I was looking at RGMI today as well. The best I can determine is that the following things have happened recently:

1. The former CEO stepped down, and he owns about 3.2MM shares. Fear of an overhang of selling?

2. I noticed in the last 10Q filing that the company had adjusted downward the conversion price of several warrants and loans:

"Common Stock Warrants

Effective February 15, 2006, the Company amended and restated a Security Agreement dated October 31, 2005 with Laurus Master Fund, Ltd. ("Laurus") for the sale by the Company to Laurus of a $1,400,000 secured convertible minimum borrowing note ("Minimum Borrowing Note") and a secured revolving note up to a maximum of $10,000,000 ("Revolving Note"). The amended and restated Original Warrant to purchase 2,962,963 shares of Common Stock was changed whereby the exercise price was decreased from $0.78 per share to $0.55 per share. The warrant continues to have an expiration term date of October 31, 2012 and all other provisions of the Original Warrant remain the same. As a result of its evaluation, the Company determined that the warrant modification valuation was $25,729 and recorded this amount to debt discount and common stock warrants. The debt discount will be amortized as interest expense over the three year duration of the Revolving Note. The $0.55 per share was based upon the 122% of the price of common stock sold in a recent private placement offering at the time this Security Agreement was amended. Additionally, a new warrant to purchase up to 1,363,636 shares of Common Stock was granted to Laurus at an exercise price of $0.55 per share and has an expiration term date of February 15, 2013. As a result of its evaluation, the Company determined that the warrant valuation was $543,509 and recorded this amount to debt discount and common stock warrants. The debt discount will be amortized as interest expense over the three year duration of the Revolving Note. The $0.55 per share was based upon the 122% of the price of common stock sold in a recent private placement offering at the time this Security Agreement was amended.

Plus

On March 31, 2006, the Company subscribed 573,889 shares of common stock in exchange for director fees for the Company’s directors at $0.45 a share, and accrued expenses on the Company’s books were reduced $258,250. The share price of $0.45 was utilized as the fair market value on the grant date based upon the price of common stock sold in a recent private placement offering.

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

This is all old stuff so I'm not sure why its hitting the stock now. Note that the conversion prices are around what the stock is trading right now....0.52 x 0.55

Looking at the 10Q, it appears that DRDF reported some big one-time gains from "gains on extinguishment of debt" and "gains from reconciliation of payroll tax liabilities to tax authorities". Backing those and other one-times out, and the company would have lost around 2MM in the quarter and lost 3.5 - 4MM for ytd.

That's why its so cheap.

TBYH numbers for Q4 only (only FY numbers were presented in this mornings PR):

Q4 06
Rev: 6,243 + 27% y/y
Pretax margins: 43.1% v 23.3%
Pretax income: 2690 v 1145 +135%
Net income: 2167 v 698
(NOTE: minority interest expense was much higher in FY05)
FD eps: 0.07 v 0.02 +250%
Tax rate: 15% v 16% y/y in Q4 only.

Other metrics:
OCF: +3.9MM vs +954K y/y
Cash: 4.7MM

Projected growth in FY07
""The Chinese market is the largest in the world, with about 50 million new phones currently sold each year. Sales and royalties on our 2006 products alone should create earnings growth of at least 10% in fiscal 2007 but emerging catalysts suggest that an earnings growth rate approaching 30% is entirely possible for 2007."

At 10-30% growth, FY07 eps would project to 0.37 - 0.44. If this is worth at least 10x earnings, then FV should be closer to $4.00.

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

FY06 numbers I think we can all see. I guess the big question is how to quantify the risks to China's economy and the company specific risk of possible dilution or insider selling.

Still, I would think that a trailing multiple of 7x eps with a projected low end growth rate of 10% in the world's fastest growing markets for cell phones would have generated some more buying interest. As Hweb would say.....tough market!

Nice post on TBYH Berliet. I strongly agree with your analysis here....what's not to like? Ultra low PE, good cash flow generation last year (although long A/R collection cycle might hit them this year), excellent growth prospects given China's inevitable conversion to 3G over the next two years.

Growth prospects for FY07 were recently discussed in this PR from the company:

T-BAY Holdings Announces Its Product Development Plan
Tuesday May 16, 10:30 am ET

EAGLE, Idaho, May 16 /PRNewswire-FirstCall/ -- T-BAY Holdings, Inc. (OTC Bulletin Board: TBYH - News) today announced its complete Product Development Plan for FY2007 (year ending March 31, 2007). T-BAY is on track to bring to market 35 total design solutions based on seven mainboards, including two 3G phones, a 40 percent increase over the previous fiscal year. T-BAY, through its subsidiary Shanghai SunPlus Communication Technology Co., Ltd., provided 25 design solution products based on five mainboards during FY2006 (year ending March 31, 2006).

Mr. Xiaofeng Li, CEO of T-BAY Holdings, stated: "I look forward to another successful year for T-BAY with over 1.6 million units of T-BAY designed products expected to be sold in the fiscal year ended March 31, 2007. This would be a 33 percent increase over the previous year where T-BAY sold approximately 1.2 million units."

The announcement by the Chinese government approving agreements with Chinese companies regarding 3G technology puts T-BAY in a prime position to provide solutions to those companies immediately upon their ability to utilize them. Mr. Li responded to this announcement that "this is another example of T-Bay's forward-looking design strategy."

Mr. Li noted that "with T-BAY's chipsets solutions being provided by SKYWORKS, this enables us to take advantage of extremely flexible design solutions, something that is highly appreciated by our customers." The functions included: PC camera, SMS, MMS, Email, FM Radio, Handwriting, T- Flash/USB port 3GPP/H.263, MPEG-4, MP3, Dictionary, WAP, and 2.0 Mega Pixel camera.

In FY 2007, T-BAY will base its design solutions on mainboards of its very successful 9501, 7101, 7102, 7501, 7502, 7701 and 7702 product lines which have been so profitable in FY2006. Additionally, the upgraded plus-version of the original 9701, 9702 and 9501 product lines, which continue to sell very well in the market, are in design completion process, in order to be released within 30 days. The #71 and #77 series (cited above) are expected to be released in the 2nd Quarter, with the #75 series to follow in the 3rd Quarter.

Mr. Li specifically pointed out that "the first 3G phone solution is set to be in the market in the 4th Quarter. This means that we continue to be right on schedule. It is gratifying that our professional team is achieving the goals we have previously announced - particularly in our most forward- looking advanced designs." New functions such as TV Output, 3D game engines and Mobile TV will be added in different designs.

Mr. Li emphasized that "the flexibility that we have added into our designs allows us to rapidly adjust to changes in market conditions and trends and incorporate the latest technology. T-BAY's constant market research provides essential and timely feedback from its many partners and customers."

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

Here is a link to another detailed PR regarding the company and its prospects for future growth:
http://biz.yahoo.com/prnews/060426/law008.html?.v=78

Lots of good info in here....but the "money" quote is this:

"We are confident that if we do nothing more than what we did during Fiscal 2006, we will be able to report on a conservative basis an increase of 10 percent in Fiscal 2007 over Fiscal 2006. Current internal growth supports that, as do our constant market assessment reports. However, there are several reasons why we believe that this estimate is particularly conservative, and could be as much as 30 percent:

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

Wide ranging growth forecast, but if we assume 10-30% growth with similar margins and fds, then fy07 eps would come in anywhere from 0.37 - 0.44. Stock is currently trading at 2.20, which seems tremendously cheap to me, given the secular nature of growth in the cell phone industry in China and other developing nations.

I'm long the stock and also have it in the PSL3 competition.

Skillz, re CRWS. Don't overlook the tremendous beneficial impact that the restructuring will have on reducing interest expense. They reported about 3MM in int exp last year, and that could be reduced by 1.5 - 2MM this year. That would add roughly 0.15 - 0.20 in pretax profits.

Yes, revenues will probably decline, but it may not be as steep as in prior years.

Even if one assumes revs decline by 12% next year, its not inconceivable that pretax margins will be much stronger and combined with significantly lower fds count could yield earnings per share of 0.27+ (using a tax rate of 35% and pretax margins of 6.5%).

Conservative value is probably 8x, or somewhere in the low 2s.

Fairly upbeat CC for CRWS. Lots of institutions/hedge funds on the call who see the same obvious improvements for earnings this year, post restructuring.

One guy felt that baseline results for last FY would have been around 0.50 - 0.55, net of interest expense improvements and new fds counts. I believe he excluded tax benefits, but he also didn't assume any tax rate. Conservatively, using a tax rate of 40%, that would adjust to 0.30+.

Only problem is that forward PE is still a SWAG due to the declining biz. Don't think I can give this one a 10x forward multiple, but I think its still worth 7-8x newly adjusted trailing eps.

Q1 (to be reported soon) is the weakest quarter for CRWS, but then Q2 is their strongest. Seasonal variations have smoothed out recently, according to the management on the call; some variations but not as much as in past....no %s discussed.

Curlews, I think the issue with ACSEF is not necessarily the lost sales, but the overall impact on pretax margins. Fixed costs may not be easily absorbed so the 25% reduction in sales leads to a larger impact on the bottom line.

This still won't be felt for several quarters, so the market has looked pretty far ahead and assumed the worst. Might be good for a trade, but until new customers are announced, I think investors will probably avoid it.

Anyone looking at PARL today? Its sold off on news that the acquisition offer from the CEO is now officially withdrawn:

http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20060712:MTFH86890_2...

I don't think anyone believed that he ever was serious, but is there some value here? Stock trades at about 8x projected FY06 earnings; results have been delayed because they are laboring under SarbOx regulations.

"Parlux Reports Filing of Form 10-K Delayed
Thursday June 29, 4:46 pm ET

FORT LAUDERDALE, Fla., June 29 /PRNewswire-FirstCall/ -- Parlux Fragrances, Inc. (Nasdaq: PARL - News) announced today that the filing of its Form 10-K would be delayed as a result of management not yet completing its assessment of the internal controls and reporting requirements under Section 404 of the Sarbanes-Oxley Act of 2002 (SOX).

ADVERTISEMENT
The Company became obligated to comply with the quicker implementation schedule under Section 404 when it became an accelerated filer on September 30, 2005, the end of its second quarter. Management completed its testing and has concluded that its internal control procedures contain material weakness in areas such as access to certain computer master files, segregation of duties, processing of certain adjustments to accounts payable and accounts receivable, and management overrides, despite the fact that the Company's testing did not disclose any improprieties.

The Company is completing the assessment and reporting process involved in complying with its SOX obligations. The Company will issue its Form 10-K after the assessment and reporting processes, including those of the Company's independent auditors, are completed.

This delay in the Company's SOX procedures is not expected to affect the Company's previous announcement that net sales for the fiscal year ended March 31, 2006 will approximate $182 million and net earnings per share will reach $2.13 ($1.07 post common stock split) per share.

-----------
Now that this news is finally out, what catalysts are left for the shorts to cover? Speaking of shorting practices, this one is really a favorite of the shorts.......

Lentinman, very nice report on the mechanics of short-selling and how the regulators have been covering up what may be substantial problems in the system.

One thing I would point out, esp in the case of SDNA, which the author cites as a classic case of naked short-selling "destroying" a company, is that a lot of these "victims" are shareholders in companies that have extremely poor operating characteristics.

Sedona has been losing money amid declining sales for the past two years. Operating cash flow is negative, and my guess is that no bank was going to lend them money. Where else do they turn? Hedge funds....who loan them money with low equity conversion prices, fixed or otherwise. Q1 06 results were probably the first in a long time that showed decent improvements in sales and margins for SDNA. They still lost money though, and still need to issue stock or convertible debt in order to stay in business. I think a better test is to see what happens NOW with SDNA. There was no incentive to buy before, now maybe.......

Naked shorting is illegal and should be stopped.... No VMCer would have touched SDNA with a 10 foot pole in the past few years, but that doesn't mean that the company deserved to be destroyed by illegal shorting. This almost looks like "piling on" in order to ensure that a company would go out of business. To play devil's advocate though, it is also possible that the company would have failed anyway without convertible debt providing it with working capital just to survive. The problem is that we just don't know what would have happened.

The FTD's in the system need to be cleaned up, but if the hedge funds that make these loans go out of business as a result, then the irony here is that we might see a lot of really weak companies go under. I would file it under "be careful, you might get what you wish for...."

Don't forget that sales have been contracting at CRWS over the past few years due to the brutal competition in their sector. I would assume, to be conservative, that sales will fall another 10% in FY07 until proven otherwise.

Harry, CRWS hasn't really lowered its debt, it has exchanged it for other debt on much more favorable terms. They are now paying 1 point below prime which replaces the onerous 11.6% interest with warrant conversions on the 15MM debt.

The company has been slowly paying off debt as its cash flow from ops has been pretty good.

Only issue here is will sales growth resume? Its in a really tough sector, without much growth prospects. Ultra low forward PE will still be there, but pretax margins look to improve plus the big reduction in FDS will really boost eps in FY07.

Wish I had some shares.

Gilead, I kept putting limit orders in above ask for CRWS and still didn't get filled.....a lot of demand this AM, but there might be some opportunities later on as traders flip their shares. The stock is lightly traded.

Gilead, the debacle last quarter wasn't a PR issue, it was the incorrect reading of an accounting rule, forcing the company to restate its previously issued earnings PR.....something the CFO should have caught. Perhaps this resignation is related to that issue in some way.

Reading between the lines with LTFD....

Jeff Minch usually puts copious amounts of info in his company PRs. This fairly terse statement regarding the resignation of the CFO says more by what it doesn't say, which is the reason for why Troy Zinn is gone.

He usually spins things quite a bit, but didn't here. Minch is a pretty savvy, shareholder-oriented CEO, and he must have known that this would have caused a bit of a sell-off. Without clarification, people will assume the worst.

Digi, I follow CXTI pretty closely and have a position in it. I think the stock has been under some accumulation on the expectation that Q2's results will be quite good. There shouldn't be any consulting fees, or option expenses that will hit earnings as happened last quarter.

Barron Partners has built a decent position in the past few months. The stock is also showing signs of breaking out above some LT technical resistance.

I had thought that the convertible debt holders would start shorting to protect/hedge their position, but maybe that point is now moot. Once the 1 year anniversary of that loan is behind the company, then investors will know the true extent of dilution from that toxic convertible.

Wade, BBC didn't release any preliminary numbers for Q2 06. All they said was that sales growth was better than expected. The company has guided investors to expect sales in FY06 to double while net margins remain at 30% of sales....so if they are above that, then we could be looking at eps for FY06 of closer to 1.00/share.

The company has issued several updates throughout Q2; all have been uniformly positive and point to another exceptional quarter for the company.

Nuts, I'm not sure what you mean by the level of NG inventory build is "much less than...anticipated."

The data show that NG in underground storage is at much higher than usual levels for this time of year:
http://tonto.eia.doe.gov/oog/info/ngs/ngs.html

R59, why is the price ratio of NG to Oil that relevant? It seems to me that the over-supply issues of NG have driven down that price, and because of the complexities of NG delivery, excess supply can't be siphoned off to other countries.

Can companies easily switch from oil burning to NG? If so, why hasn't this occurred already?

I guess my point is that the two markets have very different demand and supply characteristics. To the extent that easy substitution is possible, then it makes sense to compare....but how many of us have the option of easily switching our oil-powered engines/furnaces to NG?

I wonder who dumped 25,000 shares of DAAT at 1.90 today? Very little news out of the company regarding the second half of 2006. The lawsuit settlement is nice, but it hasn't helped the PE ratio very much.

At 1.90, the stock is trading at 10x TTM eps. CEO expects at least 20% revenue growth this year, and if margins can hang in there, I'd expect net to be up by 20% as well. That would put FY06 eps at 0.23, fully taxed......

Reasonable forward PE of 10-12x would give the stock a FV of 2.30 - 2.75.

Mike, any guess as to whether the FY06 estimates for VPHM reflect the new tax rate?

Old estimate for Q1 06 was 0.21, and the company missed that badly but most of it could be explained by the change in tax rates. I wonder if the new estimate for Q2 (0.23) reflects a 40% tax rate? The number itself hasn't changed much in the past 90 days.....

Researcher, I think there is some concern with ALDA's slowing backlog growth. If I remember correctly, y/y backlog was basically flat as of the end of Q1.

There might be some catalysts for future growth in sales for the second half, but I'm guessing that investors are waiting for the Q's results and outlook from the company.

Marvel, a few other additions to your excellent BBC analysis:

1. BBC's website: http://www.bodisen.com/

2. BBC has been on the Reg SHO list for at least a week. Short interest has been rising over the past few months and could also add some fuel to this fire. Could be another catalyst.

3. BBC's financials continue to improve. Cash flow from operations was positive for Q1 (+ 1.4MM vs -2.4MM last year). DSOs are also way down from from the same period last year. (101 days vs 150 days)

4. BBC owns 2MM shares of CHNG.ob. (China Natural Gas) Not sure if that was included in your balance sheet analysis.


5. For full disclosure, you might want to point investors to the Chris Byron article in the NYPost that triggered the dramatic drop a few months ago.....

Never mind, I found it. I'll repost here:

(Marvelmeister2002 post on BBC yahoo board)
--------------------------------------------------------
I spoke to Debra Chen, IR for BBC, and she indicated that the $45 million referenced in today's PR would be paid to BBC in 2007. The company hopes and expects that this contract will be ongoing beyond 2007 (and, as the PR indicates, BBC also hopes to expand its presence in Xinjiang)...but, for now, we're talking about a $45 million payday in 2007 from this contract.

I consider today's PR to be outstanding news, as it strongly suggests to me that the company is on track to meet its previously issued, jawdropping 2007 guidance (see below):

""In November 2005, we received $43 million in signed orders for 2006 at two large industry trade shows, which we believe represent approximately 70% of our expected annual sales in 2006 and already exceeds our 2005 reported revenues of approximately $31.0 million. In 2006, we expect to at least double our 2005 sales volume while targeting net margin of approximately 30%. "
http://biz.yahoo.com/bw/060403/20060403005177.html?.v=2
MM

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

Thanks for the post Marvel. I agree that this is good news for BBC.

Marvel, that Yahoo board link didn't come through. Can you repost? Thx.

I understand that. However, the question remains, how do new orders increase capacity?

They don't. These are two different concepts. I just spoke with BBC's IR person and explained the difference.

She confirmed that these are new orders only. Hopefully, they will put out a PR later today to clear this up.

2morrowsgains, can you make any sense of this part of BBC's PR?

"Bodisen currently has production capacity of 200,000 metric tons of environmentally friendly bio compound fertilizers. These new orders will double its current production capacity."

Orders do not equate to increasing capacity. This is very confusing....I'll call the IR group for clarification.

Wade, re: HOM As I said before, I've learned to stay away from stocks that have been targeted by Stocklemon.

The guidance is for 0.56 - 0.60. How much of this revenue is due to the New Orleans rebuilding? How sustainable is it beyond FY06?

I don't think this business is capable of growing more than 10-15%/year, so its probably trading at the low end of fair value based upon hitting the guidance. Remember, a lot of that guidance is based upon the second half being very strong. If funding is delayed (which is pretty common in govt financed projects) then this could be way off.

I don't think there is enough of a safety cushion here to get me interested yet.

HomerRomer, please see my previous posts on this thread regarding substantial fraud issues that had been circulating for some time about CESV's accounting and original reverse-merger acquisition that enabled it to be listed in the US.

The derivative benefit reported in PRZ's Q1 was due to the "mark-to-market" effect from the treatment of warrant expenses issued by the company when it raised money (convertible debt) for its acquisitions. The warrants were sweeteners issued by the company to the big hedge funds involved in the various deals.

When the stock goes down, the warrants "expense" is reversed from the prior quarter and a gain is recorded. Vice versa for when the stock rises....

Perhaps a better read of the quarter is the proforma disclosure of 0.05 v 0.04. However, note the following:

1. FD eps was actually 0.0447. Technically, this was closer to 0.04 and not 0.05. Slimy, but not unexpected by this management team.
2. They want to back out option expenses, but this must be fully expensed going forward. Its a small charge of 300k, but I'd argue it should be left in.
3. Organic growth rate is only 7-8%. I can remember when management touted a much higher organic growth of 10-12%.

Thus, I'd argue that the quarter was actually flat, 0.04 v 0.04 y/y.

The big question is can PRZ management be trusted? They have a long history of overestimating their net eps. Plus, they haven't met an acquisition they didn't like.....and if they keep up their growth by acquisition approach with the stock at <2, there is no way they can do it on an accretive basis.

I'd beware, but I'm sure there is a possibility it could move higher.....some will annualize the Q1 pro-forma and slap a 10x multiple on the stock and say its worth at least 2.00.

No problems for me either.

Thanks Mike and Yinser. Seems like there is a global issue with their servers and we'll just have to wait until they sort out the problems....

Anyone else having troubles logging in to Yahoo Finance this AM?

Wade, perhaps its not fair to add all those shares when they didn't exist in FY05. Let's assume you are right and they can increase sales and net by 35% in FY06.

Net income before extraordinary gain was 26.4MM US (and that includes about 2.1MM in gains on sales of other investments). Even using that full amount, 35% increase would mean net income could come in as high as 35.64MM in FY06. Dividing by 30MM shares = 1.19, which is a big drop from the 1.44 earned in FY05. How did you arrive at 2.00 eps?

It could be argued that not all these shares will be factored in because of the weighted avg effect, but I'm being conservative. Plus, with 900k+ warrants issued with the convertible debt, I believe that the stock will suffer from a "mark-to-market" non-cash derivative expense if the stock rises.....

Wade, have you adjusted for all the dilution coming in FY06 from the convertible debt, warrants, and other shares issued earlier in the FY06 by XING?

My guess is that fd shares are closer to 30MM.....so pro-forma net in FY06, adjusted for gains, is closer to 0.81 fd. The stock is still cheap, even on that basis, but with pretty big dilution coming up this year, it might be difficult to show decent y/y comps.

Pappy, re CEDA. Let me add that the projected net income of 3.0-3.5MM in FY06 would work out to approximately 0.052 - 0.06 in eps, based upon a fully diluted share count of 58MM (57.915MM to be exact)

At its current ASK of 0.45, that means there is stock available for purchase that is roughly 8.7x forward earnings estimates. 7.5x if you use the high end of estimates.

This company is cash flow positive, has no debt, and has been fairly accurate in its forecasts so far. Big blemishes here include their involvement with a scammy "investor relations" firm that looks like a classic boiler room operation (I guess I missed the big pump job <LOL>), plus a lot of tightly held insider shares. Float is really tiny, perhaps only 2.5-3.0MM shares.

CEDA's share price has dropped from a 52 week high of 1.10 down to 0.35 in only one month. Holy volatility, Batman! All kidding aside, if this is legit, then its an absolute steal down here.

Jaybird, I remember looking at XING last year. They only publish detailed financials in an annual report, and in FY04 (FY05 yet to be filed) they reported net income before minority interest of approx 9MM US. However, 5MM US of that came from a "gain on sale of equity investee". Also, net income was reduced by a minority interest expense of another 6MM US. Reported net income was only 0.17 fd US for FY04.

They need to disclose much better info on how they derive net income for me to get interested here. Until I see the full income statement for FY05 and better quarterly filings from the company, then I'll get more excited.

XING sells CECT brand phones, and a possible beneficiary of this increase in sales is TBYH.ob. (If you're interested in another angle here.)
--------------------------

About T-BAY Holdings, Inc.

T-BAY conducts its mobile phone design business through its 95% owned subsidiary, Shanghai SunPlus Communication Technology Co., Ltd. ("SunPlus"). Established in October 2002, SunPlus is a Sino-foreign joint venture providing total solution and full-range design services to leading mobile handset brand owners in China. The broad spectrum of services that SunPlus provides include overall product design, mechanical design, module architecture design, software design, prototype production, product testing, manufacturing and after-sale technical support. The Company currently has a staff of 160, comprised mostly of engineers and software programmers.

SunPlus develops its mobile phone modules based mainly on the chipset platform provided by SKYWORKS. Currently, major customers of SunPlus include CECT, Panda Electronics and Siemens Mobile.

PR:http://biz.yahoo.com/prnews/060516/cltu522.html?.v=37

----------------------
I agree XING looks cheap, but I don't trust the reported net calculations.

Len, SODI is only paying taxes at the alternative minimum rate (from their 10k).

When do they start paying taxes at closer to regular rates? I don't know, but for purposes of modeling the income statement, I don't care. Let me put it to you this way. If I could definitively say that all the NOLs will be used up by SODI in the next year, then a solid argument could be made to bring the deferred tax asset onto the balance sheet. Once that happens, then the balance sheet improves, but its fleeting because the "asset" must now be charged off against earnings in the form of "taxes."

To confuse you even more, taxes paid can refer to two things: actual cash paid to the feds/state or the rate used on the income statement. For companies that have a deferred income tax asset, they have to reduce it to zero by charging off against it each quarter, typically using the applicable statutory rate. This impacts the income statement, but doesn't impact cash flow (because the NOLs shield the company from paying actual taxes.) SODI (and many other companies we follow) use something called a valuation allowance to reduce the deferred tax asset to zero, by arguing that future operations won't be profitable enough to use up the entire deferred tax asset. Thus, by using the valuation allowance, companies are able to cancel out all taxes on the income statement. Does this make economic sense?? Should a company valued on net earnings or PE ratios be punished when they start to report fully taxed earnings? Or said another way, should companies that DON'T pay statutory rates because of valuation allowances be given equivalent PE ratios to other like competitors who DO pay full rates?

That's the ivory tower approach. Real world is something different, because I see a LOT of investors completely ignore tax rates and go crazy on PE valuations for untaxed earnings. I'm trying to work on a happy medium so that I can still take advantage of this, but its a work in progress. I guess if one could prove that valuation allowances were so high (i.e. 10x projected earnings) as to virtually eliminate the likelihood of taxes appearing on the income statement, then I might agree....

Perhaps its reasonable to assume that A/R and inventories are worth 50 cents on the dollar if liquidated, but that's as far as I'd go.

I tend to weight more of my valuation toward earnings and earnings multiples. I know that people like to back out cash and reduce the earnings multiple by that amount, but its only real impact on earnings is the int income it generates. At most, you can get around 5% return on your cash, so keeping cash on the BS is only good so far as it attracts attention from an aquirer. It ain't going to grow earnings very much, unless its put to good use.

I use pro-forma earnings adjusted for statutory rates because I assume that ANY tax shield will eventually have to come off. Its an artificial way to maintain high earnings.

If SODI had been taxed at a 35% rate, then its net eps would have only been 0.24 fd. Its unfair to compare SODI's earnings to competitors that are fully taxed.......otherwise you are rewarding SODI for years of crappy operating performance. Looking at it that way, then SODI is trading at 14x adjusted ttm eps. (3.4 / 0.24)

The difficulty is deciding what is an appropriate multiple here. Yes, SODI has some nice catalysts ahead of it in the form of higher sales in the next few quarters, but there is a bit of red flag in the sequential drop in backlog. I don't share your happiness with the military as a primary customer; see the impact of this with other stocks like CVU and MMRK. I also think aerospace is highly cyclical and closer to peaking than ramping. IF sales are hitting a cyclical peak, then we should be even more cautious about giving a high forward multiple.

Can it move higher? Sure, but I would be looking for an exit at this point then be excited about buying. For these reasons I think its fairly valued around 3.60 - 4.00.

SODI's cash should be reduced by its obligations to creditors.

Cash: 3181
Less A/P to creditors: 1683
============================
adj cash: 1498/2311 fd shares = 0.65 cash/share.

I also love how everyone just assumes that a full forward PE multiple should be given to a stock just because it has a high valuation allowance shielding it from taxes on the income statement. If SODI is in such great shape, why don't the auditors declare the deferred taxes as an asset and move it on to the balance sheet?

It clearly isn't. Its in a highly cyclical, brutally competitive industry. I believe it doesn't merit trading more than 10x ttm UNTAXED earnings (but adjusted for one-time gains.) 3.60 looks about fair to me.

KIK, did you overlook the huge debt forgiveness of 1.1MM that SODI recognized? Without it, eps were only 0.36 (untaxed) for FY06.

Seems fairly valued to me.