The long awaited acquisition:

American Oriental Bioengineering Signs Letter of Intent to Acquire Distribution; Acquisition Expands Distribution for Company's Products Throughout China
5/5/05

HONG KONG, May 05, 2005 (BUSINESS WIRE) --
American Oriental Bioengineering Inc, (OTC BB: AOBO), a rapidly growing Chinese company which produces and distributes a broad range of pharmaceutical and nutriceutical products, today announced the signing of a letter of intent to acquire Heilongjiang Qitai Pharmaceutical Limited ("HQPL"), a leading Chinese distributor of pharmaceuticals. HQPL is certified by China FDA, in compliance of GSP.

AOBO entered into a letter of intent with HQPL on May 1, 2005 to record AOBO's intention to acquire HQPL. AOBO has planned to use $4 to acquire approximately $4.5 million (unaudited) worth of HQPL's net assets, including a pharmaceutical wholesale and retail network that covers the entire country of China, an HQPL pharmaceutical retail distribution license, and a major Chinese herbal and medicinal material wholesale exchange which is GSP certified as well as certified by the Chinese government.

Mr. Tony (Shujun) Liu, Chief Executive Officer of AOBO, said, "AOBO's acquisition of HQPL will enable AOBO to penetrate the wholesale and retail pharmaceutical market. This helps the Company achieve one one of its long- term goals to build a distribution network for its products. With the acquisition, AOBO will have the license to produce plant based pharmaceutical and nutriceutical products with the GMP certification, and at the same time, have the license to distribute its products via a strong wholesale and retail network. This is unique for the Chinese pharmaceutical manufacturing industry with a huge number of companies. This will improve and strengthen our marketing capabilities and further enhance profitability."

Mr. Liu further said, "For the past five years, the Chinese government has been implementing GMP certification, closing nearly one- third of over 4,000 pharmaceutical manufacturers, , implementing GSP certification and closing nearly half of over 20,000 pharmaceutical wholesaler and retailers. In this context, AOBO's acquisition of HQPL is strategically significant. With its own wholesale and retail network, AOBO can directly market its products. This should make AOBO more competitive, and have a significant impact on its sales performance and profits.

About American Oriental Bioengineering, Inc.

American Oriental Bioengineering, Inc. is a leading Chinese biotechnology company that uses proprietary processes for producing soybean protein peptide more efficiently than traditional extracting techniques. These techniques are used to manufacture and formulate supplemental and medicinal products. Soybean peptides are used widely in general food, health food products and medicines, among other applications. AOBO also produces Cease-Enuresis Soft Gel, the only Chinese FDA-approved first grade, prescription medicine that is specially formulated to help alleviate bed-wetting and incontinence. The Company is a leading producer of products in both the nutriceuticals and pharmaceuticals areas in China. For more information, visit http://www.bioaobo.com.

SOURCE: American Oriental Bioengineering, Inc.

CEOcast, Inc. for American Oriental Bioengineering, Inc. Ed Lewis, 212-732-4300

Copyright Business Wire 2005

Stan, we can discuss AOBO over here:
http://www.investorshub.com/boards/board.asp?board_id=2602

I must like talking to myself here. I surmised that the FD share count for FY04 was way off, and it was:

EXPLANATORY NOTE REGARDING THIS AMENDMENT


American Oriental Bioengineering, Inc. is filing this report on Form 10-KSB/A
solely to amend the diluted earnings per share amount in the financial
statements contained in its annual report for the period ended December 31,
2004, due to a mistake in the weighted average number of shares calculation. The
result of the miscalculation was an understatement in the diluted earnings per
share. This amended filing reflects the correct value of the diluted earnings
per share of $0.23 (changed from $0.20). The date of filing the original Form
10-KSB for the period ended December 31,2004, was April 8, 2005, and the first
amendment to the report was filed April 18, 2005.


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

Does it matter right now? Nope. The flippers who are selling their recently effective shares from the private placement done back in November are drowning out all buyers....but someone must be patiently accumulating.

My guess is that fd eps could be anywhere from 0.26 - 0.27 in FY05....and we're sitting at 1.08 right now. When will companies learn that flooding the market with cheap shares never works!!

AOBO. Worthy, your guess that the shares from that PP being declared effective is correct. Just confirmed that with the company spokesman here in NYC. Urged them to put out a PR regarding this, but they won't until after disussing the issue with their corporate lawyer. Perhaps the new Q will bring in a fresh round of buyers......

When will the shares that have been shorted start to cover?? The more underlying shares that are sold, the less of a need to be hedged, so we could see a bit of lift now. Hopeful thinking.....I agree with the consensus that it was a bad deal for shareholders. The ONLY way they could pull victory from the jaws of defeat would be to close the acquisition they said they raised the money for!!

Interactive Advertising Revenues Grow Nearly 33% as 2004 Totals $9.6 Billion
Thursday April 28, 11:55 am ET
Fourth Quarter of 2004 Marks the Highest Ever Quarter of Revenue Reported


NEW YORK--(BUSINESS WIRE)--April 28, 2005--The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC) today released the Internet Advertising Revenue Report including final numbers for Q3, Q4 and full-year 2004. The report states that Search, Classifieds, Display and Rich Media continue to grow at a healthy rate. Overall industry revenues rose nearly 33 percent over 2003 totaling over $9.6 billion and exceeded the previous revenue record in 2000 by nearly 20 percent. Q4 2004 revenues totaled a record $2.69 billion, marking the highest quarter ever reported.
"Interactive Advertising has clearly become a mainstream medium and one that can no longer be ignored as a critical piece of any marketing mix," said Greg Stuart, president and CEO of the IAB. "The PwC 2004 reported figures indicate that Interactive is firing on all cylinders including display, search and classifieds and is squarely on track to surpass consumer magazine revenues."

Consumer advertisers continue to represent the largest category of advertisers accounting for 49 percent of the 2004 annual revenues, up significantly from the 37 percent reported for the same period in 2003. The largest sub-categories under the consumer umbrella include retail, automotive, leisure, entertainment and packaged goods. As a percent of 2004 total revenues, Computing and Financial Services account for 18 percent and 17 percent respectively, with Telecommunications and Pharmaceutical & Healthcare rounding out the total at 4 percent and 6 percent respectively.

"The increased adoption of Broadband will continue to evolve the face of Interactive Advertising as more compelling media ads and video formats are created," notes Tom Hyland, Partner, PricewaterhouseCoopers. "More and more, brand marketers will look to interactive as an integral platform to deliver rich experiences for brand building and enhancement."

"The revenue results reported for 2004 confirm a very healthy environment for online advertising, for both direct marketers seeking immediate performance results, as well as brand advertisers looking to create or enhance an image, product or service, said Pete Petrusky, Director, Advisory Services, PricewaterhouseCoopers. "Moreover, the Internet is the only medium to adopt a global standard for impression measurement, intended to simplify the buying and selling process for online advertising."

A copy of the full report is available for download at http://www.iab.net/2004adrevenues. The IAB sponsors the Internet Advertising Revenue Report, which is conducted independently by the New Media Group of PwC. The full report is issued twice yearly for full and half-year data, and top-line quarterly figures are issued for the first and third quarters.

This year's report contains breakouts detailing the performance of particular industry categories:

Ad Formats - Internet ad revenues broken down by ad formats for
the 2004 full year revenue are:

2004 (Ttl = $9,626M) 2003 (Ttl = $7,267M)
--------------------- ---------------------
% of share % of share
Type of Advertising $ of market $ of market
------------------ ---------------------
Display Advertising 1,829 19% 1,526 21%
Sponsorship 770 8% 727 10%
Slotting Fees 193 2% 218 3%
Rich Media 963 10% 727 10%
------------------- ---------------------
All Display $ 3,754 39% $ 3,197 44%
=================== =====================
Search 3,850 40% 2,543 35%
Classifieds 1,733 18% 1,235 17%
E-mail 96 1% 218 3%
Referrals 193 2% 73 1%
------------------- ---------------------
Totals $ 9,626 100% $ 7,267 100%

Ad Categories - In 2004, consumer advertisers continued to lead
the way in online advertising spending accounting for 49% of total
revenues. The top five in this segment are:

2004 2003
---------- ---------
Consumer 49% 37%
Computing 18% 20%
Financial Services 17% 12%
Pharma & Healthcare 6% 4%
Telecom 4% 4%

Pricing Models - While CPM pricing continues to be the predominant
choice for buyers and sellers, growth in performance-based deals
continued in 2004.
2004 2003
---------- ---------
CPM/Impression 42% 43%
Performance-based 41% 37%
Hybrid 17% 20%

Conducted by the New Media Group of PricewaterhouseCoopers the "Advertising Revenue Report" was started by the IAB in 1996, and represents data from all companies that report meaningful online advertising revenues. The results are the most accurate measurement of interactive advertising revenues because the data is compiled directly from information supplied by companies selling advertising on the Internet. The survey includes data concerning online advertising revenues from Web sites, commercial online services, free e-mail providers, and all other companies selling online advertising. First and third quarter revenue reports are estimates, with the actual figures being released along with second and fourth quarter data respectively.

http://biz.yahoo.com/bw/050428/285626.html?.v=1

Trends bode well for THK......

Worthy, nice post. Would your PE multiple on future earnings for WIRX.ob change if they were fully taxed?

Gilead, re: PDGE. I'm playing a game of "connect the dots" but some things trouble me here.

1. PDGE showed up on the Reg SHO list yesterday:
http://www.nasdaqtrader.com/aspx/regsho.aspx

2. Remember the planned acquisition due to close by end of the quarter?

Perhaps we have some hedge funds shorting ahead of another private placment deal....

cmk, there's another reason why DAAT is down: its got a "guilt by association" to the retail sector, which has been hit pretty hard by fears of a pinched consumer. I don't think that will impact DAAT as much, but its perceptions that count the most in the short run on share prices.

Anyway, just another reason why hiring a new PR firm ain't going to turn us around here overnight.....

cmk, I share Collins' frustration, but I don't think that hiring a PR firm is going to have the intended effect of causing individuals to buy more stock.

Its not like this is a company that doesn't make forecasts or updates. Collins does a great job at updating sales growth at fairly regular intervals. How much more info can a PR firm provide?

The real "problem" here is threefold, IMO:

1. Guidance for fd eps was reduced from 0.30 - 0.34 down to 0.23 - 0.26, because of tax rate increases and gross margin decreases. That's still a HUGE increase y/y vs. FY04, even if you factor in the lower tax rate of 28% during all of FY04. The most difficult comps are coming up in Q1 and Q2, because there were minimal taxes paid duing those quarters in 2004, so the bottom line eps comps won't be as favorable.

2. Collins and Lasater (two of the larger shareholders) sold some big blocks of stock in the 3.20-3.40s earlier in the year. Imagine if you were one of the folks that were buying back then (in bulk) based upon the old guidance? They're probably selling some down here, disappointed.

3. Q1 is the seasonally weakest quarter in terms of sales and eps, so anyone who likes to play the game of annualizing based upon one quarter won't be excited by what they see.

No, I think Collins needs some mutual fund or other institution to take an interest here and buy out most or all of Lasater's shares (still around 925K, 15% of the outstanding). That's a big block that will cause some investors to worry about when those shares will come into the market. That's where Kean comes in. They did the PP, and should have access to some deep pockets. I think they are the best ones to help DAAT with its current share price challenges. (A challenge that I think will only prove to be temporary if the company can continue to execute its strategy.)

The market for microcaps is about as bad right now as I've seen in a while. I'm sure that the price will swing back up again once outlooks get too depressed and all the weak holders have sold out. We're in the midst of that trading range you spoke about in an earlier post......

Bob and stockpeeker, CGI breakdown by division (FY04 proforma numbers):

 
  
 Pro Forma Statement of Operations														 
 Twelve Months Ended December 31, 2004														 
 														 
 														 
 			CGI			WebCapades			Pro Forma Adjustments			Total		 
 														 
 														 
 Net Revenue			$	21,473,565		$	4,264,607					$	25,738,172	 
 Cost of Revenue				4,057,843			951,625						5,009,468	 
 														 
 														 
 														 
 Gross Profit			$	17,415,722		$	3,312,982					$	20,728,704	 
 Operating Expenses				12,691,946			1,264,520			(A)163,474			14,119,940	 
 														 
 														 
 														 
 Income From Operations			$	4,723,776		$	2,048,462					$	6,608,764	 
 Other Income(Expense)				2,423			10,978						13,401	 
 														 
 														 
 														 
 Income Before Income Taxes			$	4,726,199		$	2,059,440					$	6,622,165	 
 Provision for Income Taxes				1,786,233			0			(B)719,386			2,505,619	 
  
 

=========================

So, Webcapades has better pretax margins, but Websourced is growing faster on the top line and has provides much more revenue. Organic growth for just these two divisions was tremendous in FY04 (55% for Webcapades and 169% for Websourced).

Stockpeeker, I agree that the growth via acquisition model is not well liked on Wall Street (for good reasons), but the organic growth here is still very strong and showing no signs of slowing down.

I think one of the key things to watch for is if pretax margins can come in higher than 20% of revenues. They slipped a quite a bit there last quarter (Q4) because of doing business with companies that didn't pay their bills. Here's the dropoff:
Quarter - Pretax Margin
=======================
Q1.....25.1%
Q2.....25.7%
Q3.....25.4%
Q4.....15.5% (0uch)

Let's hope they've learned their lesson and have tightened up their credit policies!

hweb, is it possible that the company may have factored in a tax rate for FY05? They will fast run out of NOLs:

"The Company's effective income tax rate in calculating an expense on the net
income on 2004 would have been 38% or a total expense of $280,774. As of
December 31, 2004, the Company has a tax allowance of $1,148,058 inclusive of
$280,774 of tax expense attributable to 2004 that was applied against the
allowance. Our effective income tax rate in both 2004 and 2003 is 38%.
-2004 10k

They should have used pretax growth as the comp, IMO. FY04 net income contained no tax rate. Using a 50% growth factor, assuming no tax rate, then pretax income would be 1.5MM...thus using up all those NOLs. Plus, if the guidance IS for pretax, then it implies dropping pretax margins, which appeared very high for the Q.

I'm confused as well.

I see that the trust has started their planned selling. Looks like they are doing it slowly, about 10k shares per day:

Filer Relation Geo Code Trans. Date From Trans. Date To Form Type Action Shares Dollar Price From Dollar Price To Current Market Value Type Traded / Owned Holdings
ROBERTI JACOBS FAMILY TRUST B/O IL 4/18/2005 N/A Form 4 S 10,000 $3.190 N/A N/A direct / direct 3,429,726
ROBERTI JACOBS FAMILY TRUST B/O IL 4/15/2005 N/A Form 4 S 10,000 $3.170 N/A N/A direct / direct 3,439,726
ROBERTI JACOBS FAMILY TRUST B/O IL 4/14/2005 N/A Form 4 S 10,000 $3.200 N/A N/A direct / direct 3,449,726
ROBERTI JACOBS FAMILY TRUST B/O IL 4/13/2005 N/A Form 4 S 10,000 $3.090 N/A N/A direct / direct 3,459,726
ROBERTI JACOBS FAMILY TRUST B/O IL 4/12/2005 N/A Form 4 S 10,000 $3.190 N/A N/A direct / direct 3,469,726

ROBERTI JACOBS FAMILY TRUST B/O IL 4/4/2005 N/A Form 144 N/A 250,000 N/A N/A 1,225,000 N/A / N/A N/A

DAC Technologies Announces a 69% Sales Increase for the First Quarter and 57% Sales Increase for March
Monday April 18, 8:45 am ET


LITTLE ROCK, AR--(MARKET WIRE)--Apr 18, 2005 -- DAC Technologies (OTC BB:DAAT.OB - News) today announced net sales for the first quarter of 2005 of $2,264,749 as compared to $1,337,452 for 2004. This is an increase of $927,297, or 69%. Net sales for March 2005 were $884,672 as compared to $563,487 for March 2004. This is an increase of $321,185, or 57%.
ADVERTISEMENT


David A. Collins, Chairman and CEO, stated, "The Company continues its rapid sales growth and is introducing new products, not only in the gun cleaning kit area, but also food processing and ATV accessory areas. In fact, the Company has ten new items going into Wal-Mart's permanent fall module. These items are three meat grinders, six new gun cleaning kits or accessories and a new rechargeable, portable, one million candle power ATV light."

AOBO news, entering the Hong Kong market.....

American Oriental Bioengineering Enters Hong Kong Market
Friday April 15, 11:55 am ET
- Company Receives License to Market 15 Products


HONG KONG, April 15 /PRNewswire-FirstCall/ -- America Oriental Bioengineering Inc., (OTC Bulletin Board: AOBO - News), a rapidly growing Chinese company which produces and distributes a broad range of pharmaceutical and nutriceutical products, announced today that it has entered the Hong Kong market, and has granted import licenses for 15 out of 16 products that will be marketable in the territory by the Hong Kong Health Department. The Company has also succeeded in obtaining registered trademarks for 9 of its 11 products.
The Company has opened its first retail location, near The Time Square, the most popular shopping centre in Causeway Bay, Hong Kong. American Oriental has also entered into a distribution agreement with Mannings, one of the largest retail shops in Hong Kong. It expects that several of its leading products, including Soy Peptide Tablets, will be sold through the retail chain in the near future. The Company has developed special product packaging for the Hong Kong market designed to enhance the appeal of its products.

"We are excited to enter the lucrative Hong Long market," said Tony Liu, Chief Executive Officer of American Oriental. "We have developed the necessary infrastructure to support our growth there, developing the production, logistics and warehouse facilities to support a large sales operation. We believe that our success in this market will pave the way for us to enter additional markets throughout Asia."

About American Oriental Bioengineering, Inc.

American Oriental Bioengineering, Inc. is a leading Chinese developer and distributor of plant based pharmaceutical and nutriceutical products using natural plants and organic soybeans as raw materials.

The company has two product lines with over 100 products. The first is plant-based pharmaceuticals including Shuanghuanglian Lyophilize Powder Injectible, and Cease-Enuresis Soft Gel. The second is nutraceuticals, including a series of soy protein peptide products and health supplements. These products can be delivered in forms of injectible tablets, capsules, powder, and oral liquids.

American Oriental Bioengineering, Inc.'s product offering is based on three proprietary technologies, creating a unique process to extract soybean peptide more efficiently than using traditional techniques. Cease-Enuresis Soft Gel is the only China SFDA-approved first grade prescription natural plant medicine to treat bed-wetting and incontinence. Shuanghualian Lyophilize Powder Injectible is one of the only two Chinese government approved Huanglian herb based anti-viral injectibles in China. The Company is a leading producer of products in both the nutraceutical and pharmaceuticals areas in China. For more information, visit http://www.bioaobo.com .

This news release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks defined in this document and in statements filed from time to time with the Securities and Exchange Commission. All readers are encouraged to review the 8-K to be filed in connection with the acquisition discussed above, which outlines risk factors including debt obligations, deal terms and other relevant items. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the companies, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the companies disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.


Contact:
America Oriental Bioengineering Inc.
Lily Li, 917-838-0689 (U.S.)
Hong Zhu (212) 786-7566
+86-451-86688139 (China)
aobo@bioaobo.com

Investors:

Ed Lewis
CEOcast, Inc. for American Oriential Bioengineering
212-732-4300
elewis@ceocast.com

Hweb, is EGAM delisting? I see they filed a Form 15-12G on March 8.

rruff....take the gift while you can get it. Bobwins wasn't the only one dumping first thing in the morning yesterday. I felt fortunate to get prices in the range of 0.20 - 0.21 yesterday.

I suspect some buying has come in because of the earnings PR released this AM trumpeting the "333% increase in net income" .....when in fact, the company was barely break even for the FY, once you factor out the one-time gain.

I'm sure some traders are looking at the bottom number, and see 0.03 earned for FY04 without doing any other DD. Sure, it looks cheap at $0.20 based upon that, but we know the truth.

Contrast this to another Chinese company like AOBO, which earned 0.20 for FY04 and trades at 1.48 !

rruff, I have to disagree with this assessment:

HQSM - down .08 to .14 on really no major surprise if you read all the company's filings and reports

Q4 was "no major surprise?" They went from having pretax margins of 14.5% (excluding the one-time gain) in Q3, to a loss in the quarter and you call that no surprise?

The last CEO letter said:

"HQ's third quarter results -- reporting a revenue increase of 105%, thanks to increased production by our expanded processing plant and our acquisition of Hainan Jiahua Marine Bio-Products Co. Ltd. (see below) -- are a precursor of things to come, as HQ continues to maintain strong financial basics and take full advantage of its increased production capacity in 2004.

We expect to maintain strong sales and profits moving forward.

Ooops. I guess he forgot about the "profits" part.

Aqua, I see strong rev growth, but adjusting for a one time gain in Q3, it looks like they actually lost money in Q4. Not a great report.....now I can see why we've had waves of selling since the beginning of the year.

What might have been.....

If AOBO hadn't done the PP in November, 2004, what might the Q4 have looked like? While the company didn't break out revenues and profits for the Q4, one can reconstruct using the Q3 10Q and the 10K.

My numbers:

Q4 rev: 12,684 +109%
Pretax: 3,885
Tax rate: 22%
Net income: 3,030

FD shares: 39,303 (wtd avg for fy04, not sure what the Q4 only would have been)

FD shares (without the PP): 33,600 (assuming no additional shares issued from Q3 numbers)
FD eps: 0.09 (taxed at 22%)

Instead, the PP added a chunk more shares and fd eps was only 0.06 (using the avg tax rate of 22% for the fy)

The PP added 6MM new shares plus the following warrants:
7.5MM @ 0.85
3MM @ 1.60

Any guesses as to what the fd share count will be in Q1? The timing of the PP made it tricky to figure out Q4; I would assume that the 6MM new shares + a portion of the 7.5MM warrants. Using the treasury stock method, I imputed that Q4 fd shares should have come in around 42.4MM, so I have no idea how the company came up with 39.3MM for the FY04. I think it should have been much less because its a weighted avg.....but who am i to say.

I'll take a stab and say that fd share counts will rise to 45-47MM in FY05; if the trends from Q4 hold, then the company is on track for the following:

FY05 rev: 50.7MM
Pretax: 15.7MM (31% of sales)
Tax rate: 22%
Net: 12.26MM
FD shares: 45-47MM
FD eps: 0.26 - 0.27

Even with a modest 10x valuation, the stock would be trading at 2.60 - 2.70. Last trade: 1.60

What might have been.....

If AOBO hadn't done the PP in November, 2004, what might the Q4 have looked like? While the company didn't break out revenues and profits for the Q4, one can reconstruct using the Q3 10Q and the 10K.

My numbers:

Q4 rev: 12,684 +109%
Pretax: 3,885
Tax rate: 22%
Net income: 3,030

FD shares: 39,303 (wtd avg for fy04, not sure what the Q4 only would have been)

FD shares (without the PP): 33,600 (assuming no additional shares issued from Q3 numbers)
FD eps: 0.09 (taxed at 22%)

Instead, the PP added a chunk more shares and fd eps was only 0.06 (using the avg tax rate of 22% for the fy)

The PP added 6MM new shares plus the following warrants:
7.5MM @ 0.85
3MM @ 1.60

Any guesses as to what the fd share count will be in Q1? The timing of the PP made it tricky to figure out Q4; I would assume that the 6MM new shares + a portion of the 7.5MM warrants. Using the treasury stock method, I imputed that Q4 fd shares should have come in around 42.4MM, so I have no idea how the company came up with 39.3MM for the FY04. I think it should have been much less.....but who am i to say.

I'll take a stab and say that fd share counts will rise to 45-47MM in FY05; if the trends from Q4 hold, then the company is on track for the following:

FY05 rev: 50.7MM
Pretax: 15.7MM (31% of sales)
Tax rate: 22%
Net: 12.26MM
FD shares: 45-47MM
FD eps: 0.26 - 0.27

Even with a modest 10x valuation, the stock would be trading at 2.60 - 2.70. Last trade: 1.60

Worthy, I tried crunching some numbers on what the Q4 fd share count was, but I'm confused as how they got there.

I compared the fd share calculations from Q3 vs the 10k:

9 mos (in thous)
basic: 33,073
warrants: 24
===============
Total 9 mos avg: 33,097

12 mos (in thous)
basic: 33,596
options & warrants: 5,707
================
Total 12 mos avg: 39,303

There are virtually no options outstanding (47k per the 10k, all exerc @ 2; out of the money)

So I'm focusing on the warrants issued with the PP. The terms:

6MM shares issued at $1.00
7.5MM warrants @ 0.85
3MM warrants @ 1.60

I have multiple questions:

a) Why didn't basic shares rise to take account for the newly issued shares?
b) Why did the warrants number rise so much? Yes, the 7.5MM warrants issued at 0.85 are in the money, but using the treasury stock method reduces that amount. Plus, they weren't even issued for the full quarter, let alone the full year!
c) The fd share for FY04 is supposed to be a weighted avg. How could it have risen by 6MM in one quarter if the PP wasn't completed until Nov 24?? Just using back of the envelope math, it implies that Q4 fd shares would have had to rise to nearly 58MM in order to pull the 12 mos avg up to 39,303!

I'd be happy if anyone else took a stab at this. I have a call in to the company to try to get clarification or authorization to speak to the auditor about this.

My BIG question to you is this: I did not see where the company withdrew '05 guidance. Can you please tell me where you saw that . Thanks in advance.

They did not explicitly state, 'we're withdrawing guidance.' Its what they DID NOT say in their Q4 PR. I'll call your attention to the past few press releases that the company used to issue guidance:

WebCapades acquisition (Aug 20, 2004):
"With this acquisition, the Company expects its pre-tax income to jump from less than $1 million in 2003, to over $6 million in 2004, and to over $12 million in 2005.

The Company expects the acquisition to be immediately accretive to earnings, and today estimated that its after-tax earnings per share would be between $0.20 and $0.25 per share for 2005. "


Q3 fy04 (Nov 11):
"We continue to expect our after-tax earnings from continuing operations to be in the range of $0.04 - $0.05 per share for the fourth quarter of 2004, and to be in the range of $0.20 - $0.25 per share for 2005.

MarketSmart acquisition (Nov 17):
"The merger is expected to be immediately additive to the earnings of CGI Holding Corporation, which has recently announced financial guidance of $0.04 - $0.05 per share for the fourth quarter of 2004, and $0.20 - $0.25 per share for 2005. "

Since then, they have announced several deals that were expected to be accretive to FY05 earnings.

And now, nothing mentioned in Q4. I find the silence on guidance to be curious. Why go quiet after a disappointing quarter?? They clearly had established a recent trend of discussing eps expectations, or at least revenue and pretax goals. Q4 PRs are perfect times for announcing annual expectations; heck, THK's Q1 fy 05 ENDED on the day they filed the K and issued the PR, so they know how 1/4 of their FY05 has gone.

What the Q4 results have taught me is that the SEM/SEO biz is a bit trickier to predict than I expected. Thus, I don't think THK deserves the same high forward multiple they were able to get in the past few months (roughly 30x the low end of the 0.20-0.25 range). Plus, this is a company that relies on the use of its stock for acquisitions, and so stock price is important to continue the successful pursuit of their long term strategy. If stock prices come down because investors don't want to pay a rich multiple at current prices, then they will have lost a major source of currency.

I wanted to support the "Top 5 I'm buying right now" notion. Its better than seeing what everyone's top 10 positions are, because a lot of the time those rankings are based upon capital appreciation and don't mean that people are adding to those positions or feel that they are substantially undervalued.

I'd add that my top few for buying right now, in no particular order:

IIG
HQSM.ob
CMKG
KONG

bohemianclubman, I was looking at the 10k and noticed that the company recognizes cost of goods sold and SG&A differently now than they did last quarter. (HINT: look at the change in % of revenue for each item) Did you notice that?

Why the change? and why did they not discuss this in the 10k?

I'm not suggesting anything underhanded, but it does make Q4 calculations difficult. The company refused to break out its quarterly results in Q4, and doesn't offer guidance after doing so for quite some time.

The PR could have been much more helpful had management discussed the extent of the contract mix (short vs long-term) and how this impacted revenues in the quarter.

Pretax margins dropped substantially (viewed sequentially) as a result of this revenue mix....and management doesn't talk about it? I'm a little bit ticked off at management's unwillingness to address these issues in ways that can assuage longer-term investors in the company. Also, why not discuss the reasons that guidance for FY05 has been withdrawn?

Most of this rant should be addressed to Jacobs, who I have called and have not heard back from yet. Clubman, if you get a chance to talk to Jacobs or anyone else at the company before I do, can you add these questions to your list? Thx.

stanu, the day or so after DHB's last CC, the company took down all the previously recorded CCs for the past year. I know because I looked for the most recent CC (didn't get to hear it live) and found the other 3 CCs from prior quarters on the "audio archives" portion of the website.

Then, they were ALL inexplicably pulled off the website. I sent an email to the CFO, Dawn Schlagel, but never heard back.

Doesn't smell right.

cmk, great post. I agree with your assessment.

What I found interesting about the annual results was that cash flow from ops was negative....making the PP money they raised quite necessary (if the company didn't want to go further into debt).

Remember when Collins said they did the deal but didn't really need the money?

The added interest expense probably came from advances via the factor under their agreement:

Accounts receivable and Due from factor

The Company maintains a factoring agreement wherein it assigns its receivables (on a non-recourse basis). The factor performs all credit and collection functions, and assumes all risks associated with the collection of the receivables. The Company pays a fee of 65/100ths of 1% of the face value of each receivable for this service. In addition, in order to generate immediate cash flow, the Company may borrow against the assigned receivables prior to their collection and is charged interest on any such advances.

<snip>

This increase in fourth quarter sales and receivables also accounts for the increase in “Due from factor” line item. While funds advanced from factor increased from $1,342,814 in 2003 to $1,931,233 in 2004, the amount of the advances as a percentage of total receivables decreased from 81% in 2003 to 53% in 2004.

Sskilz1, I'll add my top 12 to the list:

1. DAAT.ob
2. IMPL.ob
3. AOBO.ob
4. THK
5. ANII.ob
6. EGY
7. IIG
8. MTEX
9. PDGE.ob
10. CMKG
11. KONG
12. HQSM.ob

OTC, HQSM filed a NT-10k form today, so the annual report will be delayed. Reason given:

"Registrant is waiting for completion of its audited financial statements
for the year ended December 2004."

cmk, how are you feeling these days about DAAT's updated guidance and current valuation? I noticed you haven't commented since Collins released the Q4 numbers.

What is your sense of fair value given the new info?

valuemind, DGIX.ob benefited from a very low tax rate in Q4, which brought the annual rate down to 30% vs 34% y/y. I believe the rate paid in Q4 was only 23% (130 tax / 567 pretax). Previously, they had been accruing at a 34% rate....

you're right to point out the change in expense accrual for bonuses, which pumped up FY 04 expenses a bit...but I think the unexpectedly low tax rate offsets half of those expenses.

Clever, don't overlook the impact of state taxes. Fed tax rate does max out around 35%, but individual state rates can vary. Don't know offhand what Arkansas' rate is....

I've seen many companies pay as high as 42-43% combined state plus federal rate.

cleverrox, I think part of the problem with the older guidance was that it may not have factored in a full tax rate of 39-40% for FY05. The company had only been paying taxes at a minimal rate for the first two quarters due to a tax ruling that disallowed its S-corp losses but allowed them to be recognized instead at the corporate level. This sheltered taxable income during Q1 and Q2, but Q3 net was taxed at 39%. It would be helpful if Collins could discuss in his guidance what he expects fy 05 tax rates to be as well as fd share counts. The latter are notoriously difficult to calculate, and that may account for some of the variance in eps numbers. (assuming those are fd and not basic!)

My guess, without seeing the 10K, is that if net income had been taxed at 39-40% in FY04, then fd eps would have been closer to 0.15.

Thus, we're trading at ~20x that ttm fd eps number, and have traded as high as 24x using the 3.60 52 week high. I think there is a very good chance that the stock will be able to see 20x the current future guidance of 0.23 - 0.26....which will vary based upon the final tax rate and fd share counts for FY05.

Really hard to say who is selling....but my guess is that there were some stops taken out once we broke decisively through 2.60.

This has been a common occurance among a lot of micro-caps I follow in recent weeks. Lots of nervousness about the coming year, and low trading liquidity hurts when a determined seller comes along.

The delay in earnings and guidance may also be a factor, but they have until March 31 to file their 10k. I'd expect some comments in the Q4 PR regarding guidance.

cmk, any thoughts on the drop today? Just technical in nature I hope.....I'm adding some more shares here between 2.45 - 2.60

Hweb, you asked: When EPS get to .015, they can round up to .02. How many sub-.30 stocks have that kind of earnings potential just 1-2 quarters away?

I think HQSM.ob, currently trading around 0.22 qualifies. They did 1.1MM in pretax income in Q3, after subtracting a one-time gain.

I assumed that the worst of the dilution was priced in at 92MM shares, and also slapped a pf tax rate of 15% on net income.

Result: fd eps: 0.01 (for Q3 only).

Due to its Southern location, the business doesn't appear to be impacted by winter conditions on production......which have been ramping up after being shut down in Q1.

Should have a decent Q4 and reasonable chance at earning 0.04 - 0.05 fd in FY05.

Stock should be trading around 0.40 imho.

Niles, that Q result for ISAC.ob was puffed up by an income tax benefit of 1.1MM. Pretax income was only 360k, or 0.03. FY 04 pretax: 5.1MM, fd eps: 0.38

These are untaxed figures.

I would bet that next year, the company will have to pay a higher tax rate due to the tax benefit recognized this year.

Stock trades at 8.20, 22x an untaxed eps.

Looks like Lasater filed to sell 215K shares on Feb 15:
http://www.nasdaq.com/asp/Holdings.asp?symbol=DAAT&selected=DAAT&page=holdingssummary

(click on the Form 144 filing)

He has since sold 219K shares in the past 3 weeks, with the last big chunk coming yesterday. If he's done for a while, the stock should start to move up.

Re: CGCP.ob Hweb, the convertible debt and associated warrants reminds me of the lousy deal that GEXA had to deal with last year:

Secured Convertible Debt Financing With Laurus

On October 27, 2004, we completed a financing transaction with Laurus, pursuant to which we issued a secured convertible term note (the “Note”) in the aggregate principal amount of $6.0 million and a warrant to purchase an aggregate of 2,640,000 shares of our common stock to Laurus in a private offering pursuant to exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. The warrant has a fair value of approximately $900,000 at its grant date which will be recorded as deferred financing fees and is being amortized over the three year life of the Note. The Note may contain a beneficial conversion feature as well as a contingent beneficial conversion feature which may require the Company to record a discount on the Note related to the intrinsic value of the beneficial conversion feature(s). The amount of the discount(s), if any, would then be amortized to interest expense using the effective interest method over the life of the Note, or, in the event of conversion, to the first conversion date. Various features of the Note, explained in more detail below, may each represent an embedded derivative. Each embedded derivative would need to be initially recorded at fair value and then marked-to-market through the income statement each reporting period. As part of the financing, we paid Laurus Capital Management, LLC, the manager of Laurus, a closing payment equal to $216,000 plus due diligence and legal expenses of $29,500.

=================

Looks like its a losing proposition for shareholders....stock price goes up, the warrant expense rises, hurting net income. If this were truly a non-recurring expense, I'd agree with your logic of backing it out, but now I'm not so sure. Also, how many additional shares were added to the fd share count?? No details given in the PR, so we'll have to wait for the 10K.

Bob, I agree that market cap isn't as important as valuation. I go where the value is, and usually, but not exclusively, its in the microcap arena.

May I suggest that we use forward PEG ratios as a better indicator of value? A true value is one where PEG < 0.50, but I'd be willing to settle for < 0.65

With PEG ratios, the debates will come with regard to a) future earnings projections and b) future growth rates. A lot of companies can look cheap on a PEG basis if you plug in a long term growth rate of 50%/yr !

Of course, no one ratio is infallible. But I like this one because it levels the playing field......and gives stocks with high revenue growth rates and higher pe's a chance to be considered undervalued.

Thanks for that update, CMK....

I'm looking forward to the guidance as well. Collins has been pretty good so far about predicting numbers pretty far out into the future. I wonder if they can still hit the 0.30 - 0.34 eps number they discussed a while back??