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Saturday, August 26, 2006

Eternal Technologies (ETLT) The big thing I missed in the 10-Q

(links to all my ETLT posts on this blog)

After looking at ETLT's Q2 results, I didn't really catch this until yesterday. I missed what might be considered the most important thing about this 10-Q!

Let's go back to Q3 2005. In an amended filing, ETLT had to change some numbers because they didn't even add up correctly in the original 10-Q (current assets for the prior year were off by 2 dollars). Not only that, but they used a minus sign instead of parentheses at one point. Also total liabilities and stockholders' equity was off by 1 dollar (again, the numbers didn't even add up). Basic and diluted share count was wrong at one point. Plus all sorts of other errors. I had mentioned that after looking at perhaps 20 different Chinese reverse mergers, this seemed to be a very common problem among them. I bailed out of another Chinese reverse merger, YaSheng Group (YHGG), because they had errors showing cash disappearing.

There were all sorts of delays in getting the 10-K finished. ETLT was extremely late in filing it. And when the 10-K was finished and I went through it, there were enough big issues that I bailed out of ETLT! There were big red flags: numbers didn't seem to add up, big issues weren't explained, conflicting information within the report, not to mention the totally screwed up E-Sea accounting.

Next there was the Q1 10-Q report, which was late, but not as late as the 10-K. One of the things that I started noticing at that point was that ETLT seemed to be working hard at cleaning up their accounting act, which was a mess. By this time, I had cleared up pretty much all of the red flags and I bought back into the stock. The accounting in the Q1 report was significantly cleaned up and it hasn't been amended (yet!).

When I looked at the newly released Q2 10-Q report, I found no issues. The numbers added up correctly and compared correctly to prior reports. There was no forehead smacking, no big red flags. This was a normal report. It was a bit late, but not much worse than a lot of other tiny companies.

So why should this be a big deal? Because the reason why the stock is in the toilet is because of all those horrible things: numbers not adding up, stuff having to be constantly fixed, reports coming in so late that ETLT became ETLTE. We've seen those things slowly getting fixed and finally here is a clean report!

That's the big thing that I missed.

Hi Bruce,

I wonder if you are still following the stock.

they seem to be on a bying spray but no 10Q yeat and recent Q&A on a website looks funny


Thanks, Alex
No, I don't follow it, although I see they just released results. Big cash increase (inventories and AR decreases). Not much of an increase in E-Sea revenues.

The problem is that my reason for dropping ETLT (the source of the original capital) is not something that can be easily dispelled. 10 consecutive quarters of good results won't make my doubts disappear. Seeing official documents showing the sources of capital wouldn't help.
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