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Wednesday, May 23, 2007

American Bank Note Holographics (ABHH)

ABHH, AMERICAN BANK NOTE HOLOGRAPHICS, INC., website, sec, yahoo, chart, Com (1 Cent)

As a paper money collector, getting a copy of the Australian $10 plastic note with a hologram was a must.

I looked at them back here on Dec 12, 2005. At that point, I figured they were worth $2.75 and were selling for $5.98. Today they're selling for $3.35. Looks like they took a big hit on March 15, 2006 when this 8-K was issued. ABHH's "HoloMag" product was suddenly rejected by Visa due to problems with electrostatic discharge. In November 2006, they terminated the whole program and suggested possible remediation by ABHH.

They took a hit in Q4 2005, writing down inventory and reversing revenue. Revenue still came in and they recognized it in 2006: $2.3 million.

Net income per diluted share:
2002: 44 cent loss (impairment of goodwill)
2003: 5 cents
2004: 10 cents
2005: 3 cent loss
2006: 18 cents (really more like 6 cents for continuing operations).

Revenues jumped in 2005 and stayed there in 2006.
On March 15, 2005, VISA announced its intention to phase out the Dove hot stamp hologram that we supply for the VISA card, and to replace it with an integrated holographic magnetic stripe. On April 8, 2005, we entered into an Agreement with VISA, pursuant to which we were authorized to supply HoloMag to VISA approved card manufacturers. We began shipping HoloMag to VISA authorized card manufacturers in the second half of 2005. On March 14, 2006, we were informed by VISA that, as a result of the ESD issue, VISA was effectively ceasing the HoloMag program (the “VISA Decision”). VISA then moved to include either the Dove hot stamp hologram or the Mini Dove hot stamp hologram, both of which we supply, as the security device on VISA cards. By letter dated November 7, 2006, we were advised by VISA that VISA was terminating the VISA HoloMag Agreement.
Visa revenue is a bit over 1/3. Same for Mastercard. Exports are increasing somewhat.

Cash flows:
Net income was $3.6 million. Favorable deferred taxes and AR offset somewhat by AP resulted in $6.0 million in cash flow from operations.

Small capex.
Very little financing.

Balance sheet:
$8.5 million net cash (43 cents per share) on $31 million in assets, mostly current assets.

I figure they're worth at least $1.50

Bruce, take a look at Brazil Fast Food (BOBS.OB). Has a lot of pluses and looks pretty darn cheap. I'd be interested in what you have to say.
I'd say recent results look better than they are. I wonder what's up with their exclusivity agreements, judicial based income, and the rest of the other income stuff. Margins are ok, I guess.

Just a quick look and as far as I can tell, they're worth about what they're selling for. I don't put much trust in future growth since I would have no way of really knowing what's going on with the business.
Also, let's consider BABB. I looked at them a few times and found that they were doing very good things at managing the business to generate lots of free cash flow. I liked the company, but you'll notice I didn't invest in it: not cheap enough.

Perhaps there was something about BOBS that I didn't see, but it didn't strike me as particularly interesting.
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