I’ve been experimenting with Quora, the new Q&A site that has been getting a lot of buzz lately. Recently, a question came up:

“Which web site gives the previous 10 years earnings of a public company?”

As value investors, looking at a company’s financials for the past ten years provides a nice overview of how the business performs during the ups and downs of the business cycle.

By using these averages, it helps smooth out one-time events and usually results in a much more conservative analysis – the hallmark of many great value investors.

My answer, reprinted from Quora:

While the SEC Edgar database is the time-consuming method, it is also the most accurate, and the only source I would trust if I was truly looking for thorough due diligence.

However, there are several other sources for historical financials:

MSN – http://moneycentral.msn.com – MSN provides 10-year financial summary information, but the summary is missing many key pieces (such as cash flow information).

SmartMoney – http://www.smartmoney.com/quote/… – Enter stock quote, click on financials, then change to the annual option (income statement, balance sheet, or cash flow statement). Must toggle between 5 years at a time and can’t export.

ADVFN – http://www.advfn.com – One of the most comprehensive sources of information, ADVFN provides financial statements that often cover a date range as far back as the EDGAR filings (1993 for many stocks). Search for a stock, then click on company information to find a host of ratios, charts, and links to the annual reports. However, you are limited to seeing a 5 year period at one time.

GuruFocus – http://www.gurufocus.com – Search for ticker symbol, click on 10-Year Financials. Provides single-page view of last 10 years AND last five quarters. Export to excel option is only available for premium members ($250/yr)

Morningstar – http://www.morningstar.com – Search for Ticker symbol, click on Financials. 10-year financials are only available for premium members ($185/yr). However, the export to excel option is available for the past 5 years of financial information. IMO, the cleanest and fastest export option with nicely formatted information.

SMF Excel Plug-in – http://finance.groups.yahoo.com/… – My personal favorite by far, this free excel plug-in allows you to build your own custom spreadsheets to pull updated information using over 14000 data points from various financial websites. 10-year financials, insider ownership, valuation ratios, etc. Requires some excel knowledge. For true flexibility and power, it’s hard to beat.

Personally, I spend most of my time in EDGAR but these other options can provide a provide a quick signal that further due diligence is required.

Feel free to check out the other answers to this and other questions on Quora.

P. S. – Jae’s spreadsheets from OSV pull in ten year financials automatically, in addition to performing tons of other valuable calculations. I spent weeks tweaking my own spreadsheet using the excel plug-in above – the OSV offering is so much better!

See my spreadsheet review for further details.

Tikcro Technologies LTD (TIKRF.PK) is an Israeli company involved in a lengthy battle with one of its primary investors.

At current prices, the stock sells at a discount to net cash, in addition to holding a profitable stake in another bio-tech stock traded on the Israeli exchange.

The stock offers an interesting risk/reward play, but uncertainty remain with the company’s long-entrenched management team.

Background

In April 2003, TIKRF sold off its legacy business to STMicroelectronics and turned into a blank check company. According to the SEC, a blank check company

“is a development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person.”

The PinkSheets are littered with many such entities. The company describes its goals in a recent SEC filing:

“Our business plan is to enter into one or more transactions with a wide variety of businesses without limitation as to their industry or revenues.”

After several years of searching, the company announced an investment in BioCancell Therapeautics, Inc, an Israel-based clinical-stage biopharmaceutical company, in June 2008.

BioCancell Investment

BioCancell (TASE: BICL) is focused on developing a drug, BC-819, to treat a specific gene that causes tumors in many types of cancer, especially the bladder, pancreatic, and ovarian varieties.

To date, the company has generated no revenues and is on the long (and expensive) path of proving out the drug through multiple clinical trials in an attempt to pass the governmental approval process.

Tikcro invested $2.5m in BioCancell and received 837,521 shares of common stock and a four-year convertible note (convertible for up to 3,464,385 additional shares), as well as a 4-year warrant to purchase an additional 4.3m shares for $3m.

With this investment, Tikcro holds approximately 25% of Biocancell, including the convertible note and warrants (or approx. 12.5% based on its current investment without putting in additional capital to exercise the warrants).

BICL’s stock is up 35% since Tikcro’s initial investment. However, it is still unclear whether the company will create value for shareholders or turn out to be worthless, as success in bio-pharm companies is notoriously fickle.

Current Financials

As of June 30, 2010, TIKRF had $7.36m in cash and short-term marketable securities, offset by only 274k in current liabilities, for a net cash position of $7.09m. Dividing this cash balance by the number of shares outstanding (8.491m) equals net cash per share of $0.835.

However, the stock trades at a price of only $0.655, a discount of almost 22%, without taking into account the investment in BioCancell.

According to the TASE website, BICL closed with a market cap of 78,500 NIS thousands. Converted to dollars, this equals a total market cap of $21.64m.

With its 12.5% stake, the investment is worth an additional $2.71m or $0.32 per share for TIKRF.

Including this investment, investors are receiving $1.155 in value for only $0.655, a discount of 43%.

Interesting right? But its only the beginning…

Enter Mr. Steven N. Bronson

Steven N. Bronson is the founder and CEO of Catalyst Financial, a full-service investment banking firm. According to the official bio, he has over 27 years of Wall Street experience (in addition to describing himself as a “successful value investor.”)

Bronson has held a large position in TIKRF for years, announcing a 13-D position back in 2004. Based on the company’s most recent filing, Bronson holds 13.9% of shares outstanding.

Bronson has been involved in a prolonged activist fight against the entrenched management team of TIKRF. Through a series of letters, both personally and through a lawyer, Bronson has pushed to return TIKRF’s excess cash to shareholders and remove the current management team.

It is fascinating to watch how the fight has unfolded.

On August 14, 2007, Bronson writes:

“I am writing this letter to express my sincere concerns regarding the recent decision by management of Tikcro Technologies, Ltd. (Tikcro) to reject the business opportunity I introduced to Tikcro which involved both a significant capital infusion into Tikcro, as well as the leadership of a well respected and successful entrepreneur (the Transaction).

I also ask that the Board adopt a stock repurchase program, whereby Tikcro uses up to 20% of its assets to repurchase its shares in open market transactions whenever Tikcro’s shares are trading at prices below net tangible book value… any such repurchases by Tikcro will be accretive to shareholder value.”

In a letter dated October, 16, 2007, Bronson complains that TIKRF’s management team tried to grant itself stock options for 8.8% of the company at below its cash per share price:

“It is rather surprising that Messrs. Tamir and Paneth’s existing 26.6% ownership interest in Tikcro is not a sufficient incentive for Messrs. Tamir and Paneth to generate value for Tikcro’s shareholders.”

A year later, Bronson tries a different tact, applying for a liquidation of the company via a letter from his lawyer:

“Please be advised that it is our client’s view, in light for the current circumstances of the Company, including the current stock price and the conduct of the Board, that there are substantial causes to apply for the liquidation of the company.”

A month later, Bronson submits a new business plan, calling for an immediate distribution of $7.7m in company cash and a pro-rata portion of the company’s investment in BioCancell to common shareholders.

Despite several subsequent letters, it appears that the proposal was dismissed by TIKRF’s management team, as they moved forward with the annual shareholder meeting without considering the proposal.

Finally, on June 10, 2009, Bronson filed a lawsuit in the Tel Aviv District Court pushing for the company to consider the proposed business plan and return cash to shareholders, as well as complaints surrounding legality of group voting and compensation practices of the management team.

After the company called another shareholder meeting scheduled for September 2009 (once again, without the proposal), Bronson responded with another scathing letter:

“One needs to ask a very simple question, WHY is the Board delaying or should I say more accurately blocking, the submission of the Bronson Proposal to a vote of Tikcro’s shareholders. The simple answer is to protect the entrenchment of Messrs. Tamir and Paneth control over Tikcro.”

Once again, his requests were ignored. So Bronson tried a new tact in February 2010 – calling out that management failed to follow lawful procedures when electing the latest set of directors. According to Bronson’s lawyer:

“Tikcro was also advised that any decisions by Tikcro’s board taken without amending this fundamental fault are also not valid and cannot bind Tikcro.”

Since the February letter, there hasn’t been any communication (at least publicly), between the management team and Bronson.

Meanwhile, TIKRF continues on, filing its public reports and continued updates on progress at BioCancell.

Conclusion

The long fight by Steven Bronson sums up the challenges of investing in many of these micro-cap stocks.

It only reinforces the importance of finding capable management teams that truly care about creating value for common shareholders.

Even powerful activists like Bronson, with significantly more resources and legal help than the average investor, can sometimes be thwarted by entrenched management. In this case, the situation is only compounded by investing in foreign stocks governed by their own set of laws and procedures.

If Bronson prevails, TIKRF could instantly become an attractive value investment – picking up the excess cash for a discount while receiving the BioCancell business for free.

If not, it could be the classic case of a value trap, with a management team that is controlling shareholder’s destiny. A bad decision or investment by the management team could wipe out the cash balance and any margin of safety in an instant.

For now, I’ll continue watching from the sidelines.

Disclosure

No positions.

Span-America Holding (SPAN) has been part of the ValueUncovered portfolio for over a year, my longest holding.

Despite lots of volatility throughout the year (touching almost $20/shr), the stock’s is only slightly up, primarily helped by consistent dividend payouts (including a large special dividend earlier this year).

I am catching up on past SEC filings, and SPAN’s 2010 report came out a few weeks ago.

Financial Review

Total revenues in 2010 declined 6% to $52.4m compared to the prior fiscal year, with declines reported in both operating segments.

SPAN’s therapeutic support surfaces (the largest part of the medical product segment at 62% of sales), are considered a capital expenditure. Although the outlook has improved, the product line continues to face weakness in the company’s main markets.

The acute care market continues to be the bright spot, with several new product lines experiencing double digit YoY growth. Overall, medical sales were down 6% to $35.6m compared to $37.8m in 2009.

In the custom products segment, sales decreased 7% to $16.8m compared to $18.1m last year.

Last year’s numbers were helped by a one-time test program which was not repeated in 2010.

This is the 3rd year in a row of annual revenue decreases.

More worrisome, the company has slowly shifted its product mix towards consumer products and away from therapeutic support surfaces, which command much higher margins – support surfaces are down from 54% of total sales in 2007 to 43% in this latest fiscal year.

Despite the lower top-line, the company remains solidly profitable and continues to throw off generous amounts of free cash flow.

Net income was $4.5m – down slightly from the year before – but the company still managed to produce $5.3m in FCF. Using these figures and the current market cap of 41m equals a solid FCF yield of 13%.

The company paid out $3.9m in dividends, or 86% of net income, a solid way to return cash to shareholders.

The balance sheet remains strong, with a current ratio of 3.39, no debt, and cash and marketable securities of $4.4m

Industry Outlook

While the company continues to be solidly profitable, it is facing headwinds on a number of different fronts:

Increased Foreign Competition – There is no doubt that the company will face increased pressure from foreign competitors in the future, especially China.

This shift will put even greater pressure on margins, and slowly erode the high returns on capital that the company has experienced. Some product segments, such as consumer bedding, have little differentiation aside from price:

“During the last two years, we have experienced increased competition in our medical and custom products segments from low-cost foreign imports. In the medical segment, the number of low-cost, imported mattress products has increased in the last two years, but it has not yet had a significant impact on our medical business. We believe that we have potentially greater exposure to low-cost imports in our consumer bedding product lines because those products have more commodity-like characteristics than our medical products.”

Uncertainty around Medicare – As a medical company, a number of SPAN’s products are eligible for reimbursement from Medicare. There has been a ton of proposed regulation and controversy over the recent healthcare laws.

While the fallout is still undetermined, it will create additional fear and hesitation on the part of consumers when purchasing new medical products, potentially cutting into SPAN’s sales.

Continued Economic Weakness – While the stock market has enjoyed a record run, the economy and job market are definitely not back to full speed. SPAN has benefited tremendously over the past five years by an increase in its therapeutic support surfaces – in 2010, they made up 42% of total sales.

The sale of these products significantly boosted SPAN’s FCF rate, up to the current levels of $5-$6m per year. It is unclear whether the company can continue aggressive growth in this area.

Conclusion

I recently came across another post regarding the author’s equity investing philosophy. In addition to laying out a solid set of ground rules, it also included this quote from Warren Buffett’s 1977 annual letter:

“One of the lessons your management has learned – and, unfortunately, sometimes re-learned – is the importance of being in businesses where tailwinds prevail rather than headwinds.”

I think that this valuable lesson applies to SPAN.

While the balance sheet remains strong and the company continues to throw off lots of cash, the overall trend is headed in the wrong direction.

While there still appears to be a gap between the stock’s intrinsic value and the current market price, I’m afraid that the value may fall to meet the price instead of the other way around.

The stock is releasing earnings in the next few weeks. As a general rule, I try to avoid holding stocks through an earnings release unless I plan to hold for long-term.

In addition, I’ve been growingly increasingly nervous of the broader market and therefore actively trimming my positions in order to raise more cash.

With that in mind, I’m closing out my position in SPAN at today’s closing price of $15.55, a gain of 10.06% vs 16.74% for the S&P.

Disclosure

No positions.