Scouting report, part 2:
To: Jaxax (1183 )
From: Bob Zumbrunnen
Wednesday, Sep 17 1997 11:28AM ET
Reply # of 4162
Scouting report, part 2:
Hope I get all of this information correct, as I didn't take an awful lot of notes once
Delmar and I started talking.
First impressions of Delmar: Reminded me of so many computer specialists I know.
Though he's not one of us geeks, he shares many common traits, such as being more
thing-minded than people-minded. Unlike the extreme (and most populous) end of the
geek spectrum, which is composed of folks who very simply should not be allowed to
converse with humans, Delmar *does* possess good communication skills. It's not his
forte, though. The actual *work* is. Personally, that's what I like to see in the head
position of a company that's focused primarily on *working*. When (note: I would've
used "if", had I thought the word more appropriate) this company gets much larger, I'm
sure someone else will be doing the IR function, allowing Delmar to focus on what I'm
sure he's happier with anyway.
I suspect he's actually taken the trouble to be *trained* in communications (through
college courses). He was doing things that were "correct" in the college-course context,
such as making eye contact, and often using my name when addressing me.
The first question he asked me (and actually caught me off guard) was "How did you
find out about AmeriResource?".
At the risk of deeply offending anyone here (I'm not pulling any punches where ARET is
concerned, and I won't do the same where my fellow investors are concerned), I told
him that I am a participant in Silicon Investor (he'd heard of it and I get the distinct
feeling they may even monitor this thread) and that, quite frankly, I had spent the past
week or so following, from stock to stock, what I suspected might be a pump and
dump operation. When it appeared they were getting ready to move on to ARET, I
bought some shares very quickly, counting on hype to get me a quick profit.
I also told him that, when I started reading all of the messages in the thread, I decided
that maybe this company was more of a long-term keeper, as the thread was
remarkably free of the hype so often found in the forums of similar companies. That
discovery led to my purchase of more shares.
We spoke for about an hour or so.
When I asked him the size of the float, he wasn't sure off the top of his head (I'm still not
sure how to interpret this -- I expected he would know this information) but estimated it
to be about 30-40 million. As we all know, the outstanding is 150 million. He personally
holds 80 million shares. As most of us probably know, and he shared with me as well,
he can't sell very many shares. He's limited to a small percentage of the average daily
volume for a period of time. Guessing, I'd say he can't sell more than a few hundred
thousand during any quarter. Someone correct me if I'm wrong on this one.
Personally, I like it that way. He can't make much of a living selling his own shares (and
with better than 50% of the outstanding, I doubt he's been selling much), so he has to
make his money "the old-fashioned way".
I asked him about the Fluor deal, and here's what I was told:
ARET is in a joint venture with Dunn on this one (60/40 split, with ARET being the
40%). This is about a 500-700 million dollar deal (not sure if this is gross for the whole
project, or just the portion in which they'll be participating, or what...). They typically net
5-7% on these deals. If I'm understanding and calculating correctly, we're looking at a
potential net here of more than $14M. Would appreciate it if a more number-minded
person can double-check me on this.
He told me that their partner in this venture, Dunn, is the 1st or 2nd largest contractor in
America.
ARET has done (is doing?) many projects for GM and that less than 90 days for the
winning bidder to be identified is quite typical of this line of work.
I don't remember specifically why, but got the feeling that ARET/Dunn has a very good
chance of winning the Fluor deal. And there are many others pending.
Delmar told me that this company (I think this would be in the KLH days?) was a listed
NASDAQ company for a long time, and that when a merger had been done relatively
recently (Tomahawk?), he'd spent quite a bit of time in DC meeting with NASD and
SEC officials and getting their assurance that the merger would not impact their listing
status. 10 days after the deal was consummated, they were delisted. Told him it's
definitely not the first time I've heard about NASD doing a company that way.
He handed me quite a bit of paperwork for me to peruse (1996 10-QSB, past press
releases, Tomahawk's Statement of Qualifications, and some materials about
hydroponic food production -- more about this facet later).
He said they are currently behind on filings and are working on them. If I recall
correctly, they should have the 10K done within the next 30 days, as well as the 1st
quarter 97's 10-Q. Their fiscal year ends with the calendar year.
A couple of important points that Delmar told me about, that are probably obvious to
those who've followed the company for a long time, but were unknown to me:
1. With the September 11th bankruptcy court decree, this company is no longer
operating under Chapter 11 protection. Important point, and I told him it would've
been nice if the press release would've stated that a bit more clearly.
2. The settlement, also discussed in the September 11 PR, means that there are no
longer any outstanding lawsuits against the company.
Hydroponics:
ARET wants to get involved in Hydroponics and has already "gotten their feet wet"
(sorry, couldn't resist). When the subject came up, it was obvious that Delmar feels very
passionately about the subject and not just from a business standpoint. Coincidentally,
efficient utilization of natural resources has always been a fascination of mine, too, so we
spoke at length about this subject.
For those who don't know, Hydroponics is essentially crop production without the use
of land directly. Crops are fed through nutrient irrigation (probably not the correct term,
but the meaning comes through) and have no contact with the earth. A 1-acre
hydroponic farm has roughly the same crop output as a 100-acre conventional farm.
ARET was involved in a joint venture hydroponic farm project in Oklahoma (if I'm
remembering the location correctly) that was a technological showcase, and would've
done very well for them, had they not been screwed by their jv partner.
It's obvious to me that ARET is focusing on the essentials of "what they do for a living".
The hydroponics will happen when they're in a more comfortable position.
They've been through some extremely tough times (including dealing with downsizing
themselves dramatically so they can focus on what they really need to be doing).
With outstanding shares of about 150 million, our market cap is currently about
$4,000,000.
This seems fair to me considering where the company is at. The most important thing I
gleaned from the meeting is that the company has spent some time right at rock-bottom.
This is a company that only a week ago finally got all of it behind them and now can only
get better. Keep in mind they went through CH11 and *survived*. This is far from being
typical.
If the Fluor deal really happens, it would appear this stock will shoot up *dramatically*.
If my previous figures were correct, I think $1.00 per share would be quite reasonable,
but I'm not holding my breath.
And the Fluor deal is not the only thing they're working on, as evidenced by recent news
(if it ever shows up on Yahoo).
The company is currently right at the bottom, and that's why they're priced the way they
are. Once it finally sinks in that they are no longer burdened by lawsuits and CH11, it'll
start climbing. When the deals start happening, it'll start getting really sweet.
Those who know me from other threads, know I am not prone to hype. However, I am
excited about this company now and will be adding substantially to my position this
week. And in weeks to come. If the Fluor deal comes to fruition, or any of the other
currently pending or future projects do, this one's going to take off. They no longer have
a lot of baggage holding them back other than public perception, and I hope that'll soon
change for the better.
I intend to keep in contact with the company as much as possible and will report here
from time to time. |
