The GeoTeam's  Instablog

GeoInvesting will now publish select Premium research notes here on our Seeking Alpha blog. Please note that these notes have already been sent to our Premium Members on GeoInvesting.com, who get a regular morning email near market open.

On the Asian Front

China Information (NASDAQ:CNIT) ($1.98) - On April 11, 2013 GeoInvesting published some due diligence findings on Perfect World Co (NASDAQ:PWRD). Part of our bullish thesis was based on the fact that FOSUN, a company with a good track record of investing in U.S. listed Chinese companies, has taken a large stake in PWRD shares.

Upon further due diligence we noticed that FOSUN has also taken a stake in shares of CNIT. Through a 13G filed on February 13th 2012 FOSUN disclosed that it holds a 9.49% stake in CNIT (5.2 million shares). FOSUN disclosed its initial ownership in CNIT through the ownership of 4.3 million shares on June 20th 2012.

While GeoInvesting has not performed any due diligence on CNIT we will establish a small position in its shares, on FOSUN's coattails.

From a fundamental point of view CNIT has reported losses and lackluster revenue growth for several quarters. CNIT management claims that it is in the midst of restructuring operations to put the company on the path of growth.

The tangible book value of CNIT is $5.50.

Investors should keep in mind the CNIT shares have spiked several times since March, only to see shares pull back.

New High Research

Ari Network Services (OOTC:ARIS.OB) ($2.75)

We will start actively tracking ARIS, a company that develops software solutions connecting consumers, dealers, distributors, and manufacturers in selected vertical markets.

Shares hit a new high May 3rd 2013 on news that its division targeting the auto-motive tire industry experienced revenue growth of 25% in March. These revenue gains are being driven by a November 8th 2012 acquisition of one of its leading competitors. We do not know how much of the company's revenues are derived from the tire segment. However, the company has disclosed that the recent acquisition will double the size of its website business which accounted for 25% of its total revenue pre acquisition but comprise the majority of the company's overall revenues post acquisition.

ARIS reported 2012 revenues of $22.5 million (similar to revenues in 2010 and 2011). We estimate that the acquisition will allow ARIS to achieve 2013 revenues of $30 million leading to a marketable increase in the company's quarterly revenue run rate to at least $8 million, which is well above the company's quarterly run rate of $5 to $5.9 million experienced over the last 3 years.

GeoInvesting also noticed that an investment company filed a 13D disclosing its shares in ARIS and may seek to engage in discussions with other shareholders and/or with management and the board of directors of the Issuer concerning the business, operations or future plans of the Issuer.

Mechanical Tech (OOTC:MKTY.PK) ($0.68)

MKTY shares have risen from $0.18 on March 22nd to its current price of $0.68 on the heels of a March 21st 2013 press release which contained clues that the company has addressed problems that has hampered revenue growth and the attainment of profitability over the last couple of years specifically, heading into the 2012 4th quarter the company had experienced losses for 6 straight quarters

However, it appears that the company reported 2012 4th quarter EPS of $0.12, albeit it on lower revenues ($2.4 versus $3.3 million). We are encouraged that the company has been able to achieve profitability at a level where it had previously reported losses.

Management commentary insinuates that the positive momentum will continue into 2013. If the company can maintain the level of profitability achieved in its 4th quarter 2012 we believe the stock should easily eclipse $1.

The company is engaged in the design, manufacture, and sale of test and measurement instruments and systems through its subsidiary MTI Instruments, Inc. MTI Instrument's products use a comprehensive array of technologies to solve complex, real world applications in numerous industries including manufacturing, semiconductor, solar, commercial and military aviation, automotive and data storage.

GeoInvesting will look to establish position today ahead of first quarter 2013 results. We will attempt to interview management.

Hydromer (OOTC:HYDI.PK) ($1.99)

The following comments buried in the HYDI's December 31st 10Q will lead us to track the story.

"The Company is nearing a return to profitability. Cost management and revenue growth are the key factors and while we did not reach the same revenue levels achieved a year ago, it is certainly within reach. During the past few years, the Company's R&D resources were dedicated to its T-HEXX Animal Health product line as that could yield the quickest revenue return (as compared with the much longer term human medical product line). Some of the recent developments in the T-HEXX product line are being rolled out into the market."

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Disclosure: I am long CNIT, MKTY.PK.

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A main focus of SaaS companies is to compete and capture market share to increase recurring subscription based revenue. This frequently leads to a company incurring high sales and marketing expenses and the generation of minimal net income and EBITDA. Eventually, these companies plan to earn profits as they grow and scale back on marketing expenses. So, in the short-term a measure like P/E is not a great barometer of value. Our goal is to value SaaS companies using other measures that do not rely on income data. Thus, sales multiples are often looked at as better measures of value. Still, we are cognizant that SaaS companies' revenues consist of subscription fees that are received as cash up front, but where services pertaining to the contract are performed over time. Under GAAP, even though 100% of subscription revenue may be collected up front and shows up as cash on the balance sheet, only a portion of it is recognized on the income statement. The rest is classified as deferred revenue on the liability side of the balance sheet until it is earned. Deferred revenue is recognized on the income statement as services attached to such revenue are "earned" (the service is completed). The summation on sales and bookings is commonly referred to as total bookings.

Longwei Petroleum (LPH) published two 10-minute video clips today in an effort to refute our video evidence of little or no activity at LPH's Taiyuan plant. It has been eight days now since we first released our report and this is the first substantive, albeit fabricated response LPH could come up with. Given the long delay in publishing them, we conclude that LPH filmed these video clips sometime after we published our report (on January 3), taking a failed page from Sino Clean Energy's playbook against Geoinvesting and Alfred Little in 2011. SCEI was still delisted.

For your review we have uploaded our footage overlapping the time LPH claims they made their videos. What took LPH 8 days to fabricate only took us only a few hours to upload. As you will see our cameras pick up a good deal of traffic passing by the facility but no trucks ever entering or exiting the facility to fuel, refuting LPH's fake videos that show tanker trucks entering and exiting the facility (on the right side of their videos). The trucks in the LPH videos were around long enough for our cameras to have picked up the lights and fueling activity.

• LPH Taiyuan Main Entrance 12-09-2012, 18:30 to 19:00
• LPH Taiyuan Main Entrance 12-11-2012, 19:45 to 20:15

Furthermore, note the almost total blackness behind the retail gas station in our videos. As you can see by the bright headlights on the passing vehicles and the lights in the ceiling of the retail gas station, our cameras would easily detect the light from tanker truck headlights fueling, weighing and circling around behind the retail gas station.

LPH today took another failed attempt to perpetuate, rather than to admit to its fraud.