bbotcs, there has been some attention focused on BBC recently as being similar to CESV. CESV was halted due to improper insider trading that occurred:

"On January 17, 2006, the Company announced an underwriting agreement to raise $50 million through a private placement of Company stock. The very same day, China Energy announced that defendant Sun Li resigned as Chairman and CEO of the Company and immediately appointed defendant Kwun Luen Siu to replace him.

The complaint alleges, however, that the Company did not disclose that at the core of the $50 million private placement was massive self-dealing -- over 6 million of the shares to be sold were indirectly owned by defendant Li. Moreover, the complaint details, defendants did not disclose that defendant Li had recommended defendant Siu as his replacement and that, prior to being vetted by defendant Li for the role of China Energy CEO, defendant Siu had played an active role in facilitating defendants' self-dealing. According to the complaint, prior to the announcement of the Company's $50 million private placement, defendant Siu introduced the investment group that would underwrite the Company's $50 million private placement offering to defendant Li and the Company.

The lawsuit also charges that during the Class Period insiders sold their Company stock at artificially inflated prices, thereby reaping more than $114 million in proceeds."
http://biz.yahoo.com/pz/060515/99140.html

I have seen Form 144 filings from early Chinese investors in BBC, but none yet filed by the management. There is a lot of innuendo swirling around, with some saying the company isn't legit because it is in China.

I've been to Bodisen's website, and if they are engaging in fraud, then it has been quite masterful. There have been multiple visits to the company by institutions, lawyers, accountants, etc to see the Bodisen facilities:

http://www.bodisen.com/download/News20041118.pdf
http://www.bodisen.com/download/News20041018.pdf
http://www.bodisen.com/html/gallery/gallery_investors.htm

Here are pictures of their facilities:

http://www.bodisen.com/html/gallery/gallery_newsite.htm
http://www.bodisen.com/html/gallery/gallery_production.htm
http://www.bodisen.com/html/gallery/gallery_warehouse.htm

There are three primary issues that I believe are keeping a lid on BBC. One is the issue of poor cash flow (negative ytd) in contrast to high earnings. That's a big red-flag in the eyes of value investors. If BBC can show improvement in that area, esp in reducing the DSO number, then I think you'll see some shorts start to cover.

Two, is the issue of supply of stock. I believe that there are some early investors in BBC that are slowly starting to sell off their positions. There was also some Amaranth involvement, which might be forced to liquidate. And, they did a placement on the AIM this year at $14, and a lot of those buyers are probably getting frustrated at this point and could look to sell.

Third, there have been a couple of negative articles written about BBC in the NY Post and recently Herb Greenberg in Saturday's WSJ. Lots of shorts follow these writers, and so perhaps they are looking to pile on.

BBC is now trading at roughly 9-10x my forward estimate for FY06. Because of PE compression from investors fleeing emerging market risk, that seems to be the new standard of "fair value" for Chinese stocks. With a high short interest and possible strong Q3 coming up, I'd be surprised if we don't see some kind of short covering rally in BBC next month.

curlews, I think this is not good news for suppliers of services to NG drillers. Shut-in to me means decreased activity, and almost certainly means no new exploration.....

There may be some wellhead maintainance that needs to be done on wells that get shut-in....perhaps some out there with experience can respond?

Knowledge, how is FTAR doing at replacing Kmart as a customer? What are the minimum sales targets they need to achieve?

Noted in the risk section:

The Risk Factors included in the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 2005, have not materially changed, but given the
termination of the Company's principal business relationship with Kmart no later
than December 31, 2008 and the difficulty of the Company's ability to manage and
plan for the disposal of, conversion, or closing of additional Kmart stores, we
are repeating these factors below.

MELDISCO IS OUR ONLY CONTINUING BUSINESS AND SUBSTANTIALLY ALL OF OUR CONTINUING
NET SALES AND PROFITS RESULT FROM MELDISCO'S BUSINESS IN KMART STORES. THE KMART
SETTLEMENT WILL RESULT IN THE LIQUIDATION OF OUR KMART BUSINESS NO LATER THAN
THE END OF DECEMBER 2008 OR EARLIER IF WE FAIL TO MEET THE MINIMUM SALES TESTS,
STAFFING OBLIGATIONS OR OTHER PROVISIONS OF THE AMENDED MASTER AGREEMENT. IF WE
FAIL TO DEVELOP VIABLE BUSINESS ALTERNATIVES TO OFFSET THIS BUSINESS WE WILL
ALMOST CERTAINLY BE FORCED TO LIQUIDATE OUR BUSINESS WHEN THE KMART RELATIONSHIP
ENDS.

Do you know what their seasonally strong quarters are?

Wade, I saw this alert come out from Buyins.net this AM:

"Overhill Farms, Inc. (OFI) operates as a custom manufacturer of frozen food products. Its products include entrees, plated meals, meal components, soups, sauces, poultry, and meat and fish specialties. The company offers its products through its internal sales force and outside food brokers. It serves retailers, foodservice, and airline industries. Overhill was formed in 1995 and is headquartered in Vernon, California. With 15.26 million shares outstanding and 64,311 shares declared short as of August 2006, there is a failure to deliver in shares of OFI."

Its on the Reg SHO list, so that could be part of the downward pressure. However, I would point out that the short interest has dropped fairly dramatically from May, when it was 118k shares short. Buyins needs to update their short interest data, because the SI is now down to 20k shares as of Sept 2006.

Looks like the CFO has been a big seller of stock over the summer, selling roughly 1/3 of his stake. He still has about 9k shares for sale, based upon his original 144 filing and the subsequent Form 4s. That has most likely contributed to the higher than avg short interest. Until those shares get placed, the MMs are hedging....just a guess.

You're right, Pappy, its tough in the chinese OTC market right now.

TCOM's financials show a typical problem in china: they can't earn positive cash flow and so have to pay for services in stock. Q3 stock comp expense was 1.1MM, plus they had recovery in bad debt that helped net income look deceivingly good....or perhaps not so deceiving?

They still have nearly 3.3MM in deferred stock comp expense, so this is going to be ongoing. If they didn't have the bad debt recovery, they would have only earned an untaxed 533k (0.006 eps) for Q3; this seems to be a big decline from Q2 (+0.01) and Q1 (+0.02). Looks cheap on a TTM basis, but the Q4 outlook looks unsettled. Looks like there was some capitulation today in TCOM.

BBC short interest up again in September:

Bodisen Biotech Inc - BBC  
  
 Trailing 12-Month History  
   
   
 Month Short Interest Revised 
 Short Interest Indicator % Change Average 
 Daily Volume Days 
 To Cover  
   
 Sep 2006 1,170,713     12.87 168,085 6.97  
 Aug 2006 1,037,260     12.96 189,690 5.47  
 Jul 2006 1,191,754     27.99 398,485 2.99  
 Jun 2006 931,158     12.81 242,054 3.85  
 May 2006 825,457     21.98 587,257 1.41  
 Apr 2006 676,716     23.59 325,550 2.08  
 Mar 2006 547,536     18.05 213,836 2.56  
 Feb 2006 463,804     118.37 399,727 1.16  
 Jan 2006 212,394     141.74 258,838 1.00 

US Senate likely to pass China tariff bill-senator
Thu Sep 21, 2006 12:14pm ET

WASHINGTON, Sept 21 (Reuters) - The Senate is likely to pass a bill aimed at forcing Beijing to change its currency policies by threatening a 27.5 percent tariff on Chinese exports to the United States, a top Republican senator said on Thursday.

"I would expect it to pass and I'm sorry for that," Senate Finance Committee Chairman Charles Grassley, of Iowa, told reporters.

Sens. Charles Schumer, a New York Democrat, and Lindsey Graham, South Carolina Republican, are seeking a vote next week on their bill threatening China with punitive tariffs.
---------------------

This would be disastrous if enacted. Doesn't anyone remember what triggered the Great Depression?

I hope Bush vetoes this and the Senate comes to its senses. This would hurt the low and middle class far more than help it...and would probably trigger a trade war with seriously bad implications for global markets.

Keep your eye out for Zecco, a new on-line financial community that looks like it will be offering zero commissions...

http://startups.gigaom.com/2006/09/21/skype-backer-takes-on-etrade-with-free-trades/

Skype backer takes on ETrade with free trades
Written by
Om Malik
- Posted today at 8:38 AM Morten Lund, the guy who was the earliest backers of Skype is at it again. He has financed Zecco, a start-up that will allow consumers to trade stocks for zero commissions, versus $10 to $20 that many online brokers charge today. Other investors in the company include former Dutch Coca Cola CEO Pier Baarsma and Soren Kenner former chairman of McCann Erickson MRM Europe

CEO Jeroen Veth, a 37 year old entrepreneur and former Merrill Lynch Vice President is heading up the company and contends that most of the old school online brokers spend too heavily on marketing and thus have to charge higher prices. Lund and crew believe that the actual trade costs about $2 and if they can lower the cost of marketing to near zero, they can offer zero commission trading. They will make money with what else - advertising.

Our model is different. We run a lean operation, use the latest technology and rely entirely on word of mouth, guerilla marketing, viral campaigns and public relations to get the message out. As a result we can look at the $2 per trade as the cost of doing business – and still turn a tidy profit
Zecco, in company’s own words is at “the intersection where online brokerage meets Yahoo Finance and Myspace,” and offers tools such as free blogging, forums etc. The big question is can they make it happen? My gut says that there will be some who will be attracted to this service because of its free nature.

Others will show up at the service because of the forums, and the community, and many are already looking for options to Yahoo Forums. In the long run this could cause old school companies to look at their own pricing structures hard and lower their prices. But can Zecco be the next ETrade, well not sure about that. What do you think?

----------

I remember a few online brokers back in the late 90s who offered free trading for a while....and then went under or got bought out or changed their commission strategy. Anyone remember freetradez.com??
http://www.businessweek.com/2000/00_24/b3685274.htm

Reading that article brought back some memories. I had accounts at all of those brokers mentioned in the article...LOL.

Don't think this will scare the shorts in BBC very much, but hey who knows...

http://biz.yahoo.com/iw/060921/0165521.html

New York Global Group Responds to Scurrilous Allegations
Thursday September 21, 1:47 pm ET


NEW YORK, NY--(MARKET WIRE)--Sep 21, 2006 -- New York Global Group (www.nyggroup.com) ("NYGG") announced today that it has retained highly regarded New York litigator, Judd Burstein (www.burlaw.com), in response to certain articles that have published erroneous information about the company and its executives, including one that appeared yesterday.
ADVERTISEMENT


NYGG's President, Benjamin Wey, stated: "NYGG has been victimized by false articles, and we are not going to sit idly by while an irresponsible reporter defames us and some of the companies we have advised."

NYGG CEO Amit Tandon, Esq. further commented: "We intend to avail ourselves of all available remedies to stem the damage caused by these irresponsible and demonstrably false reports."

Mr. Burstein stated that he expects to take action on behalf of his new client by the end of September. In addition, Mr. Burstein confirmed that he has retained investigators to examine a possible connection between the timing of these articles and short sales of hundreds of thousands of shares of Bodisen Biotech Inc. (AMEX:BBC - News) (www.bodisen.com), a company mentioned prominently in the articles. Mr. Burstein noted that if the investigation reveals a connection between the articles and the short sales, "we will evaluate and pursue a proactive and aggressive course of action."

About New York Global Group

New York Global Group specializes in serving China's fast growing middle market sector in four areas: investment banking, research, due diligence and strategic consulting. With almost a decade of China-related experience supported by a large bi-lingual staff located at the firm's Asia headquarters in Beijing, New York Global Group is one of the largest US-based financial due diligence firms in China. NYGG conducts extensive due diligence on almost all China-based companies that are publicly traded in the US and in the UK, and NYGG offer such due diligence results to our global institutional clientele. NYGG is a research partner of the central bank of China's research institute as well as other reputable entities in China. NYGG also acts as a senior economic advisor to numerous Chinese cities. In August 2006, NYGG was named the "Best Foreign Investment Banking Firm in China Serving China's Middle Market" by China Securities Daily during the China 2nd Annual Securities Industry Conference in Beijing. Visit New York Global Group: www.nyggroup.com.



Contact:
Contact:
Judd Burstein
Michael Quinn
Judd Burstein, P.C.
P: 212-974-2400



--------------------------------------------------------------------------------
Source: New York Global Group

-----------

This is in response to the comments in Chris Byron's article in yesterday's NY Post:
http://www.nypost.com/seven/09202006/business/failed_fund_was_in_penny_stocks_business_christopher_b....

"In December of last year, Amaranth lent $5 million to a Chinese fertilizer company, Bodisen Biotech, being promoted to investors by a broker named Benjamin Wei, who left the securities industry after being fined and suspended for allegedly conducting side business with his firm's clients secretly. "

Some interesting quotes from Steve Cohen, one of the top hedge-fund managers around...

http://online.wsj.com/article/SB115836320295965062-search.html?KEYWORDS=SAC&COLLECTION=wsjie/6mo...

The Hedge-Fund King Is Getting Nervous

Inside billionaire Steven Cohen's hidden world
of massive trading and lavish art. Is the party over?
At home with Van Gogh, Gauguin and a skating rink
By SUSAN PULLIAM
September 16, 2006; Page A1

<snip>
"That quick-trading game is now over, says Mr. Cohen. With about 7,000 hedge funds competing for investment ideas, good stock investments are getting more scarce. "It's hard to find ideas that aren't picked over, and harder to get real returns and differentiate yourself," he says. "We're entering a new environment. The days of big returns are gone."

To make matters worse, the stock market, he says, is no longer as forgiving for investors. The tailwind of low interest rates, low inflation and strong corporate profits, he says, has been lost. There are no more easy pickings, he says."

<snip>

Mr. Cohen says he is now making bigger bets and holding the stocks longer. The throng of rival hedge funds could create a dangerous logjam, he says. Mr. Cohen worries that some of his largest holdings are also favored by other hedge funds. A rush for the exit could spell trouble. He says he expects that eventually there will be a sudden and sharp reversal in the stock market -- but he's not worried about that happening this year. "There will be a real decline that may devastate hedge funds that have crowded into the same stocks," he predicts.

<snip>

Over the years, many styles of investing have proven to have finite shelf lives. When too many investors start doing the same thing, that tactic often stops working well.

SAC's difficulties, particularly its ill-fated Tenet investment, led Mr. Cohen to rethink his approach. As he recuperated at home, he says, he decided to move more decisively away from short-term trading. He set up an SAC unit called "Intrinsic" and staffed it with 30 analysts to hunt for longer-term investment ideas. Mr. Cohen began investing in small- and mid-cap companies in the health care, energy and technology sectors.

SAC now hangs onto stocks for an average of six to twelve months. That might not qualify as long-term investing to Mr. Buffett, but it far exceeds the norm of several years ago -- often just a few weeks.

<snip>

The hedge-fund run is not over," he said. "I think the game is changing, and if it is, I have to react. We won't go off the ledge with everyone else."

<snip>

Hweb, re ORXT. Nice PR, but I wonder about the immediate impact. Seems like it could be spread out over the next two years:

"In order to facilitate the rapid nationwide adoption of the ICEP system, Orsus Xelent was invited to present again at an SAIC-organized conference later this month. Senior management of China Unicom will join Orsus Xelent in the presentation to the directors of SAIC's provincial branches. According to the SAIC, the adoption of this new system will be completed within two years, at which time approximately 560,000 SAIC law-enforcement officials will be equipped with these new specialized mobile devices. As the designated main device provider, Orsus Xelent estimates it will deliver more than 300,000 mobile devices to meet SAIC's requirements.

DAAT Form 4 filed today....continued buying from one of the larger holders in the stock:

http://www.sec.gov/Archives/edgar/data/1102750/000133785106000048/xslF345X02/primary_doc.xml

23k shares bought over the past two days. That means that Praetorian now holds about 18% of the outstanding shares of DAAT.

cmk, Praetorian added another 23k shares over the past two days!

Hi Mike, there are some factual misstatements in that Byron article.

First the claim:

"In December of last year, Amaranth lent $5 million to a Chinese fertilizer company, Bodisen Biotech, being promoted to investors by a broker named Benjamin Wei, who left the securities industry after being fined and suspended for allegedly conducting side business with his firm's clients secretly.

Last April, Amaranth converted the loan into 133,333 shares of stock at $7.50 per share and Bodisen filed the necessary paperwork to register and sell the block on Amaranth's behalf."

NOTE: This loan wasn't converted into shares....it was paid off:

"Note 8 - Note Payable


On December 8, 2005, the Company issued a $5,000,000 note payable to Amaranth Partners LLC that accrues interest at 9% per annum and was due on March 8, 2006. In connection with this note payable agreement, the Company also issued to Amaranth Partners LLC a warrant to purchase 133,333 shares of the Company common stock for $7.50 per shares. The Company first determined the value of the note and the fair value of the detachable warrants issued in connection with this note payable. The estimated value of the warrants of $968,282 was determined using the Black-Scholes option pricing model and the following assumptions: term of 5 years, a risk free interest rate of 4.00%, a dividend yield of 0% and volatility of 31%. The face amount of the note payable of $5,000,000 was proportionately allocated to the note payable and the warrant in the amount of $4,188,810 and $811,190, respectively. The amount allocated to the warrants of $811,190 was recorded as a discount on the note payable and will be amortized over the year life of the note payable. For the three months ended March 31, 2006, $603,886 has been amortized to interest expense as the note was repaid. The $5,000,000 note plus $112,500 of accrued interest were repaid in March 2006.


Those 133,333 shares were detachable warrants that were issued at 7.50. The warrants were registered for resale in the Form 424B3 filed on Aug 11, 2006:

Amaranth Partners L.L.C. (8) 133,333 133,333 0 0%

I don't think Amaranth ever fully exercised those warrants! If you look at cash flow from financing activities, "proceeds from warrants" is only $220k on the ytd cash flow statement for BBC. That would only equal 29K shares as of June 30.


Byron claims: "Yet as of last month, no sale had occurred and the shares apparently continue to sit in Amaranth's portfolio. "

Has he seen the Amaranth portfolio? I doubt it; those documents are usually guarded very closely. And if I'm right about the warrants not being fully exercised, why would a cash strapped Amaranth want to exercise them now?

Yes, peeker good point. The article didn't touch on the big increases in stores that will be selling DAAT products. As you mention, they will be selling the Gunmaster kit in Kmart stores, plus:

"Our electric meat grinder went into 2,200 stores versus 280 stores last year, and our new meat processing kit (knives) went into over 2,000 stores."
-Q2 06 PR

That's about 4,000 new stores that are selling those specific products. I'd say they have a very good chance of hitting 20-30% sales growth (y/y) over the next 6 mos. DAAT has had difficulty with maintaining pre-tax margins and that, along with being in the retail sector, has compressed PE multiples. This stock traded at 20x untaxed TTM earnings at one point....I'd settle for 12x TTM fully taxed now. The company has shown it can grow sales through adding stores and adding new products. If they can demonstrate the ability to grow FY07 sales by 20-30% again, then investors will sit up and take notice.

DAAT.ob mentioned in this morning's Knobias Small Cap Report:

http://www.knobias.com/clipreport/clipreport.pdf

Happiness is a Clean Gun

The inflationary numbers were released during Tuesday’s session
and were much to the surprise of many on Wall Street. Both
the PPI and the CPI were below analysts expectations. The findings have many believing that the Fed has all of the ammunition it needs to thwart off another rate hike and hold interest rates at 5.25%.

With these numbers and a slowing in the decline in housing fundamentals, the holiday season may shape up to be one that is better than average. One Company that may be able to benefit from the formation of this environment along with the forthcoming hunting season is DAC Technologies Group International Inc (DAAT).

The Company is in the business of manufacturing and marketing consumer products for the wholesale, retail and OEM gun manufacturing markets. The Company has placed emphasis on firearm safety, gun cleaning kits and security items.

Founded in the early 1990’s, the Company began with a single product but in 1996 expanded and entered the firearm safety market. The safety line became very successful with a wide variety of gun locks, trigger locks, cable locks and in 2000, electronic digital safes.

In 2003 the Company entered into the gun cleaning market with its product named the “GunMaster” cleaning kit. The line of kits now include over 35 different varieties from universal cleaning kits to fit almost any firearm to caliber specific rod and brush sets and accessories. The Company also produces car alarm, glass and window alarms, personal alarms, key chain
alarms, tear gas, pepper spray, and child safety belts. Another popular product is the electric meat grinder and the new game processing kits.

The Company released second quarter earnings on August 14 of $205,896 as compared to $186,650 in the prior year. It was an increase of $19,246, or 10%. Net sales were $2,717,169 as
compared to $2,264,162 for the same period in 2005. It was an increase of $453,007, or 20%. The earnings report was not especially spectacular, but in the release Company chairman and
CEO, David Collins noted, The Company’s inventory is considerably higher this year due to the company bringing in goods earlier, primarily to meet customers’ demands and service Wal-Mart with electric meat grinders and the new game processing kit. The Company incurred extra freight
and borrowing costs, primarily in the second quarter, which affected earnings, but should be beneficial
in the third and fourth quarters. The Company has also installed a totally new computer system to accommodate growth and Wal-Mart. This has required the Company to employ a computer analyst and an additional assistant, but will service the Company, its customers and growth in the
years to come.”

The main portion of the quote which should pique investor’s interest regards the inventory buildup for Wal-Mart and the preparation for the holidays. Wal-Mart will have a solid holiday season if the economy can stave off the inevitable slowdown many have predicted that is forthcoming. Add to
the fact that the majority of the company’s are related to the upcoming hunting season and investors would be wise to carefully watch this name as it progresses into the heart of its third and fourth quarters.

---------------------------

If they can hold the line on pretax margins, then potential 20-30% revenue increases can fall to the bottom line eps. The stock is trading around 10x trailing earnings, with 20% rev growth. Net income is up less (around +15% ytd), and the eps y/y comps were flat because of rounding impact on small numbers. Q4 is seasonally their biggest quarter of the year.....

DAAT.ob mentioned in this morning's Knobias Small Cap Report:

http://www.knobias.com/clipreport/clipreport.pdf

Happiness is a Clean Gun

The inflationary numbers were released during Tuesday’s session
and were much to the surprise of many on Wall Street. Both
the PPI and the CPI were below analysts expectations. The findings have many believing that the Fed has all of the ammunition it needs to thwart off another rate hike and hold interest rates at 5.25%.

With these numbers and a slowing in the decline in housing fundamentals, the holiday season may shape up to be one that is better than average. One Company that may be able to benefit from the formation of this environment along with the forthcoming hunting season is DAC Technologies Group International Inc (DAAT).

The Company is in the business of manufacturing and marketing consumer products for the wholesale, retail and OEM gun manufacturing markets. The Company has placed emphasis on firearm safety, gun cleaning kits and security items.

Founded in the early 1990’s, the Company began with a single product but in 1996 expanded and entered the firearm safety market. The safety line became very successful with a wide variety of gun locks, trigger locks, cable locks and in 2000, electronic digital safes.

In 2003 the Company entered into the gun cleaning market with its product named the “GunMaster” cleaning kit. The line of kits now include over 35 different varieties from universal cleaning kits to fit almost any firearm to caliber specific rod and brush sets and accessories. The Company also produces car alarm, glass and window alarms, personal alarms, key chain
alarms, tear gas, pepper spray, and child safety belts. Another popular product is the electric meat grinder and the new game processing kits.

The Company released second quarter earnings on August 14 of $205,896 as compared to $186,650 in the prior year. It was an increase of $19,246, or 10%. Net sales were $2,717,169 as
compared to $2,264,162 for the same period in 2005. It was an increase of $453,007, or 20%. The earnings report was not especially spectacular, but in the release Company chairman and
CEO, David Collins noted, The Company’s inventory is considerably higher this year due to the company bringing in goods earlier, primarily to meet customers’ demands and service Wal-Mart with electric meat grinders and the new game processing kit. The Company incurred extra freight
and borrowing costs, primarily in the second quarter, which affected earnings, but should be beneficial
in the third and fourth quarters. The Company has also installed a totally new computer system to accommodate growth and Wal-Mart. This has required the Company to employ a computer analyst and an additional assistant, but will service the Company, its customers and growth in the
years to come.”

The main portion of the quote which should pique investor’s interest regards the inventory buildup for Wal-Mart and the preparation for the holidays. Wal-Mart will have a solid holiday season if the economy can stave off the inevitable slowdown many have predicted that is forthcoming. Add to
the fact that the majority of the company’s are related to the upcoming hunting season and investors would be wise to carefully watch this name as it progresses into the heart of its third and fourth quarters.

---------------------------

If they can hold the line on pretax margins, then potential 20-30% revenue increases can fall to the bottom line eps. The stock is trading around 10x trailing earnings, with 20% rev growth. Net income is up less (around +15% ytd), and the eps y/y comps were flat because of rounding impact on small numbers. Q4 is seasonally their biggest quarter of the year.....

tsquared, FYI - the CFO for SNMD just filed a Form 4 indicating he sold 30k shares, about half his holdings.

http://www.sec.gov/Archives/edgar/data/1088005/000120919106050822/xslF345X02/doc4.xml

thanks, nelson. If they can increase net income by 20-30% in FY06, they would earn 4.5 - 4.9MM in net income. They've earned 2.2MM ytd through Q2, so they appear to expect similar results in Q3 and Q4 vs Q2 in order to match their guidance for rev and net income growth. NOTE: FY06 net is now being taxed at 12% vs. 0% last year.

FDS: 8.7-8.8MM; eps: 0.51 - 0.56. Expect some serious selling pressure around 5.60; it appears that the ceiling on Chinese stocks these days is around 10x forward eps. However, TST is already on a major exchange and moving to Nasdaq....which should help their multiple a bit.

Wish I had been paying more attention to your ealier post on this one when it was in the mid 3s!

2morrow, that statement regarding A/R for TST is a bit misleading. Perhaps they will recognize a one-time benefit from collecting A/Rs that were previously classified as uncollectable, but that would be one-time in nature (and so should be discounted to a large degree). Its also possible they could be changing their write-off policy for future A/R's, which would also help the income statement....but in general, better collection of prior A/Rs just helps cash flow and not the income statement. Those receivables have already been recognized as sales from prior quarters.

Nelson (or 2morrowsgains), did you ever contact the TST IR or the company to get clarification on guidance?

"The company expects that it will have a good performance on revenue. Form the business view, the company will speed up the development in Shanghai Mobile and Shanghai Telecom, Beijing Mobile and Beijing Unicom, and Guangdong Telecom. Meanwhile, the company will explore the overseas markets step by step. Based on the company's current businesses development, the company believes the growth of revenue will achieve 20%-30% in 3Q 2006."
-TST Q2 06 PR

Did they mean sequential growth over Q2 06? or y/y increase vs. Q3 05?

Amaranth/BBC impact?

Gas Trade Burns Amaranth

By Matthew Goldstein
Wall Street Editor
9/18/2006 10:03 AM EDT
Amaranth, a big hedge fund, says it suffered huge losses last week on bad bets on natural gas trading.

"We anticipate our year-to-date losses might be in excess of 35% as we near completion of the disposition of our natural gas exposure," the hedge fund said in a letter to investors obtained by TheStreet.com. The letter is signed by the hedge fund's founder, Nicholas Maounis.

Based in Greenwich, Conn., Amaranth employs more than 360 people, including 115 traders. The fund's Web site tabs its assets at $7.5 billion, and the firm has offices in Houston, Toronto, London and Singapore. Although sources say assets under management may have been more than $9 billion, going into September.

"We have met every margin call to date," the letter continues. "We are in discussions with our prime brokers and other counterparties and are working to protect our investors while meeting the obligations of our creditors."

Amaranth is a six-year-old multistrategy fund that specializes in energy trading, merger arbitrage, convertible bond trading and traditional long/short trading.

Brian Hunter is the head of energy trading at Amaranth. The fund employs about 21 energy traders.

The hedge fund gets its name from the Greek word amarantos, which means unfading.

A person familiar with Amaranth says the fund was up a little more than 20% for the year, as recently as mid-August.

A trader with another hedge fund says the news of the big loss at Amaranth may explain some unusual trading in certain stocks last week. The trader speculated that Amaranth may have been liquidating positions in some of its equity holdings to satifisy the margin calls from its prime broker.

A broker gives a margin call when an investor or trader does not have adequate collateral to support the amount of money it has borrowed.

Even before Amaranth released a copy of its investor letter Monday, Wall Street traders were buzzing that the hedge fund had lost a ton of money on natural gas trades.

The energy markets have been particularly volatile this year. Many funds have made a great deal of money riding the spike in oil prices to new heights this summer. But a number have been caught on the wrong side of trades, especially since energy prices have turned on a dime.

Most notably, MotherRock, a two-year-old fund that once had nearly $450 million in assets, shut its doors in late July after losing nearly half of its value. Led by former New York Mercantile Exchange President J. Robert "Bo" Collins, MotherRock also bet wrong on natural gas prices.

But unlike Amaranth, MotherRock got caught betting that natural gas would fall at a time that the commodity was soaring to new heights. The irony is that if MotherRock could have held on for another few months, it might have made back much of its losses.

Last week, MotherRock told investors it was unlikely they would get back any money of the fund.


------------------------

Could explain some of the recent weakness in BBC...

Interesting comp for CEDA, footwedge. I just looked at the registration statement, and here are the numbers for FY06 (ending may 31, 2006)

Rev: 96,057 (US, in thousands)
Oper Inc: 8,001
Net Inc: 6,159

FD shares: 35,278

eps: 0.17

Current stock price: 22.25

Lock-up provision of 180 days.

CEDA would be a nice buyout candidate for EDU, if they were so inclined. CEDA has been growing at even faster rates, and given their streamlined expense structure, they are much more profitable than EDU. EDU has substantially better resources and capitalization, plus Wall Street institutions backing the deal.

I don't see any eps estimates, but even if earnings were to double over last year, this is still wildly expensive.

Hard to believe that with CEDA's numbers they can't get a few hedge funds involved with financing a measly $6MM US.

R59, I would say that there is better than 50% chance that the market indices (led by the R2K) will fall back to breakeven by year-end. I don't see a huge meltdown in the cards, but I do see a frustrating period of range bound trading.

My top-down crystal ball would show the US economy slowing down through the next 2-3 quarters, and the Fed will have some hard decisions to make on interest rates if inflation is stubbornly high. The US is having to adapt to a different world where emerging growth nations have much more clout than before. I think China in particular may be surprisingly well insulated from a slowdown in spending from a US consumer beset by high debt levels, higher inflation (and interest rates) and declining net worth (via housing prices.)

I see the US economy as being very fragile, and I also fear we could be slipping into a stagflation period that favors commodities.....and emerging nations. I may be very wrong on this, but I feel much more comfortable in cash at this point. We've had a bit of a stealth rally over the past few weeks, but virtually NONE of that has translated down to the micros. After a 5-6 year period of outperformance, micro and small-cap value is due for a bit of a correction or return to the mean. I think we're seeing that here as many have moved to the sidelines away from micros and into larger cap "safety". This is following a classic strategy that says one should favor large cap at the end of an expansion/early recession. Once interest rates start to fall, then small cap might pick up some investors' dollars....but we have a long time to go before then, IMO.

Wade, CEDA is dropping for the same reason a lot of Chinese micro-caps have fallen in the past few months: no bids.

In CEDA's case, there is no institutional following to speak of, so any concentrated selling will sink the price. There are a lot of investors underwater in CEDA at present, and its tempting to just hit the bid and go elsewhere. Plus, we know that CEDA is trying to do a capital raise, and that uncertainty is another big factor. Once we see the terms of the deal, perhaps that might get some to buy or at least stop selling, but there are no guarantees that they will be able to do a deal that is favorable to existing shareholders in the short run.

There have not been any Form 144 filers since July 10, so unless they are being stealthy about it, that probably isn't the source of the selling pressure. I think the best thing that can happen at this point is that the company puts its cards on the table, and deliver us the news on the financing ASAP. Until then, we probably drift lower, but at some point, the risk:reward becomes tremendous. This is a company that has positive cash flow from ops (very rare in OTC), and has about 0.05 in cash with no debt. Cash flow from ops was around 2.3MM last year, and at a current market cap of 20MM, we are selling at 9x cash flow.

Q3 will not be as strong as Q2, based upon the drop in subscriber prepayments and the timing of educational testing in China. The company has been very good about hitting its guidance, so there is no reason to doubt that the company can't earn the previously stated 3.0 - 3.5MM in FY06. Only problem is that they have already earned 1.98MM, so unless they exceed the top end of guidance significantly, the best quarter of their year is now behind them. Other issue now is dilution. On 58MM, fd eps would be 0.05 - 0.06, but if they dilute current shareholders by 30% or more, then pro-forma eps would only be around 0.03 - 0.04. We may be stuck in the 0.30s for a while until the financing gets worked out; I'm assuming a meager 10x forward multiple given the OTC:BB market.

CEDA needs to do what other Chinese companies like CSSTF, AOBO, CXTI, BBC etc have done.....become aligned with a few hedge funds who have the capital needed for expansion. Its a necessary evil. That way, they will get some exposure to Wall Street and possibly go for a listing down the road. Chinese stocks that are listed on major exchanges at least get 12-15x multiples, but on the OTC:BB you see forward multiples of 7-8x estimates. (TBYH, CEDA, and CSSTF are good examples here.) CEDA has a nice business right now, but they are aiming to get into the online vocational training arena, and that will take bucks. Also couldn't hurt if they updated the edu-chn.com website which is very slow to download even with broadband.

Just found another source for older news PRs....its right here on Ihub! Just enter the stock symbol in the upper right box under "Search" and then click on "news" when the chart comes up.

I noticed that BigCharts.com (now owned by Marketwatch) is no longer saving older company PRs. They used to have up to one year's worth, and now it seems that they are dumping anything older than a few months.

Does anybody have another news source, other than the company's website, for archived PRs?

Diversification question...thought I'd give my two cents on the issue.

In general, I think diversification is important to counter-act company specific risk. I will allocate up to 5% of principal to any one company, and might consider another 1-2% for a trading position to use for event-driven catalysts (i.e. earnings, or news). Sector and market cap risk are other considerations in a well-diversified portfolio, but I tend to let the companies' results speak for themselves. That would lead me toward a "bottoms-up" approach to investing, but one can't ignore the "top-down" economic headwinds either. Good stocks in bad sectors will underperform, but its important to follow the leaders in those groups. If they rebound, then its likely that their smaller-cap brethren will also. Its extremely difficult to accomplish two things: call turning points in the market, and predict which sectors will perform best in any one quarter. Keeping that in mind, its better to fall back on individual company results and investor due diligence into why results are good and expected to stay that way.

I like to establish a small position (0.5%) when finding a stock that has reached a reasonable reward:risk level according to PE and PEG calculations. The desirability of the company and/or the market conditions will dictate how aggressive I am about adding to that position initially. I'll usually stop around 1-2% unless I really like the company.

An ideal portfolio for me would have roughly 30-40 stocks, with 40-50% of the entire portfolio concentrated among 10-12 stocks. I currently hold around 17 stocks with a fairly hefty cash position (67%), so I'm in the bear camp about the next 6 months or so.

Trading liquidity is another consideration in stock selection and % of portfolio. I would say that if one is cautious, then only take on around 10% of that stock's daily volume until things pick up. Of course, illiquid stocks can offer the best bargains and are usually the best source of multi-baggers....so the % of your portfolio to allocate to this depends upon your risk tolerance and the amount of DD you can do to give yourself an "edge".

I've seen stocks go from trading only 5-10K $volume in a day, to 100k or even 1MM/day, so this is a fluid situation that can change over time. Of course, stocks like these can sit for the longest time and then explode up (or down) for only a few days. Those times can offer the best selling (or buying) opps, but many don't get them because they aren't watching closely.

Bottom line: diversification is important but it will water down returns over time IF you are picking from a decent group of stocks. I like to take some chances when the risk:reward looks right, but never put too much into any one stock.....

Very interesting data, Len. It appears that the ChinaVMC group has been more closely tracking the R2K group over the ytd period (+5% and +7% respectively)....but recently, HIS (Hong Kong listed stocks) has been in an uptrend. Has the pessimism over US micros unfairly punished the Chinese stocks traded in the US? It appears that their foreign counterparts have been doing much better, and are now up over 15%. Why the discrepancy?

Q: is this adjusted for currency?

Value, CEDA is too closely held. Perhaps having another institution or collection of wealthy individuals holding stock would be helpful at broadening the base of shareholders.

If done well, a PIPE can be a win-win for all parties. The company gets money for expansion NOW, with strings attached that could be beneficial in the long run. For example, I've seen some PIPEs that force management/owners to agree to restrict selling in their stock for at least one year. Or perhaps they contain "make-good" provisions in order to sell.

Second, the financiers might force the company to become compliant with AMEX listing standards (or even go for a listing.)

All of these things show that the company is legit and serious about growing into respectability.....short run earnings may be diluted, but if the long-term trends are intact, then it could be good time to accumulate.

AOB, CXTI, and many other Chinese stocks have gone down this road. AOB had great cash flow too, but still felt the need for cash. Arguably, they could have foregone the last big placement deal they did, but they felt that it was important to have cash ready for a pipeline that was filling up with potential acquisitions. CEDA isn't looking to acquire, just expand their ops.

Without knowing more details about price and timing, its impossible to forecast its impact. CEDA's original guidance was:

"CEDA is reiterating 2006 guidance; we expect revenue to increase to $6.0-$6.5 million, or a 94%-110% increase from 2005. The company expects net income to increase to $3.0-$3.5 million, or a 76%-106% increase from 2005. "

With current fds of 58MM, that would equate to 0.052 - 0.06 in fd eps. I think a conservative target would be 10x those earnings, which seems to be the peak valuation in this current market for Chinese OTC micros. CEDA has trailing eps of about 0.05 right now, so perhaps there won't be a huge eps growth catalyst in the upcoming earnings reports.

It will be interesting to see whether the company even puts out a PR. The last "PR firm" they used was a pump and dump outfit based in FL called 'Big Apple Consulting'. They no longer have any relationship with the company....so its not clear who, if anyone will actually be able to write the PR!

I think the stock should be trading at 0.50 - 0.60 at present, given its tremendous growth and potential. That valuation assumes the possibility of a dilutive placement. We'll see if anyone else notices the Q and the fact that management has hit their guidance for the past few quarters.

Of course, this is very conservative. CEDA has traded as high as 1.10 back in May, before the heavy 144 sales took effect. Its not out of the realm of possibility that we could see another round trip back up into the 0.80s.

Please trade TSSW for CSSTF

Thanks for the plug, Len!

I also own and like CXTI much better than I used to. The company should be close to reporting its earnings and has scheduled a CC. Good sign that the report should be a good one...its the first one they've had that I can remember.

http://biz.yahoo.com/prnews/060727/lnth007.html?.v=25

Zen, good point. I wish the company had chosen to more fully disclose the size of their orders. Saying orders were up 64% doesn't help investors if we don't know what percent of revenues these order bookings usually take up.

Either way, I would assume that these are included in deferred revenue....but I'm not sure on that point. Deferred rev looked flat y/y, if I recall, so the trends don't appear to support huge growth expectations.

The bulk of their y/y eps growth occurred in Q1, so Q3 and Q4 should be solid but not exciting.

Stock is probably slightly undervalued, but in this market no one wants to hold or accumulate much.

Gilead, I think I found your persistent seller in PSP.v. One of the directors, Brad Field, has been consistently selling 250K shares per announcement via his Field Family Trust.

He has filed intents to sell in
June, May, and March. Perhaps he's in there now, selling in early August?

He has over 4MM total shares, so still a ways to go.

CSSTF update. Was alerted that a Form 144 has been filed to sell 245,000 shares. These were part of 1.4MM shares issued to consultants who assisted on the reverse merger deal that was completed one year ago, and is within the maximum 1% of FDS rule that governs their sale in any three month period. We could have some other filers coming out of the woodwork which could depress the stock price until we can get some volume in the daily trading activity. If this drops even further as a result, this becomes even more of a compelling bargain as long as the fundamentals haven't changed. A 144 filer is often confused with a Form 4 filer, but they are not insiders. Not one insider has filed to sell any shares.

Generally, companies that come public via reverse merger with a shell corp are the dregs of the investment world. These are typically companies of the "pump and dump" variety, with no earnings to speak of. Consultants who get shares from bringing these companies public try to cash in as quickly as they can.

Now, we have a wave of small Chinese companies that are going public in this fashion in order to raise capital for their expansion. These are companies that appear to have strong, viable growth prospects with a track record of sales and earnings increases....very different from the typical reverse merger company. Without strong institutional support, its tough to weather this kind of overhead supply, especially in such a difficult market.

With the stock trading near 4, perhaps the seller won't choose to foolishly dump at this point in time. The recent private placements were done at 3.50, so I'd expect to see major support at those levels. If this does fall down below 4, I'd view it as a terrific speculative buying opportunity.

Researcher, I threw in the towel on PARL, selling my tiny position in the premarket session around 5.40.

Sales up, but margins way down. TTM earnings are probably not sustainable, so based upon the near term results, I'd say we can't rely on using them for valuation.

I see that there have been some value-oriented hedge funds buying in recently. I doubt if they had factored this bombshell into their earnings models....

Will be interesting to see what they do today and in the near future. Large short interest will probably look to cover some of their position as well, so there could be some buying catalysts coming in on the bad news. Not something I like to rely on, so I'll take my loss and move on.

The pace of EZEN's y/y rev growth has been slowing now for at least 4-5 quarters......and seq down for the first time in a long while.

I'm sure that's part of the reaction to today's earnings. Also, if booked orders were up so much in the Q, why didn't deferred revenues look any better? They are down 21% from the end of last year.

I would also point out that EZEN's numbers are lightly taxed (7% rate in Q2), and include an income tax benefit from Q1.

Hweb, did they mention on the CYRO call how much Q2 was impacted by orders that had slipped in from Q1? I would tend to look more at Q1 and Q2 together, which would put the second half in better perspective. Do they really believe that Q3 can be better than Q2?

Thought I'd bring up a neglected Chinese stock to the board's attention: CSSTF

Company: China Security and Surveillance

Biz: Based in Shenzhen, China, China Security manufactures, distributes, installs and maintains security and surveillance systems through its wholly owned subsidiary, Golden Group Corporation (Shenzhen) Limited. China Security has a manufacturing facility located in Shenzhen and a R&D facility which leverages an exclusive collaboration agreement with Beijing University. In addition, China Security has built a diversified customer base through its extensive sales and service network that includes 33 points of presence throughout the PRC.

Future Catalysts for Growth:
Currently, there are a number of formal and planned regulatory drivers which the Company believes offer significant growth opportunities. These include the estimated $6 billion - $12 billion US that Beijing expects to spend for security infrastructure in preparation for the 2008 Olympics, along with the planned investment by Shanghai for the 2010 World Fair. In addition, several ordinances have been passed by the PRC Government which requires security surveillance systems to be installed in: 1) all coal mines in China (currently estimated at 28,000) by the end of 2008, 2) all Justice Departments and Courts, 3) 660 cities throughout China for street surveillance, and 4) retail stores in Xi'an where an installation must occur before a business license will be granted.
http://bigcharts.marketwatch.com/news/articles.asp?guid={6526E50D-A1DE-4516-B396-F1B2AF4C7715}&n...

Q1 earnings report was excellent:
http://biz.yahoo.com/prnews/060630/laf008.html?.v=62

Rev up 89% y/y
Eps up 33% (0.16 v 0.12)

Q1 is seasonally weak:
"The first quarter is a seasonally slow quarter for our industry, due to the Chinese New Year which interrupts projects during the period."


Earnings projections:
These results validate our confidence in our ability to meet or exceed our previously disclosed 'make good' provision associated with our private placement offering, which called for a minimum of $17.5 million in net income for 2006. (could be 0.65 - 0.70 eps)
-from Q1 earnings report

Longer term:
There are also "make-good" provisions if the company doesn't earn 34MM in net income in FY07:
"The Securities Purchase Agreement also includes provisions requiring the transfer of “make good” shares from Guoshen Tu, the Company’s CEO, to the investors in the event our consolidated financial statements reflect after-tax net income which is less than certain specified amounts for either of the fiscal years ending December 31, 2006 and December 31, 2007. In order to satisfy his obligations under this provision, Mr. Tu has agreed to deposit a total of 2,044,126 shares in escrow with the Manhattan Transfer Registrar Company, our transfer agent. In the event that our after-tax net income is less than $17,490,000 for the fiscal year ending December 31, 2006, Mr. Tu is required to transfer to the Investors on a pro rata basis for no purchase price, a total of 1,022,063 shares, and in the event our after-tax net income is less than $34,100,000 for the fiscal year ending December 31, 2007, Mr. Tu is required to transfer to the Investors on a pro rata basis for no purchase price, an additional 1,022,063 shares. For purposes of this provision, our after-tax net income is calculated without deducting non-recurring expenses. Any portion of the make good shares not required to be transferred to the Investors, will be returned to Mr. Tu.

NOTE: the company has done two private placements this year, along with one acquisition. That will raise the fd share count to around 30MM shares. Wtd avg share count for the year will probably avg around 25-27MM.

If fds remain constant, absent any additional acquisitions, that means the company could earn 1.10 - 1.15 in FY07.

Recently announced acquisition:
http://biz.yahoo.com/prnews/060707/laf045.html?.v=48

My guess for FY06 earnings: 0.65 - 0.70. Even though Chinese companies are getting ultralow forward PE multiples, even a 10x multiple would have this trading at least 60% higher IMO.

Stock has come down from an earlier high this year around 8. Now trading near 4, I think it represents a compelling bargain. Security/surveillance in communist China? Seems like a slam dunk to me in terms of identifying a clear secular growth trend.

There are some pretty sharp hedge funds involved here. (Jayhawk China Fund and Pinnacle China Fund) Cash on the books (net of new acquisition and inclusive of recent private placements) is now probably around 18.2MM, or nearly 0.75/share. Not bad for a company trading at 4/share with such strong growth possibilities.

Current multiples:
TTM Sales: 40MM (2.5x)
TTM eps: 0.43 (9.6x)
Pretax margins: 26%
Cash flow positive for FY05.
PEG: 0.50 (using LT growth rate of 12x)

Researcher, re CPE. Just a guess here, but perhaps investors don't like the declining oil production numbers?