Most posts here are for momentum plays.
Here is a solid investment that is a good buy for 1998.
Estimated to be undervalued at double the current price
or more. Do your own research. This is JMHO.
March 5, 1998
Dear Coconino S.M.A shareholders:
We get investor and shareholder inquiries; lots of them, frankly.
Shareholders want to know what their company is doing, how it's doing,
and perhaps most importantly what they can expect in the future. We
publish a great deal of information and are recently averaging a press
release nearly every other week. There are some important areas that
don't lend themselves to press releases such as "What is LPS, Ltd.?
What do they do?" We want to introduce you to LPS, Ltd. and its
tremendous potential impact on Coconino earnings.
First, what about the other components of Coconino SMA?
Coconino SMA, Inc. is a diversified holding company operating through
four wholly owned subsidiaries in four industries.
1) Retail manufacturing and distribution. The Ad-HaTTeRs, Inc.
subsidiary was the first subsidiary of the four distinct companies under
the Coconino umbrella. Ad-HaTTeRs is best described as a wholesale
manufacturer of various retail products, specifically scented air
fresheners used in every type of on-road and off-road vehicle as well as
in?the-home and workplace environments.
2) Oil & gas development and production. Coconino Oil & Gas, Inc. is
the most recently formed subsidiary. It followed the acquisition and
subsequent sale of Uinta Oil & Gas and a change of direction in Coconino
SMA's oil production philosophy. CO&G will start its first new
drilling/reentry opportunity within a matter of days, depending upon the
availability of rigs. If successful, and several independent geologists
concur in the probability of gas reserves being present in the Conroe,
TX prospect, CO&G should begin to generate cash flow before the end of
the current fiscal year, May 31, 1998.
3) Environmental cleanup and non-hazardous waste disposal. Enviro-Tec,
Inc. was acquired with Uinta Oil & Gas in 1996 and remains with Coconino
SMA's family debt free after the sale of Uinta in September of '97.
Enviro-Tec has just been granted a Class V permit for its Duchesne, UT
disposal well which allows for significantly increased earnings
potential. Under the pre-existing Class II permit, disposal fees were
typically about fifty cents per barrel. Under the new Class V permit,
fees range from $10 to just under $30 per barrel. The permit allows for
daily disposal of up to 14,400 barrels of non-
hazardous industrial waste liquids. Enviro-Tec has embarked on an
aggressive marketing campaign to align customers with this service.
Additionally, the Conroe, TX property has an existing Class II disposal
well and the company intends to seek a commercial permit for it. The
company is also looking at a site located in Wyoming. By year's end,
EnviroTec's goal is to have at least two revenue-producing waste
disposal wells in full operation.
4) Financial Services. This is our exciting LPS, Ltd. (LPSL)
subsidiary. Many have remarked they don't really understand what this
company does. Are they in the retail mortgage business? Not exactly? it
is much more than that. Let us go into some detail and try to clarify
LPSL's role at Coconino.
THE PRODUCT
LPS, Ltd. is pioneering a new segment of the financial services industry
called "Life Planning." Through a series of home study courses marketed
through a network of financial service professionals, LPSL provides a
powerful means by which mortgage brokers, home lenders, insurance agents
and others can attract and keep new clients. These courses are tools
for the individual that easily and conveniently teach the concepts of
how to free oneself from a lifetime of debt. At the same time the
courses provide a template on how to
create a healthy estate to provide for retirement, all without
materially increasing monthly cash outflows from current levels.
INITIAL MARKETING
The first marketing thrust for these products has been directed towards
mortgage brokers for the simple reason that they are currently enjoying
tremendous interest in debt consolidation loans known as "125"
mortgages. These are loans that provide up to 125% of the homeowners'
equity and are typically secured by a junior lien on the property. As
LPSL home study courses teach the principles of accelerated debt
repayment and long-term wealth building, what better place to offer the
product to the public? Add to that another marketing alliance whereby
LPSL can and does provide a competitive wholesale mortgage financing
package the mortgage broker can access, and the return to the company is
substantially enhanced as an example
below will illustrate.
Life Planning is more than the traditional financial planning offered
industry wide in that it considers the entirety of family dreams and
goals, not just the financial component. A Life Planning interview
conducted by financial services professional makes assessments in the
personal, family, work, and financial areas using analytical tools
provided by LPSL. Clients may then avail themselves of a specific home
study course (or the entire series of courses) that helps them
understand issues most important to their specific needs. The
importance of this information-gathering function will become clear as
you read further
INDUSTRY ACCEPTANCE
Industry professionals welcome the LPSL products. Mortgage brokers,
insurance professionals (life, health, & property/casualty alike),
securities brokers, and tax preparers understand that the innovations of
the Life Planning courses automatically provide an additional earnings
path for career financial service professionals. They, and we, are
excited by reports that appointments are currently being arranged with
an incredible 60% of those who respond to various advertisements. Of
those who made appointments, an astounding 80% are
buying their first course and 33% are applying for new mortgage
financing. These percentages are considered higher than what is expected
in the larger, mature picture. Nevertheless they are impressive and
attract the attention of potential marketing alliance groups.
EXAMPLE
For an example of how LPSL receives income, consider an applicant for a
debt consolidation loan utilizing a second mortgage and a third party
administrator to accelerate the repayment of the loan.
Loan amount applied for $30,000
Retail points charged by broker for loan (avg. 5%) 1,500
Add LPSL Course I (debt consolidation) 249
LPSL receives net for course $ 99
LPSL receives wholesale points participation (.5%) 150
LPSL receives portion of monthly admin fees (for 48-120 mos. ) 6
Sub total (minimum) $ 255
That sub total is more than the retail cost of the course, and the
administration fee continues month after month.
MORE REVENUES
There's even more. All the mortgages will eventually be bundled and
sold to Wall Street by our mortgage industry partners. LPSL
participates in that profit center as well. The typical size of a
mortgage pool for sale to Wall Street is $50 million. LPSL can receive
1% ($500,000) as its participation in such a transaction.
In order to get to a $50 million Wall Street mortgage backed security
transaction, LPSL needs to have participated in 1,667 mortgage
transactions averaging $30,000 each. LPSL will already have received
its $255 per client (per above example) or $425,085. The total amount
for all of this approaches $1 MILLION DOLLARS for the 1,667
transactions, or an average of $600 per client. In addition there is a
continually increasing amount representing the ongoing monthly
administration fees on each transaction (that is, on each client each
month for an ever-increasing client base).
MORE MARKETING
The company has embarked on a marketing plan that calls for acquiring as
many as 180 "office" locations in 1998. An "office" is a place of
business owned and operated by a financial professional at their
expense, not by LPSL. Each of these locations is projected to be
generating approximately 100 customers per month after the initial 120
days of participation. They can do this because most have several
producing sales reps in a location. For purposes of this example, assume
that only 40 "offices" achieve their goal, that the average number of
clients is only 50 per month, and that the targeted level of
production doesn't start until June, three months from now. The numbers
are 40 x 50 x 7 (months) or 14,000 transactions for the remainder of
1998. Look at this in light of the previous paragraph, but remember
that all of this is speculative until the company achieves these goals.
THE BOTTOM LINE
Not accounting for the ongoing administrative fees, production at that
level would amount to revenues of $8,400,000 in seven months. Assuming
the total shares of Coconino SMA common stock outstanding remains
22,721,000 (as of 1/31/98) revenues per share could equal thirty-seven
cents ($.37). These projections are based on the company's best
estimates of the potential at LPS, Ltd. but, of course, we cannot assure
anyone that this will occur. If it does, though, what would be a
reasonable multiple for translating those
revenues to a stock value?
One final point about the potential for this Coconino SMA subsidiary. A
very valuable asset this company is already developing is its database.
There are companies who pay enormous sums of money just to have access
to the type of information such a database will contain. A recent
example of this phenomenon is Microsoft's purchase of an Internet e-mail
company by the name of Hotmail last December. It was reported
Microsoft paid between $300 to $500 million for the company, the assets
of which were almost exclusively a database of several million
subscribers. The suggestion here is that, not only does
Coconino anticipate LPSL will be a big current earnings generator, but
that its ultimate value may be realized in a later buyout.
Your company hopes this memorandum has given you a better understanding
of our most recent acquisition. We hope, too, that you share our
excitement at its prospects as well as the prospects of our other
subsidiaries. Recognizing that you may still have questions, please
direct them to our corporate spokesman, Michael Millis, at 800-733-0087.
Sincerely,
COCONINO S.M.A., INC.
DISCLAIMER: The company intends this information to be used by its
shareholders to help them understand what may be accomplished if future
events occur as they appear at this writing they might. However, any
forward looking statements involve risks and uncertainties including,
without limitation; continued acceptance of the company's products and
services, increased levels of competition, new products and
technological changes; the company's dependence upon financing,
third-party suppliers, and intellectual property rights; government
regulations, and other risks detailed from time to time in
the company's federal filings, annual report, offering memorandum, or
prospectus.
Long post but worth a look if you are a serious investor.
KZAP |
