Pink Sheets

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).

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

Update:
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).
MAUREL ET PROM ETABL (MRELF)
AINSWORTH LUMBER LTD (ANWLF)
BOUNDLESS CORP (BDLSQ)
PTT EXPLORATION AND (PTXLF)
WPP GROUP PLC ORD SH (WPPRF)
GRUPO CARSO SA DE CV (GPOVY)
COLLEGE BOUND INC (CLBD)
WESTJET AIRLINES VTG (WJAFF)
REED ELSEVIER NV (RENLF)
SPEEDEL HOLDING AG (SPDHF)
TRANSALTA POWER LP U (TPERF)
MCSI INC (MCSIQ)
GAZ METROPOLITAIN CO (ZZXAA)
SBM OFFSHORE NV (SBFFF)
REGUS GROUP PLC CHER (RGUGF)
AIXTRON AG AACHEN SH (AXTMF)
VALUE AMERICA INC (VUSAQ)
NATURAL WONDERS INC (NATWQ)
LEVITZ FURNITURE INC (LVFIQ)
AEROPLAN INCOME FUND (AOPIF)
ACESITA SA PFD SHS S (ACAHY)
WOLSELEY PLC ORD (WOSLF)
REED ELSEVIER PLC (RUKEF)
HANWA CO LTD (HNWAF)
MYTURN.COM INC (MYTNQ)
SINGULUS TECHNOLOGIE (SGTSF)
ASTRAZENECA PLC ORD (AZNCF)
SPORTINGBET.COM UK (SPBTF)
CARPHONE WAREHOUSE (CRWHF)
JOHNSON MATTHEY PUB (JMPLF)
AGRIBIOTECH INC (ABTXQ)
J SAINSBURY PLC ORD (JSNSF)
TORSTAR CORP CL-B CD (TORSF)
DEXIA SA BELGIUM (DXBGF)
CABLE & WIRELESS PLC (CWPUF)
ALIMENTAT COU SUBVTG (ANCUF)
MIDWAY AIRLINES CORP (MDWYQ)
PANTHEON INC (PTHNF)
THORESEN THAI AGCIES (THAFF)
FAR EAST CONSORTIUM (FRTCF)
ELITE TECHS INC (ETCH)
IMPERIAL ENERGY CORP (IEGYF)
FONAR CORP CL A PFD (FONRP)
COMPUTER LEARNING (CLCXQ)
SMITH & NEPHEW PLC O (SNNUF)
MORRISON W SPRMRKT P (MRWSF)
SAPUTO INC (SAPIF)
WOLTERS KLUWER N V O (WTRWF)
STRATOS GLOBAL CORP (SGLBF)
VALUESTAR CORP (VLST)
NUVISTA ENERGY LTD (NUVSF)
KERECO ENERGY LTD (KEGYF)
GULFTEX DRILLING INC (GFTX)
INVENSYS PLC ORD (IVNSF)
RONA INC (RONAF)
FORTIS INC (CANADA) (FRTSF)
JEAN COUTU GROUP PJC (JCOUF)
ROYAL DUTCH SHELL PL (RYDAF)
TERRA NOVA AQC UT (TNVAU)
GT GROUP TLCM B (GTTLQ)
INTL POWER PLC (IPRWF)
STEINHOFF INTERNATIO (SNHFF)
ORASCOM TELECOM SAE (ORSTF)
GLIATECH INC (GLIAQ)
GENESISINTERMEDIA (GENI)
CEMEX SA CPO (2A/1B) (CXMSF)
LGA HOLDINGS, INC. (LGAH)
NORTHBRIDGE FINL CP (NBFCF)
KARSTADT ORD (KARDF)
RECONDITIONED SYS (RESY)
FRONTLINE CAPITAL GR (FLCGQ)
CSR PLC CAMBRIDGE (CSRXF)
IT GROUP INC (THE) (ITXG)
STREAMLINE.COM INC (SLNE)
GLAXOSMITHKLINE PLC (GLAXF)
YUKOS CORP SPONS ADR (YUKOY) hehe
ABC-NACO INC (ABCRQ)
S S L INTERNATIONAL (SLSLF)
ANGLO PLATI ORD SHS (AGPPF)
UNIBAIL SA ACT (UNBLF)
SHOPPERS DRUG MART (SHDMF)
LOBLAW COMPANIES LTD (LBLCF)
CREW ENERGY INC (CWEGF)
TOYO TIRE AND RUBBER (TOTRF)
HOME CAPITAL ORD SHS (HMCBF)
DUCATI MOTOR HOLDING (DMHGF)
JOHN LAING PLC (JLNGF)
ELECTROLUX A B CL B (ELUXF)
WORLD COMM ONLINE DE (WCOLQ)
ELECTRO-OPTICAL SYST (EOSC)
ROTHMANS INC CDA (RMANF)
NEWMONT MINING CH UT (NEMUF)
TVSL SA (TVSFF)
CITRON INC (CTNI)

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 (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.

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.

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 (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!

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.

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.

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.

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.

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.

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.

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!

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:

• Feihi brand is increasingly popular after the big ad compaign.
• Improved quality of certain products (Ca+Zn, CPP, nucleotides)
• Increased sales quantity of 28%, especially higher profit margin products: they mention milk powder with Ca+Zn, but this had only a 0.06% increase!!!, CPP increased by 88%, nucleotides increased by 400%.
  
• Dairy milk scandal in China in 2003 resulting in strict government controls which drove out crappy competitors.

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
Assets
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


People:

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.

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:

• Failing to deliver (including sub-contractors, suppliers, etc.)
• Schedule slips: 0.5% of the total contract for each delayed business day up to 20% of the total. More than 150 day slip and CXTI pays it all back plus a 20% extra penalty.
  
• Failure to deliver any one system results in a repayment of the contract sum for that part plus 10% of the total contract.
• Failure in after-sales support: The city withholds the last 5%.
• Bait and switch: The city can refuse to accept and CXTI is deemed as failing to deliever.
• If CXTI fails the requirements in some other way, the city can terminate the project and demand all the money back plus 20% penalty.

The city's liabilities:

• If a CXTI loss is caused by the city, the city is in breach of contract and bears all relevant costs from it. Schedule delays are simply pushed forward.
• If the city causes goods to be returned, they owe CXTI 20% of the price as a penalty.
• If work can't be completed due to the city or the project supervisor, the city owes CXTI 0.5% per business day delay up to 10% of the total.
• If the city requests equipment replacements for things which meet requirements, no one is at fault but the city pays for appropriate compensation.
• If the city fails to pay on time by the contract, the city will owe some fuzzy negotiated compensation.

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.

[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.]

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.

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.

10-K
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

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.

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.

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.

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.

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

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
competitors
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.

PHST (sec) Pharsight Corp. They sell software and consulting services to drug companies to improve the efficiency of the drug development decision making process.

When I last looked (Jan 28, 2006), the stock was up to $1.80 from $1.60. It's now $1.50 on the ask.

10-Q for the period ending Dec 31, 2005:
Balance sheet is reasonable, but not strong. Revenues are down slightly (around 11%) due to an unexpected downturn in the drug industry. Profits evaporated for the quarter. Nine month cash flow from ops is good. Large capex way above depreciation (prior year was far lower). Some shuffling of finances. Some dividends paid to preferred shares.
1.9 million convertable preferred shares on Dec 31, 2005. Each is convertible into 4 common shares.
19.5 million common shares on Feb 9, 2006.

New CFO.

Q4 results:
Revenues drop slightly from Q3. Basically, some big customers slowed down while the others are picking up some of the slack (68% increase vs Q3). Gross margins are around 64% for the quarter and 66% for the year. They had a net loss for the quarter and for the year.

SOFTWARE: They released a validation suite for validating software installations (4 customers signed up for it). They added a new Japanese global drug company in their SW licensing (now 16). They expanded relationships with Altana, Vertex Pharm, Genentech, and Wyeth. New DMX licensing agreement with Altana. Hired a training conultant to work with customers.

CONSULTING: 47% revenue increase in Q4 over Q3. 17 new consulting agreements which include 5 new customers. Existing customers were Pfizer, Sepracor, Sankyo Pharma, sanofi-aventis, DebioPharm, Schering AG, TransForm, Altanta, Merck. Participated in several symposia. Hosted an industry seminar on modeling and simulation. Hired 2 senior scientists.

They're expecting 10% to 15% revenue growth for next year, somewhat weighted in the 2nd half.

Sr VP of consulting services resigned to devote more time to family etc.

Revolver extended and clarified.

10-K for the period ending March 31, 2006:
19.4 million shares. on June 22, 2006.
1.9 million preferred shares on Mar 31, 2006, convertible into FOUR common shares.
3.0 million options and warrants.
Assume 35 million totally diluted shares.

Balance sheet is about the same.

Revenue:
2004: $17.7 million
2005: $22.6 million
2006: $22.7 million

Cash flow from ops has been increasing each year, but that really means nothing because it's due to various unrelated factors. Overall, operating cash flow looks fine.

Capex has been increasing which isn't surprising. Around $2 million in 2006.

Financing seems like what I expected.

I figure the stock is worth maybe $1.00 per share.

EBHC (sec)
Emerging from Chapter 11 bankruptcy, they filed a Form 10 with exhibits to register securities with the SEC on Dec 15, 2005 but then they withdrew it on Jan 26, 2006 because they expected to restate the financial statements in that form.

Bank of America's NB Holdings held 6.89% of the stock on Feb 8, 2006.
Fidelity held 11.244% of the stock on Feb 10, 2006 but later down to 8.936% on Feb 14, 2006.

Another Form 10 (exhibits) on May 1, 2006. But then they filed this amendment (exhibits) on June 27.

Chief Merch Officer: Kathleen Boyer has 36,750 options at a $23.37 strike.
Director: John C. Brouillard has 17,000 options (same strike) and 4,280 restricted shares.
Director: William T End
Director: Paul E. Kirincic
CEO: Fabian Mansson has 200K restricted shares and 100K options (same strike)
Sr VP and General Counsel: Shelley B Milano
Sr VP of Retail: Ann Perinchief
Director: Kenneth Reiss
..and so forth.

Getting back to the amended Form 10:
"Eddie Bauer Home" concept was discontinued in Feb 2005 and financial info in the statement doesn't include that stuff, which I don't like because perhaps it's possible to hide stuff there.

265 retail stores. 108 outlet stores.

In 1945, we issued our first mail-order catalog. In 1971, we were acquired by General Mills, Inc., and in 1972 we opened our first store outside of Seattle in San Francisco, California. We celebrated our first $100 million in sales in 1983, at which time we operated 27 retail stores. Between July 1988, when we were acquired by Spiegel, Inc. (“Spiegel”) and end of fiscal 2002, our retail stores increased from 58 to 399 and our outlet stores from 3 to 102. In addition from fiscal 1990 to fiscal 2002, our catalog circulation increased from 61.2 million to 101.6 million (excluding Eddie Bauer Home catalogs). In 1996, we started selling products over the Internet.

They filed for bankruptcy in March 2003.

Since then, they've focused on 1) improving inventory management, 2) closing stores and renegotiating leases, 3) reducing corporate workforce, 4) streamlining backend operations. They weren't able to hire senior and middle-management during the bankruptcy.

Revenues:
2000: $1.6 billion
2001: ?
2002: $1.3 billion
Comps were negative in every quarter between 2000 and 2002.

They claim the revenue decline was due to a loss of brand identity. From my own experience, it seems like the true outdoorsy types shop at places like REI and EMS. Even LL Bean seems more authentic than Eddie Bauer.

We intended to elevate and revitalize the Eddie Bauer brand by substantially updating our product line and redesigning our brand communication approach to generate excitement about our brand both from our core customers and potential new customers.

That means absolutely nothing! They might as well have said, "We intend to use magic crystals and Tibetan prayer flags to generate more business."

The new collection incorporated a wider range of color, more novelty pieces and updated products with modified style, fit and more premium fabric, trim and hardware. We created new catalog imagery that focused on brand communication and provided our stores with new ways to merchandise and display the apparel and accessories. We also engaged in a public relations and marketing initiative in New York City during the holidays to promote our down collection.

A lot of that new collection is still on the shelves, marked down. They should spend a lot of time talking to customers who actually buy stuff from their stores and ask them why they shop at Eddie Bauer. The answers would probably surprise them. In my opinion, E.B. represents one of the few non-fashion-oriented choices for clothes in the malls. There are a lot of people who just want basic clothes that are, well, "normal": stuff that is plain but respectable. Polo had a big chunk of that market for a while, but they're always going off the preppy deep end.

Perhaps the new management will discover this over time. I honestly wrote all of this before reading the next section in the Form 10. Really, I didn't cheat.

Our results from the Fall/Holiday 2005 roll-out as a whole were disappointing and indicate that our customers did not respond positively to the changes we made to our product offerings or marketing approach.

Maybe I should send them a copy of The 22 Immutable Laws of Marketing. If you simply read that book [perhaps once a year, it's very short] and then spend a lot of time studying your customers and your competition, there's no excuse for most marketing screw-ups.

So comps declined 4.3% in Q3 and 7.1% in Q4 of 2005.
Comps declined 10% in Q1 and preliminary results show a 5.7% decline in Q2.

They're trying to learn from their mistakes, but here's what they found:

• The product collection was skewed towards styles that appealed more to the younger half of our customer range, with slimmer fits, more novelty pieces and fewer Eddie Bauer classic pieces. [i.e. your target market wants the basics]
  
• We revised our fits too radically for our core customer, and also experienced inconsistent fits across categories of products. [i.e. your target market wants the basics]
• We moved the product collection too far away from our outdoor heritage. [hey, everyone else was selling goofy pastel colors, why not?]
  
• We offered too many color choices and colors that were too bright for the fall/ holiday 2005 and spring 2006 seasons. [i.e. your target market wants the basics]
• We raised our prices too aggressively and without clearly explaining the improved quality and/or materials used in the products. [i.e. your target market wants the basics]
• We focused too much on communicating a premium brand image rather than on product specific marketing, for example, emphasizing outfitting and wardrobing over presentation of specific product attributes. [i.e. your target market wants the basics]

Here's their plan:

• Leverage outdoor heritage. We are implementing an integrated communication strategy that will incorporate Eddie Bauer’s outdoor heritage. We plan to leverage our outdoor heritage by infusing products with functionality and designs that more explicitly reference the outdoors. [pointless]
  
• Offer basics, neutrals, heritage pieces. We are building on products in which we have a strong history by expanding product offerings in these core product areas and introducing new updated products featuring similar styles, fits and functionality. We are retaining our tradition of offering rich, textured, natural colors inspired by the outdoors by featuring neutral and seasonally appropriate colors and targeted use of some brighter colors on selected novelty pieces to generate excitement. We are also updating classic designs with proven selling histories that reflect our outdoor heritage, and we are replacing the less successful items offered in 2005. [excellent... except drop the novelty stuff, why keep pushing failure?]
  
• Address core customer preferences — age appropriate styling, fits and construction. Our target demographic range is 30 to 54, and the average age of our customer is 43. We are balancing our product line to appeal to our target demographic base through product offerings with appropriate fits, styles and functionality that meet the needs and preferences of our core customers. [yeah, ok]
  
• Leverage our authority in outerwear. We believe that Eddie Bauer has an established reputation in the outerwear market, and Eddie Bauer was ranked as the number three outerwear brand in a survey conducted by Women’s Wear Daily in July 2005. We will continue with our efforts to maintain and strengthen our authority in outerwear by leveraging our brand recognition in the outerwear category, emphasizing both technical and heritage attributes, and revising our products to reflect seasonal apparel needs. [personally, I think they permanently lost that title to the more focused companies I mentioned above]
  
• Redirect our catalog and our store merchandising to present more product specific marketing. We are working on better balancing wardrobing and product presentation. We also are diversifying our models to reflect the full scope of our target demographic and to inspire customer confidence in the fit of our products. [you'd do better by focusing on simple, basic functional clothes]
  
• Reset price/value equation. We found our prices were not consistent with customer expectations, in part because we did not emphasize to our customers our use of more expensive materials in the products and in part because the change in quality may not have justified a relative price increase in the minds of our customers. We plan to continue to offer high quality, durable products at prices that appeal to our customers. [let me get this straight: customers rejected what you tried to sell them, so you'll try to convince them that they don't know what they're doing? They a lot smarter than you think.]
  

Their gross margins are only 32%. Seems a little low. They're still running at a loss. They'd need something like a 50% increase in revenues to break even.

The CEO, Fabian Mansson, got a $927K bonus for the year 2005 and a $2.6 million bonus for 2004. This guy gets rewarded for driving the company into the ground.

There are something like 30 million shares outstanding. The balance sheet has been cleaned up.

I figure if they were to end up being successful, the shares would be worth perhaps $25. They're trading at around $11.00 now, which is definitely not cheap enough for my tastes unless they find a customer base.

from revisiting 7

OISI (sec) Opthalmic Imaging Systems. Diagnostic equipment for retina problems. Total available market is estimated at around 1,000 units sold per year. OISI makes a system (probably a PC + hardware + software) which essentially turns normal analog cameras into digital cameras by connecting to OISI's "WinStation". There are 5 companies which make fundus cameras, with a total of 22 models (9 current and 13 legacy). OISI has designed optical and electronic interfaces for each of them to connect to the WinStation.

My fear with this company is that the market could change drastically such that the camera makers or someone else comes out with a total system that's already digital. I have no idea if this is likely.

From the 2005 10-K:
Revenues have been climbing year over year.
2005: $13.6 million (gross margin=58%, net margin=12.9%, no taxes)
2004: $11.3 million (gross margin=58%, net margin=15.1%, tax benefit)
2003: $10.3 million (gross margin=56%, net margin=13.9%, tax benefit)
The net margin decline is due to earlier tax benefits as well as R&D and some SG&A increases.

Balance sheet is strong, but AR is climbing. Half equity. There's some related party stuff going on.
Free cash flow matches earnings fairly well.

16 million shares on Feb 22, 2006. 2.1 million options outstanding on Dec 31, 2005. Assume 20 million totally diluted shares.

I'd say the stock might be worth $1.10 based on the 10-K.

Q1 2006:
16.1 million shares on May 10, 2006.
AR is going down.
Revenues are $3.65 million vs $3.00 million in prior year. Gross margin is 57%.
No taxes.
13.3% net margin.
2.43 cents per totally diluted share.
Cash flow from operations is more than double earnings due to the AR decrease and liabilities increase. Capex is tiny but slightly more than depreciation (all very good).

Valuation about the same, $1.10 per share. The stock is trading around $1.90.

CESV, yahoo, sec, no apparent website.


Trading in this stock was halted Feb 15, 2006.

As previously announced by Nasdaq, trading in shares of China Energy Savings Technology, Inc.'s (Nasdaq: CESV) common stock was halted on February 15, 2006, and would remain halted until the Company had satisfied Nasdaq's request for additional information. At Nasdaq's request, China Energy Savings Technology is providing this update as to the status of Nasdaq's inquiry. Nasdaq's request for information involves the facts and circumstances regarding the underlying transactions related to the rescission of certain Rule 144 legal opinions by the Company's prior securities counsel who resigned in February 2006, as well as certain other matters related to the company's issuance of securities. The Company has retained new securities counsel and is cooperating with Nasdaq in an effort to resolve any questions or issues raised by Nasdaq in order to resume trading as soon as possible.

They were de-listed from NASDAQ on May 10, 2006.

...due to public interest concerns under Marketplace Rule 4300 and that the Registrant may have violated Marketplace Rules 4330 and 4420

Here are the Marketplace Rules.

Rule 4300: Qualification Requirements for Nasdaq Stock Market Securities. This says NASDAQ has broad discretionary powers to include or not include securities.

Rule 4330: Obligation to Provide Information. NASDAQ may request any information necessary in order to make a determination about including/rejecting a security.

Rule 4420: Quantitative Designation Criteria. There are several criteria spelled out. They basically set the bar for what is needed to retain NASDAQ listing. It spells out various types of securities such as stocks, ADRs, units, index fund shares, preferred stock, etc.

The "Conduct Rules" are in the range of 2000 and 3000, which are the rules I would most care about as a shareholder.

The stock had been trading above $6.00 until trading was halted in February. When it resumed trading in June, the stock plummeted to around 40 cents and it stayed down there.

Take a look at the list of executives and directors who have resigned this year. All directors except the last one who is also the CFO.

• Paul Risberg, resigned March 28 ("disagreed with the Registrant's approach in communicating with its shareholders during the current stock trading halt" among other things)
• Jing Wen Pang, resigned April 24
• Wing-Sze Yau, resigned April 26
• Shao Guang Tan, resigned April 26
• Kwun Luen Siu, resigned April 28
• Lai Fun Sim, resigned April 28
• Lawrence Lok, resigned April 28 (both as director and as CFO)

Not to mention the various people who resigned before this.



(also see farther below for more details on one lawsuit)
There are zillions of shareholder lawsuits outstanding, too numerous to link to. However, this one gives some good details:

...the complaint alleges that the defendants failed to disclose that: (a) the Company's insiders were engaging in self dealing involving the Company's January 2006 private placement; and (b) the Company was in violation of SEC Rules regarding limitations on sales of restricted stock that resulted in the stock being halted by Nasdaq.

This one is also good:

On January 17, 2006, the Company announced an underwriting agreement to raise $50 million through a private placement of Company stock. The very same day, China Energy announced that Mr. Sun Li resigned as Chairman and CEO of the Company. Upon his resignation, the Company immediately appointed Kwun Luen Siu Chairman of the Board and CEO. On January 20, 2006, China Energy filed two registration statements indicating that the Company could offer up to ten million shares of its common stock and in addition the Company also indicated that selling stockholders could sell up to 6.05 million shares. Shortly thereafter, on February 9, 2006, China Energy announced that it was delaying the filing of its SEC Form 10-Q for the quarter ended December 31, 2005, due to the recent change in management. On February 14, 2006, the Company filed its delayed Form 10-Q, which revealed that the Company and its independent auditors were the subject of an informal SEC inquiry.

Insiders dumped the stock knowing that an SEC investigation was underway, but didn't tell anyone else about it. That's way too far outside the strike zone.

So my big question is this: Did they look any different from ETLT or CXTI before that time?



10-K for the year ending Sept 30, 2005
25 million shares on Dec 19, 2005.

They now own 100% of Starway Management Ltd (British Virgin Isle Co) which owns 100% of Shenzhen Dicken Industrial Development Ltd (Taiwan aka ROC) which owns 100% of Shenzhen Dicken Technology Development Ltd. (Taiwan aka ROC). This company "develops, markets, distributes, and manufactures energy saving products for use in commercial and industrial settings." Later on, they say that the two Shenzhen Dicken companies are PRC companies! Which is it? ROC or PRC?

Later on they go into better detail. They're a wholely foreign owned enterprise, subject to the WFOE law. They have a great writeup on Chinese business law starting on page 9.

They make the "Light Saver" projects. These use switching systems to reduce electricity used by lighting systems. For many street lights and flourescent lights, the full voltage is only needed to turn the lights on. After that, a reduced voltage is good enough. There's some intelligence to the system. It retro-fits into existing lighting systems. Installation is quick and easy. Fully automated. 3-year warranty.

They also make a sewing machine electricity saver. They also have similar products for other industrial areas (injection molding, central air conditioning, etc.)

Sales are currently only in China, offices in Beijing, Shanghai, Chengdu, Xi'An, and provinces of Wu-Han, Guangzhou, Hunan, Ah-Hui. There's also qualified city level distributors (one-time up-front fee and pass qualification inspections).

Installations in approx 400 customers in 12 provinces and cities (later they claim 600 customers). Also installations on street lamps for cities in China.

Contracts are two types:

• savings sharing
• equipment sale

15 different savings sharing contracts in place

1. Shenzhen Deqin Jilin Branch
2. Zhuzhou Municipal Street Light Bureau
3. Anqing Kuntai Decoration Co., Ltd
4. Shenzhen E-store Market Co., Ltd
5. Nanjing Langchi Group Co., Ltd
6. Shenzhen Deqin Shenyang Branch
7. Nanjing Giant Economic Co., Ltd
8. Chongqing Baifuda Technology Development Co., Ltd (12% of total revenue... or maybe it's the other Chongqing company)
   
9. Hunan Xuhua Economic trade Co., Ltd
10. Wuhu United Technology Co., Ltd
11. Kelamayi Jingying Co., Ltd
12. Chong Qing Environmental Protection Energy Savings Development Co., Ltd
    
13. Hangzhou Energy Savings Technology Co. Ltd (13% of total revenue)
    
14. Xin Jiang Technology Co., Ltd (13% of total revenue)
    
15. Shanghai Da Xiyi Electrical Appliances Co., Ltd (10% of total revenue)
    

48% of all revenue is from 4 customers in energy savings contracts.

Patents are obviously important here and a preliminary approval was granted by the Chinese intellectual property agency Sept 19, 2003. All rights were transferred to the Company. The company also has exclusive use of several patents from the founder for 10 years, expiring July 2012.

There are 50 competitors, but they generally use only transformers to step down the voltage while these guys use software switching and more intelligence in the system.

Dec 11, 2003, the China National Scientific Technology Products Committee issued a "Certificate of Approval" for the products stating that the average savings is 28% to 34% compared to competitors which range from 8% to 25%. There's another cert as well.

Management doesn't know of any competitor who uses an intelligent circuit board, but they could appear without warning.

No currency hedging, straight renminbi.

They expect to spend $2 million ($330K per year) on R&D from 2005 to 2010.

Parent company has no full-time employees. 11 part-timers. No long term consultants. 3 officers: CEO, CFO, Secretary.
Starway has 4 part-timers.
End business in PRC has 230 full-time employees, 2,300 part-timer sales consultants, 7 long-term consultants.

Management

LIU TIAN FU
Age 40 C.F.O. (CHIEF FINANCIAL OFFICER) is an economist who received his Master degree from University of Xiang Tan, Hunan Province. Prior to joining Dicken Hi-Tech Development, he worked as a financial analyst and advisor for International Financial Venture Capital Committee. [VENTURE CAPITAL GUY]

YANG AN YONG
Age 42 C.T.O. (CHIEF TECHNICAL OFFICER) is a professional engineer, graduated from Electronics Science University of Chang [Cheng?] Du, Si-Chuang province. He has over 12 years R&D experience in high technology and in the energy saving industries. He joined Dicken Hi-Tech Development in September, 2002 as a Senior Software Engineering Manager. [TECHNICAL GURU]

HUANG ZHI
Age 47 (OFFICE MANAGER) has over 20 years experience in Public Relations and Human Resources. Graduated from University of Lao-ning Province, worked as a professional TV reporter. She has successfully worked over 6 years for HR department of Shenzhen City Government. [HR]

IGOR SIZYKH
Age 44 C.M.O. (CHIEF MARKETING OFFICER) is a highly motivated team player [oh please...] with 13 years experience in management and supervision for automotive, international sales and franchise industries in Europe and Canada. He has proven ability to increase profitability through contract negotiations, developing new partnerships, strategic planning, and innovative marketing strategies. Mr. Sizykh has a Bachelor of Arts Degree in Economics and Commerce. [MANAGER]

Executive officers and one shareholder own 63% of the company.

Obviously, a drop in the price of electricity would be bad for the company.

Rented office in Hong Kong, $8K per month. Old tiny factory (a square of about 60 feet on each side) is leased out to an unrelated party (outgrown the facilities). They own two apartments in Futian District of Shenzhen City, Guangdong. One is for the company's president "Mr Cheng" and the other for certain expat technicians. They lease out a real factory for $58K per year for 5 years.

No legal proceedings (just wait).

1.2 million options in compensation plan, all issued. The strike prices listed are more than 10 times the current stock price.

Feb 2004, they issued 2.5 million shares of restricted common to legal counsel for $50K of accrued legal services and future legal services. This is insane! It would have been something like $25 million!

Aug 2004, they issued 11.5 million shares to EuroFaith Holdings for convertable debt. Restricted shares. Exemption from Section 4(2) of Securities Act of 1933.

Nov 2004, they issued another 4,683 shares to legal counsel. I guess the 2.5 million shares just weren't quite enough.

Nov 2004, issued 3.3 million shares to EuroFaith Holdings as part of an additional 15% interest in the not-quite-fully-owned subsidiary Starway. Again, exempt from Section 4(2).

Feb 2005, 7.8 million shares issued to Sky Beyond for the remaining 35% of Starway.

Auditors

Webb & Company of Boynton Beach, FL gave them an unqualified opinion, signed Jan 29, 2004.

They audited Direct Casket Delivery. Which registered securities in 2003 and then de-registered them less than a year later. Their financials were terrible. Webb gave them a going concern qualifier.

They also audited Webb Mortgage Depot (presumably no relation, now Medical Connections Holdings). Slammed them in their statement (page 23).

They audited others as well.

Financial Results

Ok, so here's the big thing about this company. For the full year ending Sept 30, 2005, they earned $22.4 million. In the prior year (2004), they earned around $17 million (before pulling out the minority interest at that time). But 2004 was really worse than that. In 2003, they earned around $1.7 million. Revenues increased from $31 million in 2004 to $48 million in 2005. Gross margins were 62% in 2004 and 59% in 2005. Net margin (note there's no taxes in 2005 and I've removed the tax benefit for 2004) was essentially 36% in 2004 and 53% in 2005, not counting minority interest, either.

Tax in 2005 would have been $4.7 million more. So I'd assume that, had they been taxed in 2005, they would have earned $12 million.

The balance sheet has $31 million cash. Total liabilities are less than $8.4 million. They have about $30 million in notes receivable (not counting ordinary AR), but we won't even count that. They have about 90 cents of net cash per share and the stock is selling for around 50 cents.

The big dilution is entirely due to acquiring the rest of the Starway subsidiary, plus 578K shares issued for services.

Cash flow from operations was only around $13 million since they took $20 million in notes receivable. In investing, debt increased by $1.9 million. Capex was a measley $22K. And that's about it for cash flow. Cash flow from operations in 2004 was just OK when you adjust for minority interest.

Scanning the Notes

They're in a special economic region of China and have a 2 year tax exemption and a 50% reduction for the next 3 years.

Allowance for doubtful accounts is around 10% of AR (and has hovered around there in the past).

Inventories are down.

Net PP&E is low at $444K, half depreciated (net PP&E is down from $528K in 2004 and $750K in 2003).

Some related party transactions as cash advances to shareholders for ordinary business expenses. Also shareholders collected payments on receivables which hadn't yet been turned over to the company (bad).

They carry some US NOLs, but I'd consider that worthless.

1.2 million stock options were registered on Sept 8, 2004. 10 million preferred shares authorized but not issued.



The 10-Q for Q1 is here. What I see is that the balance sheet is deteriorating (but they still have around $20 million net cash). Revenues are still largely promises (accounts receivable). Cash flow from operations is seriously negative for this quarter due to AR, inventories, loans to related parties, various receivables. Are things falling apart?

Earnings per share were 25 cents and you could probably squeeze a dollar per share of net cash out of the business in liquidation. But is this all real? Are there hidden liabilities beyond the lawsuits? Speaking of which...



Victor Reichenstein complaint. Against CEO (appointed Jan 17, 2006), CFO, prior CEO and Chairman. Paragaph 32 raises the issue about the prior auditor, Gary E. Hirth. When CESV dismissed Hirth, they said there was no disagreement on accounting issues nor on any other reportable occurrence relating to his departure. Then the complaint claims the transitional 10-K filed on Jan 13, 2005 had a going concern qualifier. That's nothing new and it covers the pre-reverse merger company. See here for the qualifier and see page 23 here for the supposedly false claim by CESV. Notice that the "false claim" actually contains the going concern qualifier itself.

We dismissed Gary E. Hirth CPA ("Hirth") as our auditors effective from August 19, 2004. Hirth served as our independent auditors for our former fiscal years ended September 30, 2003 and September 30, 2002. Hirth's report on our consolidated financial statements for our fiscal years ended September 30, 2003 and September 30, 2002 (the "Reports") did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles except as follows: In Hirth's report dated December 29, 2003 and December 23, 2002 for financial statements for our fiscal years ended September 30, 2003 and September 30, 2002, respectively, Hirth indicated that: "The Company has negative working capital and a deficit stockholders' equity. These conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty."

Next, the complaint says the company released a 10-Q on Aug 24, 2004 showing earnings of 23 cents per share. Two days later, New Solomon Consultants Ltd purchased a controlling interest in CESV from Eurofaith on converting the promissory note that was issued to buy controlling interest in Starway. New Solomon is essentially controlled by the defendent Sun Li. After this whole deal, the original CEO resigned and Sun Li became Chairman and CEO.

On Nov 5, 2004, the auditors Webb & Co resigned after one of its affiliates was appointed CFO of CESV (to avoid conflict of interest as stated in the document). Nov 17, 2004, CESV acquired another 15% of Starway (to 65%).

On Dec 3, 2004, CESV announced it applied for listing on NASDAQ. They also reported 9-month revenues of $31 million and net profit of $22 million.

On Dec 9, 2004, CESV issued a press release touting a big increase in new contracts that Starway had entered into. The press release claims 50% market share and some real boasting. Other results and press releases followed.

On Feb 3, 2005, they issued a press release announcing they acquired the rest of Starway for 7.8 million shares.

On April 18, 2005, they announced NASDAQ approval.

On May 17, 2005, they filed yet another NT 10-Q (late extension). This was the 3rd quarter in a row. The 10-Q was filed May 23. Results were apparently good. Over $13 million in net cash (over 50 cents per share).

On June 27, 2005, they filed an 8-K announcing a restatement for the year ending Sept 30, 2004 and the quarter ending Dec 31, 2004. The restatement was for accounting for stock issued to consultants and other service providers. There were other issues as well: Chinese taxes, consideration for the Starway acquisition. They also said not to rely on the original 10-K for Sept 2004 and for the latest quarter March 29, 2005.

The complaint contains a funny error saying that on June 27, 2005 CESV amended the 10-K for the year ending Sept 31 [sic], 2005 and amended the 10-Q for Dec 31, 2005. Apparently they had a time machine. [Actually it was 2004]

Three directors and the CFO resigned July 1, 2005. No explanations were given. A new CFO was appointed.

July 12, 2005 CESV announced results for June 30, 2005. They also provided full year guidance projecting $27 million profits ($1.10 per share).

August 15, 2005 CESV filed yet another NT 10-Q for the quarter ending June 30, 2005. August 22, 2005 they filed the 10-Q and results weren't as good as projected (then management should stop projecting results and shut the hell up). Revenues and profits were down from a year earlier.

Dec 14, 2005. NT 10-K. Late again. Dec 20, 2005 they filed the 10-K. Results were good, but "only" $22.4 million profits ($1.04 per share).

Jan 17, 2006 CESV announced an underwriting agreement with a full service investment group to raise $50 million in a private placement. The proceeds would go to acquisitions and new infrastructure etc. The same day, the Chairman and CEO resigned as CEO (see same document).

Jan 20, CESV filed two registration statements. The first was for the sale of 6 million shares held by Chairman's company, New Solomon. The second was for 10 million company shares. The company did not announce that the private placement was "fraught with self dealing" (you can search the documents and you won't find "fraught with self dealing" anywhere in them!).

The company did not disclose that the new CEO had introduced an investment group to CESV which then did the underwriting for the $50 million placement.

On Feb 6, 2006, Dutton Associates downgraded the company due to the obvious reasons. But they also noted that upon Mr. Li's resignation The Board of Directors immediately appointed Kwun Luen Siu to the positions of Chairman and CEO. Mr Siu was referred by Sun Li and reviewed by the Board of CESV before being appointed. Mr Siu also served as the Responsible Director of Forex, Futures and Securities under the Securities and Futures Commission of Hong Kong, Chairman of Supervisory Committee of the Chinese Gold and Silver Exchange Society of HK, and Managing Director of Dashin Group in HK.

The Dutton downgrade notes that the press release says the new CFO is supposedly better at English. More importantly, they point to the large amount of revnue that is recognized in the form of receivables rather than cash. They also mention that the auditors (which they humorously label as MSFT) disclaimed an opinion about management's assessment of the effectiveness of internal controls... and all that SOX stuff.

So if I understand the issue correctly, the complaint is that the new CEO came on board presumably due to having a financial group lined up, "If you put me in charge of the company, I'll bring these guys in to raise $50 million, and I'll arrange for the CEO to be able to sell 6 million shares."

NASDAQ then halted trading. CESV's press release only said that "additional information" was requested.

March 22, 2006 CESV announced that the request for information involved the facts and circumstances regarding the "transactions related to the rescission of certain Rule 144 legal opinions by the Company's prior securities counsel who resigned in Feb 2006, as well as certain other matters related to the company's issuance of securities."

Dutton issued a report on March 13, 2006 with the opinion that the trading halt was related to issues surrounding the large sales of restricted stock by the former Chairman/CEO.

Dutton noted that there were several sales of stock by New Solomon (controlled by then Chairman and CEO):
Jan 3, 2006: 2.2 million shares sold in private sale at $8.00 (only 575K would be allowed by Rule 144, see below)
Jan 27, 2006: 1 million shares sold in private sale at $5.75 (only 448K would be allowed by Rule 144, see below)
Feb 3, 2006: 1.3 million shares sold in the market at $8.92 (slightly less would be allowed by Rule 144, see below)

When CESV filed the 10-Q for the quarter ending Dec 31, 2005, it said that the auditors and CESV management were advised by the SEC on Jan 31, 2006 and Feb 9, 2006 that the SEC was conducting an informal and non-public inquiry into CESV and the SEC requested certain documents.

The rule on restricted stock under Rule 144 is that after the one-year holding period, you can't sell more than 1% of the outstanding shares of that class of stock. If it's a publicly listed stock, then you can't sell more than 1% of the weekly volume (during the 4 weeks prior to filing a notice to sell on Form 144).

The former Chairman/CEO filed a Form 144 to sell 2.97 million shares when trading resumes (which it did).


The stock had been trading above $6.00 until trading was halted in February 2006. When it re-opened, the stock plummeted and it's been around 40 cents.

I won't be buying any shares of this company. It's tempting, yes. But a controlling interest is held by someone who is, at best, unethical and potentially not particularly accountable... and I know all about the worst. And there's enough funny business for me to avoid the shares, but even below net cash value with a P/E significantly less than 1? If the company is for real and everything goes back to normal, those holding the shares will see a huge increase going forward. The shareholder lawsuits don't scare me all that much (they should scare the defendents).

It's kind of frightening to see some similarities between this company and ETLT and CXTI. I can see the benefit of spending lots of time looking at lots of companies to get a sort of Blink sense.

I haven't looked this over as carefully as I normally would. I'd pessimistically assume about 30 million totally diluted shares. I'd also guess that the shareholder lawsuits could be a big downward hit. These energy savings products seem fairly good, but I'd expect significant competition in the future; not terrible slugfest competition, but enough to cut the net margins in half. I also have no idea how revenues will grow. So let's say they'll routinely earn around $12 million per year, or about 40 cents per totally diluted share. That would make the stock nominally worth about $6.00. However, there would need to be a significant margin of safety, given the shareholder lawsuits.

Too horrifying for anything except perhaps a tiny gamble.

UPDATE July 4, 2006:
ABH (in the comments) pointed me to this webb page which explains the real funny business. Yeah, it's horrible alright.