First, you get an “A” for coming up with the answers. I am sure that was not fun. My comments, in red, below. Bob
I don’t pull any punches, the comments are meant to be constructive. I am sure you will take them that way. Bob
On Sat, May 9, 2009 at 10:28 AM , Bradford, Glen Richard wrote:
Here goes with the answers. Looks like I might have bagged a loser in disguise.
You will look like a prudent and thoughtful person if you generate a cautionary note , which says that you have
discovered what appear to be areas which deserve to be explored in more detail, and will let everyone know if you can recomment the stock, in the future. No need to go any farther. If you choose to exit your position, I think that should be disclosed. Bob.
Glen
From: Bob B
Sent: Thursday, May 07, 2009 3:01 PM
To: Bradford, Glen
Subject: RE: CNOA book value, “10 Best Chinese”
Glen,
These are not rhetorical questions, I really would like a response. You are dealing with other people’s money here.
A one word answer on each will be appreciated.
Did you know that China Organic financed approx 100% of the Bellissimo aquisition cost? Off hand, No. That is what the internet is for. Google Bellissimo Vinyard and you would have come up with the sales price, and the terms. This would fall in the category of “you should have known.”
Did you know that 50% of the $14 M cost was allocated to land, 50% to high end residences? Off hand, No. I found that in the SEC filings.
Did you know that 10 months after acquisition, their FS carries the California Multi-Million housing category assets “At Cost” and reflects no significant impairment of the asset? I assume that this vineyard is worth significantly less than they paid for it, maybe worth $1M. The problem may lie in the vinyard, but it DEFINATELY exists with the housing. California Res Market is rat shit, especially in high end homes, they state $7M of improvements, which is the housing, the earlier buyer folded up, etc, etc. We can figure out a reasonable value on the vinyard portion of the asset a lot easier than the res portion. UNtil we know the history of the property (which is required by USPAP) we are flying blind.
Did you know that FASB requires an asset impairment to be addressed? Yes. Excellent.
Did you know that a US based financial consultant who was taken on specifically to assist with accounting deficciencies for Sorbanes-Oxley purposes has severed his relationship with the firm? I believe that was what the lawsuit was about.
Did you know of the two directors resignations of this week? Nope, haven’t been able to keep up. But now that I know this, I’m going to act accordingly. That was real late-breaking news. A reasonable person would realize that info was probably not in the system when you were forming your opinion.
Did you know there was an appraisal of the property? I did not. If you found that they were financed by a Life Insurance Co, and you had experience in Deeds of Trust, FIRREA, etc, you would know that Life cos always require commercial appraisals. So you’re learning. Now you know, and you will never forget it.
Glenn, I am not trying to bust your chops. I don’t want you to become a legend for the wrong reasons!
I am trying to understand what you knew when you wrote your article. In my life experience, at the time you submitted your article, either
1. you knew some of these facts, or 2. you should have known, or 3. they are new,breaking news.
Nobody should think poorly of you if you disclosed more.
Bob
PS I got new info of MAIs, there are 5 in China, if you include Hong Kong.
================================================
On Thu, May 7, 2009 at 7:35 AM , Bradford, Glen Richard wrote:
> Yep,
>
> Was aware of the lawsuit. Makes things interesting.
>
> I’ll probably revisit my investment thesis this weekend to look for more cracks.
>
> Glen
>
> —–Original Message—–
> From: Bob B
> Sent: Thursday, May 07, 2009 4:12 AM
> To: Bradford, Glen Richard
> Subject: RE: CNOA book value, “10 Best Chinese”
>
> more info on the lawsuit. Plus, they are carrying Bellissimo at cost,
> and have not recognized any impairment on the asset. About $7M for the
> structures was their cost allocation. Assume 50 percent depreciation,
> which could be light. another $7 on the land. No grape sales. Life
> Insurance co financed, I assure you it was appraised. Lawsuit says it
> was a classic pump and dump securities fraud.
>
> http://securities.stanford.edu/1041/CNOA_01/
>
> Bob
>
>
>
> On Wed, May 6, 2009 at 4:51 AM , Bradford, Glen Richard wrote:
>
> > Just about to take a final. I think they overpaid. But I am
> > optimistic. Sure, sometime next week we could dig deeper.
> > glen
> >
> > —–Original Message—–
> > From: Bob B
> > Sent: Wednesday, May 06, 2009 3:41 AM
> > To: Bradford, Glen Richard
> > Subject: CNOA book value, “10 Best Chinese”
> >
> > Glen,
> >
> > First, the Appraisal Institute hasn’t got back on my inquiry of the
> > number of MAIs in USA vs China, sometimes I think once someone’s paid
> > their dues they ignore you.
> >
> > Your summary on CNOA mentions “When you look at the value of a
> > California Wine label in China where China Organic distributes the
> > stuff, you begin to see the big picture profit potential.”
> >
> > Okay, I’ll bite, what IS the value of a
> > California wine label in China?
> >
> > Bellisimo doesn’t produce wines, it grows grapes. Did the sale of
> > Bellisimo involve a California wine label?
> > I think Bellisimo can be viewed as a couple of high end residences,
> > located on a vinyard. Since it is pretty well documented that
> > California high end homes of the multi million dollar variety have a
> > history of drastic percentage decline in value since the date of the
> > Bellisimo transaction, and that market has not recovered, I suggest
> > that the book value should reflect that fact. I am not saying it
> > isn’t there, but I don’t see it. It looks to me like they paid more
> > than appraised value for it (Is that why suddenly you see blue sky
> > cropping up. . . ) I Suggest you request a copy of the appraisal
> > that was done at the time of purchase.
> >
> > You imply CNOA paid cash and own it free and clear, but I would sure
> > like to know if that is the case, or not. IF not, the implications
> > might be huge. Consider:
> >
> > It makes a big difference if they paid $14M, borrowed $9 million, and
> > now it has a Current Market Value of, say, $6M, doesn’t it? Makes an
> > even bigger difference if that has not been properly disclosed, ot
> > maybe it has, and you haven’t figured it out. That might lead you
> > to say that CNOA bought Bellisimo for about $14M and is trading at
> > $23M. That would change the net value of their interest in Bellisimo
> > from “14M” to “NEGATIVE 3 Million” that potential swing of 17 million
> > in book value would have a significant impact on Book Value, in your
> > matrix, wouldn’t it?
> >
> > If you get a copy of the appraisal, I will be happy to review it with
> > you, no charge, just tell you what I see. It will be real interesting
> > to see how they developed their opinion of the Highest and Best Use
> > of the property. MAIs who do vinyards are very sensitive to the
> > business value, value of brands, the value of lands, the difference
> >
between going concern value vs. liquidation value vs Current Market
> > Value, Highest and Best Use, etc.
> >
> > Since you are emphasizing Book Value in your matrix, I thought you
> > would want to zero in on exactly what CNOA’s Book Value is? What CNOA
> > bought, what the current value is, or was at year end, and whether the
> > “GAAP accounting” that they say they are in conformance with has
> > recognized the decline in value from when they bought it. I will be
> > happy to put you in touch with an MAI who specializes in values of
> > Vinyards, etc, in that area, if you like. Never set foot on one,
> > myself.
> >
> > Lots to learn here, lots of wealthy people are interested in wines.
> > Doug Casey is into Argentine Wines in the Salta region. Are you
> > familiar with him? Interesting classmate of Bill Clinton’s. Lots of
> > Canadian Mining stock experience. Hard money guy.
> >
> > Bob