Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
On August 25, 2010 (the “Notice Date”), the Registrant received a letter from NASDAQ Listing Qualifications (the “Letter”) indicating that from March 18, 2010 through July 8, 2010, China INSOnline (the “Company”) violated NASDAQ Listing Rule 5605(c)(2)(A) (the “Rule”), in that its Audit Committee did not consist of a minimum of three independent directors. In the Letter, NASDAQ Listing Qualifications recognized that it regained compliance with the Rule when appointed Mr. Xiaoshuang Chen, an independent director, to the Company’s Audit Committee on July 8, 2010.
A red flag but expected. They need all the money to turn the business around, so an expensive NASDAQ listing would hurt their financial position.
We drop our coverage because of recent events.
Tuesday, August 31, 2010
Sunday, August 29, 2010
Article Barron's Fish Feed for Short Sellers
Article Barron's(8/30) Beware This Chinese Export
(From BARRON'S)
By Bill Alpert and Leslie P. Norton
In China, if you want your business listed on an American stock exchange, you may find yourself talking to Du Qingsong. His electronics company was among the first to reach Nasdaq back in 1997. From the city of Xi'an, the end of the ancient Silk Road in central China, Du has put together half a dozen of the country's latest arrivals on the Nasdaq and the New York Stock Exchange. Yet it's hard to find him in their securities filings or even at his office, located in a roominside the headquarters of his son's beef company. That could be because Du was banned from stock-market activity, after drawing a four-year jail term for a 1999 fraud conviction.
Like their American counterparts, China's biggest businesses raise capital through underwritten initial public offerings. But in the past few years, hundreds of mid-market entities have gotten U.S. listings through a back-door maneuver known as a "reverse takeover" -- in which an active Chinese business merges into a dormant American shell corporation that was registered for public trading. So Chinese medical-device vendor Winner Group merged into the shell of Las Vegas Resorts; tire maker Zhongsen International merged into Rub A Dub Soap. The stocks rarely surpass $1 billion in market capitalization, but their collective presence is substantial. More than 350 of these deals have been done in recent years, reaching, at their peaks, a combined capitalization of more than $50 billion.
The lure for American investors is the wondrous growth of China's economy and the ascent of such benchmarks as the Halter USX CHINA Index, which rose more than 60% last year. But most reverse-merger stocks have proven to be a poor way to ride China's boom. Today, the market cap of these stocks has shrunk to $20 billion, a 60% drop.
A Barron's study of the most seasoned 158 China reverse mergers shows that in the first three years of each stock's trading, the median among them underperformed the Halter Index by a dismal 75%. The Halter index is composed of U.S.-listed Chinese companies, ranging from the American depositary shares of well-known names like Internet giant Baidu.com (ticker: BIDU) and telecom power China Mobile (CHL) to small-cap reverse mergers. The median of those China reverse mergers lagged behind the Russell 2000 index of small-cap stocks by 66%. The billions in reverse-merger losses were shouldered by Chinese entrepreneurs, who thought they were raising capital the American way -- and by American investors, who thought they were buying a piece of China's prosperity.
Reasons for the stocks' disappointing performance aren't hard to find. The group has been a minefield of revenue disappointments and earnings restatements. Financial filings the companies make with the Securities and Exchange Commission often diverge from those filed with the Chinese government -- by drastic amounts. Investor and analyst visits to corporate facilities in China reveal operations smaller and less impressive than shown in U.S. presentations. The companies too often select auditors who have previously signed off on the financials of companies that turned out to be busts. Some companies' securities filings don't disclose the involvement of promoters in China or the U.S., who -- like Du Qingsong -- have disquieting track records in the stock market.
These companies fall between the cracks of market regulation. The SEC's enforcement staff can't subpoena evidence of any fraudulent activities in China, and Chinese regulators have little incentive to monitor shares sold only in the U.S. Many reverse-merged companies admit in prospectuses that they haven't gotten required approvals under China's financial regulations. Yet the convoluted structures devised by lawyers in China and the U.S. have kept the companies out of trouble, says Mitchell Nussbaum, a lawyer with Loeb & Loeb who's arranged dozens of reverse mergers. But satisfying each country's legal requirements doesn't make the company's shares good investments.
The Public Company Accounting Oversight Board, established under the Sarbanes-Oxley Act to police auditors, recently warned against lax auditing of U.S.-listed Chinese businesses. The PCAOB plans to ask Congress to lift restrictions on the disclosure of its disciplinary proceedings against accountants. China is one of several nations that won't let the PCAOB inspect the local auditors used by U.S.-listed companies.
As with the manufactured goods that China exports to the U.S., there's an established supply chain for Chinese reverse mergers. At the Chinese end, promoters like Du Qingsong scout out businesses that are viable candidates for reverse mergers. Some of the companies are reorganized around their most profitable parts. These are then merged in share exchanges with American shells that are frequently provided by U.S. firms that deal in penny stocks. The Big Board or Nasdaq collect listing fees. Capital is injected by hedge funds, who in return get cheap shares in a private placement. The hedge funds often also get substantial say over the new U.S. company's hiring of key financial personnel. Among the active and well-known investment banks in these deals are Roth Capital, Rodman & Renshaw and William Blair. Bankers fete the companies at investor conferences; one even featured former President George W. Bush as keynote speaker. This week, as it happens, Roth Capital is hosting its annual gathering of reverse-takeover companies at Hawaii's Grand Wailea Resort.
Only a handful of reverse takeovers have made it from China to a listing on the most prominent U.S. exchange, the NYSE. One of them is China Green Agriculture (CGA), which produces fertilizer and operates greenhouses. In late 2007, the predecessor to China Green reverse-merged with Discovery Technologies, the dormant shell of a Mexican-restaurant operator whose stock had fallen to less than a penny a share. The deal was already complex. Before merging into Discovery, China Green's predecessor first merged into a New Jersey corporation controlled by Yinshing David To. To was a Chinese citizen who also goes by the names ShingHoi To and Du Chenghai. His father is Du Qingsong.
After surviving China's Cultural Revolution, Du Qingsong rose in the 1980s to become general manager of Sha'anxi province's largest fertilizer factory. Provincial officials then sent him to run a floundering maker of TV-tube components in Xi'an City. Du revitalized the state-owned enterprise and, by 1997, one of its units was listed on China's Shenzhen Stock Exchange. In September of that year, Du took two other subsidiaries of the state business onto Nasdaq, raising $42 million in one of the exchange's first China listings. But the Nasdaq stock, Asia Electronics Holding Co., went into a tailspin when Du disappeared in the summer of 1998.
He'd been arrested. Newspaper reports speculated that Du was the victim of a power struggle between his political patrons in Xi'an and their rivals. In 1999, a local court found Du guilty of "fraudulent investment schemes" and sent him to prison. China's securities regulators also barred Du from China's stock markets and any management role in a listed company. Nasdaq delisted Asia Electronics after its shares fell to pennies. At a subsequent corruption trial of the Xi'an branch chief of China's securities regulator, evidence showed that Du had given the branch chief 5,000 shares of his company before its Shenzhen Exchange listing. The regulator got a 12-year sentence after a bribery conviction.
Du, now 64, agreed to speak with Barron's when we called him. (Xia Ming, a China expert and political scientist at City University of New York, translated.) But, asked about run-ins with the Chinese government, Du cancelled the interview. He communicated with us, instead, by e-mail. His jail sentence, he wrote, was the result of politics. "After their investigation, they found nothing," said Du. "The court made the decision simply for the sake of a conviction." As for the alleged bribery of a securities regulator, Du said in the e-mail that government officials sometimes took shares meant for employees. "I merely acquiesced without objection," he said. "I only met him once. I never had any relationship with him."
Once the fertilizer company China Green became a U.S. stock in December of 2007, its SEC filings show that Du's son, whose New Jersey company had merged with it, controlled 38% of its shares. He later turned most of the stake over to China Green's chief executive, Li Tao, under the terms of an agreement worked out with the company's hedge-fund investors. Du's son retained 3%. "We always take cash for our consulting service," Du Qingsong wrote to Barron's, explaining the arrangement. "Of course, if the consulting service is for a listing, we also take some percentage of shares."
China Green says Du was not involved in founding or organizing the company, "directly or indirectly," nor did he receive any stock.
Du hands out an expensive-looking marketing brochure for his consulting firm AiDi Investment, with pictures of him alongside "directors" who its says include a partner of the well-known law firm Proskauer. The law firm says its partners have no relationship with Du. Many of the photos also feature an American stockbroker, Meiyi Mary Xia, who started a brokerage firm called Asia Pacific Securities with Du just before he was arrested in 1998. Her home is the address used for AiDi's American office and for the China Green shareholdings of Du's son. When the diesel-fuel producer China Integrated Energy (CBEH) did a reverse merger in October 2007, about 90% of its stock was held for a time by Xia. Her husband, Lawrence Xiao Xia Pan, was Nasdaq's chief China representative from 2005 to 2007. When asked about Du, Xia said, "I don't work with him any more," and hung up.
In scouting for reverse-takeover candidates, Du Qingsong has plenty of competitors.
One is Kit Tsui, who has helped deliver some of China's most volatile reverse takeover stocks, like the chemical supplier Gulf Resources (GFRE) and the cardboard maker Orient Paper (ONP). The two stocks rocketed from pennies a share to about 15 bucks around year end, ballooning the value of shares held by Tsui through entities like Max Time Enterprises. But trouble seems to haunt Tsui's deals. The company that first brought him to Nasdaq -- a telephone manufacturer he'd started in the 1990s by the name of Industries International -- had its main business forced into bankruptcy by Chinese authorities in 2004, and its auditor alleged that the company misreported related-party deals with Tsui. Tsui subsequently stepped down.
In June, the Amex-listed shares of Orient Paper plunged to 5 when a pair of investment researchers published a report declaring the company a fraud. The Hong Kong-based analysts, whose firm is Muddy Waters Research, said in their report that they visited Orient Paper's factory in January and found it idle and dilapidated. They calculated that the company's SEC filings overstated the value of its assets some ten-fold. Revenues were overstated 40-fold, the researchers estimated. They've shorted the company's stock. Muddy Waters said last week it stands by its conclusions.
Company spokesman Crocker Coulson said Orient Paper would have no comment, pending a board-commissioned internal investigation of the Muddy Waters allegations by the company's lawyer, Loeb & Loeb's Mitchell Nussbaum, who also declined comment. A money manager who spoke with company officials says they blame Tsui for the alleged irregularities. Barron's left messages at Tsui's offices in Beijing, Shenzhen and Shanghai. We heard nothing back. We also visited the address of Tsui's firms, China Finance and China U.S. Strategy, in New York, near Rockefeller Center, but building attendants said the floor was vacant.
One of the most controversial promoters of Chinese reverse takeovers, Benjamin Wey, continues to find work. Wey's history of suspension and censure by Nasdaq and state securities regulators has been amply reported, including a Barron's story ("AgFeed Trips on Its Way to the Trough," May 19, 2008). Since our piece describing Wey's work for the hog farmer AgFeed Industries (FEED), the company has missed production targets and its shares have slumped from 15 to below 2.50. The company could not respond to queries by presstime. In an interview last year with the English-language newspaper China Daily, officials of his New York Global Group investment bank claimed that 15% of the Chinese companies on Nasdaq were its clients. The firm has offices in Beijing and at 40 Wall Street in New York. On its Website (www.nyggroup.com), Wey's firm brags of alliances with four city governments and China's central bank. With hedge-fund operator Michael D. Witter -- grandson of the brokerage founder Dean Witter -- Wey last year announced plans to raise $300 million to invest in China companies. Neither Wey nor Witter responded to Barron's queries.
Kitchen-appliance maker Deer Consumer Products (DEER) doesn't mention Wey in its securities filings. But the Chinese language version of Wey's Website shows him flying with Deer's management in a private jet on the night before the pricing of a $75 million secondary offering underwritten by William Blair and BMO Capital Markets. Wey's latest success story is CleanTech Innovations (EVCP), a maker of windmill towers whose shares tripled to $9.50 shortly after a July private placement led by William Blair. At that price, the stock trades for 220 times last year's earnings.
The reverse takeover of a China company usually coincides with a private placement of its shares with hedge funds. For instance, in the reverse merger of China Green in December 2007, hedge funds and other investors bought $20.5 million of the new company's stock. Among the frequent participants in such deals are Pinnacle Adviser's Barry Kitt, Barron Capital's Andrew B. Worden and Guerilla Capital's Peter Siris, who's talked about his Chinese stock holdings with this magazine.
Plano, Texas-based Kitt has invested in dozens of China reverse mergers -- often taking the lead position in the private placement. When executives of China Green, the fertilizer company that had initially merged with the company controlled by Du Qingsong's son, rang the opening bell at their NYSE listing in April, Kitt was beside them on the balcony. In the reception that followed, Kitt thanked China Green for letting him invest. Kitt refused an interview and after he received e-mailed questions, our messages were blocked from his e-mail system.
As with most private placements of public equities -- otherwise known as PIPEs -- the investing public should think twice before following PIPE investors.
To test whether particular funds' participation augered well for investors, Barron's studied the performance of hedge funds' Chinese PIPE deals the same way we did all the Chinese reverse mergers. We analyzed data from Morningstar and Bloomberg using the statistics routines of the open-source project Rmetrics (www.rmetrics.org), which many Wall Street firms utilize. One of Rmetrics' developers, Yohan Chalabi, a Ph.D. student at the Swiss Federal Institute of Technology, helped write our computer scripts. We compared each stock's return, from the date of its reverse-merger announcement, against a benchmark's return for the corresponding period. Because the stocks all had different merger dates, this approach (known as an "event study") helps control for varying market environments. Then we looked at the median return for the group under examination (see charts on page 24). Of the reverse mergers where Pinnacle was a PIPE investor, there were 23 stocks with at least one year of returns. Over that stretch, the post-merger return of those stocks slightly lagged behind that of the Halter Index, as it did for the 15 stocks in Kitt's PIPE portfolio that had three-year returns.
Investors would be well advised to steer clear of stocks like those in the PIPE deals involving Andrew B. Worden's Barron Capital. Of those China stocks, 11 had at least a year's worth of returns and their median lagged behind the Halter Index by 30%. For the seven stocks with three years of returns, the median fell short of the Halter Index by over 75%. The Barron Website features testimonials by the chief executives of Orient Paper and SkyPeople Fruit Juice (SPU) thanking Worden for his support. The Website invites companies to let him introduce them to lawyers and accountants who can help them go public. It boasts of his 20 years analyzing and investing in public and private companies, yet neglects to mention that during that span he pled guilty in a 1995 prosecution for wire fraud and settled an SEC civil suit that alleged he'd opened dozens of accounts and then stiffed brokers on losing trades. Worden didn't return calls or e-mails.
Buried in the exhibits of many reverse-takeover filings are agreements that often give hedge funds like Worden's and Kitt's extraordinary sway over the fledgling companies. In exchange for their PIPE financings, the funds get approval power over a company's choice of auditor, investor-relations firm and chief financial officer. One of the most frequently stipulated IR firms is CCG Investor Relations, which boasted last year that its "core group" of 15 clients had gained an average of 412% after listing on the Nasdaq or the Amex. CCG founder Crocker Coulson told Barron's that China offers "the most exciting economy and companies in the world." He has set up two blind-pool companies to invest in Chinese businesses.
But a longer term analysis of Coulson's client list shows performance that doesn't come close to his selective sample. As shown in the nearby chart, the median return among the 30 CCG reverse-merger clients with at least three years of trading history underperformed the Halter index by a whopping 70%, since their mergers. Coulson commented that these companies had only benefitted from CCG's services for a portion of their history as U.S. listings.
Hedge funds would seem to want to ensure that their portfolio companies hire only the sharpest auditors. Yet one after another of the reverse-merger companies hire the same small firms that certified the financials of companies that came to grief.
Dozens have hired Frazer Frost, the successor firm to Moore Stephens Wurth Frazer & Torbet. Moore Stephens, a Los Angeles auditor, gave clean audit opinions in 2004-05 to China Energy Savings Technology. Doubts about the balance sheet caused the SEC to suspend trading in 2006 and eventually file a fraud suit against the company, which is now defunct. The PCAOB found no deficiencies when it made its regular inspection of Frazer Frost and the firm's Asian-services partner, Susan Woo, notes that she and her colleagues go to China themselves to examine and audit clients. "We are the guard to the public and we have a responsibility," she says.
Accounting problems have recently surfaced at a couple of Frazer Frost's China clients. Even the investment banker of China Natural Gas (CHNG) consigned the stock to a Sell rating a couple weeks ago after the company admitted that its March balance sheet had failed to reflect a large bank loan from February. RINO International (RINO), a Frazer Frost client that makes equipment for sewers, has had three auditors and four CFOs in the past four years, while restating its financials twice. "Every company has some deficiencies in internal controls," says Woo. "These are newly public companies."
Another popular auditing pick is Kabani & Co., a small Los Angeles firm that the PCAOB found deficient in a routine inspection in 2008. Kabani audited Bodisen Biotech, one of the earliest China blowups. Bodisen's shares ran up to 19 with the help of commercials on CNBC, then tanked to 47 cents when the Amex suspended the stock in 2007 over the company's misleading disclosure of its relationship with Benjamin Wey's New York Global Group. Kabani has audited a number of Wey's other promotions and now audits China Green. Partner Hamid Kabani did not respond to requests for an interview.
As the "auditor of auditors," the PCAOB has sounded an alarm over the auditing of overseas businesses. A July 12 practice alert noted with concern that 40 accounting firms with five or fewer partners had rendered opinions on companies with China-based operations. "We take these practice alerts very seriously," says Greg Scates, the agency's deputy chief auditor.
At the end of the reverse-merger supply chain are the U.S. bankers, which include Roth Capital, Rodman & Renshaw and William Blair, among others.
The pre-eminent banker for China reverse mergers is Roth, the Newport Beach, Calif., firm whose promotional materials say that it pioneered the practice of PIPE financing and has helped raise more than $2.8 billion for 67 U.S.-listed Chinese companies. Roth works closely with hedge funds like Kitt's Pinnacle. Indeed, Kitt's son is an investment banker in Roth's Shanghai office.
The broker's analysts were caught flat-footed by the problems of banking clients like Orient Paper and China Natural Gas, cutting ratings and price targets after the shares had already slumped.
Questions have also begun to be raised by investors about banking client China Green. In SEC filings the company reported revenues of $23 million for 2008, but in its tax filings in Xi'an it reported less than $8 million. "CGA's financial statements are accurate," said chief executive Li Tao, in an e-mail. "Legitimate reasons exist for why [China's State Administration for Industry and Commerce's] reported financial statements do not match those numbers filed with the SEC."
Roth Chairman and CEO Byron Roth declined an interview, but in an e-mail said: "We take the due diligence process very seriously and perform extensive due diligence." Asked about the promoters Du Qingsong, Kit Tsui and Benjamin Wey, Roth wrote: "None has had any role in connection with any offering we have completed."
When asked how Roth's banking clients had performed as investments, the brokerage chief said the 70 China stocks that his analysts follow were up 120% in 2009 and down about 15% through early August. That didn't quite answer the question, so we ran the numbers ourselves.
Of the 28 Roth client companies with at least three years of trading post-merger, the median among them underperformed the Halter Index by one third over a three-year period. By comparison, the Roth client companies roughly matched the returns of the Russell 2000. Roth isn't alone as a banker for China reverse-mergers, of course. Running a similar three-year analysis of Rodman & Renshaw's banking clients, we found the 12 companies with three years' of post-merger returns performed some 70% worse than the Halter Index. Rodman's Chief Executive Edward Rubin says his bank focused on China in a big way in 2009, after most of these stocks had been reverse-merged and -- he claims -- abandoned by their original bankers.
The reverse-merger industry gathers in Hawaii this week at a Roth conference -- a venue equally favored by China stock touts and by the sector's short sellers. The rest of us should probably stay home.
This article signals another attack of short sellers on US-listed Chinese stocks. The article has strong biases built in:
Bias 1 - Time after the time, the article quoted that Chinese smallcaps underperformed. However, much of the statistics quoted failed to mention the spectacular run of Chinese small caps from March 2009 to Jan 2010. It simply quoted the recent down of those stocks.
Bias 2 - Only quotes the bad part of a stock. The ONP fiasco is well documented. The article only quoted "Muddy Waters" stands behind the story, and there are no comments from ONP/IR/Lawyers. It does not say anything from the counter points. It does not even mention that those two MW researchers have no financial background, and recently "moved on" after the taking the profits from the short position.
Bias 3 - Much of the story focuses on the promoters and a few "Wall Street" investment bankers/IR firms. It does not distinguish the dealers from the managers of the company. It assumes that all promoters of the Chinese stocks are bad, and the companies, by association, are therefore bad.
Bias 4 - It is an undeniable fact that a large number of reverse mergers are bad deals for all both the original Chinese owners and early investors, including retail investors who bought such a stock before it could develop a life of its own out of the early stage. Of course a pool of such stocks will perform worse when compared to an index of established names, that is not a surprise and not China specific.
The final conclusion could be that the authors used deceptive argumentation to bolster their desired conclusion. They forgot to mention that we had a massive downturn in late 2007, the same time that most of these companies entered the U.S. equity markets. In that downturn, stocks perceived to be riskier performed exponentially worse than the overall market. OTC/pink stocks, which comprise most of the Chinese RTO's and are perceived to be the riskiest of all asset classes, performed the worst of all.
The proper comparison would be to compare Chinese RTO's with other OTC/pink stocks that were born at the same time.
(From BARRON'S)
By Bill Alpert and Leslie P. Norton
In China, if you want your business listed on an American stock exchange, you may find yourself talking to Du Qingsong. His electronics company was among the first to reach Nasdaq back in 1997. From the city of Xi'an, the end of the ancient Silk Road in central China, Du has put together half a dozen of the country's latest arrivals on the Nasdaq and the New York Stock Exchange. Yet it's hard to find him in their securities filings or even at his office, located in a roominside the headquarters of his son's beef company. That could be because Du was banned from stock-market activity, after drawing a four-year jail term for a 1999 fraud conviction.
Like their American counterparts, China's biggest businesses raise capital through underwritten initial public offerings. But in the past few years, hundreds of mid-market entities have gotten U.S. listings through a back-door maneuver known as a "reverse takeover" -- in which an active Chinese business merges into a dormant American shell corporation that was registered for public trading. So Chinese medical-device vendor Winner Group merged into the shell of Las Vegas Resorts; tire maker Zhongsen International merged into Rub A Dub Soap. The stocks rarely surpass $1 billion in market capitalization, but their collective presence is substantial. More than 350 of these deals have been done in recent years, reaching, at their peaks, a combined capitalization of more than $50 billion.
The lure for American investors is the wondrous growth of China's economy and the ascent of such benchmarks as the Halter USX CHINA Index, which rose more than 60% last year. But most reverse-merger stocks have proven to be a poor way to ride China's boom. Today, the market cap of these stocks has shrunk to $20 billion, a 60% drop.
A Barron's study of the most seasoned 158 China reverse mergers shows that in the first three years of each stock's trading, the median among them underperformed the Halter Index by a dismal 75%. The Halter index is composed of U.S.-listed Chinese companies, ranging from the American depositary shares of well-known names like Internet giant Baidu.com (ticker: BIDU) and telecom power China Mobile (CHL) to small-cap reverse mergers. The median of those China reverse mergers lagged behind the Russell 2000 index of small-cap stocks by 66%. The billions in reverse-merger losses were shouldered by Chinese entrepreneurs, who thought they were raising capital the American way -- and by American investors, who thought they were buying a piece of China's prosperity.
Reasons for the stocks' disappointing performance aren't hard to find. The group has been a minefield of revenue disappointments and earnings restatements. Financial filings the companies make with the Securities and Exchange Commission often diverge from those filed with the Chinese government -- by drastic amounts. Investor and analyst visits to corporate facilities in China reveal operations smaller and less impressive than shown in U.S. presentations. The companies too often select auditors who have previously signed off on the financials of companies that turned out to be busts. Some companies' securities filings don't disclose the involvement of promoters in China or the U.S., who -- like Du Qingsong -- have disquieting track records in the stock market.
These companies fall between the cracks of market regulation. The SEC's enforcement staff can't subpoena evidence of any fraudulent activities in China, and Chinese regulators have little incentive to monitor shares sold only in the U.S. Many reverse-merged companies admit in prospectuses that they haven't gotten required approvals under China's financial regulations. Yet the convoluted structures devised by lawyers in China and the U.S. have kept the companies out of trouble, says Mitchell Nussbaum, a lawyer with Loeb & Loeb who's arranged dozens of reverse mergers. But satisfying each country's legal requirements doesn't make the company's shares good investments.
The Public Company Accounting Oversight Board, established under the Sarbanes-Oxley Act to police auditors, recently warned against lax auditing of U.S.-listed Chinese businesses. The PCAOB plans to ask Congress to lift restrictions on the disclosure of its disciplinary proceedings against accountants. China is one of several nations that won't let the PCAOB inspect the local auditors used by U.S.-listed companies.
As with the manufactured goods that China exports to the U.S., there's an established supply chain for Chinese reverse mergers. At the Chinese end, promoters like Du Qingsong scout out businesses that are viable candidates for reverse mergers. Some of the companies are reorganized around their most profitable parts. These are then merged in share exchanges with American shells that are frequently provided by U.S. firms that deal in penny stocks. The Big Board or Nasdaq collect listing fees. Capital is injected by hedge funds, who in return get cheap shares in a private placement. The hedge funds often also get substantial say over the new U.S. company's hiring of key financial personnel. Among the active and well-known investment banks in these deals are Roth Capital, Rodman & Renshaw and William Blair. Bankers fete the companies at investor conferences; one even featured former President George W. Bush as keynote speaker. This week, as it happens, Roth Capital is hosting its annual gathering of reverse-takeover companies at Hawaii's Grand Wailea Resort.
Only a handful of reverse takeovers have made it from China to a listing on the most prominent U.S. exchange, the NYSE. One of them is China Green Agriculture (CGA), which produces fertilizer and operates greenhouses. In late 2007, the predecessor to China Green reverse-merged with Discovery Technologies, the dormant shell of a Mexican-restaurant operator whose stock had fallen to less than a penny a share. The deal was already complex. Before merging into Discovery, China Green's predecessor first merged into a New Jersey corporation controlled by Yinshing David To. To was a Chinese citizen who also goes by the names ShingHoi To and Du Chenghai. His father is Du Qingsong.
After surviving China's Cultural Revolution, Du Qingsong rose in the 1980s to become general manager of Sha'anxi province's largest fertilizer factory. Provincial officials then sent him to run a floundering maker of TV-tube components in Xi'an City. Du revitalized the state-owned enterprise and, by 1997, one of its units was listed on China's Shenzhen Stock Exchange. In September of that year, Du took two other subsidiaries of the state business onto Nasdaq, raising $42 million in one of the exchange's first China listings. But the Nasdaq stock, Asia Electronics Holding Co., went into a tailspin when Du disappeared in the summer of 1998.
He'd been arrested. Newspaper reports speculated that Du was the victim of a power struggle between his political patrons in Xi'an and their rivals. In 1999, a local court found Du guilty of "fraudulent investment schemes" and sent him to prison. China's securities regulators also barred Du from China's stock markets and any management role in a listed company. Nasdaq delisted Asia Electronics after its shares fell to pennies. At a subsequent corruption trial of the Xi'an branch chief of China's securities regulator, evidence showed that Du had given the branch chief 5,000 shares of his company before its Shenzhen Exchange listing. The regulator got a 12-year sentence after a bribery conviction.
Du, now 64, agreed to speak with Barron's when we called him. (Xia Ming, a China expert and political scientist at City University of New York, translated.) But, asked about run-ins with the Chinese government, Du cancelled the interview. He communicated with us, instead, by e-mail. His jail sentence, he wrote, was the result of politics. "After their investigation, they found nothing," said Du. "The court made the decision simply for the sake of a conviction." As for the alleged bribery of a securities regulator, Du said in the e-mail that government officials sometimes took shares meant for employees. "I merely acquiesced without objection," he said. "I only met him once. I never had any relationship with him."
Once the fertilizer company China Green became a U.S. stock in December of 2007, its SEC filings show that Du's son, whose New Jersey company had merged with it, controlled 38% of its shares. He later turned most of the stake over to China Green's chief executive, Li Tao, under the terms of an agreement worked out with the company's hedge-fund investors. Du's son retained 3%. "We always take cash for our consulting service," Du Qingsong wrote to Barron's, explaining the arrangement. "Of course, if the consulting service is for a listing, we also take some percentage of shares."
China Green says Du was not involved in founding or organizing the company, "directly or indirectly," nor did he receive any stock.
Du hands out an expensive-looking marketing brochure for his consulting firm AiDi Investment, with pictures of him alongside "directors" who its says include a partner of the well-known law firm Proskauer. The law firm says its partners have no relationship with Du. Many of the photos also feature an American stockbroker, Meiyi Mary Xia, who started a brokerage firm called Asia Pacific Securities with Du just before he was arrested in 1998. Her home is the address used for AiDi's American office and for the China Green shareholdings of Du's son. When the diesel-fuel producer China Integrated Energy (CBEH) did a reverse merger in October 2007, about 90% of its stock was held for a time by Xia. Her husband, Lawrence Xiao Xia Pan, was Nasdaq's chief China representative from 2005 to 2007. When asked about Du, Xia said, "I don't work with him any more," and hung up.
In scouting for reverse-takeover candidates, Du Qingsong has plenty of competitors.
One is Kit Tsui, who has helped deliver some of China's most volatile reverse takeover stocks, like the chemical supplier Gulf Resources (GFRE) and the cardboard maker Orient Paper (ONP). The two stocks rocketed from pennies a share to about 15 bucks around year end, ballooning the value of shares held by Tsui through entities like Max Time Enterprises. But trouble seems to haunt Tsui's deals. The company that first brought him to Nasdaq -- a telephone manufacturer he'd started in the 1990s by the name of Industries International -- had its main business forced into bankruptcy by Chinese authorities in 2004, and its auditor alleged that the company misreported related-party deals with Tsui. Tsui subsequently stepped down.
In June, the Amex-listed shares of Orient Paper plunged to 5 when a pair of investment researchers published a report declaring the company a fraud. The Hong Kong-based analysts, whose firm is Muddy Waters Research, said in their report that they visited Orient Paper's factory in January and found it idle and dilapidated. They calculated that the company's SEC filings overstated the value of its assets some ten-fold. Revenues were overstated 40-fold, the researchers estimated. They've shorted the company's stock. Muddy Waters said last week it stands by its conclusions.
Company spokesman Crocker Coulson said Orient Paper would have no comment, pending a board-commissioned internal investigation of the Muddy Waters allegations by the company's lawyer, Loeb & Loeb's Mitchell Nussbaum, who also declined comment. A money manager who spoke with company officials says they blame Tsui for the alleged irregularities. Barron's left messages at Tsui's offices in Beijing, Shenzhen and Shanghai. We heard nothing back. We also visited the address of Tsui's firms, China Finance and China U.S. Strategy, in New York, near Rockefeller Center, but building attendants said the floor was vacant.
One of the most controversial promoters of Chinese reverse takeovers, Benjamin Wey, continues to find work. Wey's history of suspension and censure by Nasdaq and state securities regulators has been amply reported, including a Barron's story ("AgFeed Trips on Its Way to the Trough," May 19, 2008). Since our piece describing Wey's work for the hog farmer AgFeed Industries (FEED), the company has missed production targets and its shares have slumped from 15 to below 2.50. The company could not respond to queries by presstime. In an interview last year with the English-language newspaper China Daily, officials of his New York Global Group investment bank claimed that 15% of the Chinese companies on Nasdaq were its clients. The firm has offices in Beijing and at 40 Wall Street in New York. On its Website (www.nyggroup.com), Wey's firm brags of alliances with four city governments and China's central bank. With hedge-fund operator Michael D. Witter -- grandson of the brokerage founder Dean Witter -- Wey last year announced plans to raise $300 million to invest in China companies. Neither Wey nor Witter responded to Barron's queries.
Kitchen-appliance maker Deer Consumer Products (DEER) doesn't mention Wey in its securities filings. But the Chinese language version of Wey's Website shows him flying with Deer's management in a private jet on the night before the pricing of a $75 million secondary offering underwritten by William Blair and BMO Capital Markets. Wey's latest success story is CleanTech Innovations (EVCP), a maker of windmill towers whose shares tripled to $9.50 shortly after a July private placement led by William Blair. At that price, the stock trades for 220 times last year's earnings.
The reverse takeover of a China company usually coincides with a private placement of its shares with hedge funds. For instance, in the reverse merger of China Green in December 2007, hedge funds and other investors bought $20.5 million of the new company's stock. Among the frequent participants in such deals are Pinnacle Adviser's Barry Kitt, Barron Capital's Andrew B. Worden and Guerilla Capital's Peter Siris, who's talked about his Chinese stock holdings with this magazine.
Plano, Texas-based Kitt has invested in dozens of China reverse mergers -- often taking the lead position in the private placement. When executives of China Green, the fertilizer company that had initially merged with the company controlled by Du Qingsong's son, rang the opening bell at their NYSE listing in April, Kitt was beside them on the balcony. In the reception that followed, Kitt thanked China Green for letting him invest. Kitt refused an interview and after he received e-mailed questions, our messages were blocked from his e-mail system.
As with most private placements of public equities -- otherwise known as PIPEs -- the investing public should think twice before following PIPE investors.
To test whether particular funds' participation augered well for investors, Barron's studied the performance of hedge funds' Chinese PIPE deals the same way we did all the Chinese reverse mergers. We analyzed data from Morningstar and Bloomberg using the statistics routines of the open-source project Rmetrics (www.rmetrics.org), which many Wall Street firms utilize. One of Rmetrics' developers, Yohan Chalabi, a Ph.D. student at the Swiss Federal Institute of Technology, helped write our computer scripts. We compared each stock's return, from the date of its reverse-merger announcement, against a benchmark's return for the corresponding period. Because the stocks all had different merger dates, this approach (known as an "event study") helps control for varying market environments. Then we looked at the median return for the group under examination (see charts on page 24). Of the reverse mergers where Pinnacle was a PIPE investor, there were 23 stocks with at least one year of returns. Over that stretch, the post-merger return of those stocks slightly lagged behind that of the Halter Index, as it did for the 15 stocks in Kitt's PIPE portfolio that had three-year returns.
Investors would be well advised to steer clear of stocks like those in the PIPE deals involving Andrew B. Worden's Barron Capital. Of those China stocks, 11 had at least a year's worth of returns and their median lagged behind the Halter Index by 30%. For the seven stocks with three years of returns, the median fell short of the Halter Index by over 75%. The Barron Website features testimonials by the chief executives of Orient Paper and SkyPeople Fruit Juice (SPU) thanking Worden for his support. The Website invites companies to let him introduce them to lawyers and accountants who can help them go public. It boasts of his 20 years analyzing and investing in public and private companies, yet neglects to mention that during that span he pled guilty in a 1995 prosecution for wire fraud and settled an SEC civil suit that alleged he'd opened dozens of accounts and then stiffed brokers on losing trades. Worden didn't return calls or e-mails.
Buried in the exhibits of many reverse-takeover filings are agreements that often give hedge funds like Worden's and Kitt's extraordinary sway over the fledgling companies. In exchange for their PIPE financings, the funds get approval power over a company's choice of auditor, investor-relations firm and chief financial officer. One of the most frequently stipulated IR firms is CCG Investor Relations, which boasted last year that its "core group" of 15 clients had gained an average of 412% after listing on the Nasdaq or the Amex. CCG founder Crocker Coulson told Barron's that China offers "the most exciting economy and companies in the world." He has set up two blind-pool companies to invest in Chinese businesses.
But a longer term analysis of Coulson's client list shows performance that doesn't come close to his selective sample. As shown in the nearby chart, the median return among the 30 CCG reverse-merger clients with at least three years of trading history underperformed the Halter index by a whopping 70%, since their mergers. Coulson commented that these companies had only benefitted from CCG's services for a portion of their history as U.S. listings.
Hedge funds would seem to want to ensure that their portfolio companies hire only the sharpest auditors. Yet one after another of the reverse-merger companies hire the same small firms that certified the financials of companies that came to grief.
Dozens have hired Frazer Frost, the successor firm to Moore Stephens Wurth Frazer & Torbet. Moore Stephens, a Los Angeles auditor, gave clean audit opinions in 2004-05 to China Energy Savings Technology. Doubts about the balance sheet caused the SEC to suspend trading in 2006 and eventually file a fraud suit against the company, which is now defunct. The PCAOB found no deficiencies when it made its regular inspection of Frazer Frost and the firm's Asian-services partner, Susan Woo, notes that she and her colleagues go to China themselves to examine and audit clients. "We are the guard to the public and we have a responsibility," she says.
Accounting problems have recently surfaced at a couple of Frazer Frost's China clients. Even the investment banker of China Natural Gas (CHNG) consigned the stock to a Sell rating a couple weeks ago after the company admitted that its March balance sheet had failed to reflect a large bank loan from February. RINO International (RINO), a Frazer Frost client that makes equipment for sewers, has had three auditors and four CFOs in the past four years, while restating its financials twice. "Every company has some deficiencies in internal controls," says Woo. "These are newly public companies."
Another popular auditing pick is Kabani & Co., a small Los Angeles firm that the PCAOB found deficient in a routine inspection in 2008. Kabani audited Bodisen Biotech, one of the earliest China blowups. Bodisen's shares ran up to 19 with the help of commercials on CNBC, then tanked to 47 cents when the Amex suspended the stock in 2007 over the company's misleading disclosure of its relationship with Benjamin Wey's New York Global Group. Kabani has audited a number of Wey's other promotions and now audits China Green. Partner Hamid Kabani did not respond to requests for an interview.
As the "auditor of auditors," the PCAOB has sounded an alarm over the auditing of overseas businesses. A July 12 practice alert noted with concern that 40 accounting firms with five or fewer partners had rendered opinions on companies with China-based operations. "We take these practice alerts very seriously," says Greg Scates, the agency's deputy chief auditor.
At the end of the reverse-merger supply chain are the U.S. bankers, which include Roth Capital, Rodman & Renshaw and William Blair, among others.
The pre-eminent banker for China reverse mergers is Roth, the Newport Beach, Calif., firm whose promotional materials say that it pioneered the practice of PIPE financing and has helped raise more than $2.8 billion for 67 U.S.-listed Chinese companies. Roth works closely with hedge funds like Kitt's Pinnacle. Indeed, Kitt's son is an investment banker in Roth's Shanghai office.
The broker's analysts were caught flat-footed by the problems of banking clients like Orient Paper and China Natural Gas, cutting ratings and price targets after the shares had already slumped.
Questions have also begun to be raised by investors about banking client China Green. In SEC filings the company reported revenues of $23 million for 2008, but in its tax filings in Xi'an it reported less than $8 million. "CGA's financial statements are accurate," said chief executive Li Tao, in an e-mail. "Legitimate reasons exist for why [China's State Administration for Industry and Commerce's] reported financial statements do not match those numbers filed with the SEC."
Roth Chairman and CEO Byron Roth declined an interview, but in an e-mail said: "We take the due diligence process very seriously and perform extensive due diligence." Asked about the promoters Du Qingsong, Kit Tsui and Benjamin Wey, Roth wrote: "None has had any role in connection with any offering we have completed."
When asked how Roth's banking clients had performed as investments, the brokerage chief said the 70 China stocks that his analysts follow were up 120% in 2009 and down about 15% through early August. That didn't quite answer the question, so we ran the numbers ourselves.
Of the 28 Roth client companies with at least three years of trading post-merger, the median among them underperformed the Halter Index by one third over a three-year period. By comparison, the Roth client companies roughly matched the returns of the Russell 2000. Roth isn't alone as a banker for China reverse-mergers, of course. Running a similar three-year analysis of Rodman & Renshaw's banking clients, we found the 12 companies with three years' of post-merger returns performed some 70% worse than the Halter Index. Rodman's Chief Executive Edward Rubin says his bank focused on China in a big way in 2009, after most of these stocks had been reverse-merged and -- he claims -- abandoned by their original bankers.
The reverse-merger industry gathers in Hawaii this week at a Roth conference -- a venue equally favored by China stock touts and by the sector's short sellers. The rest of us should probably stay home.
This article signals another attack of short sellers on US-listed Chinese stocks. The article has strong biases built in:
Bias 1 - Time after the time, the article quoted that Chinese smallcaps underperformed. However, much of the statistics quoted failed to mention the spectacular run of Chinese small caps from March 2009 to Jan 2010. It simply quoted the recent down of those stocks.
Bias 2 - Only quotes the bad part of a stock. The ONP fiasco is well documented. The article only quoted "Muddy Waters" stands behind the story, and there are no comments from ONP/IR/Lawyers. It does not say anything from the counter points. It does not even mention that those two MW researchers have no financial background, and recently "moved on" after the taking the profits from the short position.
Bias 3 - Much of the story focuses on the promoters and a few "Wall Street" investment bankers/IR firms. It does not distinguish the dealers from the managers of the company. It assumes that all promoters of the Chinese stocks are bad, and the companies, by association, are therefore bad.
Bias 4 - It is an undeniable fact that a large number of reverse mergers are bad deals for all both the original Chinese owners and early investors, including retail investors who bought such a stock before it could develop a life of its own out of the early stage. Of course a pool of such stocks will perform worse when compared to an index of established names, that is not a surprise and not China specific.
The final conclusion could be that the authors used deceptive argumentation to bolster their desired conclusion. They forgot to mention that we had a massive downturn in late 2007, the same time that most of these companies entered the U.S. equity markets. In that downturn, stocks perceived to be riskier performed exponentially worse than the overall market. OTC/pink stocks, which comprise most of the Chinese RTO's and are perceived to be the riskiest of all asset classes, performed the worst of all.
The proper comparison would be to compare Chinese RTO's with other OTC/pink stocks that were born at the same time.
Tuesday, August 24, 2010
China Organic Agriculture (CNOA) Q2 highlights
Sales for the three months ending June 30, 2010 totaled $31,295,154 compared to $30,018,428 for the three months ending June 30, 2009, a slight increase of 4.3%. Sales for the six months ending June 30, 2010 totaled $63,648,776 compared to $66,745,736 for the six months ending June 30, 2009, a slight decrease of 4.6%. Our revenue has slightly improved in the second quarter but is still restrained by the economic conditions in China. Almost all of the agricultural products we trade have stabilized at a higher market price compared to the previous year which results in our customers being more cautious with market conditions and placing fewer orders at a time.
The Company's gross profit for the three months ending June 30, 2010 was $8,243,284 (or approximately 26% of revenue) compared to $6,928,835 (or approximately 23% of revenue) for the three months ending June 30, 2009. The gross profit for the six months ending June 30, 2010 was $16,458,220 (or approximately 26% of revenue) compared to $15,314,629 (or approximately 23% of revenue) for the six months ending June 30, 2009. The increases in gross profit were attributable to the Company being able to order and purchase our agricultural products as prices were increasing. Therefore, our profits are slightly higher compared to previous periods. Although our blueberry products yield a higher profit margin, total sales derived from these products account for less than 5% of total revenue so they have not had a significant impact on our margins.
Selling, general and administrative expense for the three and six months ending June 30, 2010 reflected increase of $511,223 and $952,709, respectively from the comparable 2009 periods. These increases are largely due to higher professional fees and expenses for corporate activities in 2010 for US and China as well as the increase in maintenance and upkeep fees of Bellisimo Vineyard.
Currently, other Income consists almost entirely of income generated from Bellisimo Vineyard. Almost all of the income currently generated from Bellisimo is from casual rentals of buildings located on the vineyard. There was a slight increase of $1,665 or 2.4% of such revenue during the three months ended June 30, 2010, compared to the same period last year. The 83.8% decrease in other income from $683,067 to $110,681 for the six months ended June 30 2009 compared to June 30 2010 is due to the amendment of the contract with Far East Wine related to the distribution of Bellisimo wines in China. This agreement originally provided for quarterly installments of $500,000, but has been suspended until we begin distributing Bellisimo wines.
Interest expenses were $155,887 and $611,752 for the three and six month periods ending June 30, 2010 and $398,283 and $565,574 for the three and six month periods ending June 30, 2009. The decrease of 60.9% resulted from a decrease in our bank loans in China in the second quarter. Most of our interest expense is attributable to the $8.5 million loan used to finance Bellisimo Vineyard.
The Company is subject to the income tax laws of the People's Republic of China ("PRC"). The PRC’s Enterprise Income Tax is now at a statutory rate of 25%. For the three and six month periods ending June 30, 2010, the Company accrued $1,856,185 and $3,640,567 in income taxes. The effective tax rates of 25.9% and 25.7% represented by these accruals are higher than the statutory rate as expenses incurred in the US, including those pertaining to the Bellisimo Vineyard, are not deductible for PRC tax purposes.
The Company owns 60% of Dalian Huiming, Xinbin Ice Wine, and Changbai Eco-Beverage, and thus 40% of total net income pertaining to these three subsidiaries was recorded as income attributed to noncontrolling interest. Noncontrolling interest increased from $1,987,837 for the three months ended 2009 to $2,517,191 for the three months ended 2010 and increased from $4,459,450 for the six months ended 2009 to $4,761,159 for the six months ended 2010 due to growth in net income from Dalian Huiming and Xinbin Ice wine and the inclusion of Changbai Eco-Beverage in the second quarter of 2010.
Net income attributable to CNOA shareholders was $2,795,564 for the three months ending June 30, 2010, an increase of 12.7% compared to $2,481,090 for the three months ending June 30, 2009. Net income attributable to CNOA shareholders was $5,760,565 for the six months ending June 30, 2010, compared to net income of $6,406,281, a decrease of 10.1% compared to the 2009 period. As the Company owns only 60% of Dalian Huiming, Xinbin Ice Wine, and Changbai Eco-Beverage, 40% of total net income from these two entities was recorded as income attributed to noncontrolling interest.
At June 30, 2010, cash and cash equivalents were $23,826,265 as compared to $18,512,835 at December 31, 2009. Current assets totaled $141,536,611, and current liabilities were $72,588,004. The Company’s current assets include $50,593,679 of inventory and its current liabilities include $51,959,008 in accounts payable. Both of these figures are substantially higher than the prior quarter, reflecting the Company’s decision to buy a substantial quantity of product immediately prior to the end of the second quarter in anticipation of increased prices.
We anticipate that our available funds and cash flows generated from operations will be sufficient to meet our anticipated on-going operating needs for the next twelve months. However, we may need to raise additional capital in order to fund acquisitions and any substantive constructions. We would expect to raise those funds through credit facilities obtained from lending institutions, the issuance of equity, or a combination of both. However, there can be no guarantee that we will be able to obtain such funding, whether through the issuance of debt or equity, on terms satisfactory to management and our Board of Directors.
Our management, including our principal executive officer and our principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and our chief financial officer have concluded that as of June 30, 2010, our disclosure controls and procedures are not effective. Their conclusion was based upon the reasons set forth in the Company's Report on Form 10-K for the year ended December 31, 2009, although the efforts described therein to improve our disclosure controls and procedures are ongoing.
EPS Q2 was $0.04, for the first half this year $0.08. Our projection of $0.22 for 2010 will be hard to achieve. We revise our projection to $0.18. The stock is trading well below book value of $1.22.
POSITION: LONG
The Company's gross profit for the three months ending June 30, 2010 was $8,243,284 (or approximately 26% of revenue) compared to $6,928,835 (or approximately 23% of revenue) for the three months ending June 30, 2009. The gross profit for the six months ending June 30, 2010 was $16,458,220 (or approximately 26% of revenue) compared to $15,314,629 (or approximately 23% of revenue) for the six months ending June 30, 2009. The increases in gross profit were attributable to the Company being able to order and purchase our agricultural products as prices were increasing. Therefore, our profits are slightly higher compared to previous periods. Although our blueberry products yield a higher profit margin, total sales derived from these products account for less than 5% of total revenue so they have not had a significant impact on our margins.
Selling, general and administrative expense for the three and six months ending June 30, 2010 reflected increase of $511,223 and $952,709, respectively from the comparable 2009 periods. These increases are largely due to higher professional fees and expenses for corporate activities in 2010 for US and China as well as the increase in maintenance and upkeep fees of Bellisimo Vineyard.
Currently, other Income consists almost entirely of income generated from Bellisimo Vineyard. Almost all of the income currently generated from Bellisimo is from casual rentals of buildings located on the vineyard. There was a slight increase of $1,665 or 2.4% of such revenue during the three months ended June 30, 2010, compared to the same period last year. The 83.8% decrease in other income from $683,067 to $110,681 for the six months ended June 30 2009 compared to June 30 2010 is due to the amendment of the contract with Far East Wine related to the distribution of Bellisimo wines in China. This agreement originally provided for quarterly installments of $500,000, but has been suspended until we begin distributing Bellisimo wines.
Interest expenses were $155,887 and $611,752 for the three and six month periods ending June 30, 2010 and $398,283 and $565,574 for the three and six month periods ending June 30, 2009. The decrease of 60.9% resulted from a decrease in our bank loans in China in the second quarter. Most of our interest expense is attributable to the $8.5 million loan used to finance Bellisimo Vineyard.
The Company is subject to the income tax laws of the People's Republic of China ("PRC"). The PRC’s Enterprise Income Tax is now at a statutory rate of 25%. For the three and six month periods ending June 30, 2010, the Company accrued $1,856,185 and $3,640,567 in income taxes. The effective tax rates of 25.9% and 25.7% represented by these accruals are higher than the statutory rate as expenses incurred in the US, including those pertaining to the Bellisimo Vineyard, are not deductible for PRC tax purposes.
The Company owns 60% of Dalian Huiming, Xinbin Ice Wine, and Changbai Eco-Beverage, and thus 40% of total net income pertaining to these three subsidiaries was recorded as income attributed to noncontrolling interest. Noncontrolling interest increased from $1,987,837 for the three months ended 2009 to $2,517,191 for the three months ended 2010 and increased from $4,459,450 for the six months ended 2009 to $4,761,159 for the six months ended 2010 due to growth in net income from Dalian Huiming and Xinbin Ice wine and the inclusion of Changbai Eco-Beverage in the second quarter of 2010.
Net income attributable to CNOA shareholders was $2,795,564 for the three months ending June 30, 2010, an increase of 12.7% compared to $2,481,090 for the three months ending June 30, 2009. Net income attributable to CNOA shareholders was $5,760,565 for the six months ending June 30, 2010, compared to net income of $6,406,281, a decrease of 10.1% compared to the 2009 period. As the Company owns only 60% of Dalian Huiming, Xinbin Ice Wine, and Changbai Eco-Beverage, 40% of total net income from these two entities was recorded as income attributed to noncontrolling interest.
At June 30, 2010, cash and cash equivalents were $23,826,265 as compared to $18,512,835 at December 31, 2009. Current assets totaled $141,536,611, and current liabilities were $72,588,004. The Company’s current assets include $50,593,679 of inventory and its current liabilities include $51,959,008 in accounts payable. Both of these figures are substantially higher than the prior quarter, reflecting the Company’s decision to buy a substantial quantity of product immediately prior to the end of the second quarter in anticipation of increased prices.
We anticipate that our available funds and cash flows generated from operations will be sufficient to meet our anticipated on-going operating needs for the next twelve months. However, we may need to raise additional capital in order to fund acquisitions and any substantive constructions. We would expect to raise those funds through credit facilities obtained from lending institutions, the issuance of equity, or a combination of both. However, there can be no guarantee that we will be able to obtain such funding, whether through the issuance of debt or equity, on terms satisfactory to management and our Board of Directors.
Our management, including our principal executive officer and our principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and our chief financial officer have concluded that as of June 30, 2010, our disclosure controls and procedures are not effective. Their conclusion was based upon the reasons set forth in the Company's Report on Form 10-K for the year ended December 31, 2009, although the efforts described therein to improve our disclosure controls and procedures are ongoing.
EPS Q2 was $0.04, for the first half this year $0.08. Our projection of $0.22 for 2010 will be hard to achieve. We revise our projection to $0.18. The stock is trading well below book value of $1.22.
POSITION: LONG
Friday, August 20, 2010
Asia's Expanding Middle Class Presents Huge Opportunity for Region, World
Developing Asia's rapidly expanding middle class is likely to assume the traditional role of the US and Europe as primary global consumers and help rebalance the global economy, says a new report on Asia’s middle class from the Asian Development Bank (ADB). http://www.adb.org/Documents/Books/Key_Indicators/2010/
The report, published in a special chapter of Key Indicators for Asia and the Pacific 2010, the flagship annual statistical publication of the ADB, found that Asia’s consumers spent an estimated $4.3 trillion (in 2005 purchasing power parity dollars), or about one-third of OECD consumption expenditure, in 2008 and by 2030 will likely spend $32 trillion, comprising about 43% of the worldwide consumption.
The special chapter, titled "The Rise of Asia’s Middle Class”, examines the rapid growth of Asia’s middle class, how the poor advance to the middle class, factors that characterize the middle class, and pathways through which they become effective contributors to growth and poverty reduction in the region.
“Developing Asia’s middle class is rapidly increasing its size and purchasing power, and will be an increasingly important force in global economic rebalancing,” said ADB Chief Economist Jong-Wha Lee. “Even though the Asian middle class has significantly lower income and spending relative to the Western middle class, its growth in expenditures has been remarkable and its absolute levels are commanding.”
Strong economic growth in Asia over the past two decades has been accompanied by significant reductions in poverty as previously poor households have moved into the middle class. Defining the middle class in Asia as those consuming between $2 and $20 per day, the report found that in 2008, Asia’s middle class had risen to 56% of the population—or nearly 1.9 billion people—up from 21% in 1990. The middle class of the People’s Republic of China (PRC) is currently larger than all others in absolute size, having added 800 million people to its ranks between 1990–2008. In the same period, spending in Asia increased almost three fold, compared to marginal increases in all other regions, including developed countries. As a result, consumption expenditures by developing Asia are now second only to developed countries.
The report stresses that a great number of Asia’s new middle class individuals still get by on incomes just above poverty levels, leaving them vulnerable to a relapse into poverty. At the same time, the emergence of so much new spending power carries with it a host of new environmental and health concerns that until recently were more typical of wealthier parts of Asia and the world.
“Clearly, policies are needed that both bolster the new status of the middle class and deal with its adverse consequences; policies that encourage the creation of and access to more well-paid jobs and more advanced education and health care to help prevent slippage back into poverty, and that mitigate additional environmental constraints and health concerns,” said Dr. Lee.
Yet, in balance, expectations are that Asia’s middle class, through its sheer size and dynamism, will present a huge opportunity for the region and for the world. The report projects that by 2030 much of developing Asia will have attained middle class and upper class majorities, with the PRC and India expected to provide the largest number of new middle class. With the appropriate middle-class friendly policies, the report says, Asia will be able to move away from export-led to domestic-led consumption growth and reduce its exposure to negative external shocks, such as the 2008 global financial crisis, which began in the US. In turn, it will also help correct the global imbalances that contributed to the financial crisis.
Source: Asian Development Bank http://www.adb.org/
This report supports our case to invest in Chinese companies with considerable growth prospects. A lot of sectors can benefit. Some examples:
Beverages: SkyPeople Fruit Juice (SPU), China New Borun (BORN)
Biotechnology: Weikang Bio-Technology (WKBT)
Food Producers: American Lorain (ALD)
Gas Distribution: Sino Gas Holdings (SGAS)
Media: China Mass Media (CMM)
Pharmaceuticals: Lotus Pharmaceuticals (LTUS), Renhuang Pharmaceuticals (CBP)
Real Estate: Xinyuan Real Estate (XIN)
Travel & Tourism: Universal Travel Group (UTA)
Waste & Disposal Services: Sancon Resources Recovery (SRRY)
The report, published in a special chapter of Key Indicators for Asia and the Pacific 2010, the flagship annual statistical publication of the ADB, found that Asia’s consumers spent an estimated $4.3 trillion (in 2005 purchasing power parity dollars), or about one-third of OECD consumption expenditure, in 2008 and by 2030 will likely spend $32 trillion, comprising about 43% of the worldwide consumption.
The special chapter, titled "The Rise of Asia’s Middle Class”, examines the rapid growth of Asia’s middle class, how the poor advance to the middle class, factors that characterize the middle class, and pathways through which they become effective contributors to growth and poverty reduction in the region.
“Developing Asia’s middle class is rapidly increasing its size and purchasing power, and will be an increasingly important force in global economic rebalancing,” said ADB Chief Economist Jong-Wha Lee. “Even though the Asian middle class has significantly lower income and spending relative to the Western middle class, its growth in expenditures has been remarkable and its absolute levels are commanding.”
Strong economic growth in Asia over the past two decades has been accompanied by significant reductions in poverty as previously poor households have moved into the middle class. Defining the middle class in Asia as those consuming between $2 and $20 per day, the report found that in 2008, Asia’s middle class had risen to 56% of the population—or nearly 1.9 billion people—up from 21% in 1990. The middle class of the People’s Republic of China (PRC) is currently larger than all others in absolute size, having added 800 million people to its ranks between 1990–2008. In the same period, spending in Asia increased almost three fold, compared to marginal increases in all other regions, including developed countries. As a result, consumption expenditures by developing Asia are now second only to developed countries.
The report stresses that a great number of Asia’s new middle class individuals still get by on incomes just above poverty levels, leaving them vulnerable to a relapse into poverty. At the same time, the emergence of so much new spending power carries with it a host of new environmental and health concerns that until recently were more typical of wealthier parts of Asia and the world.
“Clearly, policies are needed that both bolster the new status of the middle class and deal with its adverse consequences; policies that encourage the creation of and access to more well-paid jobs and more advanced education and health care to help prevent slippage back into poverty, and that mitigate additional environmental constraints and health concerns,” said Dr. Lee.
Yet, in balance, expectations are that Asia’s middle class, through its sheer size and dynamism, will present a huge opportunity for the region and for the world. The report projects that by 2030 much of developing Asia will have attained middle class and upper class majorities, with the PRC and India expected to provide the largest number of new middle class. With the appropriate middle-class friendly policies, the report says, Asia will be able to move away from export-led to domestic-led consumption growth and reduce its exposure to negative external shocks, such as the 2008 global financial crisis, which began in the US. In turn, it will also help correct the global imbalances that contributed to the financial crisis.
Source: Asian Development Bank http://www.adb.org/
This report supports our case to invest in Chinese companies with considerable growth prospects. A lot of sectors can benefit. Some examples:
Beverages: SkyPeople Fruit Juice (SPU), China New Borun (BORN)
Biotechnology: Weikang Bio-Technology (WKBT)
Food Producers: American Lorain (ALD)
Gas Distribution: Sino Gas Holdings (SGAS)
Media: China Mass Media (CMM)
Pharmaceuticals: Lotus Pharmaceuticals (LTUS), Renhuang Pharmaceuticals (CBP)
Real Estate: Xinyuan Real Estate (XIN)
Travel & Tourism: Universal Travel Group (UTA)
Waste & Disposal Services: Sancon Resources Recovery (SRRY)
Thursday, August 19, 2010
Fertilizer Outlook 2010 - 2014 and how fits CHBU in this outlook
http://www.fertilizer.org/ifa/Home-Page/FERTILIZERS-THE-INDUSTRY/Market-outlooks.html
China Agri-Business (CHBU) is likely to profit from the fertilizer business. China Agri-Business manufactures and markets more than 50 organic biochemical agricultural application products, including non-toxic fertilizers, bactericides, and fungicides, that are used in farming. Crops grown with the Company's products are eligible to qualify for the "AA Green Food" rating in China.
Strong expansion
The company expects to reach their year 2010 target of 500 direct sales stores early, by the end of October 2010.
Service Minded
"In our stores, farmers can learn about all the products in our stores from our knowledgeable sales staff. The staff also provides technical assistance to help farmers make the smartest decisions about the best products to use to benefit their product quality and yields in the current growing season, and also to help them keep their soil healthy for sustained successful growing in the years ahead. Of course, in our stores they can purchase fertilizer products, including our own organic fertilizers and complementary products manufactured by other companies. We also help them with access to information that is helpful for successful farming, for before, during, and after the growing seasons. Our products and information cover most of the crops that are grown in our market regions. We also assist with after sales service.
Strong Business Model
"Our direct sales stores are one part of our new business model that consists of several resources and actions. First is sourcing of raw materials to make our non-toxic and organic products that help farmers increase crop yields and productivity. Second is flexible manufacturing that includes our own production and expansions, plus capacity at plants where we can hire the production to be done as needed. Third is marketing, distribution, and sales, which is where our rapid expansion of our direct sales stores is very important. Fourth is to continue to seek more innovative and more effective products so we are increasingly helpful to the farmers as they grow food for the nation and grow a good profit for themselves. Fifth, of course, is to earn an attractive return on investment for the company and its shareholders, and to continue to reinvest for future growth through geographic market expansion and new and improved products, processes, technologies, and production. And sixth, which is most important, is that we view our relationship with the farmers, as a long-term mutually beneficial partnership to be sustained across many years; they are colleagues and friends, not just customers.
"So, as we are strengthening our connection with farmers, to increase their yields and productivity, we also expect to benefit from higher sales, higher market share, and gradually improving returns on investment in the years to come. We believe our broad offering of products, services, and close involvement and assistance with our farming friends should encourage them to be loyal long-term customers for China Agri.
"With our new business model and related long-term growth programs, we believe our actions will create long-term value for our shareholders. We are very pleased with our results for the first half of 2010."
This Micro Cap is going to be huge and I am confident that we see higher stock prices along the way. The recent price of $0.69 doesn't reflect their 3-S and financial metrics.
POSITION: LONG
China Agri-Business (CHBU) is likely to profit from the fertilizer business. China Agri-Business manufactures and markets more than 50 organic biochemical agricultural application products, including non-toxic fertilizers, bactericides, and fungicides, that are used in farming. Crops grown with the Company's products are eligible to qualify for the "AA Green Food" rating in China.
Strong expansion
The company expects to reach their year 2010 target of 500 direct sales stores early, by the end of October 2010.
Service Minded
"In our stores, farmers can learn about all the products in our stores from our knowledgeable sales staff. The staff also provides technical assistance to help farmers make the smartest decisions about the best products to use to benefit their product quality and yields in the current growing season, and also to help them keep their soil healthy for sustained successful growing in the years ahead. Of course, in our stores they can purchase fertilizer products, including our own organic fertilizers and complementary products manufactured by other companies. We also help them with access to information that is helpful for successful farming, for before, during, and after the growing seasons. Our products and information cover most of the crops that are grown in our market regions. We also assist with after sales service.
Strong Business Model
"Our direct sales stores are one part of our new business model that consists of several resources and actions. First is sourcing of raw materials to make our non-toxic and organic products that help farmers increase crop yields and productivity. Second is flexible manufacturing that includes our own production and expansions, plus capacity at plants where we can hire the production to be done as needed. Third is marketing, distribution, and sales, which is where our rapid expansion of our direct sales stores is very important. Fourth is to continue to seek more innovative and more effective products so we are increasingly helpful to the farmers as they grow food for the nation and grow a good profit for themselves. Fifth, of course, is to earn an attractive return on investment for the company and its shareholders, and to continue to reinvest for future growth through geographic market expansion and new and improved products, processes, technologies, and production. And sixth, which is most important, is that we view our relationship with the farmers, as a long-term mutually beneficial partnership to be sustained across many years; they are colleagues and friends, not just customers.
"So, as we are strengthening our connection with farmers, to increase their yields and productivity, we also expect to benefit from higher sales, higher market share, and gradually improving returns on investment in the years to come. We believe our broad offering of products, services, and close involvement and assistance with our farming friends should encourage them to be loyal long-term customers for China Agri.
"With our new business model and related long-term growth programs, we believe our actions will create long-term value for our shareholders. We are very pleased with our results for the first half of 2010."
This Micro Cap is going to be huge and I am confident that we see higher stock prices along the way. The recent price of $0.69 doesn't reflect their 3-S and financial metrics.
POSITION: LONG
Wednesday, August 18, 2010
Rodobo Int. (RDBO) long term grower
Third Quarter 2010 Highlights:
-- Revenue was $19.1 million, up 86.5% from $10.3 million in 3Q09
-- Gross profit was $7.3 million, up 25.6% from $5.8 million in 3Q09
-- Net income was $2.7 million, up 32.8% from $2 million in 3Q09
-- Earnings per diluted share was down to $0.10 from $0.13 in 3Q09
For the nine months ended June 30, 2010, net sales increased to $44.5 million, up 75.2% from $25.4 million in the nine months ended June 30, 2009. Gross profit increased 47.7% in the nine months ended June 30, 2010 to $18.6 million from $12.6 million in the comparable period in 2009. Gross margin was 41.8% in the nine months ended June 30, 2010 compared to 49.6% in the comparable period in 2009. Net income for the nine months ended June 30, 2010 was $8.8 million or $0.39 per fully diluted share, up 72.6% from $5.1 million, or $0.34 per fully diluted share, in the comparable period in 2009.
Management feels confident to give its guidance for the fourth quarter of 2010 for revenue to be in the range of $20 - $24 million and net income to be in the range of $3.0 - $3.2 million.
"We are pleased to report very strong financial results, exceptional revenue growth and strong profitability for the third quarter of 2010. Rodobo has a strong operating history, achieving a very strong and consistent revenue and net income growth over the last four years," stated Mr. Yanbin Wang, the Chairman and Chief Executive Officer of Rodobo. "In addition to these results, we are very pleased with the acquisition and early results of the Beixue Group. Our formula milk products sales expanded to two new provinces, Jiangsu and Anhui and continue to penetrate into other seven provinces."
Over the next twelve months, Rodobo intends to pursue its primary objective of increasing its market share in China's diary industry. The Company is also evaluating acquisition and consolidation opportunities in China's fragmented dairy industry. Rodobo's management believes it has sufficient working capital to operate its existing business for the next twelve months by using its cash generated from its operating activities as well as part of the net proceeds from the private placement which closed on June 23, 2010.
"Our markets remain robust as the Chinese government continues to support the modernization of the dairy industry as well as support improved hygiene and food safety standards. We have established a successful vertically integrated business model and remain dedicated to continue building a nationally-recognized leading brand for our premium dairy products and create value for our shareholders," concluded Mr. Wang.
Q4 EPS should be around $0.11, so for this year we could expect $0.50. The recent price of $2.20 is an interesting entry level for the long run. The main problem with Rodobo is the lack of liquidity.
POSITION: NO
-- Revenue was $19.1 million, up 86.5% from $10.3 million in 3Q09
-- Gross profit was $7.3 million, up 25.6% from $5.8 million in 3Q09
-- Net income was $2.7 million, up 32.8% from $2 million in 3Q09
-- Earnings per diluted share was down to $0.10 from $0.13 in 3Q09
For the nine months ended June 30, 2010, net sales increased to $44.5 million, up 75.2% from $25.4 million in the nine months ended June 30, 2009. Gross profit increased 47.7% in the nine months ended June 30, 2010 to $18.6 million from $12.6 million in the comparable period in 2009. Gross margin was 41.8% in the nine months ended June 30, 2010 compared to 49.6% in the comparable period in 2009. Net income for the nine months ended June 30, 2010 was $8.8 million or $0.39 per fully diluted share, up 72.6% from $5.1 million, or $0.34 per fully diluted share, in the comparable period in 2009.
Management feels confident to give its guidance for the fourth quarter of 2010 for revenue to be in the range of $20 - $24 million and net income to be in the range of $3.0 - $3.2 million.
"We are pleased to report very strong financial results, exceptional revenue growth and strong profitability for the third quarter of 2010. Rodobo has a strong operating history, achieving a very strong and consistent revenue and net income growth over the last four years," stated Mr. Yanbin Wang, the Chairman and Chief Executive Officer of Rodobo. "In addition to these results, we are very pleased with the acquisition and early results of the Beixue Group. Our formula milk products sales expanded to two new provinces, Jiangsu and Anhui and continue to penetrate into other seven provinces."
Over the next twelve months, Rodobo intends to pursue its primary objective of increasing its market share in China's diary industry. The Company is also evaluating acquisition and consolidation opportunities in China's fragmented dairy industry. Rodobo's management believes it has sufficient working capital to operate its existing business for the next twelve months by using its cash generated from its operating activities as well as part of the net proceeds from the private placement which closed on June 23, 2010.
"Our markets remain robust as the Chinese government continues to support the modernization of the dairy industry as well as support improved hygiene and food safety standards. We have established a successful vertically integrated business model and remain dedicated to continue building a nationally-recognized leading brand for our premium dairy products and create value for our shareholders," concluded Mr. Wang.
Q4 EPS should be around $0.11, so for this year we could expect $0.50. The recent price of $2.20 is an interesting entry level for the long run. The main problem with Rodobo is the lack of liquidity.
POSITION: NO
Tuesday, August 17, 2010
Weikang Bio-Technology (WKBT) harsh weather conditions had impact on Q2 results
Weikang Bio-Technology Group Co., Inc. (WKBT), a leading developer, manufacturer and marketer of Traditional Chinese Medicine (TCM), Western prescription and OTC pharmaceuticals and other health and nutritional products in China, yesterday announced its fiscal 2010 second quarter results for period ended June 30, 2010.
Second Quarter Highlights -- Revenue was $10.5 million -- Gross profit was $6.1 million with gross margin of 58.3% -- Net Income was $1.9 million with fully diluted earnings per share of $0.07 -- Adjusting for non-cash, stock-based compensation of $0.9 million, non- GAAP net income was $2.8 million and non-GAAP fully diluted earnings per share was $0.10
"During the second quarter we experienced severely harsh weather which disrupted business operations and impacted our sales. In early May, 2010, the southern and central region of China experienced an unusual amount of heavy rainfall resulting in extreme flooding and high humidity. This extreme weather caused disruption to transportation in the region which in turn prompted a portion of our sales to be postponed," commented Dr. Ying Wang, Chairman & CEO of Weikang Bio-Technology Group Co., Inc. "However, we are pleased to note that the majority of the problems caused by the extreme weather have been resolved and with our strong product offering as well as new therapeutics to be launched this year, we are looking forward to return to healthy revenue and net income growth for the rest of 2010."
Revenue for the second quarter of 2010 was $10.5 million, down 20.5% from revenue of $13.2 million in the second quarter of 2009. Revenue from Tianfang was $7.0 million, or 66% of total sales, and revenue from WeiKang was $3.5 million, or 34% of total sales. Revenue for the quarter was adversely impacted due to the harsh rainfall in southern and central China which caused extreme flooding as well as an unusually high level of humidity in Harbin which impacted distribution as well as operations. Both conditions have improved considerably and operations have resumed to their regular production level.
Gross profit for the quarter decreased 13.7% to $6.1 million from 7.1 million in the same period of 2009. Gross margin for the second quarter of 2010 was 58.3% compared to 53.7% in the second quarter of 2009. The increase in gross margin over the previous year period is the result of an increase of the percent of total sales of the Company's higher margin products.
Operating expenses were $3.3 million or 31.1% of sales, compared to $3.0 million or 22.5% of sales in the second quarter of 2009. The increase in operating expenses was attributable to an increase in transportation expense due to the disruption in transportation as a result of the harsh weather conditions. The Company also recognized $900,485 in non-cash, stock-based compensation expenses that it did not incurred in the comparable period a year ago. Adjusting for the non-cash, stock-based compensation, operating expenses were $2.4 million or 22.5% of total sales. The non-cash, stock-based compensation relates to the private placement done on January 20, 2010 and associated investor relation expense as well as compensation to four Directors and a key employee. The Company has recorded $2.6 million as total deferred compensation.
Operating income for the second quarter was $2.9 million, down 30.8% from $4.1 million in the second quarter of 2009. Operating margin was 27.2% compared to 31.3% in the same period a year ago. Adjusting for the previously mentioned non-cash, stock-based compensation, non-GAAP operating income was $3.8 million in the second quarter of 2010 and operating margin was 35.8%.
Net income was $1.9 million in the second quarter of 2010, down 42.5% from $3.3 million in net income from the same period a year ago. Fully diluted earnings per share were $0.07 compared to fully diluted earnings per share of $0.13 in the second quarter of 2009. Excluding the non-cash, stock-based compensation, non-GAAP net income and fully diluted earnings per share for the second quarter of 2010 was $2.8 million and $0.10, respectively.
As of June 30, 2010, Weikang Bio-Technology Group Co., Inc. had $20.5 million in cash and cash equivalents, $20.3 million in working capital and $13.4 million in total liabilities. Net cash provided by operating activities for the first six months of 2010 was $7.2 million. Shareholders' equity stood at $34.2 million, up from $23.4 million at year end 2009.
Revenue for the first six months of fiscal 2010 was $24.5 million, up 5% from $23.3 million in the same period a year ago. Gross profit was $14.4 million, up 13.3% from gross profit of $12.7 million for the first six months of fiscal 2009. Gross margin was 59.0% compared to 54.7% for the comparable period a year ago. Operating income was $9.2 million, up slightly from $9.1 million in the first six months of fiscal 2009. Adjusting for $1.9 million in non-cash, stock-based compensation, non-GAAP operating income was $11.1 million. Net income was $6.5 million, down 10.0% from $7.2 million in the same period a year ago. Fully diluted earnings per share were $0.23 compared to $0.28 in the first six months of fiscal 2009. Excluding the non-cash, stock-based compensation, non-GAAP net income and fully diluted earnings per share for the first six months of 2010 was $8.3 million and $0.30.
Weikang Bio-Technology intends to increase its sales by expanding its product offering as well as offering consumers value packages by bundling its therapeutics. At the end of August, 2010, the Company intends to launch a new value-add bundled package of its Rongrun Kidney Boost Tonic combined with newly launched therapeutics: Perilla Seed Soft Capsule, Forest Frog Oil Soft Capsule and Yangshen Pill. In the fourth quarter of 2010, Weikang Bio-Technology plans to launch two additional therapeutics, Sha Bai Shuanghuai Soft Capsules and Gouqi Xi Pu Soft Capsules which have the potential to add up to approximately $5.7 million in revenue and up to approximately $2.2 million in net income combined on an annual basis when it reaches full production.
"While the second quarter of 2010 was off due to events outside of managements' control, we are very positive about our outlook for the rest of 2010 as we have several exciting new products that we plan to launch by the end of the year," Mr. Wang continued. "Moreover, we believe our long-term growth opportunities are strong as we remain committed to expanding our distribution network and developing new high quality therapeutics. For example, a project that we believe has an exciting commercial potential is the development of licorice flavonoids for use in therapeutics which we anticipate has the possibility to contribute to over $13 million in annual sales when it reaches full production."
The company is part of our China Investor King Portfolio and the recent drop in price was overdone. Net Earnings per share for Q3 and Q4 can easily run to $0.12 and $0.15, which leaves us with an EPS 2010 of $ 0.50.
POSITION:LONG
Second Quarter Highlights -- Revenue was $10.5 million -- Gross profit was $6.1 million with gross margin of 58.3% -- Net Income was $1.9 million with fully diluted earnings per share of $0.07 -- Adjusting for non-cash, stock-based compensation of $0.9 million, non- GAAP net income was $2.8 million and non-GAAP fully diluted earnings per share was $0.10
"During the second quarter we experienced severely harsh weather which disrupted business operations and impacted our sales. In early May, 2010, the southern and central region of China experienced an unusual amount of heavy rainfall resulting in extreme flooding and high humidity. This extreme weather caused disruption to transportation in the region which in turn prompted a portion of our sales to be postponed," commented Dr. Ying Wang, Chairman & CEO of Weikang Bio-Technology Group Co., Inc. "However, we are pleased to note that the majority of the problems caused by the extreme weather have been resolved and with our strong product offering as well as new therapeutics to be launched this year, we are looking forward to return to healthy revenue and net income growth for the rest of 2010."
Revenue for the second quarter of 2010 was $10.5 million, down 20.5% from revenue of $13.2 million in the second quarter of 2009. Revenue from Tianfang was $7.0 million, or 66% of total sales, and revenue from WeiKang was $3.5 million, or 34% of total sales. Revenue for the quarter was adversely impacted due to the harsh rainfall in southern and central China which caused extreme flooding as well as an unusually high level of humidity in Harbin which impacted distribution as well as operations. Both conditions have improved considerably and operations have resumed to their regular production level.
Gross profit for the quarter decreased 13.7% to $6.1 million from 7.1 million in the same period of 2009. Gross margin for the second quarter of 2010 was 58.3% compared to 53.7% in the second quarter of 2009. The increase in gross margin over the previous year period is the result of an increase of the percent of total sales of the Company's higher margin products.
Operating expenses were $3.3 million or 31.1% of sales, compared to $3.0 million or 22.5% of sales in the second quarter of 2009. The increase in operating expenses was attributable to an increase in transportation expense due to the disruption in transportation as a result of the harsh weather conditions. The Company also recognized $900,485 in non-cash, stock-based compensation expenses that it did not incurred in the comparable period a year ago. Adjusting for the non-cash, stock-based compensation, operating expenses were $2.4 million or 22.5% of total sales. The non-cash, stock-based compensation relates to the private placement done on January 20, 2010 and associated investor relation expense as well as compensation to four Directors and a key employee. The Company has recorded $2.6 million as total deferred compensation.
Operating income for the second quarter was $2.9 million, down 30.8% from $4.1 million in the second quarter of 2009. Operating margin was 27.2% compared to 31.3% in the same period a year ago. Adjusting for the previously mentioned non-cash, stock-based compensation, non-GAAP operating income was $3.8 million in the second quarter of 2010 and operating margin was 35.8%.
Net income was $1.9 million in the second quarter of 2010, down 42.5% from $3.3 million in net income from the same period a year ago. Fully diluted earnings per share were $0.07 compared to fully diluted earnings per share of $0.13 in the second quarter of 2009. Excluding the non-cash, stock-based compensation, non-GAAP net income and fully diluted earnings per share for the second quarter of 2010 was $2.8 million and $0.10, respectively.
As of June 30, 2010, Weikang Bio-Technology Group Co., Inc. had $20.5 million in cash and cash equivalents, $20.3 million in working capital and $13.4 million in total liabilities. Net cash provided by operating activities for the first six months of 2010 was $7.2 million. Shareholders' equity stood at $34.2 million, up from $23.4 million at year end 2009.
Revenue for the first six months of fiscal 2010 was $24.5 million, up 5% from $23.3 million in the same period a year ago. Gross profit was $14.4 million, up 13.3% from gross profit of $12.7 million for the first six months of fiscal 2009. Gross margin was 59.0% compared to 54.7% for the comparable period a year ago. Operating income was $9.2 million, up slightly from $9.1 million in the first six months of fiscal 2009. Adjusting for $1.9 million in non-cash, stock-based compensation, non-GAAP operating income was $11.1 million. Net income was $6.5 million, down 10.0% from $7.2 million in the same period a year ago. Fully diluted earnings per share were $0.23 compared to $0.28 in the first six months of fiscal 2009. Excluding the non-cash, stock-based compensation, non-GAAP net income and fully diluted earnings per share for the first six months of 2010 was $8.3 million and $0.30.
Weikang Bio-Technology intends to increase its sales by expanding its product offering as well as offering consumers value packages by bundling its therapeutics. At the end of August, 2010, the Company intends to launch a new value-add bundled package of its Rongrun Kidney Boost Tonic combined with newly launched therapeutics: Perilla Seed Soft Capsule, Forest Frog Oil Soft Capsule and Yangshen Pill. In the fourth quarter of 2010, Weikang Bio-Technology plans to launch two additional therapeutics, Sha Bai Shuanghuai Soft Capsules and Gouqi Xi Pu Soft Capsules which have the potential to add up to approximately $5.7 million in revenue and up to approximately $2.2 million in net income combined on an annual basis when it reaches full production.
"While the second quarter of 2010 was off due to events outside of managements' control, we are very positive about our outlook for the rest of 2010 as we have several exciting new products that we plan to launch by the end of the year," Mr. Wang continued. "Moreover, we believe our long-term growth opportunities are strong as we remain committed to expanding our distribution network and developing new high quality therapeutics. For example, a project that we believe has an exciting commercial potential is the development of licorice flavonoids for use in therapeutics which we anticipate has the possibility to contribute to over $13 million in annual sales when it reaches full production."
The company is part of our China Investor King Portfolio and the recent drop in price was overdone. Net Earnings per share for Q3 and Q4 can easily run to $0.12 and $0.15, which leaves us with an EPS 2010 of $ 0.50.
POSITION:LONG
Monday, August 16, 2010
China Agri Business (CHBU) Q2 results excellent
Sales for the three months ended June 30, 2010 totaled $3,452,574, an increase of $2,748,699, or 391%, as compared to sales of $703,875 for the three months ended June 30, 2009. Sales of our internally made products increased $397,102 to $1,100,977 for the three months ended June 30, 2010 from $703,875 for the comparable period in 2009. Retail sales of fertilizer products in our direct sale stores was $2,351,597 for the three months ended June 30, 2010, compared $0 in the comparable period of 2009.
The increase in sales was primarily attributable to positive reponses to our “New Agriculture-Generator” campaign, which was designed to expand our distribution network directly and to establish a closer relationship with farmers through agricultural cooperatives in the rural areas of China. Sales from our direct sales stores amounted to $2,764,522, approximately 80% of total sales in the three months ended June 30, 2010. Sales from our super chain branded stores amounted to $185,864, approximately 5% of total sales in the three months ended June 30, 2010, an increase of $57,479, or 45%, as compared to $128,385 in the same period of 2009. Sales from our traditional sales network amounted to $502,188, a decrease of $73,302, or 13%, as compared to $575,490 in the three months ended June 30, 2009. As of July 31, 2010, the Company had established 346 direct sales stores which are controlled and managed directly by the Company, and approximately 100 super chain branded stores. The majority of these direct sales stores and branded stores were located in the Shannxi Province (local province) and some of these stores were located in the Hunan and Sichuan Province.
Cost of goods sold for the three months ended June 30, 2010 totaled $2,244,930, an increase of $2,056,278, as compared to cost of goods sold of $188,652 for the three months ended June 30, 2009. Gross profit was 35%, a decrease of 38 percentage points from 73% for the three months ended June 30, 2009. The increase in cost of goods sold and decrease in gross profit margin was attributable to our new sales model and new direct sales stores. The gross profit margin of our internally made products was 67% and 73% for the three months ended June 30, 2010 and 2009, respectively. The decrease in gross profit margin on our internally made products was the result of the production of our new acquired potassium and magnesium fertilizer product which has a gross profit margin rate of 50%. The gross profit margin for our retail sales of fertilizer products from other manufacturers in our direct sale stores was 22%.
Our income from operations was $801,811 for the three months ended June 30, 2010, an increase of $505,382, or 170% as compared to $296,429 for the three months ended June 30, 2009. Net income for the three months ended June 30, 2010 was $753,221, an increase of $506,320, or 205% as compared to net income of $246,901 for the three months ended June 30, 2009. The increase in net income primarily resulted from our “New Agriculture-Generator” campaign, which consisted of expansion of our direct sales store network.
Conclusion in my previous post I was in heaven and I thought they could have the same profit margins compared to Q1. So an EPS Q2 of $0.12 was not realistic. My initial projection for the year 2010 was an EPS of $0.12. Net income for the six months ended June 30, 2010 was $1,085,029. So that gives us $0.08 ($0.05 Q2)for the first half. I raise my projections for Q3 to $0.04 and Q4 to $0.05. So the final 2010 EPS would become $0.17.
With a book value of $0.88 and a cash position of $0.80 per share this is a valuable investment. 10x trailing EPS will give us a target price of $ 1.70.
POSITION: LONG
The increase in sales was primarily attributable to positive reponses to our “New Agriculture-Generator” campaign, which was designed to expand our distribution network directly and to establish a closer relationship with farmers through agricultural cooperatives in the rural areas of China. Sales from our direct sales stores amounted to $2,764,522, approximately 80% of total sales in the three months ended June 30, 2010. Sales from our super chain branded stores amounted to $185,864, approximately 5% of total sales in the three months ended June 30, 2010, an increase of $57,479, or 45%, as compared to $128,385 in the same period of 2009. Sales from our traditional sales network amounted to $502,188, a decrease of $73,302, or 13%, as compared to $575,490 in the three months ended June 30, 2009. As of July 31, 2010, the Company had established 346 direct sales stores which are controlled and managed directly by the Company, and approximately 100 super chain branded stores. The majority of these direct sales stores and branded stores were located in the Shannxi Province (local province) and some of these stores were located in the Hunan and Sichuan Province.
Cost of goods sold for the three months ended June 30, 2010 totaled $2,244,930, an increase of $2,056,278, as compared to cost of goods sold of $188,652 for the three months ended June 30, 2009. Gross profit was 35%, a decrease of 38 percentage points from 73% for the three months ended June 30, 2009. The increase in cost of goods sold and decrease in gross profit margin was attributable to our new sales model and new direct sales stores. The gross profit margin of our internally made products was 67% and 73% for the three months ended June 30, 2010 and 2009, respectively. The decrease in gross profit margin on our internally made products was the result of the production of our new acquired potassium and magnesium fertilizer product which has a gross profit margin rate of 50%. The gross profit margin for our retail sales of fertilizer products from other manufacturers in our direct sale stores was 22%.
Our income from operations was $801,811 for the three months ended June 30, 2010, an increase of $505,382, or 170% as compared to $296,429 for the three months ended June 30, 2009. Net income for the three months ended June 30, 2010 was $753,221, an increase of $506,320, or 205% as compared to net income of $246,901 for the three months ended June 30, 2009. The increase in net income primarily resulted from our “New Agriculture-Generator” campaign, which consisted of expansion of our direct sales store network.
Conclusion in my previous post I was in heaven and I thought they could have the same profit margins compared to Q1. So an EPS Q2 of $0.12 was not realistic. My initial projection for the year 2010 was an EPS of $0.12. Net income for the six months ended June 30, 2010 was $1,085,029. So that gives us $0.08 ($0.05 Q2)for the first half. I raise my projections for Q3 to $0.04 and Q4 to $0.05. So the final 2010 EPS would become $0.17.
With a book value of $0.88 and a cash position of $0.80 per share this is a valuable investment. 10x trailing EPS will give us a target price of $ 1.70.
POSITION: LONG
XINYINHAI TECHNOLOGY (XNYH) $ 0,10 EPS this year becomes tough
The recent global recession reduced demand for capital goods in China. Since late 2008, this situation has had a negative impact on both of our business segments. In the first six months of 2010, which ended on June 30, 2010, the effect of the recession was most dramatic in our equipment distribution business, where revenues declined by 67% to $249,971 during the first six months of 2010 ($102,803 in the second quarter) from $758,670 during the first six months of 2009 ($221,766 in the second quarter of 2009). Revenue in the first six months of 2009 was, in turn, 69% lower than in the first six months of 2008.
This two year slide in equipment distribution reflects delays in the construction of new manufacturing facilities in China, as potential customers wait to see whether demand for their products is revived. The decline reversed a surge in equipment sales that we had experienced in 2008, and reduced this business segment to a 6% contribution to our overall revenue during the first six months of 2010, a level below even the 13% level we experienced in 2007 and 2006. The future of this business segment will depend, in part, on the success of the economic stimulus initiated by the Government of China.
Revenue from our printing business, on the other hand, was modestly higher overall, increasing by 2% to $3,813,388 during the first six months of 2010, compared to $3,749,970 during the first six months of 2009. Second quarter revenues fell, however, by 5% from printing revenue in the second quarter of 2009. The printing segment of our business had declined in 2008 and 2009, in part due to the weakening of the Chinese banking industry, as many of our customers were conserving cash pending stabilization of the international credit markets. The decline also occurred because we moved our entire production operation to a larger facility at the end of 2008. The move necessitated delays in production, while our equipment was in transit, which in turn interfered with our sales effort, as our customers delayed orders until we could demonstrate that our facilities were up and running.
Today, however, our new facility is fully operational, and we expect the traditional growth of our printing business to be renewed. The negative effect of the recession on the Chinese banking industry, however, has slowed the placement of orders for our printing products, as banks are wary of building up excessive inventory of supplies.
Over the longer term, the continued revenue growth in our printing services business will require further capital investment. As China’s banking industry rapidly modernizes, our customers demand additional product offerings similar to those available to the banking industry in Europe and the U.S. Our ability to meet that demand will determine the long term growth of our business. Immediately, the development of these new products will require substantial capital investment. For that purpose, we secured a $2.9 million collateralized loan during the third quarter of 2009, and applied $748,379 to improvements in our plant and equipment during the second half of the year. The modest growth in our printing revenue for the first six months of 2010 indicates a first step toward realizing the benefit of that investment.
The 36.9% gross margin realized by our subsidiary, Harbin Golden Sea, on sales in the first six months of 2010 was only slightly better than the 36.2% gross margin realized in first six months of 2009. The gross margin was adversely affected by the decline of our equipment business, which operated at a loss during the first six months of 2010. However, margins from our printing business also remained lower than optimal. Our business plan contemplates that gross margin from printing services will average approximately 45%, albeit within a range of 35% to 50%, depending on the components of the business.
As the Chinese banking industry is moving towards stabilization, our expectation is that we will be able to revive our sales growth and return our printing operations to the levels of profitability that they sustained prior to the international credit crisis.
Although our general and administrative expenses spiked in the second quarter of 2010, this represented a balance to particularly low expenses in the first quarter, reflecting uneven timing of expense realization. Overall, we operated more efficiently during the first six months of 2010 that during the first half of the prior year. Total operating expenses during the first six months of 2010 were $509,818, a 26% decline from the $691,663 in operating expenses that we incurred during the first six months of 2009. The decline was attributable to our continuing efforts to achieve efficiencies in our operations, leading to a decrease of $69,605 in our selling and distribution expenses and $112,240 in our general and administrative expenses for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. When demand for our products returns to prior levels, we will endeavor to maintain the efficiencies that we implemented during the current slow period.
Our increased efficiency was sufficient to offset the reduction in our revenues from the first six months of 2009 to the first six months of 2010. Income from operations, therefore, increased by 5%, from $941,796 in the first six months of 2009 to $988,250 in the first six months of 2010. During the second quarter, however, our income from operations fell by 16% from $472,025 in the second quarter of 2009 to $397,643 in the second quarter of 2010.
During the third quarter of 2009 we obtained a $2.9 million bank loan, which we repaid during the second quarter of 2010. The finance charges attributable to the bank loan, $102,521 in the six months ended June 30, 2010 and $63,315 in the three months ended June 30, 2010, offset the gains we had made in the six month period. Our net income before income taxes and provision for noncontrolling interests, therefore, fell during the six month period ended June 30, 2010 from $949,166 to $891,739.
Commencing in 2008, we became subject to preferential Chinese income tax rates of 9% for 2008, 10% for 2009 and 11% for 2010, respectively. As a result of this government allowance, we were taxed at a 10% rate in the first six months of 2009, causing an expense of $122,675, and at an 11% rate in the first six months of 2010, cause an expense of $103,520. In 2011 our income will be taxed at the national rate of 25%.
The operations of our subsidiary, Harbin Golden Sea, produced $806,430 in income during the first six months of 2010 and $307,550 in the second quarter of 2010. However, because we own only 90% of Harbin Golden Sea, we deducted “noncontrolling interests” of $80,643 and $30,755, respectively, before recognizing net income on our Consolidated Statements of Income and Comprehensive Income. After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income for the first six months of 2010 was $707,576, representing $.04 per share, a 4% decrease from the net income we achieved in the first six months of 2009. Net income for the quarter ended June 30, 2010 was $267,613 ($.01 per share), which was 27% lower than during the quarter ended June 30, 2009.
After repaying our bank loan, we held $0.3 million in cash and equivalents at June 30, 2010. We have no debt payment obligations and are cash positive in our operations. Moreover, since we are operating profitably and hold over $5.4 million in fixed assets free of lien, we expect to be able to secure bank financing when our operations warrant capital expansion. For that reason, we expect our liquidity will be sufficient in the next year to fund our ongoing operations as well as our near-term growth.
Remarkable that they still can manage a profitable business. With a book value of $0.79 and $0.04 in the pocket for H1 it will be difficult to achieve an EPS of $0.10, but it is not impossible.
POSITION: LONG
This two year slide in equipment distribution reflects delays in the construction of new manufacturing facilities in China, as potential customers wait to see whether demand for their products is revived. The decline reversed a surge in equipment sales that we had experienced in 2008, and reduced this business segment to a 6% contribution to our overall revenue during the first six months of 2010, a level below even the 13% level we experienced in 2007 and 2006. The future of this business segment will depend, in part, on the success of the economic stimulus initiated by the Government of China.
Revenue from our printing business, on the other hand, was modestly higher overall, increasing by 2% to $3,813,388 during the first six months of 2010, compared to $3,749,970 during the first six months of 2009. Second quarter revenues fell, however, by 5% from printing revenue in the second quarter of 2009. The printing segment of our business had declined in 2008 and 2009, in part due to the weakening of the Chinese banking industry, as many of our customers were conserving cash pending stabilization of the international credit markets. The decline also occurred because we moved our entire production operation to a larger facility at the end of 2008. The move necessitated delays in production, while our equipment was in transit, which in turn interfered with our sales effort, as our customers delayed orders until we could demonstrate that our facilities were up and running.
Today, however, our new facility is fully operational, and we expect the traditional growth of our printing business to be renewed. The negative effect of the recession on the Chinese banking industry, however, has slowed the placement of orders for our printing products, as banks are wary of building up excessive inventory of supplies.
Over the longer term, the continued revenue growth in our printing services business will require further capital investment. As China’s banking industry rapidly modernizes, our customers demand additional product offerings similar to those available to the banking industry in Europe and the U.S. Our ability to meet that demand will determine the long term growth of our business. Immediately, the development of these new products will require substantial capital investment. For that purpose, we secured a $2.9 million collateralized loan during the third quarter of 2009, and applied $748,379 to improvements in our plant and equipment during the second half of the year. The modest growth in our printing revenue for the first six months of 2010 indicates a first step toward realizing the benefit of that investment.
The 36.9% gross margin realized by our subsidiary, Harbin Golden Sea, on sales in the first six months of 2010 was only slightly better than the 36.2% gross margin realized in first six months of 2009. The gross margin was adversely affected by the decline of our equipment business, which operated at a loss during the first six months of 2010. However, margins from our printing business also remained lower than optimal. Our business plan contemplates that gross margin from printing services will average approximately 45%, albeit within a range of 35% to 50%, depending on the components of the business.
As the Chinese banking industry is moving towards stabilization, our expectation is that we will be able to revive our sales growth and return our printing operations to the levels of profitability that they sustained prior to the international credit crisis.
Although our general and administrative expenses spiked in the second quarter of 2010, this represented a balance to particularly low expenses in the first quarter, reflecting uneven timing of expense realization. Overall, we operated more efficiently during the first six months of 2010 that during the first half of the prior year. Total operating expenses during the first six months of 2010 were $509,818, a 26% decline from the $691,663 in operating expenses that we incurred during the first six months of 2009. The decline was attributable to our continuing efforts to achieve efficiencies in our operations, leading to a decrease of $69,605 in our selling and distribution expenses and $112,240 in our general and administrative expenses for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. When demand for our products returns to prior levels, we will endeavor to maintain the efficiencies that we implemented during the current slow period.
Our increased efficiency was sufficient to offset the reduction in our revenues from the first six months of 2009 to the first six months of 2010. Income from operations, therefore, increased by 5%, from $941,796 in the first six months of 2009 to $988,250 in the first six months of 2010. During the second quarter, however, our income from operations fell by 16% from $472,025 in the second quarter of 2009 to $397,643 in the second quarter of 2010.
During the third quarter of 2009 we obtained a $2.9 million bank loan, which we repaid during the second quarter of 2010. The finance charges attributable to the bank loan, $102,521 in the six months ended June 30, 2010 and $63,315 in the three months ended June 30, 2010, offset the gains we had made in the six month period. Our net income before income taxes and provision for noncontrolling interests, therefore, fell during the six month period ended June 30, 2010 from $949,166 to $891,739.
Commencing in 2008, we became subject to preferential Chinese income tax rates of 9% for 2008, 10% for 2009 and 11% for 2010, respectively. As a result of this government allowance, we were taxed at a 10% rate in the first six months of 2009, causing an expense of $122,675, and at an 11% rate in the first six months of 2010, cause an expense of $103,520. In 2011 our income will be taxed at the national rate of 25%.
The operations of our subsidiary, Harbin Golden Sea, produced $806,430 in income during the first six months of 2010 and $307,550 in the second quarter of 2010. However, because we own only 90% of Harbin Golden Sea, we deducted “noncontrolling interests” of $80,643 and $30,755, respectively, before recognizing net income on our Consolidated Statements of Income and Comprehensive Income. After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income for the first six months of 2010 was $707,576, representing $.04 per share, a 4% decrease from the net income we achieved in the first six months of 2009. Net income for the quarter ended June 30, 2010 was $267,613 ($.01 per share), which was 27% lower than during the quarter ended June 30, 2009.
After repaying our bank loan, we held $0.3 million in cash and equivalents at June 30, 2010. We have no debt payment obligations and are cash positive in our operations. Moreover, since we are operating profitably and hold over $5.4 million in fixed assets free of lien, we expect to be able to secure bank financing when our operations warrant capital expansion. For that reason, we expect our liquidity will be sufficient in the next year to fund our ongoing operations as well as our near-term growth.
Remarkable that they still can manage a profitable business. With a book value of $0.79 and $0.04 in the pocket for H1 it will be difficult to achieve an EPS of $0.10, but it is not impossible.
POSITION: LONG
China Watcher
Richard Baum has serious credentials: a senior China scholar at UCLA, high-level U.S. policy adviser, oft-quoted expert in the media, and founder/list manager of the world's largest listserv for professional China scholars, journalists and policy analysts. Though Baum has written six academic books during his 45-year career, his latest book, "China Watcher: Confessions of a Peking Tom," is like no other on his publications list.
For the first time, he drops his academic objectivity to give readers a candid, eye-opening and sometimes hilarious account of his many adventures as he uses his keen intellect, instincts and sheer luck to penetrate China's thick wall of political secrecy.
"I've witnessed a good deal of the transformation of China," Baum told his colleagues at a recent gathering to talk about his book. "But as an academic, you don't express yourself in an unfiltered way." But during a sabbatical he took three years ago in France, Baum decided to give in to the pleas of friends and relatives and write a book that relays all the rewards, frustration, intrigue, embarrassing moments and highlights of his fascinating career. "It was time to stop hiding behind the footnotes," he said, smiling. The book "is China up close and personal, and it's China-watching up close and personal."
Baum never dreamed that, as a Jewish-American kid growing up in Los Angeles, he would become a sinologist. "My only experience with Chinese culture was eating the fortune cookies from Madame Wu's Cantonese Gardens. … There were the Saturday morning matinees featuring Charlie Chan and Fu Manchu. But beyond that, I really had no predilection for being a China scholar."
But when Baum was in his senior year as a political science major at UCLA, he needed a poli sci class that fit his schedule — and Political Science 159: Government and the Politics of China — was it. "I stumbled into that class," he said. The professor, H. Arthur Steiner, a former Marine Corps colonel, ran his class like a drill sergeant. But his eyewitness accounts about postwar China, supplemented by books and mimeographed documents, completely captivated Baum. He eagerly delved into the early years of the Communist revolution, the history of the Chinese Communist Party and Mao's Great Leap Forward, followed by its dismantling by Liu Shaoqi and Deng Xiaoping.
His serendipitous discovery of what would become his life's work is "testimony to the banal roots of life-altering choices," he said. A final irony: Baum now teaches Political Science 159 at UCLA.
In a story with all the intrigue of a spy novel, Baum tells how his career as a scholar was launched with classified documents that he stole (and later replaced) from the "dirty books" room in a Taiwanese think tank. Again, luck played a role in how he got access to these secret papers that contained startling revelations about what was going on at the highest levels of the Communist Party.
Baum takes readers along as he gets his first glimpse of China in 1975 as a scholar escort to a track and field team; as he witnesses the student demonstrations that led up to the Tiananmen Square Massacre in 1989; and as he is summoned to Camp David to brief President George H.W. Bush and White House Cabinet members prior to Bush's first presidential trip to Asia.
Over the years, Baum has made more than three dozen trips to China, lectured at 14 of its universities, visited 23 of its 27 provinces and spoken to peasants and senior Politburo leaders alike. Here, for the first time through his eyes, is China unabashed.
For a complete review
http://cnreviews.com/people/journalists/richard-baum-china-watcher_20100809.html
For the first time, he drops his academic objectivity to give readers a candid, eye-opening and sometimes hilarious account of his many adventures as he uses his keen intellect, instincts and sheer luck to penetrate China's thick wall of political secrecy.
"I've witnessed a good deal of the transformation of China," Baum told his colleagues at a recent gathering to talk about his book. "But as an academic, you don't express yourself in an unfiltered way." But during a sabbatical he took three years ago in France, Baum decided to give in to the pleas of friends and relatives and write a book that relays all the rewards, frustration, intrigue, embarrassing moments and highlights of his fascinating career. "It was time to stop hiding behind the footnotes," he said, smiling. The book "is China up close and personal, and it's China-watching up close and personal."
Baum never dreamed that, as a Jewish-American kid growing up in Los Angeles, he would become a sinologist. "My only experience with Chinese culture was eating the fortune cookies from Madame Wu's Cantonese Gardens. … There were the Saturday morning matinees featuring Charlie Chan and Fu Manchu. But beyond that, I really had no predilection for being a China scholar."
But when Baum was in his senior year as a political science major at UCLA, he needed a poli sci class that fit his schedule — and Political Science 159: Government and the Politics of China — was it. "I stumbled into that class," he said. The professor, H. Arthur Steiner, a former Marine Corps colonel, ran his class like a drill sergeant. But his eyewitness accounts about postwar China, supplemented by books and mimeographed documents, completely captivated Baum. He eagerly delved into the early years of the Communist revolution, the history of the Chinese Communist Party and Mao's Great Leap Forward, followed by its dismantling by Liu Shaoqi and Deng Xiaoping.
His serendipitous discovery of what would become his life's work is "testimony to the banal roots of life-altering choices," he said. A final irony: Baum now teaches Political Science 159 at UCLA.
In a story with all the intrigue of a spy novel, Baum tells how his career as a scholar was launched with classified documents that he stole (and later replaced) from the "dirty books" room in a Taiwanese think tank. Again, luck played a role in how he got access to these secret papers that contained startling revelations about what was going on at the highest levels of the Communist Party.
Baum takes readers along as he gets his first glimpse of China in 1975 as a scholar escort to a track and field team; as he witnesses the student demonstrations that led up to the Tiananmen Square Massacre in 1989; and as he is summoned to Camp David to brief President George H.W. Bush and White House Cabinet members prior to Bush's first presidential trip to Asia.
Over the years, Baum has made more than three dozen trips to China, lectured at 14 of its universities, visited 23 of its 27 provinces and spoken to peasants and senior Politburo leaders alike. Here, for the first time through his eyes, is China unabashed.
For a complete review
http://cnreviews.com/people/journalists/richard-baum-china-watcher_20100809.html
Saturday, August 14, 2010
China MediaExpress Holdings (NASDAQ: CCME) Shorter's Playball
What do short sellers know, what we don't know?
China MediaExpress Holdings, operates the largest television advertising network on inter-city express buses in China. Flat panel display screens are installed on 23.200 buses throughout China. Top and bottom line growth is coming primarily from the airport buses where premium advertisers are looking to get their message out to air travelers- the most affluent in China. Over 400 companies advertise with CCME, the client list includes local brand names as well as well-known international and national brands such as Coca Cola (KO), Pepsi (PEP), Siemens (SI), Hitachi (HIT), China Telecom (CHA), China Mobile (CHL), China Post, Toyota (TM), Bank of China and China Pacific Life Insurance.
The company's Q2 results were astonishing. CCME delivered $52 million in revenues in Q2- up 180% from Q2 '09. Margins were better, coming in at 70% vs 62%. Net profits were up 244% to $28.5 million, Earnings Per Share were $0.80. The company has a nice margin of safety with $140 million in cash, about $4 per share. The company expects to make $82 million in profits this year or an EPS around $2.30. Despite their own projections I guess an EPS of $3.00 is a real possibility. If we calculate 10x EPS, you have a $30 stock.
The company is doing its part, but I'm not sure the market is ready to do its part. Short sellers are punishing the stock for something a normal value investor doesn't understand. The reported short interest has doubled since June from about 1 million shares to 2 million shares, and the shorts don't seem to be scrambling to cover on the earnings. It's about 7 trading days of volume to cover this short. This short interest is the rocket fuel that will someday fly this stock to heaven and many short sellers hands are going to be burned.
Short sellers are no doubt emboldened by their success with the smear campaign of Orient Paper (ONP), so one wonders if the same sort of thing is planned in this case. Their auditor is not an outsourced version of BDO in China as was the case with ONP- it is Deloitte Touche- a big 4 auditor - and a well respected name in the audit world. A major investment firm- Starr International, performed months of due diligence before investing $30m in CCME. June 3 the company became listed on the Nasdaq Global Select market which has the highest corporate governance requirements.
The fight between longs and shorts will go on. The longs have the upper hand on the fundamentals and ask themselves when this stock is going to heaven. The shorts are guessing what to do and in the worst case bring controversial rumors in the market to defend their position.
One day we all will know who was right and who was wrong.
POSITION: NO
China MediaExpress Holdings, operates the largest television advertising network on inter-city express buses in China. Flat panel display screens are installed on 23.200 buses throughout China. Top and bottom line growth is coming primarily from the airport buses where premium advertisers are looking to get their message out to air travelers- the most affluent in China. Over 400 companies advertise with CCME, the client list includes local brand names as well as well-known international and national brands such as Coca Cola (KO), Pepsi (PEP), Siemens (SI), Hitachi (HIT), China Telecom (CHA), China Mobile (CHL), China Post, Toyota (TM), Bank of China and China Pacific Life Insurance.
The company's Q2 results were astonishing. CCME delivered $52 million in revenues in Q2- up 180% from Q2 '09. Margins were better, coming in at 70% vs 62%. Net profits were up 244% to $28.5 million, Earnings Per Share were $0.80. The company has a nice margin of safety with $140 million in cash, about $4 per share. The company expects to make $82 million in profits this year or an EPS around $2.30. Despite their own projections I guess an EPS of $3.00 is a real possibility. If we calculate 10x EPS, you have a $30 stock.
The company is doing its part, but I'm not sure the market is ready to do its part. Short sellers are punishing the stock for something a normal value investor doesn't understand. The reported short interest has doubled since June from about 1 million shares to 2 million shares, and the shorts don't seem to be scrambling to cover on the earnings. It's about 7 trading days of volume to cover this short. This short interest is the rocket fuel that will someday fly this stock to heaven and many short sellers hands are going to be burned.
Short sellers are no doubt emboldened by their success with the smear campaign of Orient Paper (ONP), so one wonders if the same sort of thing is planned in this case. Their auditor is not an outsourced version of BDO in China as was the case with ONP- it is Deloitte Touche- a big 4 auditor - and a well respected name in the audit world. A major investment firm- Starr International, performed months of due diligence before investing $30m in CCME. June 3 the company became listed on the Nasdaq Global Select market which has the highest corporate governance requirements.
The fight between longs and shorts will go on. The longs have the upper hand on the fundamentals and ask themselves when this stock is going to heaven. The shorts are guessing what to do and in the worst case bring controversial rumors in the market to defend their position.
One day we all will know who was right and who was wrong.
POSITION: NO
Lotus Pharmaceuticals (LTUS) on track, highlights Q2
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
Total net revenues for the three months ended June 30, 2010 were $19,105,001 as compared to total net revenues of $13,631,729 for the three months ended June 30, 2009, an increase of $5,473,272 or 40.2%.
For the three months ended June 30, 2010, wholesale revenues increased by $2,072,414 or 19.4%. The increase was mainly attributable to the increase in our products delivered through our national wholesale channels. We anticipate that our wholesale revenues will continue to increase in the rest of 2010 since the newly added five prescription drugs are expected to increase our market share.
For the three months ended June 30, 2010, retail revenues increased by $3,400,942 or 123.2%. The significant increase was primarily attributable to the growth and success of our OTC Drug Division’s sales force. We expect our retail revenue from our own ten drug stores will remain in its current level with small growth and our retail revenue from our direct sales to other drug stores in Beijing will continue to increase in the rest of 2010.
Cost of sales for our wholesale and other revenues includes direct materials, direct labor fees, manufacturing overhead such as indirect materials, indirect labor fees, utilities and depreciation indirectly related to production, related taxes and purchase third-party manufactured finished goods. For the three months ended June 30, 2010, our total cost of sales amounted to $9,105,751 or 47.7% of total net revenues as compared to cost of sales of $5,743,166 or 42.1% of total net revenues for the three months ended June 30, 2009. During the three months ended June 30, 2010, it was humid in Beijing. In addition, a portion of our prior warehouse was removed in order to construct the new building in Beijing. Therefore, our warehouse capacity reached 100% and could not satisfy our demand in the three months ended June 30, 2010. We addressed this issued by reducing our sales price and shortening the storage period for our inventory. As a result, the cost of sales as a percentage of total net revenue was increased. We expect our cost of sales as a percentage of total net revenue will remain in its current level in the rest of 2010.
Gross profit for the three months ended June 30, 2010 was $9,999,250 or 52.3% of total net revenues, as compared to $7,888,563 or 57.9% of total net revenues for the three months ended June 30, 2009. The decrease in gross profit margin was attributable to the increase in cost of sales as a percentage of total net revenue. We expect that our gross profit margin will remain in its current level with minimal growth in the rest of 2010.
Total operating expenses for the three months ended June 30, 2010 were $3,450,507, as compared to the total operating expenses of $2,570,338 for the three months ended June 30, 2009, an increase of $880,169 or 34.2%. This increase included the following:
For the three months ended June 30, 2010, selling expenses amounted to $2,375,159 as compared to $1,801,235 for the three months ended June 30, 2009, an increase of $573,924 or 31.9%. This increase is primarily attributable to the increase of our sales revenues. We expect our selling expenses will increase in the near future since we anticipate that our revenues will increase in the rest of 2010.
For the three months ended June 30, 2010, general and administrative expenses were $1,075,348, as compared to the general and administrative expenses of $769,103 for the three months ended June 30, 2009, an increase of $306,245 or 39.8%. Mainly to consulting expenses.
As a result of forgoing, we reported income from operations of $6,548,743 for the three months ended June 30, 2010 as compared to income from operations of $5,318,225 for the three months ended June 30, 2009, an increase of $1,230,518 or 23.1%.
As a result of these factors, we reported a net income of $6,322,262 for the three months ended June 30, 2010 as compared to net income of $4,785,533 for the three months ended June 30, 2009. This translated to basic earnings per common share of $0.12 and $0.11, and diluted earnings per common share of $0.12 and $0.10, for the three months ended June 30, 2010 and 2009, respectively.
At June 30, 2010 and December 31, 2009, we had a cash balance of $1,078,724 and $3,945,740, respectively. These funds are in various financial institutions located in China.
Our working capital increased $6,092,933 to $1,140,199 at June 30, 2010 from working capital deficit of $(4,952,734) at December 31, 2009. This increase in working capital is primarily attributed to an increase in accounts receivable of approximately $3.26 million, an increase in inventories of approximately $0.64 million, an increase in prepaid expenses and other assets (current portion) of approximately $0.29 million, a decrease in accounts payable and accrued expenses of approximately $0.29 million, a decrease in other payables of approximately $0.73 million, a decrease in unearned revenue of approximately $0.52 million, a decrease in Series A convertible redeemable preferred stock of approximately $4.17 million offset by a decrease in cash of approximately $2.87 million, an increase in taxes payable of approximately $0.61 million and an increase in due to related parties (current portion) of approximately $0.29 million.
As of June 30, 2010, our accounts receivable was $5,044,427 as compared to $1,784,194 as of December 31, 2009, an increase of $3,260,233. The increase was primarily due to the increase in our sales revenue.
As of June 30, 2010, we had a property and equipment, net of accumulated depreciation, of $28,105,096 as compared to $16,223,775 as of December 31, 2009, an increase of $11,881,321. The increase was primarily attributable to the increased purchases of approximately $11,826,000 for our construction-in-progress of Beijing office building (See note 3) and the favorable RMB currency appreciation which converted our property and equipment, net of accumulated depreciation, in RMB into higher US dollar amounts offset by the depreciation on our fixed assets of approximately $13,000 for the first half of fiscal 2010.
At June 30, 2010, we had Series A Convertible Redeemable Preferred Stock of $0 as compared to $4,170,572 at December 31, 2009, a decrease of $4,170,572. The decrease was attributable to the conversion of the Series A Convertible Redeemable Preferred Stock of $4,048,200 and the reclassification of $595,233 into permanent equity since the mandatory redeemable feature lapsed, offset by the amortization of discount on convertible redeemable preferred stock of $151,553 and the issued additional convertible redeemable preferred stock of $321,308 as dividends in the first quarter of fiscal 2010.
Our balance sheet as of June 30, 2010 also reflects notes payable to related parties of $5,090,316 due on December 30, 2015 which was a series of working capital loans made to us since December 31, 2005 by the Company’s Chief Executive Officer, his wife, two employees of the Company and a Board member. These loans bear interest based on a floating annual interest rate, which is 80% of China bank interest rate and are unsecured. During the six months ended June 30, 2010, we did not repay any portion of the principal of these loan balances.
We believe that our working capital is sufficient to fund our current operations for the next 12 months. Lotus East has historically funded its capital expenditures from its working capital. Lotus East has contractual commitments for approximately $54.1 million related to a Technology Transfer Agreement and the construction of the new manufacturing facility in Inner Mongolia and a New Drug Patent Transfer Agreement. While it intends to fund the costs with its existing working capital associated with the Technology Transfer Agreement and the New Drug Patent Transfer Agreement and a portion of the construction of the new manufacturing facility, it is dependent upon the continued growth of its operations and prompt payment of outstanding accounts receivables by its customers to ensure that it has sufficient cash for these commitments. Our ability to fully fund the costs associated with the new manufacturing facility is materially dependent upon our ability to obtain secured bank financing and/or government grants and/or other third party finance.
There is no guarantee that Lotus East can obtain these financings on favorable terms at the right time. Although the Chinese government has announced an economic stimulation plan, there is no guarantee that we will be awarded the government grants successfully. While Lotus East’s management believes the Company will be successful in securing the necessary funding through its increasing revenue, faster collections on receivables, and continuance discussions with various commercial banks, there are no assurances that the funding will be available in the amounts or at the time required to meet Liang Fang’s commitments. In the event that Lotus East is not successful in obtaining the funds it needs for the Technology Transfer Agreement and the New Drug Patent Transfer Agreement, it is possible that it could default under the terms of the two agreements and forfeit any funds paid to date. If Lotus East fails to obtain all of the funding necessary to complete the construction of the new facility in Inner Mongolia, which is estimated to be approximately $52.0 million in the next five years, it could get back approximately $39.9 million spent to date, including the approximately $32.8 million for the installments on the land use rights, which is refundable if the Chinese local government would not grant it land use rights certificate.
A lot of reading but we are on track to see EPS of around $ 0.45 ($ 0.21 H1) this year. Cash on the balance sheet is low, but working capital is sufficient for the coming 12 months. With a trailing P/E ratio lower than 3, the company is deeply undervalued, also if you look to the book value of $ 1.55.
POSITION: LONG
Total net revenues for the three months ended June 30, 2010 were $19,105,001 as compared to total net revenues of $13,631,729 for the three months ended June 30, 2009, an increase of $5,473,272 or 40.2%.
For the three months ended June 30, 2010, wholesale revenues increased by $2,072,414 or 19.4%. The increase was mainly attributable to the increase in our products delivered through our national wholesale channels. We anticipate that our wholesale revenues will continue to increase in the rest of 2010 since the newly added five prescription drugs are expected to increase our market share.
For the three months ended June 30, 2010, retail revenues increased by $3,400,942 or 123.2%. The significant increase was primarily attributable to the growth and success of our OTC Drug Division’s sales force. We expect our retail revenue from our own ten drug stores will remain in its current level with small growth and our retail revenue from our direct sales to other drug stores in Beijing will continue to increase in the rest of 2010.
Cost of sales for our wholesale and other revenues includes direct materials, direct labor fees, manufacturing overhead such as indirect materials, indirect labor fees, utilities and depreciation indirectly related to production, related taxes and purchase third-party manufactured finished goods. For the three months ended June 30, 2010, our total cost of sales amounted to $9,105,751 or 47.7% of total net revenues as compared to cost of sales of $5,743,166 or 42.1% of total net revenues for the three months ended June 30, 2009. During the three months ended June 30, 2010, it was humid in Beijing. In addition, a portion of our prior warehouse was removed in order to construct the new building in Beijing. Therefore, our warehouse capacity reached 100% and could not satisfy our demand in the three months ended June 30, 2010. We addressed this issued by reducing our sales price and shortening the storage period for our inventory. As a result, the cost of sales as a percentage of total net revenue was increased. We expect our cost of sales as a percentage of total net revenue will remain in its current level in the rest of 2010.
Gross profit for the three months ended June 30, 2010 was $9,999,250 or 52.3% of total net revenues, as compared to $7,888,563 or 57.9% of total net revenues for the three months ended June 30, 2009. The decrease in gross profit margin was attributable to the increase in cost of sales as a percentage of total net revenue. We expect that our gross profit margin will remain in its current level with minimal growth in the rest of 2010.
Total operating expenses for the three months ended June 30, 2010 were $3,450,507, as compared to the total operating expenses of $2,570,338 for the three months ended June 30, 2009, an increase of $880,169 or 34.2%. This increase included the following:
For the three months ended June 30, 2010, selling expenses amounted to $2,375,159 as compared to $1,801,235 for the three months ended June 30, 2009, an increase of $573,924 or 31.9%. This increase is primarily attributable to the increase of our sales revenues. We expect our selling expenses will increase in the near future since we anticipate that our revenues will increase in the rest of 2010.
For the three months ended June 30, 2010, general and administrative expenses were $1,075,348, as compared to the general and administrative expenses of $769,103 for the three months ended June 30, 2009, an increase of $306,245 or 39.8%. Mainly to consulting expenses.
As a result of forgoing, we reported income from operations of $6,548,743 for the three months ended June 30, 2010 as compared to income from operations of $5,318,225 for the three months ended June 30, 2009, an increase of $1,230,518 or 23.1%.
As a result of these factors, we reported a net income of $6,322,262 for the three months ended June 30, 2010 as compared to net income of $4,785,533 for the three months ended June 30, 2009. This translated to basic earnings per common share of $0.12 and $0.11, and diluted earnings per common share of $0.12 and $0.10, for the three months ended June 30, 2010 and 2009, respectively.
At June 30, 2010 and December 31, 2009, we had a cash balance of $1,078,724 and $3,945,740, respectively. These funds are in various financial institutions located in China.
Our working capital increased $6,092,933 to $1,140,199 at June 30, 2010 from working capital deficit of $(4,952,734) at December 31, 2009. This increase in working capital is primarily attributed to an increase in accounts receivable of approximately $3.26 million, an increase in inventories of approximately $0.64 million, an increase in prepaid expenses and other assets (current portion) of approximately $0.29 million, a decrease in accounts payable and accrued expenses of approximately $0.29 million, a decrease in other payables of approximately $0.73 million, a decrease in unearned revenue of approximately $0.52 million, a decrease in Series A convertible redeemable preferred stock of approximately $4.17 million offset by a decrease in cash of approximately $2.87 million, an increase in taxes payable of approximately $0.61 million and an increase in due to related parties (current portion) of approximately $0.29 million.
As of June 30, 2010, our accounts receivable was $5,044,427 as compared to $1,784,194 as of December 31, 2009, an increase of $3,260,233. The increase was primarily due to the increase in our sales revenue.
As of June 30, 2010, we had a property and equipment, net of accumulated depreciation, of $28,105,096 as compared to $16,223,775 as of December 31, 2009, an increase of $11,881,321. The increase was primarily attributable to the increased purchases of approximately $11,826,000 for our construction-in-progress of Beijing office building (See note 3) and the favorable RMB currency appreciation which converted our property and equipment, net of accumulated depreciation, in RMB into higher US dollar amounts offset by the depreciation on our fixed assets of approximately $13,000 for the first half of fiscal 2010.
At June 30, 2010, we had Series A Convertible Redeemable Preferred Stock of $0 as compared to $4,170,572 at December 31, 2009, a decrease of $4,170,572. The decrease was attributable to the conversion of the Series A Convertible Redeemable Preferred Stock of $4,048,200 and the reclassification of $595,233 into permanent equity since the mandatory redeemable feature lapsed, offset by the amortization of discount on convertible redeemable preferred stock of $151,553 and the issued additional convertible redeemable preferred stock of $321,308 as dividends in the first quarter of fiscal 2010.
Our balance sheet as of June 30, 2010 also reflects notes payable to related parties of $5,090,316 due on December 30, 2015 which was a series of working capital loans made to us since December 31, 2005 by the Company’s Chief Executive Officer, his wife, two employees of the Company and a Board member. These loans bear interest based on a floating annual interest rate, which is 80% of China bank interest rate and are unsecured. During the six months ended June 30, 2010, we did not repay any portion of the principal of these loan balances.
We believe that our working capital is sufficient to fund our current operations for the next 12 months. Lotus East has historically funded its capital expenditures from its working capital. Lotus East has contractual commitments for approximately $54.1 million related to a Technology Transfer Agreement and the construction of the new manufacturing facility in Inner Mongolia and a New Drug Patent Transfer Agreement. While it intends to fund the costs with its existing working capital associated with the Technology Transfer Agreement and the New Drug Patent Transfer Agreement and a portion of the construction of the new manufacturing facility, it is dependent upon the continued growth of its operations and prompt payment of outstanding accounts receivables by its customers to ensure that it has sufficient cash for these commitments. Our ability to fully fund the costs associated with the new manufacturing facility is materially dependent upon our ability to obtain secured bank financing and/or government grants and/or other third party finance.
There is no guarantee that Lotus East can obtain these financings on favorable terms at the right time. Although the Chinese government has announced an economic stimulation plan, there is no guarantee that we will be awarded the government grants successfully. While Lotus East’s management believes the Company will be successful in securing the necessary funding through its increasing revenue, faster collections on receivables, and continuance discussions with various commercial banks, there are no assurances that the funding will be available in the amounts or at the time required to meet Liang Fang’s commitments. In the event that Lotus East is not successful in obtaining the funds it needs for the Technology Transfer Agreement and the New Drug Patent Transfer Agreement, it is possible that it could default under the terms of the two agreements and forfeit any funds paid to date. If Lotus East fails to obtain all of the funding necessary to complete the construction of the new facility in Inner Mongolia, which is estimated to be approximately $52.0 million in the next five years, it could get back approximately $39.9 million spent to date, including the approximately $32.8 million for the installments on the land use rights, which is refundable if the Chinese local government would not grant it land use rights certificate.
A lot of reading but we are on track to see EPS of around $ 0.45 ($ 0.21 H1) this year. Cash on the balance sheet is low, but working capital is sufficient for the coming 12 months. With a trailing P/E ratio lower than 3, the company is deeply undervalued, also if you look to the book value of $ 1.55.
POSITION: LONG
Friday, August 13, 2010
Sancon Resources Recovery (SRRY) Q2 results
Revenue are generated by service charges and the sale of recyclable materials. Revenue for the three months period ended June 30, 2010 were $3,067,299, representing $324,167 or 12% increase compared to the sales of $2,743,132 in the same period of 2009.
The revenues in the waste service business increased from $2,207,113 for the three months period ended June 30, 2009 to $2,383,387 for the three months period ended June 30, 2010, an increase of $176,274 or 8%. The revenue in the material recycling business also increased $147,893 or 28% from $536,019 for the three months period ended June 30, 2009 to $683,912 for the three months period ended June 30, 2010. The increase in revenue in waste service is partially because of acquisition of Shanghai Sheng Rong in May 2010. Although suffering the globle economic crisis, our material recycling business is getting better.
The cost of revenue is the direct cost for sale of the recycling materials. For the three months period ended June 30, 2010, the cost of revenue was $1,575,990. It was $251,333 or 19% increase as compared to the cost of sales of $1,324,657 for the three months period ended June 30, 2009. Among which, the cost of revenue in the waste service business increased $127,105 or 11% from $1,121,990 for the three months period ended June 30, 2009 to $1,249,095 for the three months period ended June 30, 2010. The increase mainly contained $128,106 of labor service fee for sub contractors. This cost was related to our Chinese market expandant. Cost of revenue in the material recycling business for the three months period ended June 30, 2009 and 2010 was $202,667 and $326,895 respectively, an increase of $124,228 or 61%. The increase of cost of sales in our material recycling business was in line with the sales.
For the three months period ended June 30, 2010 and 2009, cost of revenue was 51% and 48% of sales respectively.
The gross profit for the three months period ended June 30, 2010 was $1,491,309, representing $72,834 or 5% increase compared to $1,418,475 for the three months period ended June 30, 2009. The gross margin reduced from 52% for the three months period ended June 30, 2009 to 49% for the three months period ended June 30, 2010. Gross profit in the waste service business increased $49,169 or 5% from $1,085,123 for the three months preiod ended June 30, 2009 to $1,134,292 for the same periods in 2010. Gross profit in the material recycling business increased $23,665 or 7% from $333,352 for the three months preiod ended June 30, 2009 to $357,017 for the same period in 2010. The increase in revenue becomes the main reason for the growth in gross profit.
Selling, general and administrative expenses increased to $923,966 for the three months period ended June 30, 2010, from $821,652 for the three months period ended June 30, 2009, an increase of $102,314 or 12%. The SG&A expenses in the waste service business was $492,202 for the three months period ended June 30, 2009, this number decreased to $488,445 for the three months period ended June 30, 2010. It decreased $3,757 or 1%. The SG&A expenses in the material recycling business increased $101,221 or 36% from $285,050 for the three months period ended June 30, 2009 to $386,271 for the three months period ended June 30, 2010. The increase was mainly contained $19,269 of wages and $30,765 of freight outwards. The SG&A expenses also included investor relationship expenses and option expenses which increased $4,850 or 11% from $44,400 for the three months period ended June 30, 2009 to $49,250 for the three months period ended June 30, 2010.
The SG&A expenses was 30% of the revenue for the three months period ended June 30, 2010 and 2009.
Depreciation expense increased to $64,990 for the three months preiod ended June 30, 2010 from $46,011 for the three months preiod ended June 30, 2009. It increased $18,979 or 41%. The depreciation expense in the waste service business increased $21,568 or 104% to $42,246 for the three months preiod ended June 30, 2010 from $20,678 for the three months preiod ended June 30, 2009. For the three months preiod ended June 30, 2010 and 2009, depreciation expense was 2% of the revenue respectively.
For the three months period ended June 30, 2010, the Company booked other income of $38,678 compared to $11,105 for the three months preiod ended June 30, 2009. The increase in other income is $27,573 or 248%. That is mainly because of the gain on acquisition.
For the three months period ended June 30, 2010, other income was 1% of the revenue while it was 0.4% for the three months preiod ended June 30, 2009.
Net income for the three months preiod ended June 30, 2010 was $537,262, compared to $534,725 for the three months preiod ended June 30, 2009, an increase of $2,537 or 0.5%. Net profit margin for the three months period ended June 30, 2010 was 18% while it was 19% for the same period in 2009.
etc. etc. xxx
Conclusion: Diluted earnings per share were $ 0.02 in Q2. $ 0.05 for the first six months. Not impressive. That's why the stock price is going sideways already for months. I am lowering even my EPS expectations to $ 0.10 for 2010, this will even be a challenge. Guys where is the growth????
POSITION: LONG
The revenues in the waste service business increased from $2,207,113 for the three months period ended June 30, 2009 to $2,383,387 for the three months period ended June 30, 2010, an increase of $176,274 or 8%. The revenue in the material recycling business also increased $147,893 or 28% from $536,019 for the three months period ended June 30, 2009 to $683,912 for the three months period ended June 30, 2010. The increase in revenue in waste service is partially because of acquisition of Shanghai Sheng Rong in May 2010. Although suffering the globle economic crisis, our material recycling business is getting better.
The cost of revenue is the direct cost for sale of the recycling materials. For the three months period ended June 30, 2010, the cost of revenue was $1,575,990. It was $251,333 or 19% increase as compared to the cost of sales of $1,324,657 for the three months period ended June 30, 2009. Among which, the cost of revenue in the waste service business increased $127,105 or 11% from $1,121,990 for the three months period ended June 30, 2009 to $1,249,095 for the three months period ended June 30, 2010. The increase mainly contained $128,106 of labor service fee for sub contractors. This cost was related to our Chinese market expandant. Cost of revenue in the material recycling business for the three months period ended June 30, 2009 and 2010 was $202,667 and $326,895 respectively, an increase of $124,228 or 61%. The increase of cost of sales in our material recycling business was in line with the sales.
For the three months period ended June 30, 2010 and 2009, cost of revenue was 51% and 48% of sales respectively.
The gross profit for the three months period ended June 30, 2010 was $1,491,309, representing $72,834 or 5% increase compared to $1,418,475 for the three months period ended June 30, 2009. The gross margin reduced from 52% for the three months period ended June 30, 2009 to 49% for the three months period ended June 30, 2010. Gross profit in the waste service business increased $49,169 or 5% from $1,085,123 for the three months preiod ended June 30, 2009 to $1,134,292 for the same periods in 2010. Gross profit in the material recycling business increased $23,665 or 7% from $333,352 for the three months preiod ended June 30, 2009 to $357,017 for the same period in 2010. The increase in revenue becomes the main reason for the growth in gross profit.
Selling, general and administrative expenses increased to $923,966 for the three months period ended June 30, 2010, from $821,652 for the three months period ended June 30, 2009, an increase of $102,314 or 12%. The SG&A expenses in the waste service business was $492,202 for the three months period ended June 30, 2009, this number decreased to $488,445 for the three months period ended June 30, 2010. It decreased $3,757 or 1%. The SG&A expenses in the material recycling business increased $101,221 or 36% from $285,050 for the three months period ended June 30, 2009 to $386,271 for the three months period ended June 30, 2010. The increase was mainly contained $19,269 of wages and $30,765 of freight outwards. The SG&A expenses also included investor relationship expenses and option expenses which increased $4,850 or 11% from $44,400 for the three months period ended June 30, 2009 to $49,250 for the three months period ended June 30, 2010.
The SG&A expenses was 30% of the revenue for the three months period ended June 30, 2010 and 2009.
Depreciation expense increased to $64,990 for the three months preiod ended June 30, 2010 from $46,011 for the three months preiod ended June 30, 2009. It increased $18,979 or 41%. The depreciation expense in the waste service business increased $21,568 or 104% to $42,246 for the three months preiod ended June 30, 2010 from $20,678 for the three months preiod ended June 30, 2009. For the three months preiod ended June 30, 2010 and 2009, depreciation expense was 2% of the revenue respectively.
For the three months period ended June 30, 2010, the Company booked other income of $38,678 compared to $11,105 for the three months preiod ended June 30, 2009. The increase in other income is $27,573 or 248%. That is mainly because of the gain on acquisition.
For the three months period ended June 30, 2010, other income was 1% of the revenue while it was 0.4% for the three months preiod ended June 30, 2009.
Net income for the three months preiod ended June 30, 2010 was $537,262, compared to $534,725 for the three months preiod ended June 30, 2009, an increase of $2,537 or 0.5%. Net profit margin for the three months period ended June 30, 2010 was 18% while it was 19% for the same period in 2009.
etc. etc. xxx
Conclusion: Diluted earnings per share were $ 0.02 in Q2. $ 0.05 for the first six months. Not impressive. That's why the stock price is going sideways already for months. I am lowering even my EPS expectations to $ 0.10 for 2010, this will even be a challenge. Guys where is the growth????
POSITION: LONG
China Agri-Business's (CHBU) new direct sales channel continues to grow
China Agri-Business, Inc. (CHBU), a manufacturer and distributor of organic agricultural application products in China, today announced an increase in the number of its "New Agriculture-Generator" direct sales stores, which contributed to the increase in the Company's sales for the second quarter ended June 30, 2010. The Company expects to report sales of $ 4,993,000 for the six months ended June 30, 2010 compared with sales of $ 1,173,447 for the comparable period of 2009, an increase of 325% that was primarily due to the increase in direct sales stores. According to preliminary estimates, the Company's direct sales stores accounted for about 84% of the Company's sales during the first six months of 2010.
The Company opened 101 new direct stores in the second quarter ended June 30, 2010 and another 46 in the month of July. At July 31, 2010, the Company was operating 346 direct-sales stores, including 178 stores in Shaanxi province, 106 in Hunan province, and 62 stores in Sichuan province. The Company expects to reach its previously announced target of 500 direct sales stores by the end of October 2010, rather than by the end of 2010 as previously announced.
The opening of direct sales stores is an important part of the Company's "New Agriculture-Generator" initiative, which the Company started in the fourth quarter of 2008 and is aggressively pursuing. The objective of this initiative is to expand and strengthen China Agri's connection with farmers, promote the Company's products and services, and increase the Company's market share by establishing close, direct, and helpful relationships with farmers. At the Company's direct sales stores, farmers can purchase fertilizer products, including organic fertilizers made by China Agri, have access to the Company's sales staff who are knowledgeable about the products offered, and receive services that include technical support. This will help farmers to increase their crop yields and productivity and, in turn, should encourage them to be loyal long-term customers for China Agri. The Company believes its channel of direct sales stores is an important key to higher sales and the Company's long-term growth.
Mr. Liping Deng, Chief Executive Officer, President, and Director of China Agri-Business, Inc., said, "Our rapid implementation of this continuing initiative has already been helpful in promoting our products and increasing our sales. We believe that our reputation for high quality products, modern management methods, our efficient and fast growing sales network, and the technical support we provide to farmers, has resulted in higher brand recognition of our products, both locally in the provinces where we currently have stores and in other provinces.
"We believe our expanding sales network is enhancing our competitiveness and positioning the Company for further growth. While we are currently focused on the Shaanxi and nearby provinces, we intend to expand gradually into additional regions of China."
A very positive message from management which I believe will benefit the stock price the coming periods. Q2 EPS results could be much more than my expectation of $ 0.03. Sales Q1 were $ 1.540.941 so they improved by 124% to $ 3.452.059. Net income for Q2 could be around $ 1.800.000. If we make a calculation of 15 mln. diluted shares than EPS Q2 could be $ 0.12. But I guess I have to consider also CAPEX so margins could erode. Let's see!!!!!!!!!
POSITION: LONG
The Company opened 101 new direct stores in the second quarter ended June 30, 2010 and another 46 in the month of July. At July 31, 2010, the Company was operating 346 direct-sales stores, including 178 stores in Shaanxi province, 106 in Hunan province, and 62 stores in Sichuan province. The Company expects to reach its previously announced target of 500 direct sales stores by the end of October 2010, rather than by the end of 2010 as previously announced.
The opening of direct sales stores is an important part of the Company's "New Agriculture-Generator" initiative, which the Company started in the fourth quarter of 2008 and is aggressively pursuing. The objective of this initiative is to expand and strengthen China Agri's connection with farmers, promote the Company's products and services, and increase the Company's market share by establishing close, direct, and helpful relationships with farmers. At the Company's direct sales stores, farmers can purchase fertilizer products, including organic fertilizers made by China Agri, have access to the Company's sales staff who are knowledgeable about the products offered, and receive services that include technical support. This will help farmers to increase their crop yields and productivity and, in turn, should encourage them to be loyal long-term customers for China Agri. The Company believes its channel of direct sales stores is an important key to higher sales and the Company's long-term growth.
Mr. Liping Deng, Chief Executive Officer, President, and Director of China Agri-Business, Inc., said, "Our rapid implementation of this continuing initiative has already been helpful in promoting our products and increasing our sales. We believe that our reputation for high quality products, modern management methods, our efficient and fast growing sales network, and the technical support we provide to farmers, has resulted in higher brand recognition of our products, both locally in the provinces where we currently have stores and in other provinces.
"We believe our expanding sales network is enhancing our competitiveness and positioning the Company for further growth. While we are currently focused on the Shaanxi and nearby provinces, we intend to expand gradually into additional regions of China."
A very positive message from management which I believe will benefit the stock price the coming periods. Q2 EPS results could be much more than my expectation of $ 0.03. Sales Q1 were $ 1.540.941 so they improved by 124% to $ 3.452.059. Net income for Q2 could be around $ 1.800.000. If we make a calculation of 15 mln. diluted shares than EPS Q2 could be $ 0.12. But I guess I have to consider also CAPEX so margins could erode. Let's see!!!!!!!!!
POSITION: LONG
Wednesday, August 11, 2010
Tuesday, August 10, 2010
China Insonline Corp (CHIO) dismissed their Public Accounting Firm
(a) Dismissal of Weinberg & Company, P.A. On August 4, 2010 (the “Dismissal Date”), China INSOnline Corp. (the “Registrant”) notified Weinberg & Company, P.A. (“Weinberg”) that the Registrant was dismissing Weinberg as its independent registered public accounting firm, effective immediately. The Registrant’s Board of Directors approved the dismissal of Weinberg as the Registrant’s independent registered public accounting firm.
Weinberg’s reports on the Registrant’s financial statements for the fiscal years ended June 30, 2009 and 2008 did not contain an adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended June 30, 2009 and 2008, and during the subsequent interim period through the Dismissal Date, there were no disagreements between the Registrant and Weinberg on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Weinberg, would have caused Weinberg to make reference to the subject matter of the disagreements in connection with its reports on the Registrant’s financial statements for such periods.
During the fiscal years ended June 30, 2009 and 2008, and during the subsequent interim period through the Dismissal Date, there was one “reportable event,” as defined in Regulation S-K Item 304(a)(1)(v). In performing the audit of the Registrant's consolidated financial statements for the fiscal year ended June 30, 2009, Weinberg advised the Registrant’s management and the Board of Directors that it had identified the following material weakness: there was a lack of sufficient accounting staff which resulted in a lack of effective controls necessary for a good system of internal control for financial reporting and there was a weakness in the internal controls relating to the financial statement closing process which resulted primarily from the fact that certain parts of the work of the Registrant’s accounting staff may not be monitored or reviewed correctly. The material weakness described above continued to exist as of the quarter ended September 30, 2009, December 31, 2009 and March 31, 2010, as reported in the Registrant's Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 13, 2009, February 16, 2010 and May 27, 2010. For a further discussion of the foregoing material weakness please refer to Item 9A(T) of the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2009, filed with the Securities and Exchange Commission on October 13, 2009.
The Registrant has authorized Weinberg to respond fully to the inquires of the Registrant's newly appointed independent registered public accounting firm concerning the subject matter of the material weakness described in this Form 8-K. Other than as disclosed in this Form 8-K, there did not exist any "reportable events" as that term is defined in Item 304(a)(1)(v) during the fiscal years ended June 30, 2009 and 2008, and the interim period through the Dismissal Date.
The Registrant has provided Weinberg with a copy of the above disclosures and requested that Weinberg furnish the Registrant with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the foregoing statements and, if not, stating the respects in which it does not agree. A copy of the letter from Weinberg is filed herewith as Exhibit 16.1.
A red flag if you ask me. The company doesn't pay attention to his shareholders. Months ago I sent a list of questions regarding their business, no answers. What we have to say more..............?
POSITION: LONG
Weinberg’s reports on the Registrant’s financial statements for the fiscal years ended June 30, 2009 and 2008 did not contain an adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended June 30, 2009 and 2008, and during the subsequent interim period through the Dismissal Date, there were no disagreements between the Registrant and Weinberg on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Weinberg, would have caused Weinberg to make reference to the subject matter of the disagreements in connection with its reports on the Registrant’s financial statements for such periods.
During the fiscal years ended June 30, 2009 and 2008, and during the subsequent interim period through the Dismissal Date, there was one “reportable event,” as defined in Regulation S-K Item 304(a)(1)(v). In performing the audit of the Registrant's consolidated financial statements for the fiscal year ended June 30, 2009, Weinberg advised the Registrant’s management and the Board of Directors that it had identified the following material weakness: there was a lack of sufficient accounting staff which resulted in a lack of effective controls necessary for a good system of internal control for financial reporting and there was a weakness in the internal controls relating to the financial statement closing process which resulted primarily from the fact that certain parts of the work of the Registrant’s accounting staff may not be monitored or reviewed correctly. The material weakness described above continued to exist as of the quarter ended September 30, 2009, December 31, 2009 and March 31, 2010, as reported in the Registrant's Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 13, 2009, February 16, 2010 and May 27, 2010. For a further discussion of the foregoing material weakness please refer to Item 9A(T) of the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2009, filed with the Securities and Exchange Commission on October 13, 2009.
The Registrant has authorized Weinberg to respond fully to the inquires of the Registrant's newly appointed independent registered public accounting firm concerning the subject matter of the material weakness described in this Form 8-K. Other than as disclosed in this Form 8-K, there did not exist any "reportable events" as that term is defined in Item 304(a)(1)(v) during the fiscal years ended June 30, 2009 and 2008, and the interim period through the Dismissal Date.
The Registrant has provided Weinberg with a copy of the above disclosures and requested that Weinberg furnish the Registrant with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the foregoing statements and, if not, stating the respects in which it does not agree. A copy of the letter from Weinberg is filed herewith as Exhibit 16.1.
A red flag if you ask me. The company doesn't pay attention to his shareholders. Months ago I sent a list of questions regarding their business, no answers. What we have to say more..............?
POSITION: LONG
China launches industry alliance to promote TCM (Traditional Chinese Medicine)
A government-backed industry-university alliance was launched in Beijing on Saturday August 8, to further promote the traditional Chinese medicine (TCM) in the global market.
Members of the alliance include Peking University, Beijing University of Chinese Medicine, the health ministry's development center for medical science and technology, and 12 domestic pharmaceutical corporations.
"The alliance marks a new stage in the development of TCM's entering the global market," said Wang Guoqiang, vice minister of the health ministry, also director of the TCM State Administration.
The alliance's launch came as Tianjin-based Tasly Pharmaceutical Co. announced Saturday that the company's Compound Danshen Dripping Pill had been tested safe and effective during the U.S. Food and Drug Administration (FDA)'s Phase II clinical trials.
The FDA had also approved the drug to enter the Phase III trials, said Tasly chairman Yan Xijun, also a board member of the TMC promotion alliance.
He added that he expected the drug to enter U.S. and global drug markets in 2013.
FDA Phase II trials gauge the effectiveness of a drug and its side effects and risks, while Phase III trials are more extensive. Once Phase III is complete, a pharmaceutical company can request the FDA approval for marketing the drug in the U.S.
The Compound Danshen Dripping Pill is mainly used to treat angina and coronary heart diseases. More than 10 million people worldwide take the pills annually, according to Tasly.
With domestic sales of more than one billion yuan (about 148 million U.S. dollars) last year, the drug was the first Chinese patent traditional medicine to pass the FDA's Phase II trials.
Despite 2,000-years of use on home turf, Chinese traditional medicines often find it tough to enter markets dominated by Western pharmaceuticals.
None of the Chinese patent medicines has so far been approved for marketing in the mainstream U.S. and European drug markets.
Previously, the Compound Danshen Dripping Pill had only been approved by drug watchdogs in Canada, Russia, Republic of Korea, Vietnam, Singapore and some African countries.
One major obstacle Chinese drug firms face when obtaining market approvals in the U.S. and European countries is how to explain the ways traditional Chinese medicines work in a scientific language that appeals to Western ears.
Many traditional Chinese medicines are mixtures of a number of ingredients, which makes them much more difficult to explain than western drugs in a quantitative sense.
The huge expense of conducting the FDA's marathon-like three-phase clinical trials, often mounting to hundreds of millions of dollars, and unfamiliarity with laws and regulations in Western countries made things even more complicated.
Hopefully, the TCM promotion alliance might change the current situation for the good.
"With support from the government and collaboration among its members, the alliance will enhance our research capabilities, and could invite more overseas experts to provide guidance for us to promote TCMs in the global market," said Zhang Boli, president of Tianjin University of Traditional Chinese Medicine.
Tasly's success in passing the FDA Phase II clinical trials was also of great help for Chinese firms undergoing similar drug trials, said Zhang, who is also a member of the Chinese Academy of Engineering.
"It is a breakthrough in the globalization of traditional Chinese medicines," he said.
Vice Health Minister Wang Guoqiang also said that Tasly's progress in FDA clinical trials could play an exemplary role for other Chinese patent traditional medicine.
Yan Xijun said Tasly was willing to share with the alliance's members its experience in passing the FDA's clinical trials.
"It should be a long-term strategy for Chinese patent traditional drugs to seek FDA recognition in order to be further promoted in the global market," he said.
He said the newly launched TCM promotion alliance hopes to see at least one Chinese patent traditional medicine entering the U.S. and European drug market by 2015, one to two drugs undergoing FDA Phase III clinical trials and at least three undergoing Phase II trials by that time.
This is important news which can benefit the whole industry. TCM manufacturers like Renhuang Pharmaceuticals (CBP), Weikang Bio-Tech Group (WKBT), BioStar Pharmaceuticals (BSPM) and many others have a bright future ahead if they can tap foreign pharmaceutical markets.
POSITION: LONG CPB and WKBT
Members of the alliance include Peking University, Beijing University of Chinese Medicine, the health ministry's development center for medical science and technology, and 12 domestic pharmaceutical corporations.
"The alliance marks a new stage in the development of TCM's entering the global market," said Wang Guoqiang, vice minister of the health ministry, also director of the TCM State Administration.
The alliance's launch came as Tianjin-based Tasly Pharmaceutical Co. announced Saturday that the company's Compound Danshen Dripping Pill had been tested safe and effective during the U.S. Food and Drug Administration (FDA)'s Phase II clinical trials.
The FDA had also approved the drug to enter the Phase III trials, said Tasly chairman Yan Xijun, also a board member of the TMC promotion alliance.
He added that he expected the drug to enter U.S. and global drug markets in 2013.
FDA Phase II trials gauge the effectiveness of a drug and its side effects and risks, while Phase III trials are more extensive. Once Phase III is complete, a pharmaceutical company can request the FDA approval for marketing the drug in the U.S.
The Compound Danshen Dripping Pill is mainly used to treat angina and coronary heart diseases. More than 10 million people worldwide take the pills annually, according to Tasly.
With domestic sales of more than one billion yuan (about 148 million U.S. dollars) last year, the drug was the first Chinese patent traditional medicine to pass the FDA's Phase II trials.
Despite 2,000-years of use on home turf, Chinese traditional medicines often find it tough to enter markets dominated by Western pharmaceuticals.
None of the Chinese patent medicines has so far been approved for marketing in the mainstream U.S. and European drug markets.
Previously, the Compound Danshen Dripping Pill had only been approved by drug watchdogs in Canada, Russia, Republic of Korea, Vietnam, Singapore and some African countries.
One major obstacle Chinese drug firms face when obtaining market approvals in the U.S. and European countries is how to explain the ways traditional Chinese medicines work in a scientific language that appeals to Western ears.
Many traditional Chinese medicines are mixtures of a number of ingredients, which makes them much more difficult to explain than western drugs in a quantitative sense.
The huge expense of conducting the FDA's marathon-like three-phase clinical trials, often mounting to hundreds of millions of dollars, and unfamiliarity with laws and regulations in Western countries made things even more complicated.
Hopefully, the TCM promotion alliance might change the current situation for the good.
"With support from the government and collaboration among its members, the alliance will enhance our research capabilities, and could invite more overseas experts to provide guidance for us to promote TCMs in the global market," said Zhang Boli, president of Tianjin University of Traditional Chinese Medicine.
Tasly's success in passing the FDA Phase II clinical trials was also of great help for Chinese firms undergoing similar drug trials, said Zhang, who is also a member of the Chinese Academy of Engineering.
"It is a breakthrough in the globalization of traditional Chinese medicines," he said.
Vice Health Minister Wang Guoqiang also said that Tasly's progress in FDA clinical trials could play an exemplary role for other Chinese patent traditional medicine.
Yan Xijun said Tasly was willing to share with the alliance's members its experience in passing the FDA's clinical trials.
"It should be a long-term strategy for Chinese patent traditional drugs to seek FDA recognition in order to be further promoted in the global market," he said.
He said the newly launched TCM promotion alliance hopes to see at least one Chinese patent traditional medicine entering the U.S. and European drug market by 2015, one to two drugs undergoing FDA Phase III clinical trials and at least three undergoing Phase II trials by that time.
This is important news which can benefit the whole industry. TCM manufacturers like Renhuang Pharmaceuticals (CBP), Weikang Bio-Tech Group (WKBT), BioStar Pharmaceuticals (BSPM) and many others have a bright future ahead if they can tap foreign pharmaceutical markets.
POSITION: LONG CPB and WKBT
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