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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.

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