Sunday, August 2, 2009

Enabling follow-up

Back from vacation and ready to ponder the implication of the enabler's latest financials. Once again, I merely quote their own financial statements and then stand back and marvel at their astounding banking abilities.



Entry into a Material Definitive Agreement, Results of Operations and Finan

Item 1.01 Entry into a Material Definitive Agreement. On July 20, 2009, the Company entered into stock purchase agreements with the following individuals: Gurpreetinder Singh, Ashok Kumar, Prem Chand, Vijay K. Gupta, Kewal Krishan Garg, Gurmail Singh, Girdhari Lal, Niranjan Singh Sra, Dr. Sham Lal Goyal, Ms. Usha Rani Sood, and Mjr. Surinder Singh (together the "Investors"). The agreements provide that the Company will issue and the Investors will purchase, pursuant to a private placement, 8,137,250 newly issued shares of common stock ("Shares") at $4.68 per share. The obligations of each Investor under the agreements are several and not joint with the obligations of any other Investor. Upon issuance and sale of all of the Shares as currently contemplated by the parties, gross proceeds of approximately $38 million dollars are expected to be raised. The agreements provide that an initial closing will occur on July 31, 2009 or as soon as possible after that date.

Glad none of my money is part of that $38 million. Check out what comes next:

Item 2.02 Results of Operations and Financial Condition.

The Company's management has concluded that the Company's previously issued consolidated financial statements for the three months ended March 31, 2009, as reported in the Company's quarterly report on Form 10-Q, can no longer be relied upon. Accordingly, the Company intends to promptly amend and restate its Form 10-Q for the quarter ended March 31, 2009 as well as other previously filed regulatory reports for the 2009 first quarter as soon as it can reasonably do so.

Not good. We can't trust the previous quarter's (Q1) financial statement and where is the report for Q2?

As originally reported, the Company had a net loss after tax of $3.6 million. Management now believes that its net loss for the first quarter will increase to approximately $18.2 million. Earnings per share (EPS), both basic and diluted, for the first quarter of 2009 were originally reported to be a loss of $0.91. This EPS figure per share on a basic and diluted basis is now projected to be a loss of approximately $4.63. The Company originally reported an addition to its provision for loan losses of $10.7 million; however, it now projects that its provision for loan losses for the first quarter will increase by more than $26.3 million to about $37 million.

Which might explain the need for $38 million to be raised from Indian investors. But what will Q2 bring in the way of losses?

At March 31, 2009, the Company originally reported that it had $105.5 million in classified loans. Based upon additional information related primarily to asset and loan quality that became available to management following the filing of its first quarter report on Form 10-Q and after consultations with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions, management determined that approximately $163 million of loans should have been deemed classified for the quarter ended March 31, 2009. Of these classified loans, at March 31, 2009, management now expects to report that approximately $98 million are deemed to be impaired compared to the originally reported amount of $61.6 million. As of March 31, 2009, it is now expected that non-performing and restructured loans will be reported at about $98 million compared to the originally disclosed amount of $45.1 million in non-performing and restructured loans.

That sure is a lot of empty strip-malls. Buy stock in plywood companies. The windows of vacant strip-malls always need lots of that. But inquiring minds are curious: How does the cash value of non-performing loans double between issuing a quarterly financial report and the time to report the next quarter's results? Hopefully no insiders sold shares in the company while share prices were still high! That wouldn't look very good at all...

Insider shares bought/sold Dodged a bullet! Not corrupt, apparently clueless though.

Total shareholders' equity at March 31, 2009 is expected to decline by approximately $14.6 million to approximately $38.5 million from the previously reported amount of $53.1 million. On a preliminary basis, the Company's leverage ratio, tier 1 risk-based capital ratio and total risk-based capital ratio will be restated to approximately 4.34%, 5.06% and 7.14%, respectively. The Bank's capital ratios are expected to decline to similar levels as follows: 4.28%, 4.99% and 7.07%, respectively. As a result, the Company and the Bank will be deemed to be undercapitalized under guidelines established by bank regulatory agencies as of March 31, 2009.

Thank goodness for the timely arrival of the Indian investors! If it weren't for their astute investment skilz, we might have consequences of enabling on our hands.