Thursday, July 19, 2012

Sometimes, It's Best To Take A Pass #6: A Blank Check, With No Milk Attached.

Cullen Agricultural (CAGZ) is a neat little shell of a company that has come about from a ton of different mergers and such.

This is their basic business model:

Our principal focus is to use our intellectual property in forage and animal sciences to improve agricultural yields. The Company was formed to develop, adapt and implement grazing-based farming systems in regions of the world where the geophysical and climatic conditions are suitable for a pasture-based model. While the potential for the pasture or grazing model is significant in many of the world’s developed and developing economies, the systems are highly specific and require significant adaptation and modification to be successful. We have identified the global dairy industry as a primary opportunity in which our systems can be applied to improve yields on land and drive cost-base efficiencies. We believe that cost savings of up to 40-50% are achievable in the long term. Further, we believe the high cost structure, which is employed by over 95% of milk producers in the U.S. and supported by government subsidies, will help to maintain a floor to milk prices in the U.S. and provide us with long term margin protection. By having direct access to a domestic market, we believe our business plan provides a unique opportunity to invest directly into food production while limiting earnings volatility linked to foreign exchange exposure, typically associated with returns from commodity production in exporting countries, such as New Zealand. In addition, we believe the potential opportunity to vertically integrate, while maintaining control of the supply chain, provides a further opportunity to reduce volatility and maximize profitability.

Then you read this in the most recent 10Q:

We have been in the process of attempting to obtain land development financing backed by the property we own and operate to support our working capital needs and implement our business plan. However, due to the recent performance of similar types of farming operations in the region, as well as the general economic downturn, financial institutions have been unwilling to provide such financing. As a result, we have been unable to obtain the necessary funding to support the implementation of our business plan at this time. Accordingly, we explored all financing and strategic alternatives available to us, including disposing of or leasing portions of our land in order to continue to support our working capital needs. In 2011 and 2010, the Company disposed of approximately 2,600 acres of land. On March 5, 2012, we entered into a Sales Contract with a buyer to lease the Company’s remaining 1,035 acres of land for the remainder of the 2012 crop year for the sum of $76,000 and to sell to the buyer the land for a purchase price of $1,524,000. This land constitutes the last of the Company’s property which we had planned to use to deploy our pasture based dairy and beef business plan. It is our intention to either seek additional financing to allow us to implement our pasture based dairy and beef business plan, or to seek alternative opportunities available to us unrelated to our business plan in an effort to maximize shareholder value. To this end, the Company has in the past had, and may in the future have, discussions with potential merger candidates wishing to become publicly traded.   There is no assurance that the Company will be successful in any of such efforts.  If the Company is unable to secure additional financing or find another alternative, the Company will not have sufficient capital to implement its business plan and may be forced to suspend all operations until such time as capital or another alternative is available to it.  (Italics are mine)

Basically, the last part of what they had originally figured to be viable business plan, has been sold off... granted, this was a business plan that no one wanted to lend money to, more or less because it is probably a bad business.

So, what's left? A company that has just a touch over $3 million in cash and $~135K in liabilities (I replaced the real estate with $2mm per this 8K). Since they have historically lost money, and as such have a hair more than $3.5mm in net operating losses that don't start expiring until almost 2030, they seem to be praying they can merge with someone else. Without that happening, they will likely bleed money until they are dead, much like i mentioned in my write up of FCCC Inc.

At least the executives don't seem to be gouging the company for executive pay:

And what do you pay for this company? $4.91 million dollars. Certianly, a premium for any sort of company like this. I would rather buy Moduslink if I was on the prowl for NOLs (accounting mishaps or not)!

Interestingly, the price formerly reflected a lot of the downside, but was bid up in very small amounts of volume:

But yet again, I find myself taking a pass...

Disclosure/Disclaimer: I have no position in regard for or against any of the entities mentioned. I reserve the right to change my positions at any time. This post is my opinion. Always do a ton of your own research before even contemplating anything that I say, do, write, or so much as think about.

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