The President's Message
April 15, 1998
I want to address a matter of obvious concern to all Largo Vista shareholders, the fact that our stock price has recently been at an all time low. Several factors account for this situation, despite many positive developments in 1997. I'll talk about the negative influences briefly, then review the ongoing events that make us very positive for the future, both short term and long term.
Negative factors have included unusually heavy selling by investors for year-end tax purposes as well as a very large liquidation of shares by our ex CEO's bankruptcy attorney's who sold off his stock and hit the .07 low. Closer to home, I have to take some blame for not communicating as effectively as I could have to shareholders and new investors. Spending long hours talking by telephone and developing our website failed to sustain buyer interest, and many shareholders became impatient, understandably so.
Professional traders also had an effect on our stock price along with those who abuse the Internet with rumors and sell. As a bulletin board stock, we were hit hard by short term traders, and Wall Street analysts will not move on small cap stocks until they see financials. We understand that full reporting is needed to track our growth, and we aknowledge this as a high priority. In part, the delay has been a result of our acqusition of Kunming Xinmao Petrochemical. Its Chinese accounting structure was different for tax reasons; for example, New customer LPG start-up deposits were categorized as debits when non- refundable. The differences are important to understand because accounting procedures that are typical in the USA are not typical in China. To make the necessary changes in these systems, we had to wait until the end of Xinmao's fiscal year, then apply for change with the Chinese government.
During my recent trip to Kunming to attend the LPG conference on February 27, 1998, I hired an outside independent accountant to perform a second review of all financials Xinmao's accountants had recently completed to ensue we were getting the same figures. Now that this review has been successfully completed we have hired a Chinese American CPA with over 40 years experience to translate the finacials to meet acceptable and required U.S. standards. Soon we will be able to track our growth and monitor the impact of our pipeline revenues as each project is completed and becomes available on line.
One benefit has resulted from this delay, however: we have been able to save money on several purchases. It turns out that once a region in which were buying knows that Xinmao is making money, the purchase price goes way up, so announcing financials is a sure way of having to pay more.
Another reason for our low share price has involved delays in joint ventures. On June 27, 1997 we signed a memorandum of understanding with Nichimen Corporation, a Global 500 company. A September 19th date was set for their board's approval, and a confidentiality clause of strict secrecy was signed and honored during the due diligence period. On September 19, 1997 Nichimen requested an extension, which we denied.
On September 22, 1997 we signed an agreement with SHV Energy NV, another Global 500 company. Their representatives had visited Xinmao many times, and our management felt that SHV would actually make a better marriage than Nichimen. SHV (PRIMAGAZ) is the largest LPG Gas Company in Europe, with stock that trades at $80.00 per share. Largo Vista announced the signing of the MOU. and gave no details of the structure of the agreement, Our announcement upset SHV's Chairman and Management felt we violated the confidentiality agreement.
These developments are both disappointing and encouraging. The fact that these agreements have not born fruit is not what we hoped for. But the fact that two Global 500 companies negotiated with Largo Vista has confirmed what we already knew: that our Chinese operations are extremely interesting to large companies, and for good reason. We currently have other Fortune 500 companies looking at us. Although we have not expected our press releases to have any particular impact on share price, our continuing customer growth through pipeline construction, depot acquisitions and other projects are obvious to any new investor who takes the time to read those releases and research our company.
LARGO VISTA'S GROWTH
1997 has kept us very busy aside from our joint venture efforts. The market infrastructure for Kunming Xinmao Industrial Petrochemicals Co. Ltd. is in place, assuring growth well into the next century. By way of comparison, the largest LPG Company in America took 10 years to grow from 100,000 customers to just over 900,000, mostly through acquisitions. Xinmao is on the road to 500,000 by the year 2000, and our first million customers by 2005. Our Chairman, Deng Shan, has been doing an outstanding job as President of Xinmao. In his own words, "Our growth has been slow by Chinese standards but on a solid foundation". Because of his efforts, our market potential is basically unlimited. In addition, agreements from Chinese internal refineries to establish a fixed purchase price for LPG means that Xinmao can now guarantee a stable yearly price to our LPG customers, giving them substantial savings while we still make a profit.
Because Xinmao is the only licensed importer of LPG into the region, our delivery operations look very attractive to other energy companies trying to find a way into the down stream LPG retail market. This is one of the many reasons why world class companies are interested in Largo Vista. These companies are making large investments in the Chinese LPG market and need delivery systems for their products. Caltex (Chevron & Texaco) for example should have their $130 million LPG depot on line by the end of 1999. Mobile Oil's $ 90 million dollar depot is not far behind. B P Shanghai announced the year 2000 for their depot completion. These investments do not include the monies needed to enter into the down stream operations, such as transportation, storage and distribution. And currently Chinese law will not allow them to enter the retail market. This fact puts Xinmao years ahead of any foreign energy company with significant investments in China.
THE BANK of AGRICULTURE:
Our relationship with the Bank acting as our agent allows their branch and sub branch locations to make a small fee on each transaction and interest on the monies from taking deposits and issuing coupons to our customers. Mr. Deng Shan has come to an agreement with the Bank of Agriculture on a Line of Credit. Xinmoa will now be more creative and effective with our operations. Incidentally, China's Bank of Agriculture is not a modest institution; in assets and income it is comparable to the Bank of America.
The 1998 China LPG Conference:
The LPG conference was a success, with over 325 delegates from all over the world. (see our website www.largovista.com). Our sponsorship of the conference made Xinmao a very credible company, something that is badly needed but not established yet in the U.S. With the Chinese Government's Xinhua News Agency as organizer, the conference delegates paid close attention to all that was discussed. They noted, among other key factors, with China's current growth, LPG demands are expected to be met by the year 2010.
Pipeline Stations:
Our pipeline station development program is moving ahead, and we are negotiating additional pipeline projects. Our crew has completed our first three projects and is starting the forth, a 20,000 customer project. All blueprints have been submitted and returned, and the project is fully approved for construction. For future projects, Xinmao has submitted application for what is equivelent to a general contractors construction license in the U.S.. With this approval we can build pipelines ourselves and bring down our current construction costs of approximately $ 240 USD per household. We expect to have 3 to 5 pipeline crews working at all times late in 1998. Xinmao's strategy is to continue our present pipeline development with the support of the government and continue expanding into other provinces.
Future Prospects:
Largo Vista's depressed share price does not reflect its real value. Our growth has been outstanding by U.S. standards, and our prospects continue to be excellent, both short term and long term. Investors will be very well rerwarded by LGOV as a long term hold., and we expect the market to respond short term as we publish financials. As President, I appreciate the concerns of shareholders. This year should see a very substantial increase in the market's valuation of Largo Vista with gratifying and lucrative results for investors.
Daniel Mendez President |
