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No problem, never hurts to ask if you don't know the answer I figure.
This means that we have FROZ's losses and complete lack of revenue in this filing. This is also not the right season for motovox products. No body buys Q1 after christmas and before summer. Settle down everyone, the real fins will look better.
Paul Knopick on what the 10-Q covers.
I wrote:
Hello Mr. Knopick,
I hope your Wednesday is going well. I wanted to see if you could provide some clarification about the 10-Q that was issued yesterday. This appears to be a combined financial statement for Frozen Food Gift Group and APT. I am curious how it was combined though. Were revenues and expenses combined for both companies for all dates shown? In other words are the expenses shown in Q1 2013 and Q1 2014 FROZ expenses + APT expenses for the entire time period? Thanks for your time.
His response:
Both time periods were consolidated for both companies.
Pau
Sent a letter to Mr. Knopick to see if we can get clarification.
Yep. Can't record as revenues until you get the money. Keep in mind the shareholder letter statement as well.
The company began operations in 2007 with angel capital investment and then financed production with working capital loans. We also utilized account receivable factoring companies that were expensive, placed limits on orders, and made it hard for us to manage our own cash flow. After reviewing several options and interviewing multiple firms, we selected Ironridge as our partner to remove those liabilities from our balance sheet so that we will be able to accept as many orders as we can produce.
They can now accept as many orders as they can produce. That means increased revenues Q2 and Q3.
Can anyone share their perspective on how FROZ and APT financials combine in this filing? Also any thoughts on the reduction in payroll expenses? I thought they were hiring? The company says:
Operating Expenses
Operating expenses have decreased during the three months ended March 31, 2014 compared to March 31, 2013, due primarily to the reduction in payroll expenses and benefits.
Could this be because of the combo of FROZ and APT financials?
They are over commissions. You can actually look them up on the Jefferson County site. They were over like 30k or something silly small like that when I looked if I remember correctly.
Yes these financials are prior to the Iron Ridge deal. Go ahead and take 2.3M off of the current liabilities.
And that's with 460k in legal fees to go public.
APT was limited in how much they could produce previously.
"The company began operations in 2007 with angel capital investment and then financed production with working capital loans. We also utilized account receivable factoring companies that were expensive, placed limits on orders, and made it hard for us to manage our own cash flow. After reviewing several options and interviewing multiple firms, we selected Ironridge as our partner to remove those liabilities from our balance sheet so that we will be able to accept as many orders as we can produce. It was a strategic decision that was in the best long-term interests of the company."
They are now accepting as many orders as they can produce. This could mean significant revenue growth in Q3 and Q4 without even including all of the other developments ongoing.
Did APT give us the answer to how much debt they have in their shareholder letter?
"From 2008 to 2013, APT invested over $20M in the development of technology, an emissions testing laboratory, and the acquisition of an 18 acre campus of land and buildings.
In efforts to minimize the sale of equity in the early stages of the company, we raised over 60% of the needed capital through debt financing to fund operations, acquisitions and patented technology development."
60% of 20M is 12M. We know they paid off 2.3M with the iron ridge deal and have announced appproximately 1M more in convertible notes by my estimation. This would put them around 9M in debt left. Eliminating that much debt would coincide with the savings of 700k to 900k a year. Therefore it's my guess that they have about 9M in debt on the books. Not bad for a company that makes 10M+ a year and owns a 7M dollar building and 4M+ in tax credits, not to mention equipment, products and other buildings that we haven't accounted for.
Churned well over 10% of the float today. More and more of the shares available are being tucked away guys. When the financials come this will run hard. The company has not done anything to anyone. They are working through the process of a reverse merger. That involves filings that have to go through lengthy SEC processes. It involves issuing shares to their officers and to debt holders. No one has been screwed over. Just be patient. Yes the share price is plummeting quickly and as we all know it can rise just as quickly when news warrants it. Right now no one knows for sure what this company is worth. Once we see financials and contracts the share price will adjust accordingly. If we have done our DD correctly then we all know the share price should be much higher.
Be patient. It doesn't matter what the share price is right now. It only matters what it is when you buy and when you sell.
You didn't question the accuracy and completeness you questioned whether he was compensated for his work.
Yes!
The biggest short term catalyst should be current contracts and projected growth. Sounds like alot of people are knocking at their door. Just want to know who they have officially worked things out with and what the terms are.
But then they wouldn't get a 2M tax credit.
Sent the following to Paul Knopick and got a prompt response. For what it's worth.
Hello Mr. Knopick,
I am an investor in APT Group and we have spoken briefly before regarding generator development by the company. I wanted to write today to express my opinion regarding the share structure in the hope that you might share it with management should the chance arise. I understand that many factors are in flux right now as the company works to meet deadlines for various filings. I want to first say that I appreciate all of the hard work that they must be putting in as well as the transparency they have displayed thus far. I think that they have been doing a great job in handling the transition. Much of what I say may already be apparent to you or the company, in which case I appreciate you simply taking the time to read this.
As I am sure you are aware the share price has tumbled in the past few weeks seemingly driven in part by dilution following debt agreements and failing to rise again due to reduced investor confidence. I spend a fair amount of time on the message boards reading people's complaints, suggestions, rants and many other things they choose to share with the internet. My suggestion today is therefore based on my understanding of the sentiments of those who share their opinions on such boards.
Many of the investors understand the need for issuing shares to resolve debt. They think this is a good use of shares and they appreciated the company clarifying the cash flow restriction which prompted the Iron Ridge deal. However the reason the daily volume of shares and likely investor confidence has remained poor is a fear that the shares that have been issued thus far, both to creditors and to company management and early investors, is just the beginning and that there are many more shares that are going to be issued further diluting the value of the stock. There are many instances of companies which trade on the OTC doing something along these lines to pad their own pockets or to pay off debt at the expense of investors. I do not believe that APT is such a company.
Everything that has been issued so far has made sense from a business standpoint and been clearly articulated to the investor community. Again, I really appreciate that. My suggestion to get investor confidence back on track is to restrict the authorized number of common shares. This is an issue that has been stated over and over in the forums. Restricting the authorized shares would allay many of the fears that are being reiterated daily. I understand that this may be difficult to do given the nature of the Iron Ridge agreement. If it is the case that such a move is simply not possible I would humbly suggest that the company consider converting management's common shares to preferred. Restricting those shares for a year would send a clear message to investors that APT is in this for the long haul and that investors interests are important to them.
I understand that there is much at work behind the scenes that I am not aware of. I just wanted the chance to express my opinion on the matter as I am not sure if the company follows the boards closely and would therefore not be privy to investor sentiment. I am personally invested with a much longer time horizon as I believe the product line the company is developing has the chance to make an incredible positive impact globally (SonicFlow and their use as generators especially). I am also a supporter of Troy's goal to have the company make an economic difference in impoverished communities globally. This is a noble cause and we have the innovative products to pull it off.
Thanks for taking the time to read this. I look forward to future communications as well. I am always happy to share my perspective with the company should they be interested in an opinion on what investor sentiment is among the forums that are available.
His Response Below
Sir: Thank your for a well-reasoned (very polite) e-mail. I have shared it with management and urged them to consider it.
Paul Knopick
Yeah the L2 is not terribly helpful. All of my buys have failed to ever materialize on the L2 and just get filled regardless. I don't think there is much point in trying to decipher whether there is resistance here or there because they just aren't displaying the orders in many cases.
Agreed people on the board just need to stop responding to mindless negative posts. If they arent supporting their arguments then there's no reason to engage them they're just trolls. Would be nice to get back to actual discussion of the company's merits and drawbacks.
Because those shares aren't eligible for conversion and won't be for over a year.
I think it is unused portions of the mall they purchased. Do you know how big a mall is? Hard to believe they are using or will be using the whole thing.
$10M would be my estimate.
Agreed.
Something like this will just take off one day for no reason at the drop of a hat. That's pretty much how it happened last time. One measly pr that acknoledged the merger. Who knows what will set it off this time but it deserves a MUCH higher valuation based on the fundamentals presented thus far and the growth potential.
Great post.
A few things I took away were. It was great to see the company acknowledge the drone interest. I think that the non-revenue producing assets they are planning to sell might be extra commercial space in the giant mall they bought. Nice to know that they aren't just relying on share issues to retire debt. The thing I was most excited about though was the Q3 date for big news on Sonic Flow. Once that gets going and SmartCarb is running full force and the emissions testing center is also working the future will be very bright indeed!
Essentially you want to see that they are getting closer and closer to profitability. The way you measure this is by looking at the growth of revenue and margins. Growing revenue means there is more money coming in and growing margins means that they are making more and more from the units they sell. Once you sell enough units at a high enough margin then you'll be profitable.
The PPS is moving sideways because people are worried about further dilution. Once the A/S comes down and the calculation period for IronRidge is over folks will come back. They are just worried about buying in now only to get hit with more dilution in the short term. Everything is going to get sorted out it just takes time.
This is the ground floor of a very long term play. Management is handling everything very well so far. If you need the money in the short term do what you gotta do but for those that can hold long term, this is a really strong pick to do it with especially at these prices. Imagine in your head ignoring this stock for two years and then coming back to check on it. What do you think the price is going to be? I'm sure based on what we have all seen so far that everyone knows this is heading north. A lot further north. The only question to that is how long will it take? Sure you can argue that you could be making money elsewhere during that time but you might go try to make money elsewhere and lose your shorts too. This is a company that is not only a value play but a growth play as well. At some point soon they will be a momentum play as well. Expand your time horizons and you'll feel a lot more comfortable.
No it's based on revenue growth and gross margin improvements. Those are the two things that lead to profitability. Reduction in debt looks great too!
Lifan is a 3B a year company in 2011.
That's tough to foresee. Pennyland is so fickle. They could mention a contract with Boeing tomorrow and be at 10 cents even if it was immaterial. Making predictions here is a good way to be humbled.
I sent jktechnologies an email to see if I can get some specifics on their volume numbers. If they write back I will post my findings.
Lifan Group
http://www.lifanmotors.net/abouts.html
wenty years of storms and adversity have only served to make Lifan Industry Group stronger than ever.
LIFAN INDUSTRY GROUP (LIFAN) was founded in 1992. Through great effort, LIFAN has grown to be one of the largest enterprises in China. It specializes in technology development; manufacture, sales, and export of motor vehicles, motorcycles, and engines; and investment in both the financial and sports sectors.
In July 2008 LIFAN entered into an agreement with the American firm AIG, Inc. to form a joint venture enterprise.
LIFAN was awarded the Chinese “Nation Card” in July of 2009, thereby designating it as a model of national economic development. This honor, bestowed by the government, has been awarded to only 100 enterprises since the establishment of the People’s Republic of China.
Beginning on November 25th, 2010, LIFAN became the first private Chinese enterprise involved in the manufacture of automobiles and motorcycles to be listed on the Shanghai Stock Exchange.
In 2011, LIFAN had a sales volume of 18.2 billion RMB and foreign exchange earnings of 624 million USD. Currently LIFAN has registered 2005 domestic and international patents. These include 692 patents for Lifan Motors and this along with its index ranking places LIFAN in a leading position relative to its competitors.
LIFAN’s innovation and strong corporate culture has allowed it to effectively operate in 165 markets, in Southeast Asia, West Asia, Europe, Africa, and South America. Upon receipt of the e-mark certification from the European Union, LIFAN successfully launched automobile, motorcycle, and engine sales in 18 European countries.
Beginning in 2006, Lifan Motors entered the global car market with the introduction of its first sedan, the Lifan 520. The Lifan 620, a car suitable for both business and family use, was introduced in September of 2008. This was followed in 2009 by the launching of the fashionable Lifan 320. 2010 witnessed the introduction of the new Lifan 520, the Lifan 620 CVT, and a minivan. In November of the next year, Lifan Motors held a global launching ceremony at the 2011 Dubai Auto Show for the Lifan X60 SUV. During 2012, Lifan Motors will launch the Lifan 720 along with another, as yet unrevealed, new model.
Currently, there are nearly 10,000 company-owned sales centers worldwide. This distribution network extends to 42 countries, including Greece, Russia, Iran, Algeria, Columbia, the Philippines, etc. In addition, Lifan Motors has established KD plants in Russia, Iran, Ethiopian, Azerbaijan, Uruguay, Iraq, and Myanmar.
The Lifan Motors factory located in the Auto Garden in Chongqing New Northern Zone has an area of 65,000 square meters. With an infusion of 2.4 billion RMB, Lifan Motors has created state-of-the-art punching, welding, painting, general assembly, and engine assembly production lines as well as a dynamic testing line, which guarantees high quality products for the Lifan Motors brand. This facility produces 150,000 cars and 200,000 engines annually.
Lifan Motors Academy owns a modern R&D facility populated by world-class experts in automotive technology and design. The Academy contains both national technology and postdoctoral centers used to execute cutting edge automotive research.
At the beginning of 2010, Lifan Motors brought their Sanxikou minivan factory online. The factory, costing more than 1 billion RMB, has an annual capacity of 50,000 units. The first phase of the project covers more than 300 acres and contains advanced pressing, welding, painting, and assembly lines as well as a whole unit dynamic function test line.
While Lifan Motors has achieved much since its inception, it still has a ways to go to reach its goal of global competitiveness. The employees of Lifan Motors will continue to strive for excellence bringing all of their skills and energies to bear in an effort to make Lifan Motors and the Chinese automotive industry prosperous.
Yin Mingshan, board chairman of LIFAN, has met with and been recognized by a number of China’s leaders, including Hu Jintao, Wen Jiabao, Wu Bangguo, Li Peng, and Zhu Rongji. As the leader of LIFAN, he has given high praise to the people of Lifan Motors for their spirited efforts at overcoming past difficulties and encouraged them to find innovative solutions to future challenges.
LIFAN has always lived by the credo “Come from community, return to community.” As a socially responsible corporation, it has generously given more than 111 million RMB to various community improvement efforts since its inception in 1992. This includes the establishment of 104 Guangcai Schools designed to help low-socioeconomic children receive a quality education. Lifan Motors believes that it is through such efforts that a prosperous and harmonious future will be secured for all of China.
Enjoy Lifan Enjoy Life
I think 2013 will be slightly better than 2012. Probably in the neighborhood of 12-14M. If you look at previous PR's they announced in August that they had made $25M in less than three years. Since 2011 and 2012 add up to 17.5M that means they had made about $8M by august in 2013 best guess. Run that out and you get the 12-14M range.
Great post and yes the certification testing lab is one of the three primary revenue sources apt listed in their prior prs. The other two being their recreational vehicles (motovox) and their propulsion systems (smart carb and sonic flow). Very excited to get the lab up and generating revenue. Thanks for the helpful numbers. I'll look closer at the company website you posted tomorrow and see if I can come up with a revenue estimate for the lab if the other company has any volume figures available.
That and the 2M in tax credits they claimed from frozen's years of losses.
Agreed but throw in gross margins! Want to make sure we are making a marginal profit on the sale of each SmartCarb and Motovox unit and would like to see that margin going up over the years. Once we know these two pieces 1. How much do we make when we sell something vs. how much does it cost to make and 2. How many of them are we going to sell? Then we will know the strength of the company.
Agreed. Look at the 3d printing companies and it's the same idea. Great products with high demand and growth projected for years to come. All trade on the big boards at very high price to sales multiples.
Me too!
That would be great if they were profitable but I don't know if they will be there yet. They are spending a lot of money to increase capacity. They are in the middle of a $26M expansion effort. You don't spend that kind of money and stay in the green. But it is all because of the crazy demand they are seeing. They need to scale up which will improve margins while increasing revenues which moves them further toward profitability in the future. To me this is still a "story" stock. Game changing products, incredible organic growth due to high demand.
APT is not debt free and it doesn't matter.
Please remember people the audited financials do not have to be debt free for them to be "good". This is a 3 year old company, there's almost no chance we are debt free even with all the debt we have paid off. You have to buy buildings and machines and hire workers and develop products and do all those costly things before the money starts rolling in. APT is now at the point where the money has started rolling in but there's no way they have made up for all those start up costs yet. AND THAT'S OK!!!
What we need to look at is revenue growth past and predicted, gross margins, and the breakdown of expenses. Things like large marketing/selling or R&D costs will be fine for APT that's what they should be focusing on. Things like $5M a year to Troy Covey in salary would be bad. That is wasteful and unwarranted.
More than anything these guys should be valued on potential. The most important thing right now is probably the contracts that they have with OEM's and what their current capacity is and plans for expansion. This company should not be valued on the financials but rather on the contracts and the game plan for the future in my opinion.
Just want to get this out there because a lot of people are acting like APT has to be debt free to be worth investing in and that's ridiculous. Invest in the management (which looks really strong especially for OTC and at this price), invest in the products (SmartCarb, SonicFlow, Generators, Motovox), invest in the growth story (My guess is these guys are growing at an average of 40% per year based on what they have announced and predicted so far. That is Awesome!!!).
Don't pin all your hopes and dreams on them being debt free! It doesn't matter if there is debt so long as it isn't the wrong kind of debt which they have been taking care of.
Using one of my fifteen posts to say how happy I am to ignore hamberlin!