Pink Sheets

For no good reason, I'm going to look through the ETLT 10-K for 2006. (ETLT combined links).

Full year ending Dec 31, 2006.
47 million shares on March 23, 2007.

Jan 1, 2007 purchased 22% interest in Hong Yuan Acquatic [sic] Products ("the turtle farm"). $3.8 million in cash and 2.7 million shares.

The E-Sea equipment is manufactured in Shenzhen. 9K sq ft. $2.6K/month.

Steady 68 full-time employees. 3rd parties for bio research etc.

Feb 7, 2007 ETLT received a comment SEC letter for the prior 10-K and Q3 10-Q. Normally these show up in EDGAR. It's odd that there was no 8-K filed or press release saying they received it.

The ultimate resolution of these comments is currently uncertain and may require the Company to file amendments to both of the aforementioned filings.

Tianjin offices are about 1K sq ft. $964/month.

The 2.8 million acre farm land use rights were purchased from the Chinese government in 2000. $6 million. Expires 2026. They're leasing it out for 20 years for $579K per year.

The re-filed Tedrow lawsuit is still there. Nothing new.

China relaxed the restrictions on cash somewhat, but it's difficult for ETLT to pay more than $50K in dividends per year.

REVENUES

Category                        2006            2005            Difference
---------                      ------          ------          -------------
Lamb meat                    $3,641,995       $3,775,924         $(133,929)
Cattle embryo transfers       5,261,912        9,348,688        (4,086,776)
Sheep embryo transfers                0        1,872,419        (1,872,419)
Sheep                                 0          234,155          (234,155)
Embryo transfer services      1,353,063          438,848           914,215
Roll mutton                   9,433,229        6,169,256         3,263,973
Land lease                      289,405                0           289,405
E-Sea                         8,738,499        1,193,674         7,544,825
                 -------------     -------------    -------------
Totals                      $28,718,103      $23,032,964        $5,685,139
                 =============     =============    =============

MARGINS

Category                     2006                       2005
---------                   ------                     ------
Lamb meat                  29.8%                        29.4%
Cattle embryo transfers    27.2%                        30.9%
Embryo transfer service     8.3%                        16.7%
Roll mutton                18.6%                        24.7%
E-Sea                      64.7%                        59.9%

SG&A is up 73%. $1.2 million increase in G&A. About 1/3 of the increase is due to salaries. Also E-Sea marketing fees.

Earnings are up 20%, but share count is also up.

The short term investments are with investment companies rather than banks, although they're essentially like CDs.

$537K purchase of patents.

$512K investment use of cash was "advances", which seems odd.

The focus going forward is:
1) the turtle farm
2) acquisition to add to E-Sea
3) get US FDA approval for E-Sea

Ham Langston Brezina still the auditors.

Balance Sheet:
Cash and short term investments are down to $31.4 from $40.2 million in Q3.
AR and inventories are up by about the same amount from Q3.
AP and accrued liabilities are up by over a million. [UPDATE: down by over a million]
Equity is up by around three million. [UPDATE: vs Q4]

Income Statement (looking at Q4):
Revenues for Q4 were around $7 million vs $5.7 million in the prior year.
Gross profit was around $2.7 million, about the same which means gross margins dropped.
SG&A was around $1.8 million, about twice as high as it's been running during the year, but the prior year's Q4 SG&A was $1.15 million.
Operating profit was down to $660K from $1.28 million in the prior year's Q4.

Earnings per share was 11 cents diluted.

Equity:
3 million shares were issued for cash (40 cents each).
713K shares converted
Balance is around 44 million shares.

Cash Flow:
Operating cash flow is way down due to inventory increase (embryos).
No capex.
Patent purchase of half a million.
Advances to distributors (that's an investment?) of half a million.
$1.2 million raised in selling 3 million shares.

NOTES (I'm just scanning these):
Hehe, cows are depreciated over 5 years.

Inventory is nearly all sheep and cow embryos ($5 million) and this has jumped from around zero in the prior year.

Zero stock options outstanding.

E-Sea is taxed at 15% (the agriculture is zero due to dropping the two thousand year old tax).

42% supplier concentration in one supplier.
23% supplier concentration in another supplier.
10% in a third.

15%, 18%, and 23% customer concentration.

Executives and directors (Chairman as well as the CEO) own 6.54% of the company.

Audit fees $173K, about the same as last year.



The only thing "fishy" I see is the SEC communication, which could be anywhere from no big deal to very serious [UPDATE: regardless of what the company might claim]. I'm not buying the stock. I sold it a while back. However, I do have a related party that still owns the stock ("I like my sheep embryos"). Other than the SEC communication, anyone who does own the stock would probably take these results as being fairly positive [given the stock price].

My favorite ETLT quote (from the FAQ no less):

We will produce high-tech electronic product. We will hold the exhibition to show the samples in US in 3rd quarter this year. I think the shareholders will not say we are crazy any more at that time.

Emphasis added. Whatever else I might think, this is definitely a company worth following.

UPDATE same day:
I'd guess that the market's concerns (beyond the problems I talked about here and here), are that this is an odd business that won't scale in the manner of CXTI. They don't seem very professional at all. Two examples of businesses that didn't seem professional at all are QBID and Wal*Mart in the very early days. When you looked under the hood of the first one, it was ridiculous. The other went on to unprecedented greatness.

If there's nothing terrible under the surface, then ETLT will be cheap in hindsight. Otherwise, it will look way overpriced.