees, ok?)
A Wisconsin casino (most of their casinos are in that region) placed an order for a new system. Customer number 10. Installation due April 2006.
Unqualified auditor opinion.
Balance sheet is fairly solid, if a bit anemic... most assets are AR.
25% net margin. $303K earnings, mostly AR and not cash.

Q1 2006:
Hooray! Much of that AR was converted into cash. Balance sheet is now solid. $220K net cash (all operating expenses for the quarter were only $153K).
86% gross margins!
Sounds good so far, but...
Net loss of $15K. See? It's those low recurring revenues.
Obviously cash flow from operations was good due to AR conversion to cash.
No capex, no financing, all operations.

So this additional customer might put them into positive earnings territory, but barely. They need a lot of wins to bring in a lot of cash on a regular basis. However, let's say they got 10 more customers. They might clear $300K or more in earnings per year after the big revenues from installation died down. That's still less than 7 cents per share. And the shares are trading around 70 cents.

look at (don't even need to stare at) an optical illusion for 2 minutes and it will affect your vision for up to 24 hours? hat tip boingboing

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