Saturday, September 30, 2006
Procyon Corp (PCYN)
Reverse merger into Amerx Health Care Corp (based in Clearwater, FL) which develops and sells proprietary medical products: treating pressure ulcers, dermatitis, inflamation, skin problems. Sales are through distributors and institutions. They also do direct mail-order to diabetic Medicare customers via Sirius Medical Supply subsidiary (currently about 15% of revenues).
Very thinly traded stock (ave volume is 526 shares per day).
Last looked at them here.
They purchased their leased office property in Clearwater, FL, and took out a $508K loan.
CEO owns 3.4 million shares (including 60K options)
Filed 9/29/06 for period ending June 30, 2006.
Incorporated in Colorado.
8 million shares on Sept 26, 2006.
No customer concentration above 5%.
Manufacturing done by a small, family-owned facility (they provide a single ingredient used in all of Amerx's products). No written contract or minimum purchase requirements. Other manufacturers could replace them on reasonably short notice (including the proprietary ingredient) with only short term impact on the business.
Some FFDC Act and FDA regulations.
Intense competition in Amerx business and Amerx doesn't have an economy of scale. Amerx relies on customer service for any sort of moat.
12 full-time employees (3 mgmt, 6 sales, 3 admin): 8 Amerx, 3 Sirius.
3.8k sq ft office space.
No legal proceedings.
158 shareholders of record.
Preferred stock can receive a 10 cent per year per share dividends if declared. None declared. Pfd share can be converted into common 1:1. 10K shares were converted in 2006. 205K outstanding.
300K options outstanding (.20 strike), 604K more available for issue.
Revenues up 5% for the year, due to growth in customer base (Sirius revenues down 0.2%). Amerx shifted to the physician market and hopes to capture more of this market in 2007 and go into new markets such as gov contracts, dematology.
Gross margin increased to 78% from 76% (I'm wondering how they measure this considering that it's supposed to be a competitive environment).
SG&A is down due to missing two months of CEO compensation (previous CEO died on Aug 27, 2005, was replaced by CEO's [seemingly quite qualified and experienced] wife). Otherwise, it would have gone up by some amount. SG&A dropped to 62% of revenues from 64%.
NOLs exist, $4 million expiring in various years through 2022.
Audit fees: $32K. $1K tax fees to same company.
Auditors for 2005 and 2006: Ferlita, Walsh & Gonzalez, P.A. of Tampa, FL
Small amount of net cash ($70K)
Assume about 8.6 million totally diluted shares.
If they paid normal taxes, then net income would be around $250K.
Pfd dividend requirements were $21K.
Net income with taxes would be around 3 cents per totally diluted share.
Cash flow from operations was $363K with $9K of capex (prior year was $211K cash flow from ops with $10K capex, cash flow hurt by deferred tax change and inventory increase).
Some related party borrowing.
PP&E is $204K depreciated down to $63K, mostly office equipment.
Perhaps the stock is worth around 50 cents. The best ask has been around 40 cents.
Wednesday, September 27, 2006
uranium spot price up another 75 cents
A possible nuclear reactor for Georgia (the country, not the state). Possible new reactor for Canada. Concerns about shutting down 2 reactors in Bulgaria, possible regional shortage of electricity.
Strathmore Minerals combined links.
CPI Aerostructures (CVU) wins more business
...the U.S. Air Force has released an order for four additional line items under CPI Aero's C-5 TOP contract. This order is comprised of four different panels, including three floor boards, and is valued at $583,000.This is an add-on to the original large C-5 contract and it includes "immediate funding" which is very good.
This award is also notable because it brings our total year-to-date award amount to $16.7 million, surpassing the $16.6 million achieved for all of last year," concluded Mr. Fred.
While I don't know for sure, it seems like this shows that the C-5 contract hasn't been dropped or forgotten.
Wednesday, September 20, 2006
yet another huge uranium price increase
But this week, the price is up another $1.25 (last week, nothing new) to $53.25. This is good for Strathmore Minerals (combined links).
In other news, CPI Aerostructures (combined links) won some incremental business.
Sunday, September 17, 2006
BGII (website, old sec, yahoo) produces and distributes sweepstakes gaming machines. There is the potential that their activities are illegal.
However, as a result of the unique nature of its machines and the fact that the machines are relatively new, there is uncertainty among regulators as to which laws regulate the Company's business activities. This uncertainty appears to be caused by several factors including: (1) the fact that a sweepstakes is by definition a game of chance, although without the element of consideration; (2) the Company's machines one of the first to use a video machine to conduct a sweepstakes; and (3) the Company's machines resemble an "8-liner" which is a gambling device that is subject to various regulations. Although the Company believes it has legal grounds to conclude that its activities are in compliance with law in states that it operates, in certain jurisdictions certain regulators have claimed that the Company's activities are subject to, and in violation of, certain criminal statutes regarding gambling, gambling devices and lotteries.In 2001 and 2002, they had multiple seizures of cash and machines.
On March 18, 2003, they settled with the SEC which had issued an order directing them to cease and desist from activities relating to anti-fraud and periodic reporting rules.
Reid Funderburk of Austin, TX owns (or owned) 2 million shares and 215K options. Some family members also own shares.
I last looked at BGII here at their unaudited full-year report for the period ending Dec 31, 2005.
They released their Q1 results on their website and on the pink sheets site. It was issued on May 15.
They also released a Rule 15(c)-211(a)(5) disclosure, "Issuer Information Statement" for the period ending 5/15/06, which seems to be essentially the same as the 15c2-11 statement for 12/31/05 issued in March.
The reason for looking at this company is that the stock has been dropping. The last sale was 52 cents. It was 62 cents when I last looked at it.
Q1 2006 Report
Just a quick overview: they have net cash and marketable securities of around $2 million. They had 14.8 million shares at the end of the quarter with 1.2 million options outstanding. Not much dilution in 2005 or Q1 2006. Revenue for Q1 increased to $1.38 million from $1.08 million in the prior year's Q1. Gross margins are over 82%! Operating margins are over 50%! Net margins are over 32%! Net income for Q1 was $449K. Operating cash flow is $543K with depreciation of only $29K. Capex was $81K. The return on working assets is enormous.
I'd assume a totally diluted share count of 18 million shares, which would give them earnings of 2.5 cents per share for Q1. It doesn't seem to be a seasonal business, so they might be expected to earn 10 cents per year (especially given that revenues are rising and they're now expanding into Alabama based on a court ruling). They're also buying back shares. So they have net cash of about 11 cents per share and you might think they'd earn something like 10 cents per share per year. But Q2 results below were down quite a bit. Maybe they'd earn 6 cents per totally diluted share.
Of course there are the legal issues, the question about who they are and can they be trusted, and the fact that the results are not audited. The good thing is that the business is simple and very much cash related.
These results are unaudited. The CEO has a sort of certification on the front page, but that's not the same thing. With auditors, you have people who are outsiders, who spent a long time and a lot of effort to be qualified to serve as auditors, and who don't have all that much to gain by approving statements that misrepresent what's going on in the business (but they have a lot to lose). That doesn't always work as a corruption eliminator, but it certainly helps a lot. You'll always have some cases like Enron, but you'd have a lot more without auditors.
The quarter ends March 31, 2006.
marketable securities ***
accounts receivable ***
Property Plant and Equip ****................... . = depreciated
minority interest in BrightServe **
Total Assets *********************************
tax payable **
debt, current portion ***
Total Liabilities *****
Net Cash + securities *******************
Cost of revenue -----
G and A ---------
Net Income *********
Cash Flow Statement:
Net Income *********************************************
stock based compensation --
provision for bad debt +
stock/warrants issued for services +
unrealized gain on investments -
increase in accounts receivable ----
decrease in accounts payable -----
increase in taxes payable +++++++++++++++++
Net cash provided by ops *******************************************************
purchase of securities -
purchase of investment -------------------------
Net increase in cash *********************
$545K of cash in in the bank in excess of FDIC insurance coverage
The "marketable securities" consist of certificates of deposit with remaining maturities of more than 3 months but less than a year.
Straight line depreciation for accounting but accelerated depreciation used for taxes (which explains a lot of the taxes payable liability).
No significant trade credit risk concentration.
Revenue recognition is based on a percentage of revenue generated from the machines less the sweepstakes prizes and is recognized when the revenue is generated. Machine rental is generally billed weekly. Phone card supplies are recognized when the supplies are delivered to the customer, shipped COD.
Unrealized gain seems very straight forward.
PP&E consists mostly of furniture which is almost entirely depreciated. Also $273K of vehicles.
BGII bought a 25% interest in BrightServe LLC for $249K. They provide contractor programs to property insurance companies for insurers to control costs and improve customer service. At 25%, the investment is not consolidated onto the balance sheet. No dividends or distributions. No financial statements yet.
Debt consists of non-interest bearing note payable to machine supplier. $282K current portion. I like this: within note 5, there's a tag saying "See Note 5". Oops.
Operating lease obligations per year are low ($49K, $66K, $55K for each year).
BGII had seizures of equipment in 2001 and 2002. I noted here that they repriced their stock options. In 2004 they repriced all their outstanding options to 3 cents (from a range of 2.5 to 64 cents). BGII recognizes changes in the value of the options.
In Sept 2002, they entered into an agreement with a machine supplier to convert 100 of BGII's machines and place them into Native American gambling casinos in Alabama and Oklahoma. $472K placement fee paid via 75% of machine revenues. The supplier never did it and BGII is trying to get the machines back and remove the fee as a liability.
1.17 million options outstanding.
500K warrants were issued and exercised in 2005 for services.
Q2 2006 results: This was issued yesterday (Sept 16, 2006)
Revenues are down 5% to $1.2 million. Net income is down to $158K. This is down from $343K in last year's Q2 and down from $449K in Q1 of this year.
Unfortunately the combination of increasing competition and the redeployment of equipment from lesser performing locations to what we believe will be higher performing locations has impacted both revenue and expenses during the second quarter. The challenging environment has continued into the third quarter with the hot dry summer contributing to higher seasonal fluctuation than we have seen in prior years.Well, overall I'd say it's probably selling for what it's worth, given the long term uncertainties of the business and the lack of auditors.
Thursday, September 14, 2006
CPI Aerostructures (CVU) snags another win
CVU issued this press release today. $3.1 million contract. Same source as the other recent contract: Tinker Air Force Base.
...it has been awarded a $3.1 million contract to provide the U.S. Government with 37 trim tab assemblies for its KC-135 Stratotanker aircraft. Trim tabs are small surfaces that mechanically or electronically manipulate the rudder, elevator and ailerons to help stabilize an aircraft. The KC-135's principal mission is air refueling for Air Force, Navy and Marine Corps aircraft as well as for aircraft of allied nations
Things seem to be picking up nowadays. It's about time!
Tuesday, September 12, 2006
Jones Soda (JDSA) has dropped somewhat, but is still around $8. I'd have to merely guess about their future growth. It looks good, but I don't think the stock price is justified. The 10-Q is out for June 30, 2005. 25 million shares on June 30, 2006, 1.7 million options. Huge infusion of cash due to private placement. Revenues up around 11% from last year. Watch out for the tax benefit. $936K operating earnings. Cash flow from ops is weak due to AR and deferred tax. The big advertising costs are still there. I probably wouldn't consider buying the stock for anything more than $2.00 per share, but I'll buy the soda for that much. It's good stuff.
Miller Industries (MLR). 10-Q is out for June 30, 2006. Share count rock solid at 11.4 million shares. AR is up. Inventories are up. Revenues are flat. 48 cents per diluted share vs 45 cents last year. 99 cents for the half-year. Operating cash flow is actually slightly negative due to AR, inventories and pre-paid expenses. Big capex (but I seem to remember to expect that for some reason). Stock price is $17.48.
Overall, looking at market prices, it seems like a lot of the OTC stocks are down right now. Times like this can be fairly boring. Patience is the key. I've seen a number of people bail out of good investments merely due to impatience: fear of a falling or stagnant stock price. Even with stocks that I would have avoided, patience was usually a good thing (but not for truly horrifying stocks). This is the time when the businesses are quietly running their operations and events are very slowly transpiring. Simmering.
The spot price of uranium is unchanged this week. I've been thinking that after the huge jump last week, that the next spot market transaction could very well be at a lower price. It appears Russia will be building 9 new nuclear reactors.
Monday, September 11, 2006
CPI Aerostructures (CVU) gets some business
The overall story about CVU is the gigantic C5 TOP contract they got back in 2004 for about $215 million worth of work. Time passed and the planes continued to be used in the Middle East without having this work done. One of them crashed on April 3, 2006. Earlier this year, it appeared that time was running out and the CVU stock tanked severely. CVU had ramped up for increased operations only to have the amount of work decrease.
So it's good news to see that they're getting some business, if only $1.1 million for now. Last week they were awarded a $1.14 million contract for E-3A work.
I continue to own the stock although I wish I had bought it at these prices instead of sitting with a 50% unrealized loss.
Sunday, September 10, 2006
CXTI trading volume
The stock, which usually trades rather anemically, all of the sudden traded over 350,000 shares in only 15 minutes this afternoon (more than the volume for the entire week until that point and the preceding week combined). I don't see any news or SEC filings that would have precipitated the spike.On the OTC site, I see from the "Depth/Level II" details for CXTI that there was a single large trade
2.59 500 OBB 15:43:34All it looks like to me is simply a large purchase. Perhaps someone put out the word that they wanted a six-figure number of shares and this was what got scrounged up. In any case, it looks more like it was initiated as a purchase and not a sale due to the higher than market price.
2.55 1000 OBB 15:41:21
2.55 2000 OBB 15:40:39
2.54 200 OBB 15:40:36
2.52 500 OBB 15:40:10
2.50 1500 OBB 15:39:33
2.52 2000 OBB 15:39:33
2.52 500 OBB 15:38:31
2.65 351700 OBB 15:33:20
2.50 500 OBB 14:48:10
2.50 1000 OBB 14:33:15
2.50 1000 OBB 14:15:04
2.50 500 OBB 14:14:36
Not much else is going on here. I've done some work on a new investment, but at a slow rate.
UPDATE, two days later:
Well, seeing that the market price of CXTI has been going up Monday and Tuesday (so far), I'll concede that Microcap Speculator called this one correctly.
Wednesday, September 06, 2006
Note to ETLT, numbers in parentheses mean negative
For the third quarter of 2006 the company anticipates that its income will exceed that of the second quarter ($1,658,700) and will significantly exceed the earnings of the third quarter of calendar year of 2005 ($1,068,308).Investors are a nervous group. They've learned to be nervous because managements of public companies are so often trying to deceive them in all sorts of clever ways. Far too often, management will create a wonderfully enthusiastic narrative forecast for the future followed immediately by numbers that show the exact opposite.
When we read that third quarter earnings will be so wonderful, we're looking for the bad news. So when ETLT puts prior earnings numbers in parentheses, we immediately begin a frantic hunt for where this huge loss is coming from. I don't need that kind of panic early in the morning!
They also wisely provide "more color" on these strange new business ventures:
The company's business continues to evolve with the changing conditions in China. The company is currently conducting due diligence toward the acquisition of several additional Chinese businesses. The first is to expend its agricultural operations; the second is to expend its high tech operations (of which its medical device maker E-Sea is a part). Assuming the successful completion of its due diligence, the company anticipates concluding these acquisitions in the fourth quarter. The company's objective to fine tune its operations, fill in gaps in its existing product lines and to strengthen those which are already producing above average rates of return.The shareholder meeting is Oct 12 in Houston.
Tuesday, September 05, 2006
Uranium spot price jumps to $52
Strathmore Minerals (combined links) issued a press release saying they've started the permitting process for a 2nd uranium mine, this time at Roca Honda. Back in February, they announced that permitting for Church Rock was proceeding as planned. Today they merely said that Church Rock is in its 2nd year of permitting. Today's press release doesn't say anything else new besides the initiation of permitting for Roca Honda.
UPDATE same day: Of course the spot price doesn't give any indication about volume or who's buying and how much of it is "discretionary" buying.
Friday, September 01, 2006
Strathmore Minerals (STM.V, STHJF) Encounters Uranium
...completed the first round of drilling on its wholly owned "Waterbury Project" located adjacent to Denison/AREVA's proposed Midwest uranium mine. This first phase consisted of 8 widely spaced holes totaling 2,686 meters. One of the holes encountered highly anomalous uranium mineralization with grades exceeding .03% U3O8.This is a bit more than half a pound of uranium per ton of ore. In my estimate of the value of Strathmore's uranium, anything less than 1 pound per ton I just threw away as being worthless.
This part of the property is within 1,000 meters of the Mae Zone of Denison/AREVA. The Mae Zone reportedly contains strong mineralization, with up to 3.8 meters at 4.1% U3O8 (Denison Mines news release dated August 10, 2006).So Strathmore reports a whole lot of uranium on some other company's property.
I understand the point here is that Strathmore just started drilling on property that they simply staked out (without relying on the previous historic drilling database info) and right away found some uranium. That's great, it says that they're good at finding uranium on their own.
Eternal Technologies (ETLT) auditors haven't skipped town
The auditors website has been down (for I don't know how long) and I wanted to get a voice-on-the-phone status on what's going on. The auditors got back to me after I left a message with the receptionist for whoever handles ETLT to call me back. The same guy who I exchanged e-mail with back in May got back to me. He said that they're working on overhauling the website. I mentioned that investors get nervous about little things like that and he seemed genuinely surprised to hear it. I asked him if they were still the auditors for ETLT and he said that they were.
Ham, Langston & Brezina, L.L.P. is a reputable accounting firm in the Houston area with lots of good credentials. NOTE: Other than their website going down, there's no reason to believe they would have disappeared. I don't want to start any rumors.
Some investors (myself included) have experienced the horror of having senior management of a public company, even one on the New York Stock Exchange, simply skip town leaving far less cash in the bank than should have been there. In that case, the red flags were far redder and far more numerous that anything at ETLT. If you invest in shady, gray-market stuff, where you know there's huge amounts of bribery and stolen cars, you're liable to get burnt. If you dig up the New York Times Select article on them, you'll be truly amazed at how bad they were. There was talk about car bombs (supposedly someone with ties to the company narrowly avoided one), arms smuggling, and links to al qaeda.
Wall St Journal editorial on China
Basically, the editorial argues that the story about China circulating around the world is that Chinese businesses are extremely profitable and their retained earnings, rather than massive amounts of bank loans, have fueled China's industrial expansion. The World Bank believes that return on equity by state-owned businesses increased from 2% in 1998 to 12.7% in 2005 and that nonstate-owned business return on equity increased from 7.4% to 16%. However, the editorial provides a lot of examples of how these numbers exagerate the profits, such as by not accounting for income taxes paid, not accounting for government subsidies, and not accounting for accounts receivable being written off.
The reality is that Chinese businesses are being squeezed by increasing comodity prices (which are largely caused by the massive amount of Chinese expansion) causing costs to go up, and flat or even decreasing prices for finished products. Raw materials prices are up an average of 37% since 2002 while the Chinese internal consumer-price index is up only 6.2% while prices of exports to the US are down 5.2%.
The editorial argues that the actual return on equity could be around 9%, which is only 3 to 4 percentage points above the best lending rate. This is well below the spread in Hong Kong and US companies which are around 6 to 9 percent.
The editorial argues that a clear sign of overheating expansion in China is the increase in receivables. It argues that China's growth is being financed by banks and not profitability (estimating that re-investment likely accounts for no more than 20% of total fixed asset investment). Bank loans are greater than China's GDP and total bank credit is probably twice as big as the GDP.
China needs to be led by consumption gains and productivity gains rather than bank loans. Chinese leaders know this and are taking appropriate action.