.comment-link {margin-left:.6em;}

Wednesday, January 31, 2007

Strathmore plans to spin off Canadian properties

According to this press release, Strathmore Minerals (combined links) plans to create a separate stock for its Canadian properties. The stock would then be issued to current shareholders who could then choose to sell one or the other.
The reorganization is designed to improve the identification and valuation of specific Strathmore properties, to enhance Strathmore's ability to divest specific properties through simpler corporate ownership, to enter into strategic joint venture agreements, and to enable Strathmore to separately finance and develop its various assets, selectively reducing stock dilution.
This requires 2/3 of a vote at a special meeting. I say, "Sure, why not?"

My guess is that this comes at the request of current or potential shareholders. Sprott Asset Management comes to mind. It could boost the overall market price if various shareholders prefer one and not the other. The US properties would include Roca Honda and Church Rock and a lot of other stuff that would go into production within the next 10 years. The Canadian stuff would be either further out for investors focused on very long term prospects or perhaps a takeover target (e.g. throw it overboard and let the sharks fight over it).

Overall, I view this as a mildly good thing.

UPDATE Feb 1, 2007:
UxC reports that the spot price of uranium is now $75, up from $72.

Tuesday, January 30, 2007

Strathmore (STM.V STHJF) starts to monetize properties

Strathmore Minerals (combined links) announced a binding letter of intent to monetize a lesser known property. I'd never heard of it, it wasn't even on my radar screen. But a recent presentation, shows that it's one of the Wyoming properties (Red Creek). I'll want to get back to that presentation, since it has a lot of good detail that I haven't seen before: check out pages 9, 10, 15, and especially 16 which has estimated production cost per pound from the Kerr-McGee database! Church Rock and Roca Honda are $20 and below!
Mr. Dev Randhawa, Chairman and CEO of Strathmore commented, "We are very pleased to enter this JV as it marks the beginning of an aggressive strategy by our company to monetize our non-core assets. We can advance a number of uranium assets outside our targeted production areas." Mr. David Miller added, "The Baggs/Juniper Ridge properties offer an excellent opportunity for our new partner to develop as there is potential for a significant uranium resource and secure production much faster than starting a grass roots exploration project."
The Baggs, Juniper Ridge project, located in the Poison Basin uranium district of south central Wyoming, near the Colorado border (aka Red Creek Claims and associated Wyoming lease). 3,200 acres. Discovered by Urangesellschaft USA back in the 1970s. 2,000 holes were drilled in the 1970s and by AGIP in the 1980s. And of course Strathmore just happens to own a whole bunch of uranium mining database details.

The other partner is Yellowcake Mining, Inc. (YCKM, sec), who only 7 days ago completed a reverse merger into Hoopsoft Development Corporation. Yellowcake now has 91.8 million shares of stock.

Strathmore gives Yellowcake (option) 80% interest in the property along with the database info.

Yellowcake gives Strathmore...
Yellowcake agrees to spend $1.6 million per year for 5 years. After spending $4 million, they get to have 50% of the optioned interest (i.e. 40% ownership of the property). After spending another $4 million, they get the rest of it.

Strathmore will get a royalty payment of 3% of the optioned portion of all production. [I'm guessing that Strathmore also gets 20% of the overall operating profits of the venture.]

Yellowcake also will finance the evaluation of the "Strathmore Texas Database" regarding uranium prospects in Texas (apparently $25K up front and $440K for a year). They will be obligated to fund any additional land leases to be acquired. Subsequently, Strathmore and Yellowcake will be 50/50 partners in development of any identified targets resulting from that database work.

This whole deal closes after 90 days, pending everyone agreeing to the deal and Yellowcake raising $4 million and being happy with the property.

Yellowcake will cancel 56 million shares held by William Tafuri (who signed the contract for Yellowcake). Does this mean Yellowcake will actually have only 35.8 shares total?

This press release from Strathmore has a bit more text.
Yellowcake will arrange for a financing of 4 million units at no less than $1 each, each unit consisting of 1 share and 1/2 warrant at $1.50 for two years.


If I understand these terms correctly, it seems to me that Strathmore has a lot of power in calling the shots and monetizing these properties should be very profitable. The presentation material would explain the recent rise in the Strathmore stock price.

Monday, January 29, 2007

China Housing & Land (CHLN)

CHLN, CHINA HOUSING & LAND DEVELOPMENT, INC., no website, sec, yahoo, chart, Com ($0.001)

This was going to be an investment, but it didn't pan out.


prospectus. This is a housing builder (apartments) in the ancient western city of Xi'an, the historic capital of China and eastern end of the Silk Road. It's a big tourist destination (terra cotta warriors and other stuff). This is far from Shanghai and the other booming areas. The average housing space per person in the city is around 157 square feet and this is increasing, plus the population is slowly increasing. Thus, the need for lots of new housing.

The balance sheet is about what you'd expect for a builder. About 1/3 equity. Most of the assets are in the properties under construction. The biggest liability is a mortgage loan secured by the various properties under development. One customer accounted for 24% of revenue for the last 9 months.

The Chinese government has enacted laws to slow down the booming construction, which has slowed CHLN's business. Customers are looking for a decline in prices.

20.6 million shares on Oct 23, 2006. 310K warrants outstanding, all underwater.

In Q3 2006, they had $14 million in revenues from sale of properties. 22% operating margin. 14% net margin. Reasonable taxes paid.

Fully diluted earnings per share for 9 months is 42.4 cents. I figure they might be worth $10 a share if everything checks out. The stock is selling for about $2.50.

Xi'an Divisions:
Based on this Wikipedia entry, Xi'an consists of these county level divisions. "D" means district, "C" means county.

Lianhu 莲湖区
Xincheng 新城区
Beilin 碑林区
Baqiao 灞桥区
Weiyang 未央区
Yanta 雁塔区
Yanliang 阎良区
Lintong 临潼区
Chang'an 长安区

Counties (mutually exclusive from districts):
Lantian 蓝田县
Zhouzhi 周至县
Hu 户县
Gaoling 高陵县


Filed on Aug 23, 2006. Nevada corp. Located in Xi'An, Shaanxi Province. This is for re-selling existing (presumably unregistered) shares.

20,928,835 shares outstanding.

April 21, 2006: acquired Xian Tsining Housing Development Co., PRC. Cost was 16 million unregistered shares. Two officers of CHLN returned 4 million CHLN shares each, which were cancelled. No compensation.

June 28, 2006: sold 331K shares of stock and 99K warrants (3 years, $3.60 strike, restricting to owning less than 10% of the total stock) for $1.1 million. 10% plus 66K warrants placement fee paid by CHLN.

July 7, 2006: sold 38K shares of stock and 12K warrants (same terms as June 28) for $125K. Similar fee.

Aug 21, 2006: sold 250K shares, 75K warrants (same terms) for $813K. Similar fee.

Revenue is recognized when a sale is consummated, and only after a project is completed.

Three months ended June 30, 2006 (31.5% increase from same period in 2005):
Tsining JunjingYuan project: $11.4 million
Tsining-24G project: $6.5 million
Tsining Gangwan project: $176K
Other projects: $230K

Six months ended June 30, 2006 (25.1% increase from same period in 2005):
Tsining JunjingYuan project: $29.2 million
Tsining-24G project: $6.5 million (all in the last 3 months)
Tsining Gangwan project: $176K (all in the last 3 months)
Other projects: $7.0 million (most in the first 3 months)

SG&A increased 57.6% (to $1.8 million) over prior year. No explanation other than the expenses are for office rent, management and staff salaries, general insurance, accounting, and legal.
We staff our sales department at fixed levels. As one project approaches the end of the sales cycle, the sales staff is shifted to the next project.
Ok, so then why did the total expense increase by 57.6%? They give the same missing explanation in the 6 month results section. Between full year 2004 and 2005, SG&A increased only 7.7% to $3.6 million.

Most of the interest expense was capitalized. This seems correct.

Here's their description of the government changes affecting the housing market:
This increase in sales was, however, lower than we expected due to several new regulatory policies governing the real estate market issued by the Chinese government recent tow year. For example, the People's Bank of China raised mortgage interest rates on March 16, 2005, thereby increasing the cost of acquiring a residence. In addition, "Further Strengthen the Macro Controlling on Real Estate Market" and "The Notice of Stabilizing House Price and Adjust Supply Structure of house" issued by the State Council on April 27, 2005 and May 29, 2006, respectively, negatively impacted our revenues because potential buyers, whose expectations of housing prices were affected by these reports, are delaying purchases in anticipation of a decline in housing prices.
This caused the increase in revenues to be less than expected during 2006.

2005 full year revenues were 50.1% greater than 2004
The increase in revenue was due to the completion of construction and near sell out of two projects, and the sale of apartments from our inventory of completed projects. Our Tsining Gangwan project was completed, and we sold approximately 465 apartments, from the start of construction through the completion of the project, accounting for revenue of approximately $15.9 million. The completion the first phase of Junjing Garden and the sales of apartments from that project generated sales of $11.2 million. The balance of our revenue for year end 2005 was from the sale of apartments from our previously completed projects, approximately $5 million. The majority of our revenues in year end 2004 were from the sales of nearly all of the apartments of the Tsining Hanyuan project, approximately $13.4 million. Tsining Home IN contributed $3.5million during 2004, and construction was completed in December 2003. The balance of the revenues during 2004, $4.1million, was from various completed projects.


$22 million in mortgage debt with a rate of 0.725% per month, payable quarterly.
$876K matured in April 2006
$5.6 million was to mature in July 2006, renegotiated to July 2007
$2.5 million matured in Dec 2006
$4.2 million matures in May 2007
$2.5 million matures in July 2007
$6.3 million matures in Dec 2007 (they had just obtained this one in Jan 2006)

Properties under construction increased by $8.8 million during the first half of 2006.

They may need to raise more cash in the future for additional projects.


Offices are 2,600 sq ft.

53 employees: 5 management, 7 admin, 14 operations, 9 sales, 10 planning, 8 finance. All get incentive based compensation. Sales people get a company car after $25K in sales.

Families will normally pay 20% down payment (the PRC requirement was lowered from 30% to 20% in 1999 and maximum term extended to 30 years) and the rest is covered by a mortgage.
On a local basis, the Xian Bureau of Statistics indicates that, from 2001 to 2004, demand for residential housing in Xian increased from 37.6 million square feet to 61.1 million square feet. During the same period, the average price per square foot increased from US$23.23 to US$37.88.
While that's a notable increase, it seems far from being a housing bubble, given the changes in China during that time.
The population of Xian exceeds seven million. The average living area in Xian is about 157 square feet per person, significantly less than the national average. The Xian government expects the local average to reach 269 square feet of living area per person by the year 2020, at which time the population is expected to be ten million. This will necessitate the construction of 1.259 billion square feet of housing, an annual increase of 78.7 million square feet.

As the local economy has developed under Beijing's "Go West" policy, personal incomes have grown, driving the demand for better housing. The residential real estate market in Xian is currently expanding in a balanced fashion. The vacancy rate for new housing is approximately 15%, the lowest in five years.

Page 21 says they use local TV, billboards, internet, and radio to advertise both residential and commercial property. They have a sales force (9 employees) to handle inquiries.

CHLN acquires land (remember, this is land use rights for a limited time, typically 30 years) by three ways: 1) purchase at public auction from Land Consolidation and Rehab Center, 2) purchase by auction from bankruptcy, 3) mergers and acquisitions.

I read somewhere recently (I think it was related to CXTI) where China has been getting better at being fair and open with these kinds of deals, especially in big Eastern cities like Shanghai.

CHLN has all the licenses required by China. "Qualification Certificate for Real Estate Development" authorized by Shaanxi Construction Bureau (Aug 2003 to Aug 2006... hopefully renewed!). "License for Construction Area Planning" and "License for Construction Project Planning", authorized by Xian Bureau of Municipal Design. Also building permits authorized by the Committee of Municipal and Rural Construction. After construction, the project needs a validation certificate with various standards applying, regulated by the Local Ministry of Construction Bureau.

There are 4 levels of certification for builders.
Level 1: requires $6.25 million in registered capital, 5 years experience, 3.2 million sq ft developed.
Level 2: requires $2.5 million in registered capital, 3 years experience, 1.6 million sq ft developed.
Level 3: required $1 million in registered capital, 2 years experience, 538K sq ft developed.
Level 4: requires $125K in registered capital, 1 year experience, no previous development required.

In addition, All of these levels require no severe accidents and it takes 20 days to level up. To develop in multiple regions, you need a Level 1 status.

CHLN has reached Level 2 status. In Xi'an, there is a Level 1 developer (Xian Hi-Tech Industrial District Real Estate Development Co.) who is in the top five in Northwest China. They're listed on the Shanghai Exchange. They're state owned and normally do larger developments than CHLN. By the end of 2005, they had done 10 products on 988 acres with 21.6 million square feet. They were currently working on 4 projects in Xi'an of 14.5 million sq ft.

There are apparently two privately owned direct competitors to CHLN [the ambiguity is in the original text].

Competitor 1: Xian Yahe Real Estate Development Co. Level 2. Est. 1993. Six projects, 5.3 million sq ft. Mostly in northern Xi'an, a less desirable area with lower selling prices (while costs are the same). I'm thinking this gives them motivation to go after CHLN's area.

Competitor 2: Xi'an Yanta District Rural & Urban Construction Development Co. Level 2. State owned [this makes their claim about two privately owned competitors suspicious] and controlled by the Xi'an Yanta District Government. Because of this, most of their developments are municipal reform projects in the Yanta District (see the list of districts and counties above).. Est. 1985. Five projects, 7.2 million sq ft. Two projects under construction of 1.3 million sq ft.

CHLN is the third-ranked housing and land development company in the entire Shaanxi Province (much bigger than just Xi'an city) based on the 2005 ranking by China Enterprise Confederation and China Enterprise Directors' Association. They are also a "AAA Enterprise in the Shaaanxi Construction Industry" based on the Shaanxi Province Enterprise Credit Association (Note that the CHLN CEO is a member of that group!).

Finished Projects:
These are in downtown Xi'an, and were priced above the regional average. They included secured parking, cable TV, hot water, heating, and natural gas.

1) Tsining Mingyuan: 8 East Youyi Rd. 474K sq ft. 303 apartments (2-4 bdrm). 950 to 1,800 sq ft per apartment. Construction started March 1998, finished April 2000. $19.7 million in revenues. Sold at $41.65 per sq ft.

2) Lidu Mingyuan: 25 East Mutoushi. Prime commercial area near the touristy bell tower. 1.3 acres. 86K sq ft. 56 apartments (2-4 bdrm). Started Oct 2000, finished Nov 2001. $4.07 million in revenues. Sold at $47.25 per sq ft.

3) Tsining Hanyuan: 6 East Youri Rd. Near schools/universities. 347K sq ft. 238 apartments (2-3 bdrm). 1,140 to 1,800 sq ft per apartment. Started Feb 2002, finished Dec 2003. $14 million in revenues. Sold at $40.53 per sq ft.

4) Tsining Home IN: 88 North Xingqing Rd. Near city center. Western style apartments. 248K sq ft. 215 apartments (2-3 bdrm). 1,120 to 1,920 sq ft per apartment. Started ?, finished Dec 2003. $12 million in revenues. Sold at $49.64 per sq ft.

5) Tsining Gangwen: 123 Laodong Rd. Less than 1 mile from technology industrial zone. 3 acres, 8 buildings. 511K sq ft. 466 apartments (1-3 bdrm). 430 to 1,430 sq ft per apartment. Started April 2003, finished Dec 2004. $16 million in revenues. Sold at $31.14 per sq ft.

Projects Under Development:
Expanding to include some office/retail space.

1) Tsining 24G: 133 Changle Rd. Redeveloped 25 floor building in the commercial center. Housing and retail. 296K sq ft. 372 apartments (1-3 bdrm). 387 to 1,936 sq ft per apartment. Secured parking, cable TV, hot water, air cond, gas, internet, exercise facilities. Also 199K sq ft retail (135K to be sold, 64K to be rented). Started June 2005, ending June 2006.

2) Tsining Junjing Garden I: 396 North Jinhua Rd. 15 buildings. 1,230 apartments (1-5 bdrm). 1.5 million sq ft residential, 200K sq ft commercial (58K to be sold off). 505 to 3,787 sq ft per apartment. Secured parking, cable, hot water, heating, gas. $11 million revenue in 2005. Also a commercial area for small businesses targeted to residents and surrounding area. Completion June 2006.

Future Developments:
Two parcels of land requiring development financing and permits.

1) Junjing Garden II: 38 East Hujiamiao, near Junjing Garden I. 18 acres. Expecting 1.8 million sq ft. Expecting $39 per sq ft. Planning starts July 2006. North American style apartements (a first for Xi'an). Secured parking, cable, hot water, heat, gas. Planning starts July 2006. Pre-sales starts Nov 2006.

2) Yijing Garden: 14 Jiangong Rd. 15 acres. Expecting 2.3 million sq ft. Expecting 1,500 apartments (2-4 bdrm). Secured parking, cable, hot water, heat, gas. Construction starts Oct 2007, finishing Dec 2010. Expecting $39 per sq ft.


Nov 2005, signed non-binding letter of intent to buy a 51% interest in Xian Xindadi Technology Development Co. ("XIAN"). They hold an agreement with Baqiao District Government for the development of a "Hi-Tec Industrial Zone". Price is $5.1 million. Expected to close by the end of 2006. Supported by the Shaanxi [Province] National Development & Reform Commission. Also Ministries of Land & Natural Resources, Agriculture, Science & Technology, and Commerce.

This includes installing and maintaining basic infrastructure: water, electricity, gas, sewer. Afterwards, the land will be registered at Xian Land Consolidation & Rehab Center for public auction. After the land is sold, XIAN will be reimbursed for costs. After costs are paid, XIAN receives 76% of all profits from the land sales plus 40% of the tax paid by the occupying enterprises to the Baiao Government. This continues for the life of the land use permit.

XIAN will need financing for this.

CHLN entered into a nonbinding letter of intent to buy 100% of Xian Sodi Land Development Company for $3.7 million. They own 174 acres in Kang Canyon. This was expected to close in Oct 2006. CHLN intends to develop a villa resort with 260 units (215K sq ft total) to be marketed toward tourists.

CHLN will need financing.

Lu Pingji       55    Chairman of the Board and Chief Executive Officer
Xiao Genxiang 43 Chief Administrative Officer and Director
Feng Xiaohong 41 Chief Operating Officer and Director
Wan Yulong 43 Chief Financial Officer
Shi Zhiyong 45 Vice President, Chief Legal Counsel and Director
Lu Pingji joined in 1999. Founder of Lanbo Financial Investment Company (Chairman and CEO) concurrent with being Chairman and CEO of CHLN (I've seen this a few times in Chinese companies). Was in the Chinese military from 1968 to 1999, up to Senior Colonel, graduated from Xi'an Army College with a major in architectural engineering. Member of Enterprise Credit Association.

Xiao Genziang joined in 1999. Also came from Lanbo. Also concurrent with CHLN. MBA from Xi'an Jiaotong University in 2001.

Feng Xiaohong joined in 2003. Also came from Lanbo, also concurrent with CHLN. Director of Xian Newstar Real Estate Development Co. GM and president of Xi'an Honghua Industry Inc. Member of China Architecture Association. VP of Shaanxi Providence Real Estate Association. Vice Director of Xi'an Decoration Association. MS of Architecture Science from Xi'an Architecture & Technology University in 1990.

Wan Yulong joined in 2003. Also from Lanbo, also concurrent with CHLN. CFO of Xi'an Royal Hotel.

Why did these people all bail out of Lanbo (LNBO) on Dec 21, 2005? Well, on Dec 15, 2005...
On December 15, 2005, the Xi'an Providence and Foreign Trade & Economic Cooperation Bureau, a Chinese government agency that approves the registration of businesses involving foreign shareholders, notified Xi'an Xinxing Real Estate Development, Inc. ("Newstar" or "Xinxing"), currently the registrant's operating subsidiary, that it did not approve a requested extension for the payment of $5,760,000 required to be paid by the registrant's subsidiary, Lanbo Financial Investment Company Group Limited ("LFIC"), to Newstar to complete the transfer of Newstar's equity to LFIC and Newstar's privatization. The Company believes that this declaration is irreversible and will terminate the Company's ownership of Newstar in the very near future.
Ok, so Lanbo agreed to buy this company, but didn't pay. They extended the agreement, but still never paid. Then suddenly they stopped filing SEC financial reports. The stock has deflated to just about zero. Meanwhile, the top management bails out and suddenly appears in this new company, China Housing & Land (CHLN). Like Yogi Berra said, it's like deja vu all over again. Shades of ETLT.

I'll pass on this one

Thursday, January 25, 2007

Epolin (EPLN) Q3 results, sold the stock

EPLN (combined links) released their Q3 results a little over a week ago.

The short version is that revenues are down. They believe that this is temporary. I believe that, too, but I've decided to sell all my shares. I didn't have many to start with, but I tried to take my time selling them to avoid pushing the price down too much. I had very small loss on the investment (less than 5%).

12 million shares on Jan 1, 2007. 341K options outstanding (.39 strike).
Revenues are down 20% from the prior year and down roughly the same from Q2. Gross margins are down to 60.6% from 71.6% (still quite good). Net income is down 45%. SG&A increased a bit (employment agreement with new CEO).

When you look at the segment results on page 18 for 9 months, US sales dropped 13%. Europe sales dropped 28%. Asia sales increased a bit. There was an 18% customer in the US. 42% of sales were to 4 customers.

The balance sheet has more cash vs Nov 05. Some building improvements. Everything looks fine.

Cash flow from operations is great, due to an AR decrease. Capex is a bit higher than depreciation. They paid the dividends, but otherwise, not much else going on (which is good).

No share repurchases (which is fine).
However, our sales level did fall during the three months ended November 30, 2006 compared to the prior year. Yet, we are confident that this is simply a temporary downturn which we do not expect will continue. Nevertheless, we recognize that net income has not increased like our revenues have increased. When we began to reassess our direction in fiscal 2005, we placed an emphasis on sales growth which we have now achieved and which we expect will continue. We recognize that we still have to gain more control over our costs and expenses so that we can improve our overall results. This is something we are currently undertaking and we have already instituted certain measures in this regard. We are confident that we will be able to successfully meet this challenge like we have been able to achieve the growth in sales.

I suspect the future will be good for Epolin. I didn't sell my shares because it's not a good investment, but because I'm finding things I like better. I like this company and how it's being run. They may very well tap into a large new set of customers, I don't know.

Hehe, PETA kills animals

OTCQX developments

Pink Sheets LLC continues with this new OTCQX idea (brochure) which is almost like an alternative to the SEC... and it's cheap. Excellent idea! And no one is paying me to say that. Day Software is now a founding member, with Merriman Curhan Ford & Co as the Designated Advisor for Disclosure, whose acronym is DAD. Meritage is also dropping out of AMEX and switching to OTCQX.

Compliance services are provided by companies like Blue Sky Data Corp who are experts in state compliance rules:
Pink Sheets LLC today announced that it has retained Blue Sky Data Corp to provide analysis, review, and guidance for all OTCQX listed companies and their counsels on state securities requirements pertaining to secondary trading. For each company that lists on OTCQX, Blue Sky Data will analyze and review its blue sky status and/or available exemptions in every state and U.S. possession. Blue Sky Data is a recognized leader in maintaining a database on every domestic and foreign security traded in the U.S. Every day brokerage houses and clearing firms around the country use Blue Sky's database to keep the securities industry in compliance with state rules and regulations.
The Bank of New York is an ADR Principal American Liaison, whose acronym is PAL. They currently have 64% market share in ADR depository services.

There are different types of OTCQX companies. The Premier level for companies that are pretty much qualified for a national stock exchange, with or without SEC registration. The Prime level for companies with GAAP audits and specific other disclosure, with or without SEC registration. There are also international versions of Premier and Prime levels for companies listed on qualified international stock exchanges.

The OTCQX "DAD"s can custom tailor a company's disclosure based on the business needs. The purpose of the DAD is to keep out companies without sufficient or questionable disclosure. The PAL does the same thing for international companies and helps avoid duplicating effort that they've already done in their home country exchange.

In other news, I've been bogged down in a potential new investment. It's going slow. I've started buying a small number of shares. Plus I'm getting dragged into... I mean looking into a private local investment activity, mostly just to bounce ideas around.

Sunday, January 21, 2007

China-Biotics (CHBT)

CHBT, CHINA-BIOTICS, INC., no website, sec, yahoo, chart, Com ($0.001)

Chinese reverse merger, March 2006. Sinosmart Group Inc. Live microbial food supplements [that's easy, just eat some street vendor food in a 3rd World country] which benefit the host by improving intestinal microbial balance.
We manufacture and sell priobiotics. Most probiotics are bacteria based and naturally exist in the human body in the lower intestinal tract. According to an article by Dr. Lori Kopp-Hoolihan in an article in The Journal of The American Dietetic Association published in February 2001, the beneficial effects of probiotic consumption can include: improvement of intestinal tract health, enhancement of the immune system, synthesized and enhanced bioavailability of nutrients, reduction of symptoms of lactose intolerance, decreased prevalence of allergy in susceptible individuals and reduction of risks of certain cancers. The introduction of “helpful” bacteria and other organisms may aid in preventative fights against infection and improve digestion, especially with respect to dairy products.
First product, "Shining Essence". Approved by Chinese Ministry of Health in 2000, started selling in Shanghai in 2001. Currently 68% of revenues. 2 year shelf life (which apparently far exceeds competitors, which is important according to Scientific American). High concentration of germs. Originate from human sources [I don't want to know]. The effectiveness has been tested by "the Shanghai Preventive Medicine Research Institute" but the "effectiveness has not been conclusively established."

Sales are focused in the Shanghai area. They want to open 300 new stores in 2 years. 154 employees, most are in production and sales/marketing.

Opened their first pilot store March 2006.

10-K for 2006
Year ending March 31, 2006. 17 million shares on June 14, 2006.

For both 2005 and 2006
Gross margins: 69%
Sales expensese: 11%
G&A: 3%
Operating margin: 55%
Taxes: 18%
Net margin: 38%

Unit volume shipped increased 33% in 2005 and 52% in 2006. The worst performing product in 2005 increased "only" 28%. The worst in 2006 increased "only" 26%.

25% return on assets.

big revenue growth + big margins + big return on assets = wonderful business

Selling prices increased in range of 11% (top seller) to 17% (everything else) in 2005. Selling prices were nearly the same in 2006.

Audited by BDO McCabe (they were CXTI's previous auditors).
2005 results were restated. "Other payables and accruals" were moved to "liquidating dividends". Seems minor, and I'll cover it in detail if this looks good.

Current assets are cash and AR. Not much PP&E. Current ratio is 1.5. No long term liabilities (typical). About 1/3 equity.

Net income for 2006 was $8.4 million (vs $5.5 million in 2005).

Cash flow from ops in 2005 was $10.5 million thanks to tax payable and accruals.
Cash flow from ops in 2006 was $7 million, hurt by AR and taxes paid.
Almost no capex in both years.

Lots of financing stuff going on. The reverse merger. Cash advances from shareholders (repaid in full). Cash advances from related parties. Convertible bond (check if it's toxic). Huge distribution to previous owners of the subsidiary (probably legit, but that's a potential massive red flag). Loan from shareholders. Distribution of liquidating dividends (that was the restatement thing).

Pfd stock is gone. 90 million common shares authorized.

CEO owns 30% of the company. He has a Chem Eng background, polymers.
Yan Li (who is this) owns 17%.
Various others (including funds) own 5% to 8%.

10-Q for 2nd quarter
period ends Sept 30, 2006
Exact same number of shares on Nov 13, 2006: 17,080,000

Compared to year end 3/31/06: Cash is up, AR is up slightly. PP&E is up. Current ratio is up to 1.64.
Equity is up by $4.64 million.

Revenues are screaming, up 34%, insanely higher for 6 months (Q1 10-Q shows nearly doubled revenues).

Gross margins are 69%
Operating margins are 45%.
Net margins are 29%.
These are dropping somewhat, but still amazing.

Net income is $1.6 million ($4.5 million for the first half).

Cash flow from ops is $5.2 million with capex of $1.3 million. About what I would expect. The capex is probably for actual investment. Depreciation is only about 1/5 of capex.
No financing (good).

Assuming this line of business is sustainable (and I'm not sure right now if it is), I'd say this company is worth at least $10 per share, probably more. The stock is selling for around $8.00. I'm hoping to either get better visibility into the value of the company (and possibly find that it's $15+ or else get a better price such as $6.

But for now, I'll just post it to the blog.

Thursday, January 18, 2007


CCOMP, COLONIAL COMMERCIAL CORP., website, sec, yahoo, chart, Conv Pfd; Conv into 1 sh Com

HVAC distributor in most of New Jersey and Lower New York State. Exclusive Amana distributor. Lots of dilution happening. could end up being a showstopper. Margins aren't so hot. Inventories and AR are expanding too fast. Heavy balance sheet which isn't very strong, lots of debt, not much equity. Good revenue growth, however. Might be worth about $2.00. They had NOLs but those seem to have run out. Currently selling for slightly less than $2.00.

CHBP, CHINA BIOPHARMACEUTICALS HOLDINGS, INC., no website, sec, yahoo, chart, Com

China drug company, somewhat cheap? Possible high growth?

CHCG, CHINA 3C GROUP, no website, sec, yahoo, chart, Com ($0.001)

Communications products (fax machines, etc.) distribution. This is really a few companies merged together. Sells to both large and small retailers. In-house credit determination system. 5 main competitors identified. 132 employees. 50 million shares, 9 million warrants (for services)? Expected low gross margins, but high net margins. Seems like high growth. Making aggressive acquisitions with cash and stock. Changed their director compensation by-laws. Significant board member changes. Made a deal recently, applied for AMEX listing and expect 27 cents earnings for 2006 among other notable disclosures including some big plans. Might be worth over $4.25. Selling for $4.25. Definitely worth following.

Sunday, January 14, 2007

Big Apple Bagels (BABB) revisited

I had looked at this in the past, but when I looked at the end of last year, it became clear that it's a reasonably well-run business from a shareholder perspective. It generates a reasonable amount of cash. I'm still working on sifting through the pink sheets again, but it's not showing up here very often (except for CEDA and CFRI).

Big Apple Bagels (chart, sec, yahoo, website)

They've been dumping their [apparently bad] company owned stores and the financials have been improving, even though revenues declined.

Let's check data across several years from the 10-K filed in 2003 and the 10-K filed in 2005 and the amended 10-K filed in 2006 and the latest 10-Q for Q3 2006 (period ending August 31, 2006).

Net sales by company owned stores
2001: $6.3 million
2002: $4.1 million
2003: $3.0 million
2004: $1.8 million
2005: $1.4 million
9 months 2006: $385K vs $1.1 million for same period 2005

Royalty fees from franchised stores
2001: $2.8 million
2002: $2.8 million
2003: $2.5 million
2004: $2.4 million
2005: $2.3 million
9 months 2006: $1.7 million vs $1.7 million for same period 2005

Franchise and area development fees
2001: $0.3 million
2002: $0.5 million
2003: $0.4 million
2004: $0.4 million
2005: $0.2 million
9 months 2006: $226K vs $148K for same period 2005

Licensing fees and other income
2001: $1.1 million
2002: $1.1 million
2003: $1.2 million
2004: $1.1 million
2005: $1.2 million
9 months 2006: $644K vs $947K same period 2005

Operating income
2001: ($781K)
2002: $387K
2003: $734K
2004: $709K
2005: $726K
9 months 2006: $624K vs $558K same period 2005

Total operating costs
2001: $11.3 million
2002: $8.2 million
2003: $6.4 million
2004: $5.0 million
2005: $4.4 million
9 months 2006: $2.3 million vs $3.4 million same period 2005
There isn't any one category responsible for the long decline. Payroll has declined over the years, food/beverage/paper costs have declined, so have most other categories.

Net income ....... net cash provided by operations minus capex
2001: ($1.1 million) ........ ($163K)
2002: $326K ............ $1.09 million
2003: $640K ............ $1.57 million
2004: $652K ............ $728K
2005: $693K ............ $943K
9 months 2006: $635K .... $601, vs $530K .... $627 same period 2005
Interest expenses have been declining steadily over the years.

Dividends paid + purchase of treasury stock =
2001: none + none = none
2002: none + none = none
2003: $136K + $212K = $348K
2004: $278K + $11K = $289K
2005: $717K + none = $717K
9 months 2006: $866K vs $717K same period 2005 (no treasury stock repurchased either time)

Diluted share count
2001: 8.8 million
2002: 8.7 million
2003: 7.4 million
2004: 7.2 million
2005: 7.2 million
Q3 2006: 7.3 million

Based on just this information, it looks like they generate about $800K per year in free cash flow on perhaps 7.5 million totally diluted shares, making the stock worth about $1.60. The numbers are very indicative of a business that is well run for the benefit of shareholders. Nothing fancy, no growth for its own sake.

The stock is currently selling for about a dollar. Not enough to get all excited about [wow, I'm getting spoiled big time], but enough for someone to probably find it as a good investment.

Uranium chatter

CEO of SXR Uranium One interview
MINEWEB: And I�ve emphasised that, because it is relevant to cost.

NEAL FRONEMAN: It is very relevant � and not only that. Alec, we have positioned the company, because we can, as a low technical risk company. Now part of the surge that you�ve seen in the uranium prices was caused by Cigar Lake, which was a high technical risk mine that failed to come into operation.

MINEWEB: Just explain that � what happened at Cigar Lake?

NEAL FRONEMAN: Well, at Cigar Lake they�re mining in sandstone. It�s a very difficult mining operation. They were still developing the mine, and the sandstone contains water, and they have to freeze the water around where they mine. They lost the freezing ability, they had a ground collapse, the mine flooded, and now it is just about impossible to de-water that mine and seal it off.
and also
MINEWEB: Just getting back to the demand side. The Indians are talking about dramatically increasing the number of nuclear power plants they have in that country, because there nuclear only accounts for between 2 and 4% of India�s power. They are power-poor, they need to get more of it. The Chinese are talking the same kind of story. Even in The Financial Times of London today, Angela Merkel reiterated that she�d like to reverse the decision taken in 2000 to close off all the nuclear power plants in Germany by 2020. So there is this move towards nuclear power, which means more and more demand for uranium. What has it done to the uranium price?

NEAL FRONEMAN: You know, the increase in demand has not really filtered through into the uranium price yet. The reasons are that we are being very conservative in the industry regarding forecasting increases in demand. I think that the real uranium price-driver at this stage is constrained supply. So we�re not even seeing the benefit of increased demand yet.
Froneman then discusses a bit about their new contracts with utilities. The contracts have a price floor (minimum price that SXR will receive per pound), but the price tracks the market price without any cap. They've signed off 28% of their future production (2008 to 2012). Even though they're a low cost producer, this still doesn't quite pay off the cost of the mine. Once the mine starts producing, incremental costs are $14.5 per pound.

And Stockinterview.com has another article out.
The utilities are waiting for better prices, but they already got screwed by waiting up to this point.
Cameco's chief operating officer glumly hinted at something we highlighted in our late October report, “Drilling through the Athabasca sandstone has been more challenging than anticipated.” Several sources, some of which may be reliable, suggested Cameco still can’t the stop the water from coming in at the Cigar Lake uranium mine. We’ll find out in February whether this is gossip, old news or accurate.
I recall reading about the Cigar Lake mining operation and they need to jump through a lot of difficult hoops to get at the uranium and it's quite possible that they won't be able to get it for a long time.
On January 11th, UrAsia Energy announced a sales contract with a “major North American utility.” According to the company’s news release, approximately four million pounds of U3O8 have been offered for delivery over a five-year period from the Akdala uranium mine in Kazakhstan. UrAsia has a 70-percent interest in the joint venture, which wholly owns the mine.

Because of the recent surge in the spot uranium price, the contract includes market-related pricing with a floor price protection at the weekly spot price indicator of US$72/pound. Of course, over the course of the next few years, the utility may be forced to pay more for the same uranium but UrAsia is guaranteed this floor price.
Another price floor combined with an adjustable market pricing, like SXR got.

What the utilities don't seem to understand is that when you have a massive imbalance in the market, the market will develop incentives to bring additional supplies online one way or another, or else you'll have shortages. Those who are going to be bringing uranium to the market anytime soon are going to be hugely rewarded if the supply is going to increase as much as it needs to.

Monday, January 08, 2007

China Education Alliance (CEDA) press releases

China Education Alliance (combined links) released two press releases recently.

CEDA acquires Harbin Compass Vocational Training School
...reached an agreement to acquire all of the physical and intangible assets of Harbin Compass Vocational Training School (CVTS). CVTS focuses on vocational IT training and offers leading programs for Network Engineering and ACCP Software Engineering. With this acquisition, Zhong He becomes the exclusive educational training partner of Beida Qingniao APTECH IT Co., Ltd. (APTECH) within the Heilongjiang Province of China. This partnership demonstrates CEDA's commitment to promoting IT training across mainland China. Zhong He acquired the assets, which include classrooms, computer rooms and patented course materials, for US $1,000,000 in cash and stock. The deal closed on December 10, 2006. CEDA estimates that the acquisition of CVTS and subsequent partnership with APTECH will generate US $1 million per year. CEDA CEO Yu Xi-qun stated, "This acquisition will increase CEDA's presence in the vocational education market, as well as provide on-site training space and resources in addition to our Heilongjiang Zhong He Education Training Center. We are also very pleased to be the new exclusive partner of Beida Qingniao APTECH IT Co. in Heilongjiang.'' [emphasis added]
So the estimated $1 million generated per year would be revenue, not earnings. In the Q3 report, they noted they generated $7.5 million in revenue for the trailing 12 months (only $3.1 million in the prior year). For the entire CEDA business, net margins are over 50%. It seems unrealistic to expect the same for this voc/tech school. In any case, the deal is probably not too bad.

CEDA launches a new 'Employment Crossroads for College Graduates' program

The Crossroads program is designed to connect college undergraduates and graduates with relevant career opportunities, leveraging support from related government agencies. Planned future initiatives include the launch of a comprehensive training campaign for career education, career guidance, and career planning. The Crossroads program's kickoff in Beijing has already been well received by both government agencies and businesses. It is estimated that Hua Yu Hui Zhong will help over 1 million graduates secure jobs in the coming 5 years.
They seem to be stuck on that "one million" number a lot lately. This program probably won't add much to the bottom line, but could help the company in unexpected ways.

I continue to own the stock.

Friday, January 05, 2007

Conforce International (CFRI)

CFRI, CONFORCE INTERNATIONAL, INC., website, unaudited financial statements, yahoo, chart, Com ($0.0001)

This is a development stage company formed on May 18, 2004, although they're making a profit from a related business right now (Mississauga, Ontario shipping terminal). These people are in the container shipping business. Top management has a lot of experience in the repair and selling of containers. Their main focus is a new flooring for containers based on composite materials rather than the usual wood planks.

The big question is whether I can determine if this company is worth significantly more than $60 million. They have 120 million shares selling for around 50 cents. I obviously like what I see so far and it's time to dive into it some more.

Starting with the annual report for the period ending 3/31/2006:
This is all unaudited
This is for their existing business: revenue increased by 2.7 times from the prior year to $1.6 million. Gross margin was 56% vs 78% in the prior year. The SG&A is mostly wages and facility rent and cost of subcontractors. Depreciation is very low. 13% operating margin. 10% net margin.

Looking at the balance sheet, it's not particularly strong. Cash in the prior year has shifted into AR. Shareholders funded most of the company's debt. Less than 1/4 equity.

Operating cash flow combined with capex looks ok for a development stage company. They've got the accounts moved around from the usual US GAAP locations. AR ate a lot of cash. So did buying fixed assets.

There's an entry on the balance sheet of $103K for "adjustment for shareholder position". What the hell is that? Maybe related to the 50% of CCTI they don't own (see below)?

The equity statement is a bit difficult to decypher. They ended March 31, 2004 with 120,001,000 shares, with ($65,228) in retained deficit and a total deficit of ($71,967).

They had net income during the next year of $134,691 minus ($17,972) in taxes.

They did a recapitalization, adding 1,000 shares and then removing 1,000 shares, with no net effect. Why?

The rest of the equity statement makes sense, however.

NOTES Section:

The capital assets consist of a truck, $100K of equipment (probably including a lot of trade show stuff), and a container. The truck is depreciated 30% per year. The other stuff 20%.

May 25, 2005 they did a reverse merger, acquiring Conforce Container Corporation ("CCC") for 120 million shares (only 1,000 shares were outstanding beforehand). Share counts have been retroactively stated. They acquired 50% of Conforce 1 Container Terminals ("CCTI") for a symbolic amount of one hundred dollars. They still own only 50% based on Note 2.

CCTI provides handling, storage, and transport of containers with an 11 acre terminal in Missassauga. Management worked for an operated Toronto Reefer Container and AB Container Sales (very small business).

CFRI is working on developing EKO-FLOR for containers which will reduce operating costs, "first revenues expected in April of 2006".

No related party issues.

Q2 results for the period ending Sept 30, 2006:
Revenues up 27% to $524K. Gross margins of 60%.
R&D, wages, subcontractor expense, and commissions are way up (not surprising).
But they still made an operating profit of $43K and a net profit of $34K.

Balance Sheet
Cash is up somewhat.
AR is unchanged.
They still have that odd "Adjustment for Shareholder Position" asset which is now $137K.

Cash Flow
They are recording cash flow as cumulative, not just during the period since fiscal year end, which makes it confusing.
Shareholders added more to the loan. No terms, no interest.
They're squeaking by with the cash.

No change in the equity statement.

Added slightly to the capital equipment ($751 added to the truck capitalization, I hope they aren't capitalizing oil changes and repairs).

Dec 19, 2006 Investor Update (they don't provide any convenient link):
It begins with a CEO letter. The goal for 2006 was to start work in a 3-phase testing process, which they've completed in November. Also, the terminal operations had double-digit growth.

Phase 1 testing based on industry standards completed May 25, 2006.
Phase 2 testing completed Oct 24, 2006.

Nov 10, 2006: Joseph DeRose (from Ciba Geigy) appointed VP of Product Development.

Nov 29, 2006: EKO-FLOR passed the final phase of testing and was officially certified by the American Bureau of Shipping for use in containers worldwide. Apparently, they also have a group of people working in China, which I assume is the subcontractor expenses.

Dec 5-7, 2006: EKO-FLOR launched at the Annual Intermodal Conference in Hamburg, Germany. The organizers specifically pointed out EKO-FLOR:
Of the many new products and services showcased at Intermodal 2006, there were a few particularly outstanding launches. After 32 years of specialising in the repair and sale of containers, Conforce International announced it was also to become a supplier of container products. The Canadian company launched a revolutionary new container flooring system, EKO-FLOR, designed to replace the traditional wood floor in shipping containers. Certified by the American Bureau of Shipping just two weeks ago, EKO-FLOR attracted a great deal of interest from Intermodal visitors.
After the launch in Hamburg, Conforce became an Associate Member of the Container Owners Association (COA) which promotes common standards for the industry. Conforce will participate in workshops and spearhead issues and studies in the industry related to container flooring [and I'm guessing those studies will suprisingly favor composite based flooring instead of wood floors].

Members of COA include COSCO, GE SeaCo, Hanjin, Hapag Lloyd, Hyundai, Maersk, and ZIM. GE has been working on smart container technology.

Schedule for 2007:
January: announce plans for a new listing for CFRI stock, announce appointment of a new VP of operations.

February: Shareholder update regarding EKO-FLOR roll-out, terminal operations core expansion announcement, and issue revenue and earnings projections for 2007 and 2008. Also media features and interviews.

March: Investor conference with Q&A.

Ok, so what sort of confidence do I have that this is a much bigger than $60 million business?

Container fittings and floors news
Container linings news
Container misc industry news

Container world in a box article
This looks like a worse solution

Interesting writeup of the business

Container packing issues from Hapag Lloyd.

Conforce fact sheet This has a lot of useful stuff in it, including some mention of one of the articles I found in the "Container fittings and floors news" link above (Mar 2003, Floors - going nowhere slowly):
The search for environmentally-friendly alternatives to Apitong plywood for container floors is ongoing, but progress to date has been negligible. Any company or entrepreneur who can come up with an environmentally friendly product that can match Apitong plywood in terms of technical performance and be produced in large volumes at a comparable price could make a killing in the container flooring market....

They also note that there's no product like it on the market.

There are about 140 million containers and trailers worldwide, with annual production at about 15% or 21 million. Conforce's goal is to replace about 6% of all new containers and trailers with EKO-FLOR within the first three years after launch. That would be 1.26 million floors per year. If they reach that goal and have a net profit of merely $4 per floor, the company would be worth its current market cap. If they reach a net profit of say $20 per floor, it would be worth about 5 times what it's selling for today.

Based on what I've read, it seems like the EKO-FLOR price is probably higher than apitong plywood, but the quality of the plywood is going downhill, it's getting more and more difficult to get it, and I'll bet the margins of the suppliers are probably dropping. The major industry players would prefer not to be tearing down rare forests because it's just a matter of time before some ECO groups focus on them and cause a lot of trouble. Not to mention the headaches of unreliable apitong quality, price fluctuations, and uncertainty of the future. The big thing for me is the direction of long term trends. Global trade is going to increase in the long term. Ecological issues have constantly been increasing in importance. And there are clear indications that supply is at best unreliable.

Conforce has been pushing the importance of odor, contamination issues, and so forth. If you use a container for shipping nasty chemicals, if you want to ship food later on, you need to sand the floor, you need to keep track of what's been in the container. And then there's the liability issue if for some reason you make a mistake.

It's worth reading the various trade journal articles (they cost like $40 for each issue of the magazine).

I'm thinking it's worth a moderate investment. I spent three days buying shares. I'd buy a small amount and the ask would go up. I'd chase it up and it would go higher. I'd stop and it would come back down. Lots of games being played on this one. I found that the ask would always come back down after waiting a while.

UPDATE 1/11/07: "it's from an investment firm's financial analyst's analysis of CFRI's currrent state of the balance sheet" Yeah, the firm is Me, Myself, and I Capital Partners from Can I Quit My Day Job Yet.


Thursday, January 04, 2007

Teltronics (TELT)

TELT (sec)
I looked at it here and here and here.

When I looked at the 2004 10-K, TELT was in fairly bad shape, defaulting on a note payable to Tri-Link Technologies. They had dealt with a mezzanine financier who dumped 12,625 shares of preferred and had the unconditional right to elect a director at any time. TELT tried unsuccessfully to keep the director off the board.

TELT is a telecom equipment maker involved in voice-over-IP.
Revenue (page 12):
2001: $64 million
2002: $54 million
2003: $47 million
2004: $46 million (helped by $2 million in new revenue from UK acquisition)
2005: $46 million

The unchanged 2005 revenue was due to a $200K increase in the UK subsidiary and a $400K increase in the US part of the company, offset by a $420K decrease in the Mexico subsidiary. The increases were in the 20/20 voice-over-IP market offset by an "ongoing" downturn in the IMS network management area (customers switching from the older TDM technology to IP).

If you look at the table I linked to above, you'll see that operating income has been steadily improving over the years, except that 2005 was down somewhat from 2004. Net earnings are not a good gauge of the business due to steadily increasing non-operating gains and other income. This may have set unrealistic expectations in the market.

If we jump ahead to Q3 2006, revenues for 9 months were fairly flat, while revenues for 3 months are up 13% (product sales and installation was up 18%). Operating income is much improved over 2005. Q3 net earnings were $332K. On Nov 1, 2006, they had 8.6 million shares. Based on the 2006 10-K, they have 10.5 million diluted shares plus another 1.3 million anti-dilutive options and warrants (which I include because I only plan to buy stock that will go up substantially, making them dilutive). So I'm figuring 11.8 fully diluted shares. This results in 2.8 cents per fully diluted share for Q3 2006. However, Q3 is typically a strong quarter for them. Looking back at Q1 and Q2, I'd say that a reasonable estimate of earnings for the year would be around 4 or 5 cents.

The stock is selling for 43 cents on the ask, making this an interesting company to look at.

2005 10-K:
Period ending Dec 31, 2005
8.6 million shares on March 23, 2006

New $3 million term loan, $8 million revolver. The financial switch caused a $3.9 million gain in the income statement, so watch out for it.

TELT settled a legal dispute with Tri-Link Technologies: TELT paid $1 million, 750K shares, and a $750K note payable. This caused a gain of $211K in the income statement.

They've been surviving in the telecom hell by focusing on "quality" voice and data products. They have their own manufacturing (which is odd nowadays).

I covered some of what the company does here. Note that I spent many years in the datacom industry and, to me, it's not the least bit glamorous. It's extremely competitive, generally a terrible place to invest, and unexpected market changes can happen without much warning. The fact that they have homologation (i.e. meet specific certifications in specific countries) in more than 60 countries means that they have at least somewhat of a niche to cling to.

Backlog on Dec 31, 2005 was $14.6 million.

Primary customers:
NYC Dept of Education:
2003: 17%
2004: 14%
2005: 19%

2003: 14%
2004: 12%
2005: 7%

Nielson Media Research:
2003: 13%
2004: 10%
2005: 7%

As I mentioned before, Ion Networks (IONN, sec) is the other signficant competitor to TELT in the ISM market (network management). IONN is facing declining revenues and going underwater. The digital switching systems part of TELT's business has a lot of competitors like Lucent and Nortel.

256 employees

Over the years, revenue fell until stabilizing in 2004. TELT was able to improve gross margins over the years and gross profits remained fairly steady.

Gross margins:
2003: 39.0%
2004: 39.7%
2005: 41.1%

Operating expenses:
2003: 42.4%
2004: 37.6% (RIF, lower doubtful acct provision, lower public company costs, cost cutting, increases due to UK acquisition)
2005: 36.8% (more R&D headcount, lower deprec, lower legal fees, lower doubtful acct provision, lower support costs, lower rent and phone expenses)

Being inside "tech" companies during hard times on multiple occasions, it's a good sign when management increases R&D expenses. It means they see reachable opportunities.

Operating income:
2001: ($4.48 million)
2002: ($3.02 million)
2003: ($1.60 million)
2004: $952K
2005: $2.02 million (not counting a $1.6 million impairment of capitalized software)

Diluted share count each year:
2001: 4.9 million shares
2002: 5.5 million shares
2003: 7.3 million shares
2004: 7.8 million shares
2005: 10.5 million shares

In 2004, they sold patents back to Harris Corporation that they had purchased from Harris earlier. This was in exchange for past due principle and interest on debt owed to Harris.

In 2005, both inventory and AR increased. Inventory increased due to forecasted demand increases, but capacity constraints occured in Q4 (I'm somewhat skeptical). AR increased due to increased sales.

Lots of interesting financing.
Current obligations:
$5.1 million revolver debt ($1 million remaining, 9.7% prime+2.5)
$2.8 million senior term loan (10.7%, prime+3.5 plus obligations, regular principal payments)
$708K note payable to Tri-Link (8%, matures Oct 2008, regular principal payments)
$258K related party payable (15% unsecured, matures Nov 2008, convertible)
$253K preferred stock dividends

2006: $2.9 million
2007: $3.0 million
2008: $9.6 million
2009: $2.1 million
2010: $1.9 million
trails off from there

Revenues per quarter (millions):
Q1 04: $11.3
Q2 04: $12.1
Q3 04: $11.6
Q4 04: $11.0
Q1 05: $9.8
Q2 05: $13.0
Q3 05: $10.8
Q4 05: $12.6
Q1 06: $10.3
Q2 06: $11.5
Q3 06: $12.2

Revenue gains are a real struggle.

Auditors are Kirkland, Russ, Murphy & Tapp of Clearwater, FL. Unqualified opinion.
Prior auditors were E&Y. Going concern qualifier pointing out losses, capital deficiency, and broken covenants in the past.

Visual display of financial statements:
Balance Sheet:
Current Assets:            ==========================================
Cash ***
Accounts Receivable ********************. (small allowance)
Costs etc in excess of billing *

PP&E net ***............etc........... . . . etc.
(nearly all depreciated)
Goodwill *
Other intangibles *
Other assets *
Total assets ================================================


Current Liabilities: =============================================
Line of Credit ***************
Curr Portion of LT Debt ***
Accounts Payable *****************
Accrued Payroll ****
Other Current Liabilities ***
Deferred Revenue ****

Deferred Dividends ***
Long Term Debt *********

Shareholder Deficit ========
Total =================================================

Income Statement:
Product Sales             ++++++++++++++++++++++++++++++++++
Maint and Service Revenue +++++++++++++

Cost of Goods Sold ---------------------------

G&A -----
Sales and Marketing -------
R&D ----
Deprec & Amort -
Impaired capital software --

Operating Income +

Interest Expense -
Gain on Sale of Assets +
Gain on Exting of Debt ++++

Tax .

Net Income ++++

Cash Flow Statement:
Operating Cash Flow:
Net Income ++++++++++++++++++++++++++++++++++++++
Other Non-operating Gains ----------------------------------------------
Impairment of Capitalized SW ++++++++++++++++
Provision for Doubtful Accts .
Provision for Slow Moving Inventories ++
Depreciation & Amortization ++++++++++++++
Forfeited Deferred Compensation -
Accounts Receivable ----------
Costs & Est Earnings in Excess of Billings -
Inventories -----------------------
Prepaid Etc. ------
Accounts Payable +++++++
Unearned Billings --
Operating Cash Burned ----------

Investing Cash Flow:
Acquisition of Prop & Equip ---
Proceeds from Sale of Prop & Eqip +++++
Cash from Investing ++

Financing Cash Flow:
Net Borrowings ++++++++++++++++++++++++++
Net Repayments --------------------
Borrowed from Related Party ++++++++++
Repayment to Related Party --------
Pfd Stock Dividends --
Cash from Financing ++++++

STOPPING at the Notes section.


Right now, it's not clear enough what the future will be for TELT. Revenues might remain stagnant or they might start climbing up. I don't see this being an investment for me, although other people might find it useful. I've found another investment [update: it's CFRI] that I'll be posting on Friday after hours.

Monday, January 01, 2007

January 1, 2007

"Nothing changes
On New Year's Day"
- U2 -

I certainly hope not. I'd be perfectly happy for 2007 to pick up right where 2006 left off. With the new year, once again it's probably worth asking...


For Strathmore Minerals, I don't see a lot that can go wrong. There could be some huge new supply of uranium dumped on the market, but all that would do is forestall the inevitable crunch. If the new supply was large enough, it could drive out a lot of the smaller juniors, which would be good. I'm thinking it would take a lot to drive out Strathmore. Reasonable worst case would be a lot of dilution.

For CXTI, the Chinese government could find out that those consultant agreements are simply kickbacks to the local governments (I don't know if they are). I don't think that would kick CXTI out of the contracts; they'd probably just toss out the government officials and fine CXTI some large amount of money: dilution.

For CVU, the contracts could stop once again and they'd be faced with another drought. Could happen, but I consider it unlikely.

For BKBO, the accounting mess could simply continue on for a long time, but the operations don't need anything from the markets, so it wouldn't be very bad.

For EPLN, key employees could leave or some big chemical company could decide to jump into their line of business. But they have a fairly solid hold on the niche. This isn't a big investment for me, so I wouldn't be affected much.

CEDA? All the usual China issues could come into play. The same goes for CXTI. I can't think of much else. Maybe I'm just not very imaginative today.

I think the big things that can go wrong are with my own judgement. After the huge gains of last year, it would be easy to fall into various blunders such as losing focus or thinking whatever I do will be correct or not doing enough dilligence in the future or just getting lazy.


After going through the stocks I've looked at in the past and after doing some sifting through new stocks in the Pink Sheets, I've decided that it's important to keep the crap off the blog: avoid posting anything about lousy companies (unless they're truly entertaining) to avoid them being dragged into various retrospectives.

Most everything else to say I've already said in the past few weeks such as the next pass through the Pink Sheets. It's going slow.

This page is powered by Blogger. Isn't yours?