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CGNW. OTCbargains, wasn't this the quarter that a lot of the benefits from their restructuring from last year were going to really kick in? They say that they saved over 300k from legal fees, salaries, and overhead associated with CST:
Selling, general and administrative expenses decreased $91,071 for 2004 compared
to 2003, or 9%. This decrease is largely attributed to decreases in legal fees
and salaries and related benefits expenses of approximately $313,000. The
decrease in salaries and related benefits is $288,769 of this decrease and is
largely attributed to the sale of CST. This decrease is offset by fees paid to
CST for servicing our telecommunications customers of $152,451 for 2004. Bad
debt expense increased $86,758 over the prior year due to the increased number
of proprietary customer accounts
How long will this last?? Without that 152k expense, pretax income would have nearly doubled from what it came in at and eps would have been up nearly 0.02 to 0.04.
Also, what is this hidden future expense?
"Had the payments to a shareholder described in Note 2 to the Consolidated
Financial Statements been recorded as marketing commissions expense instead of a
reduction of deferred commissions payable on the balance sheet, marketing
commissions expense would have been higher by $125,601, therefore reducing net
income by this same amount. We do not anticipate recording these payments as
marketing commissions expense until sometime in the year ending June 30, 2006.
ANII Q1 out, and the company is predicting decent sales growth for FY05:
The Company also announced that net sales for the fiscal year ending September 30, 2005, are estimated at $21.0 million, based upon current sales, orders and customer activity.
That would represent an increase of 19% over FY04 revenue of 17.6MM.
Sales growth of 10% in Q1 was a bit disappointing, but there appears to be accelerating sales growth on the horizon:
"Dr. Pailla M. Reddy, founder and president of Bactolac and the Company's largest shareholder, said "Bactolac is in the final stages of more than doubling our QC \ QA laboratory capacity, as well as adding additional equipment in the expansion space to increase production capacity to enhance customer service. Bactolac has also recently added a new customer that is expected to generate appreciable revenues and we are in discussions with other prospective customers that could potentially become significant customers."
Source: http://biz.yahoo.com/prnews/050215/latu048_1.html
Given that Q1 sales growth was only 10% y/y, the company is expecting future sales growth of approx 22%/qtr (on average) for the rest of the year to meet their estimate.
FD eps comparisons are impacted by a new deferred tax rate of 38% vs. receiving a tax benefit in FY04. ((weren't we just discussing this issue yesterday??) Also, fd share count is up 20% in Q1 due to options that are now in the money. The fd share count has stabilized, as the last few quarters have been approaching 6MM, but there is one more difficult y/y comp Q left.
Summary, I expect fd eps of approx 0.35 in FY05 (vs. 0.31 in FY04). I adjusted FY 04's results to take account of a 38% pf tax rate. For investors that buy based upon big y/y growth in fd eps, the numbers won't look strong for a couple of quarters, but it appears that business is pretty stable, growing at close to 20%/year, and the future PE (fully taxed) is around 11.4x. I think its still undervalued, but the poor y/y fd eps comps will probably keep buying interest muted.
It is imperative to take a non-paying-tax-benefit out of the equation/valuation if the tax will one day be paid (assuming the company makes money). People unconsiciously miscalculate/wrongly value the company by ignoring the tax because they think not having to pay for some time is equal to not having to pay forever)
Stanu78, I fully agree with this.
Many investors look at the bottom line without regard to whether or not taxes have been paid or expensed.
I'm sure this is true, but it is reckless to do so. If one is valuing a company based upon a PE ratio that is UNTAXED vs a typical industry PE that is more fully taxed, then you are overvaluing it compared to its competition. To say that one company is worth 35% less than a tax-paying competitor makes no sense to me, especially when you know for certain that the tax benefit will be gone at some point in the future. IMHO, you must discount the future PE for this eventuality.
Isn't it better to be conservative in the micro-cap arena anyway??
Researcher, many investors get lulled to sleep assuming that big NOLs will shield a company from paying taxes for years to come. This isn't what happens, from what I've seen. First, companies with NOLs often pay signficantly less in state and federal taxes than what is shown on their income statement. The true measure of taxes paid shows up on the cash flow statement.....the true benefit of the NOL is felt there.
Two, a company can have a huge NOL carryforward that appears to cover pretax profits for several years in the future, but still have to show taxes on the income statement. Why? Because the NOL carryforward has to be recognized as an asset, brought on to the balance sheet, and then offset gradually through the imposition of taxes on the income statement. Bobwins, didn't we have a discussion of this situation a while back?? Wish I could remember the stock, but I remember going through the accounting and it made sense.....do you remember?
I believe that companies and their accounting firms are supposed to determine the point at which future profits from operations can be used to offset the tax benefits/nols. If they can assume that stable operations will most likely result in the full use of the NOL carryforwards, then they are obligated to recognize them as income and bring them on to the balance sheet as an asset. NOLs are not carried on the BS.
I can give you one example off the top of my head:
IIG (Imergent)
"Income Taxes
In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating current tax liabilities together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities. Our deferred tax assets consist primarily of the future benefit of net operating losses carried forward. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have considered historical operations and current earnings trends, future market growth, forecasted earnings, estimated future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, the previously provided valuation allowance, if any, would be reversed.
At June 30, 2003 we had recognized a tax valuation allowance of $19.3 million against our deferred tax assets. As of March 31, 2004, we determined that it was more likely than not that $16.7 million, or all but approximately $2.6 million of the deferred tax assets would be realized. This determination was based on current projections of future taxable income when taking into consideration limitations on the utilization of net operating loss carry forwards ("NOL") imposed by Section 382 of the Internal Revenue Code ("Section 382").
-IIG's last 10K
Perhaps we have some accountants lurking out there who can shed some light on this.
Len, thanks for that list. I realize this is a bit of a pain, but did you adjust for taxes in the earnings? I'm sure quite a few on your list are non tax payers, and adjusting for a pro-forma tax rate might knock them out of the <10 PE category. It doesn't seem fair to list low PE stocks without some minimum form of taxation if some are paying close to statutory rates and others aren't.
There are also some foreign stocks on the list, and they have different rates of taxation also...but they should also pay pf rates at whatever statutory level exists in their domicile, IMHO.
Rrainman, re HQSM. It if it was Barrons selling that block, then it looks like those shares carried a very low basis of 0.17
http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001210052%2D04%2D000057%2Etxt&FilePath...
Barrons has a larger interest in HQSM that dates back to when it was a shell company known as Process Equipment:
http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001210052%2D04%2D000018%2Etxt&FilePath...
Interesting....
rrat, here's the bear argument against GMAI. The most relevant revenue stat is probably not aggregate sales but total revenues. Looking at Q2, that amount was up 11% y/y. However, even that isn't an accurate picture of organic growth as the company has done several acquisitions in the last twelve months. True growth rate may actually be close to zero......
The margin improvements are certainly impressive, and the stock deserves at least a 10-12x multiple, IMO. Plus, they could still do all-cash acquisitions that are immediately accretive to earnings...
I seem to recall the company estimated around 1.07 fd, ft for this current FY. Fair value may only be around 10.70 - 12.84.
I have no position either way....
Wade, I have no position in PIHC, and so have not looked at the financials here....but to answer your question about expensing cap ex, these items are usually amortized over the useful life of the purchased equipment. They are typically NOT fully expensed in one quarter.
MSGI, they just filed an 8k that announced a new PR/IR relationship with Trilogy:
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
Effective February 1, 2005, the Company entered into a letter of engagement with
Trilogy Capital Partners, Inc. ("Trilogy") whereby Trilogy will provide
marketing, financial public relations and investor relations services to the
Company. The term of the agreement is for one (1) year and thereafter will be
month to month. Under the terms of the letter of engagement, Trilogy will
receive fees of $10,000 a month and an aggregate of 600,000 three (3) year
warrants, with 200,000 warrants fully vested and exercisable at $1.00 per share;
200,000 warrants exercisable at $1.50 per share that will vest provided Trilogy
is engaged by the Company and the Company's common stock trades at a per share
price of $1.50 per share or greater for five (5) consecutive trading days prior
to February 2, 2006; and 200,000 warrants exercisable at $2.00 per share that
will vest provided Trilogy is engaged by the Company and the Company's common
stock trades at a per share price of $2.00 per share or greater for five (5)
consecutive trading days prior to February 2, 2006. The warrants were issued to
Trilogy in accord with the exemption provided by Section 4(2) of the Securities
Act of 1933, as amended and Regulation D promulgated there under.
The warrants contain registration rights whereby the Company has agreed to
prepare and file a registration statement for the warrant shares no later than
June 10, 2005.
================================
That may have put some recent pressure on the stock, but I think its just the general reversion to the 50 day MA that seems to happen frequently to BPTR over the past 6 mos.
Hweb and Stanu have made some excellent comments about finding companies and stocks poised for decent runs. I agree with most of what they have said and commend them for sharing their thoughts. I'd like to add to this discussion:
Stanu78, you hit on a very important point in your discussion of taxes:
"Crack the special situation code (NOL carry forward. One time tax benefit/credit. One time gain/sale on investment. non-recurring item and make sure it's non recurring.) this is also crucial .. [though] it's often explicitly said in 10Q a lot of people choose to ignore it. I have several experience with the NOL carryforward epiration transition and one time tax credit where the stocks tanks.. for example NTST. and I'm also might be sitting on the next one .. MDF... but the business is good I hope this one have different story than NTST when the transition happen.
Stan, there is an easy way around this. I'd recommend that you use a reasonable pro-forma tax rate (35% is the standard federal rate) and adjust net income for taxes. FD net eps will take a hit, but at least you're assured of a conservative valuation if one strictly relies on PE for valuing companies. (I know that's more Hweb's and Bobwins' philosophy, because you discuss enterprise values and using cash flows.) If one already excludes one-time events like tax refunds....why not use the same principle when evaluating tax rates? BTW - one can also look at an excessively HIGH tax rate and adjust lower if the issues that caused it to occur are one time in nature (i.e. non-deductible writeoffs).
==============================
Here's another way to value stocks that uses a lot of Hweb's philosophy but doesn't limit one to stocks with PE < 10-15. I like to use the PEG ratio, which values stocks based upon the ratio of future PE divided by expected LT growth.
PEG: PE (looking out over the next FY) / sustainable growth rate
If you can find PEG ratios of 0.50 or lower, then you have found a stock that can potentially double in value. I like using PEGs because it doesn't limit you to only low PE stocks. Some high PE stocks, like CGIH or IIG, may be growing at sustainable rates of 30%+ and therefore deserve a higher trailing (and future) PE multiple. Conversely, some low PE stocks (based on the last 4 quarters of operations) may not deserve a long-term growth rate of more than 10%, thus, their PEG ratio may be closer to one and not a screaming value.
Of course, the devil is in the details. Investors may disagree over what is the appropriate LT growth rate for a company. 15%? 20%? more? PE expansion is one of the single biggest wildcards....that's where the "art" of investing comes into play.
Also, let's not forget that predicting future earnings is extremely difficult and depends on numerous factors such as fd share counts, seasonality, industry growth trends, company management, type of business, etc. not to mention the one-time issues that Stanu discussed earlier.
RRAT, re GMAI. There is a very large short position on this one, as many don't believe that there is much organic growth in the company's business. They do several acquisitions per year, so that clouds their true growth rate.
Barrons did a very negative piece on the company a while back, questioning the accounting and discussing the relationship between its largest shareholder (Afinsa) and Greg Manning.
I agree that its undervalued, but it is HATED out there, if the short interest is any indication:
http://www.nasdaq.com/asp/quotes_full.asp?mode=&page=&symbol=GMAI&symbol=&symbol=&am...
Rainman, that 13D filing is almost one month old:
c) Between November 29, 2004 and January 5,
2005 the Reporting Person sold an aggregate of 355,000 shares of
the Common Stock at a price ranging from $0.28 to $0.37 per share.
Perhaps Barrons is still selling and will file another 13D, but until that happens, I think the selling might be coming from elsewhere.
Its dirt cheap at current levels, and I've been accumulating as well.
ALHC.ob. Bulk of the operating gains from last year were due to changes in the CVS contract and other provider networks.
Gross profit increased $857,048 to $2,595,130 for the year ended 2004 from $1,738,082 for the same prior year. The increase in gross profit was primarily attributable to a reduction of network expense due to a change in three of the Company’s provider networks. The change in provider networks resulted in a decrease of network expense of $694,175 for the year ended September 30, 2004 and simultaneously increased the number of providers available to card members. In addition to a change in networks, there was also a decrease of implementation expense of $309,243 for the State Farm and Ascent contracts. For total contract implementation costs in excess of $5,000, the Company records that expense over the first twelve-month term of the contract. The first twelve-month term of the State Farm contract ended on June 30, 2003. The remaining change of $(146,370) in gross profit is related to a decrease in revenue from the CVS contract and an increase of other direct expenses related to the Melaleuca and the new dental program contracts that started in 2004.
============
They also stopped virtually all advertising:
Marketing and sales expenses decreased $1,042,533 to $336,378 for the year ending September 30, 2004 from $1,378,911 for the year ending September 30, 2003. The decrease is due to a reduction of royalty expense resulting from an amendment to the CVS Pharmacy, Inc. contract with an effective date of April 1, 2003.
===========
Usually BB stocks are quite promotional regarding growth in sales (and no earnings). Given that they didn't say anything about revs in Q1 05 leads me to believe that they have little growth in the top line. Difficult earnings comps coming up for the rest of the year, esp if rev growth is flat.
Earnings are untaxed as well....
RE: ADNWE discussion. Judicial, I've spent some time over the past day or so trying to figure out why the convertible preferred debt shares are not added to the fd share count. Options and warrants are converted based upon the treasury method, which I think we can all agree on. Some are in-the-money and some are not....but the biggest potentially dilutive factor are the converts.
First, here's an earlier summary of the various shares and share equivalents as of May 2004:
"As of May 20, 2004, we had 28,188,762 shares of common stock outstanding,
500,000 shares of Series A-1 Convertible Promissory Note, 1,605,900 shares of
Series A-2 Preferred Stock outstanding (a total of 2,105,900 shares of Series A
preferred stock) which are currently convertible into 4,211,800 shares of common
stock and 5,105,881 shares of Series B-1 Convertible Promissory Note, 272,526
shares of Series B-2 Convertible Promissory Note (a total of 5,378,407 shares of
Series B preferred stock) which are currently convertible into 10,756,814 shares
of common stock. We also have outstanding warrants which represent 1,172,920
common stock equivalents at an exercise price of $1.25 per share, 2,151,361
common stock equivalents at an exercise price of $2.50 per share and 1,068,085
common stock equivalents at an exercise price of $1.90 per share. Our preferred
stock securities also provide for anti-dilution protection upon the occurrence
of sales of our common stock below certain prices, stock splits, redemptions,
mergers and other similar transactions. If one or more of these events occurs
the number of shares of our common stock that may be acquired upon conversion or
exercise would increase. If converted or exercised, these securities will result
in a dilution to your percentage ownership of our common stock."
-from SB-2/A filing of June 2004
The current share count as of Q3 05 is shown as 28,403,000 although the basic share count appears to be around 29.9MM (from the balance sheet). Its difficult to tell how many of the options and warrants are included here (one of my pet peeves is that companies aren't forced to disclose exactly how they use the treasury method to arrive at total fd share count), but my guess is not much. That's mostly due to the bulk of the options/warrants being underwater at present, and another chunk just barely in the money. Let's ignore those for the moment and focus on the Series A, B, and D converts.
My understanding of the rules regarding convertible preferreds is that the trigger for counting them is based upon the forced conversion provisions contained in the deals. I went back through the original filings, looking for these trigger points:
Series A
(a) Right to Convert. Each share of Series A-1 Preferred Stock and Series A-2
Preferred Stock shall be convertible into a number of shares of Common Stock
equal to the applicable Liquidation Amount (as defined in Section 5 herein)
divided by the then applicable Conversion Price (as defined herein) upon the
earlier to occur of (i) the election of the holder to convert (an "Optional
Conversion"), in whole or in part, at any time, or from time to time, commencing
with date of the issuance of Series A-1 Preferred Stock or the Series A-2
Preferred Stock (the "A-1 Issuance Date" or the "A-2 Issuance Date", as
applicable; each one, an "Issuance Date") or (ii) the earliest to occur of the
following dates (an "Automatic Conversion"): (A) the date, at any time after the
one year anniversary of the applicable Issuance Date, upon which both (x) the
average of the Market Price (as defined herein) for a share of Common Stock for
thirty consecutive Trading Days (as defined herein) exceeds $8.00 (subject to
adjustment in the event of stock splits, reverse stock splits, stock dividends,
recapitalizations or similar events) and (y) the average of the trading volume
for the Common Stock during such period exceeds 200,000 shares per day (subject
to adjustment in the event of stock splits, reverse stock splits, stock
dividends, recapitalizations or similar events) shares per Trading Day; (B) with
respect to the Series A-1 Preferred Stock, upon the affirmative vote of the
holders of a majority of the then outstanding shares of Series A-1 Preferred
Stock; (C) with respect to the Series A-2 Preferred Stock, upon the affirmative
vote of a majority of the then outstanding shares of Series A-2 Preferred Stock;
or (D) immediately prior to the closing of an underwritten public offering of
the Company's Common Stock for aggregate gross proceeds of not less than Fifteen
Million Dollars ($15,000,000).
Series B
(a) Right to Convert. Each share of Series B Preferred Stock shall be
convertible into a number of shares of Common Stock equal to the applicable
Liquidation Amount (as defined in Section 5 herein) divided by the then
applicable Conversion Price (as defined herein) upon the earlier to occur of (i)
the election of the holder to convert (an "Optional Conversion"), in whole or in
part, at any time, or from time to time, commencing with date of the issuance of
Series B Preferred Stock (the "Issuance Date") or (ii) the earliest to occur of
the following dates (an "Automatic Conversion"): (A) the date, at any time after
the one year anniversary of the Issuance Date, upon which both (x) the average
of the Market Price (as defined herein) for a share of Common Stock for thirty
consecutive Trading Days (as defined herein) exceeds $10.00 (subject to
adjustment in the event of stock splits, reverse stock splits, stock dividends,
recapitalizations or similar events) and (y) the average of the trading volume
for the Common Stock during such period exceeds 150,000 shares per day (subject
to adjustment in the event of stock splits, reverse stock splits, stock
dividends, recapitalizations or similar events) shares per Trading Day; or (B)
upon the affirmative vote of the holders of a majority of the then outstanding
shares of Series B Preferred Stock.
Series D
(a) Right to Convert. Each share of Series D-1 Preferred Stock shall be
convertible into a number of shares of Common Stock equal to the applicable
Liquidation Amount (as defined in Section 5 herein) divided by the then
applicable Conversion Price (as defined herein) upon the earlier to occur of (i)
the election of the holder to convert (an "Optional Conversion"), in whole or in
part, at any time, or from time to time, commencing with date of the issuance of
Series D-1 Preferred Stock (the "Issuance Date") or (ii) the earliest to occur
of the following dates (an "Automatic Conversion"): (A) the date, at any time
after the one year anniversary of the Issuance Date, upon which both (x) the
average of the Market Price (as defined herein) for a share of Common Stock for
thirty consecutive Trading Days (as defined herein) exceeds $8.85818182 (subject
to adjustment in the event of stock splits, reverse stock splits, stock
dividends, recapitalizations or similar events) and (y) the average of the
trading volume for the Common Stock during such period exceeds 150,000 shares
per day (subject to adjustment in the event of stock splits, reverse stock
splits, stock dividends, recapitalizations or similar events) shares per Trading
Day; or (B) upon the affirmative vote of the holders of a majority of the then
outstanding shares of Series D-1 Preferred Stock.
================
So, absent a change in the trigger points or a vote by those preferred shareholders, it would appear that we are far BELOW the mandatory trigger points for all of the Series preferreds. Thus, perhaps the appropriate accounting is to continue subtracting the dividends after net income and not include the potential shares, even though the price at which the preferreds convert into common stock is currently slightly in the money. BTW - if we did want to count the additional shares, then the preferred dividends would have to be added back to net income before calculating fd eps....
I've never liked convertible preferreds, because they REALLY complicate an income statement and balance sheet, and they often hide the debt like nature of the arrangement. Are convert preferreds debt? Or are they equity? Its a difficult question to answer in ADNW's case, and I'm not even sure I've answered it correctly....but I'd appreciate any others' observations on the accounting of the converts here.
Shmolton, re SWTX. You said:
"Looks like they're projecting higher profits than last year, but no better than lst quarter's at the max."
I assume you are referring to the slide presentation that showed profit margins as a percent of revenue? You do realize that Q3's profit margin of 13% included a tax benefit of 298k? Without it, pretax income for the Q would have been 1.8MM (or 11.5% of revenue).
Also, because everything in the "Target Business Model" slide is described as being in % of revenues, it is difficult to tell exactly what the final eps numbers will be. Suffice to say that Q4 of this year and Q1-2 of next year will have pretty easy comps on the net eps line.
I had expected revenue increases in the 11% range for FY05 based upon the last Q3 CC, so I was slightly disappointed by the single digit revenue growth prediction for FY05 but not hugely upset. Did you expect a significantly higher number??
Larry, there is nothing in the 10k to suggest higher tax rates for next year, but I always use a pro forma tax rate of 35% (if domiciled in US and bulk of business is in the states).
In ANII's case, I think they still have a bit of a tax shield in front of them:
Deferred tax assets and liabilities consisted of the following net tax effects
of operating losses and temporary differences between the carrying amounts of
assets and liabilities for financial reporting and tax purposes at September 30,
2004:
F-12
ADVANCED NUTRACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Current assets:
Loss carryforwards $ 2,420,000
Receivable allowance for doubtful accounts 112,000
Inventory valuation write-offs 4,000
Other 29,000
-----------
Deferred tax assets 2,565,000
Less valuation allowance (1,090,000)
-----------
Net current deferred tax assets 1,475,000
===========
Non-current assets:
Loss carryforwards 928,000
Fixed assets (37,000)
Less valuation allowance (341,000)
-----------
Net non-current deferred tax assets $ 550,000
===========
At September 30, 2004, the Company has a net operating loss carryforward of
approximately $5.5 million, which expires through 2022. Additionally, the
Company has obtained net operating losses of approximately $2.3 million, which
expire primarily in 2011 and are subject to annual usage limitations. The
Company also has capital loss carryforwards of approximately $1.2 million,
expiring through 2005, which may only be used to offset capital gains during the
carryforward period. As the Company is unable to determine that it is more
likely than not that the future taxable income of the Company will be sufficient
to utilize the operating loss carryforwards subject to the annual usage
limitations and the capital loss carryforwards, a valuation allowance has been
established against those assets. The net change during the year in the
valuation allowance was $3,016,000.
Tsoprano, I always get a little nervous when a company like PDGE decides to buy another company. They don't have much cash on hand, and so will probably have to issue more shares to do the deal. Could be ok, but might be dilutive in the short run. They've had tremendous growth in the past year, I hope they don't push too hard and get tripped up by handling the additional growth.
ANII is currently down on what I would consider extremely good earnings. Removing the tax benefit and adding a pf tax rate of 35% the company earned 0.11 in Q4 and 0.33 for FY04. Here are the numbers from Q4 (the company only posted annual numbers):
Q4 only
================================
Rev: 4,446 v 3,359 +32% y/y
Pretax: 983 v 587 +67%
fd shares: 6100 (e) vs. 5100 (e)
fd eps (untaxed): 0.16 v 0.12
fd eps (taxed @ 35%): 0.105 vs 0.075
================================
pretax margins were up to 22.1% of sales in Q4, vs 17.5% of sales in the y/y quarter. FD shares rose as a result of options now in the money, but this dilution should be just about done for next FY.
At $4.00, the stock trades at a TTM fully taxed PE of 12.
My guess is that there have been some patient shareholders who picked up shares in the low 2s that took advantage of the decent volume to unload some shares in the upper 4s. Once we burn through those shares we hopefully move higher.
Don't really have a guess at rev growth for next year, but my hope and expectation is that they could at least grow sales by the same numerical amount (i.e. approx 5MM). That would represent a y/y increase of nearly 27%. In FY04, revs increased by nearly 38%. Pretax margins were impacted this year by product mix that could also be a problem at some point in FY05. If they come in around 16% margins again, then pretax income would be 3.6MM, and pf net would be 2.33MM. Using 6.3MM for FD shares (est), then fd, ft eps would be 0.37 - 0.38. Not bad for a company growing at close to a 30% clip and trading for 11x future earnings.....
RE: ANII. I posted on this one last week when they filed their NT-10K announcing estimated income numbers. Q4 revs were a bit lower sequentially, but Q3 was pumped up by some low margin sales that were done to get new business. If you remember, that Q's margins were impacted by that "product mix". Pretax margins were really strong in Q4, and for the whole year - 15% of sales.
Company generates decent cash flow from operations, very low d/e, plus they mention trying to get listed in the coming year. Only thing that was missing was a revenue forecast, which is always helpful.
I don't think they can continue to do 30-35%/year, but certainly 15-20% looks reasonable for rev growth in 2005.
I wonder what the traders will do with this one tomorrow. We all know that tax benefits shouldn't be included in net income, but I'm sure some overanxious traders will see that 0.74 fd eps number on a 4.50 stock and go crazy......at least I hope so <grin>.
I didn't like the sweetheart financing deal that was done at an almost 50% discount to the then current PPS.
I share your frustration. Two caveats, however. When the deal was being put together over the summer and early fall, the share price was probably in the 1.20-1.35 range so the discount wasn't as bad as 50%. Second, the basic problem with the deal is that management didn't communicate effectively how beneficial some of these potential deals might be. If they had been able to put together some deals and then announced the PP, it might have gone off without a hitch.
Secondly, the impact of the acquisition they did this year after Q3 closed has yet to felt. Q4 will probably be a big quarter based upon the limited guidance given by management and the 8k filing showing pro-forma results of the acquired pharmaceutical company.
I'll start a new board with some DD on what I think the company can do in Q4 and for FY 05.
Rogue, since you have picked up some Chinese stocks, can I ask your opinion on AOBO? I'm familiar with HQSM, as I already own it, but I think AOBO is a better play due to its stronger organic growth and involvement in pharmaceutical/neutraceutical products in China.
I made a mistake on AOBO. The RW that was filed was for the prior registration, not the latest one filed on Dec 20, 2004.
I looked at the dates more closely and realized my error:
January 12, 2004
VIA EDGAR
Song P. Brandon, Esq.
Division of Corporate Finance
United States Securities and Exchange Commission
450 Washington Street, N.W.
Washington, D.C. 20549
Re: American Oriental Bioengineering Inc.
Form RW - Application for Withdrawal of Registration Statement on Form
SB-2 File No. 333-111626 filed on December 30, 2003
and
Re: American Oriental Bioengineering Inc.
Form RW - Application for Withdrawal of Registration Statement on Form
SB-2 File No. 333-111664 filed on December 31, 2003.
That matches with the original SB-2 filings on those dates.
Sorry for the error! I still think this stock is undervalued, even with the offering......
AOBO.ob has withdrawn its latest registration of a private placement. RW was filed last night.
Here's the letter:
January 12, 2004
VIA EDGAR
Song P. Brandon, Esq.
Division of Corporate Finance
United States Securities and Exchange Commission
450 Washington Street, N.W.
Washington, D.C. 20549
Re: American Oriental Bioengineering Inc.
Form RW - Application for Withdrawal of Registration Statement on Form
SB-2 File No. 333-111664 filed on December 31, 2003.
Ladies and Gentlemen:
Pursuant to Rule 477 promulgated under the Securities Act of 1933, as
amended, American Oriental Bioengineering Inc. (the "Registrant") hereby
respectfully requests that its Registration Statement on Form SB-2, Commission
File No. 333-111664 (the "Registration Statement"), be immediately withdrawn and
that an order of the Commission granting such withdrawal be granted.
The Registration Statement was filed on behalf of certain investors
pursuant to a registration rights provision in the Investment Agreement entered
into between the Registrant and the investors (the "Investment Agreement"). The
Investment Agreement has expired and all the terms under the Investment
Agreement have become void. The Registration Statement has never become
effective, and no securities were sold in connection with the offering
contemplated by the Registration Statement.
If you have any questions regarding the foregoing application for
withdrawal, please feel free to contact Howard Jiang (212-891-3982) of Baker &
McKenzie, 805 Third Avenue, New York, New York 10022, the Registrant's outside
counsel.
Sincerely,
American Oriental Bioengineering Inc.
/s/ Shujun Liu
---------------------------
Shujun Liu
Chief Executive Officer and
Chairman of the Board
Knowledge, thanks for your take. I think the rest of the fiscal year will be very strong, with some positive impact from the damage in FL from the hurricanes; I just don't know how sustainable 15% SSS growth is beyond this year.....esp when the rest of the industry is not growing very fast. (Air conditioners - HVACs).
NOTE for new followers: ACRG is going into its seasonally weakest time of the year, so don't assume that the 0.29 for 6 months can be doubled!! Y/Y results should be fine though.
Knowledge, what do you feel is a reasonable PE for ACRG? My own answer to that question would be 12-15x, owing to the fact that its an OTC:BB stock and because rev growth has been around 15% recently...but I'm curious to see how you think it can double from current prices.
Len, be careful of one time gains or untaxed earnings that can make a low PE stock seem cheaper than it really is. Have you performed that analysis on these stocks? I think its unfair to use PE comparisons when one stock is fully taxed vs another company that isn't because of temporary tax shields.
Thanks for the list....I see some that I own as well:
AOBO
PDGE
KPCG
IPII
ACRG
This is a painful sell-off in the short run, with no visible support until 4.50 (close to the 50 day EMA). I agree with the consensus view here that the stock is still undervalued, but it has moved up from a long base it set in the 2.5 - 3.0 range. Won't be for the faint of heart.....at recent highs around 6.00, the stock was trading at 27x the midrange of expectations for Fy05. It will have to work hard to move beyond the 30x forward valuation, but if any stock could do it, its this one.
Steve, I agree that AOBO looks cheap at 1.35. They could be on track to earn 0.20 fully taxed and diluted for FY04. Trading at <7x this years potential eps.
Next FY results will be impacted by dilutive offering recently completed, but revs and net income growth should more than offset that extra dilution. My SWAG is for fd eps to grow to 0.24 in FY05......so stock could trade as high as 3.00 - 4.00 IF they can execute on acquisitions, and fear of Chinese stocks dies down a bit. Wouldn't hurt if they could get a better listing either.
Look at who participated in the last round of financing:
1. Kellogg Capital 125k shares (largest AMEX specialist)
2. Barron Partners 1.25MM shares (have participated in other good looking deals like PDGE, seems to be a decent hedge fund)
A lot of these folks got shares at 1.00, so they may be selling some to bank some quick gains, and I suspect that there are some insiders selling (several Form 144s were filed in the past month; looks like nearly 730k were availabe for sale since end of September).
High risk, potentially high reward....
ANII.ob (nutraceutical supplier) update. The company has filed an NT-10k notice that will be filing their annual report a few days late. They did the same thing last year, so not a big surprise. The company did discuss its FY04 results, and they had a nice Q4 and FY:
Advanced Nutraceuticals, Inc. expects to report on the subject report net income
of approximately $2.3 million ($0.46 per share) for its fiscal year ended
September 30, 2004, as compared to a net loss of $3.8 ($.77 per share) for the
year ended September 30, 2003. Income from continuing operations is expected to
report net income of $3.5 million after a $762,000 deferred income tax benefit
for the 2004 year as compared to net income from continuing operations of $1.9
million for the 2003 year. The 2004 results are expected to include the
presentation of the operations of the Company's ANI Pharmaceutical, Inc. segment
as a discontinued operation. The discontinued operations are expected to report
a net loss of $1.2 million ($.24 per share), after a $663,000 deferred income
tax benefit for the 2004, year, as compared to a net loss of $5.8 million ($1.16
per share) for the 2003 year.
==================
Doing some quick math:
YTD (9 mos) net income from cont ops: 3048k (includes a 1128k tax benefit).
FY 04 net income: 3500k (includes a 762k tax benefit)
So, if you back out the tax benefits and subtract the resulting pretax numbers, then it looks like Q4 pretax was about 818k.
Q4 eps: 0.09 (est) assumes 35% tax and fd shrs of 6MM. My own expectations had been for about 0.08. If you DON'T assume any tax rate, then fd eps is around 0.14 for Q4 only.
This would equate to about 0.32 ft and fd for FY04 (0.49 untaxed) using an avg fd shares est of 5.5MM.
Revenue growth this year has been close to 40% through 9 months; I'd expect that Q4 sales number will be up 30-35% y/y. If the company would provide some kind of guidance for next year, this one could pop again. 52 week high is 6, currently trading around $4.00.
Hi Bob, thanks for setting up this board. IHub bought out the old Silicon Investor board and now the policies at each appear to be the same (3 free posts per day for non-subscribers). I just checked the old SI site, as I was a "lifetime" member there to see if any benefits were grandfathered here. This is what I found:
Will lifetime subscribers prior to iHub's purchase of SI have access to the features we used to have access to? (Last Updated: 12/1/2004 4:34:45 PM)
Features that were available to grandfathers/lifetimers when we acquired the site AND that still exists on the new version of the site will remain available to grandfathered/lifetime accounts. *
Some enhancements to the site will be made available to all users, other enhancements will be made available only to GF/Life members, and yet other new features will be available only to recurring subscribers and GF/Life members who purchase a recurring Premium-Plus subscription. The respective featuresets are described here. The newly added Premium features will be available to Grandfathered/Lifetime members with an upgrade to Premium-Plus (currently $19.95 per year). They are included as part of the Quarterly, Semi-Annual, and Annual subscription packages. New Lifetime subscribers, when offered, receive one year of Premium-Plus with their subscription.
* We are trying to see what I can do to make Portfolios and either SI's old charting system or a comparable one available to users. We don't know if we'll be able to yet and if we do and the cost of providing them is substantial (the cost of programming time doesn't count), they will be offered only as ala carte items not included as part of any subscription package. So, those two items, if they become available at a later date, will be the only ones the site previously had that lifetime/grandfathered members may not have free access to.
This might help lower the cost for some old SI'ers who want to post on IHub more than 3 posts/day.
I like the Ihub site, and would be willing to pay for reliable access to some of the great posters here.....
They produced the 10k, but its the IBSG 8k that they still haven't provided (the filing that is supposed to show the actual revs and earnings for Rivers' company.) Promised months ago, and now they probably won't get around to filing it until much later, if at all.
Either way, because the reverse merger occured after Dec 31, its the the Q1 10Q that will bear watching. The 10K only provides details about the shell, and did not even discuss the private placement that was done.
They should be preparing a Q1 PR very soon, as this is the end of the quarter today.
I've already sold most of my shares, but have a token few left just to keep me interested, and in hopes that some of what Rivers and the PR machine have said is actually close to being true.
I've already read those posts on the RB board, and I think that the only thing that can save the stock right now is the filing of the audited statements.
I wish I had waited before buying here.....
Kaiser,
One of the frustrating things about this company is that they don't reveal pertinent info that investors need to make a value judgement on the company's shares.
Look at this latest one regarding WestCap Securities.
"The company is targeting to raise $3 million in additional capital which has already been partially funded."
How much of the $3MM has been raised? How many shares were issued to accomplish this?
IGII is purposely keeping investors in the dark about this...
Also, what's up with the emphasis on EBITDA? If the company is truly profitable, which Rivers has said privately, then why not mention its profit potential?
BTW - when will the promised financials be filed? The company had promised way back in November 2003 that an 8K would be filed with previous years financial history but now it looks like all we'll get is the 10K for the current year (which may not even include the financing info if it occured after Dec 31 !).
I'm a little ticked off, because the glowing projections have got to backed up with some hard numbers.