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Freeze CKGT.ob
Not All Chinese Stocks Created Equal
By Liz Rappaport
Markets Columnist
6/7/2006 1:50 PM EDT
Click here for more stories by Liz Rappaport
Chinese stocks have fared better as other emerging markets plummeted in recent weeks, as has been widely reported. But comparing China to other emerging markets is like apples to oranges. The investor advantage depends on which Chinese stocks one is looking at: The real winners in the China stock story are local Chinese, not foreign investors.
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The "Chinese stocks" that most foreign investors own such as Sohu.com (SOHU:Nasdaq - commentary - research - Cramer's Take) and Baidu (BIDU:Nasdaq - commentary - research - Cramer's Take) are owned via exchange-traded funds and mutual funds. These funds, in turn, are comprised of American depositary receipts (ADRs) and Hong-Kong-listed stocks, not local Chinese stocks. This had led to some dislocation -- and perhaps investor confusion -- over the performance of "China" stocks.
During the recent selloff, the two main China ETFs, iShares FTSE/Xinhua China 25 Index (FXI:NYSE - commentary - research - Cramer's Take) and PowerShares Golden Dragon Halter USX China Portfolio (PGJ:Amex - commentary - research - Cramer's Take), fell less sharply than other emerging market ETFs. Each is each down about 11% since May 9 vs. declines of 21% for the iShares MSCI Brazil Index (EWZ:Amex - commentary - research - Cramer's Take) and 27.4% for the Morgan Stanley India Investment (IIF:NYSE - commentary - research - Cramer's Take) fund.
But, over the same period, China's local stocks have actually climbed against the global downtrend, as Barron's reported. But it is local Chinese investors that have the best opportunity to benefit. The opportunities and rewards are scarce for foreign investors, as regulations insulate its stock markets from the rest of the world.
The story is one of isolation and government control. China's small quotas for foreign investment limit its stock markets' exposure to global liquidity and investment trends, and keep these markets' performance uncorrelated to the recent emerging market bull market, says Steven Sun, analyst at HSBC Bank in Hong Kong.
Stocks included in Hong Kong's Hang Seng Index are more subject to international pressures and economics like interest rate concerns, says Kevin Gardiner, head of global equity strategy at HSBC. The Hang Seng has returned 5.8% year-to-date, but is down 8.5% from its peak on May 8. By contrast, the Shanghai Composite Index has been on a steady uptrend all year, having returned 34.6% year-to-date.
The Shanghai index's performance far outpaces the Chinese ETFs and certainly most other emerging market ETFs. China's local rally is the upswing after five years of lagging during 2001-05. "It is rising off a low base, while the global market has done well for three years," says Sun.
Most of the investment in Chinese stocks is domestic, where sentiment has been bolstered by recent regulatory reforms, says Winston Ma, author of Investing in China: New Opportunities In A Transforming Stock Market. China only recently increased to $10 billion from $6 billion the total amount of foreign investment allowed in its local stock markets -- a small fraction of the approximately $400 billion market cap of local Chinese stocks.
Sentiment among Chinese about their stock market has improved as the government has carried out its plans to circulate nontradable shares that had previously been held by state-controlled entities. The nontradable shares accounted for over 70% of the total local Chinese stock market. The first batch hit the market this month, but the plan includes a way to compensate existing shareholders for the dilution. About $8 billion worth of shares from 198 companies will be tradable by the end of this year, says Ma. Much more will be available in 2007.
"Investors feel a sense of certainty," says Ma. The government's follow-through on the nontradable shares program "shows the commitment is there to shake out the regulatory system."
As confidence builds, there is plenty of money to put to work. While Chinese stocks' total market cap is about $400 billion, savings deposits amount to several trillion dollars, says Ma. "We are seeing a lot of reactivation and rapid expansion in the number of retail accounts," says Jason Kindopp, Asia analyst at the Eurasia Group.
Reform is good, but it is just the beginning, says Kindopp. The risks of owning Chinese stocks are unique as the country's legal and regulatory infrastructures remain antiquated.
Corporate governance is virtually nonexistent and companies' finances are extremely opaque. "Very few Chinese firms have enough financial transparency that you could even conduct analysis," he says.
Nevertheless, the opacity doesn't stop institutional investors from finding ways to get in on the ground floor in China, with the hopes their investments will pay off down the road. One can simply look at the wildly popular Bank of China's $9.7 billion IPO last week. Its shares gained 14% on their first day of trading, sparking demand from U.S. retail investors for the shares, The Wall Street Journal reports.
But the allocation to top Chinese and international businessmen was called into question.
"What is clear in talking to institutional investors is that the Chinese are expecting a lot of capital and transparency of know-how [from foreign investors like Western banks] without sharing much in return," says Kindopp on the Bank's IPO. "It's like, 'teach us how to be peer competitors but don't expect much information in return.'"
The Bank of China kicked off its second week of public life by announcing Monday a new corruption case that charges a Chinese businessman with embezzling 146 million yuan, or $18 million, from a Bank of China branch. The Bank of China is no stranger to corruption, and officials say the latest corruption case "would not seriously affect the operation and fiscal situation."
The Bank of China's IPO prospectus outlined fraud amounting to $737 million, according to several news reports. In April the Bank of China fired 75 bank officials in a widespread corruption investigation. One former branch head was even given a suspended death sentence last year for his crimes.
The announcement of the latest bank manager transgression comes as Chinese regulators consider allowing The Bank of China to list its stock on a Chinese domestic exchange in addition to its listing in Hong Kong, according to news reports. This would mark the first local IPO since China closed the market for new offerings last year. The shares would be listed in Shanghai and Shenzhen, making them more easily accessible for local Chinese investors who are enjoying the tastiest fruits of China's blossoming market.
----------------------------
This article talks about the difficulty of trading in local Chinese stocks.....but neglects to mention the present opportunities in small and micro-cap stocks that are listed in the US and use GAAP. You'll be hard-pressed to find greater growth and value opportunities today, IMHO.
Wade, I've seen what StockLemon's reports did to stocks like IIG and YPNT, stocks that I have owned in the past. They were accurate about the issues surrounding those two companies, and both fell pretty hard eventually, when all the dirt finally came out. I wouldn't go against them, especially in the short run.
While I don't like their tactics, I think that some of the issues they raise are thought provoking and are usually well researched.
I have no position in HOM and don't follow the company well enough to answer your question as to the quality of HOM's rebuttal. However, if they are having to issue PRs aimed at stopping a short attack, its a bad sign.
Stocklemon out with another update on HOM:
http://www.stocklemon.com/06_06_06.html
Yes, this is an aggressive move but we have such great stockpickers that I thought this might work out by the end of the contest.
CEDA is a stock I've traded before. I thought FV was closer to 1.00 and was happy to get it earlier this year....still feel that way even with the big dump today. My guess is that its related to the shares issued in connection with the original reverse merger. We'll see if a Form 144 is filed in a week or so.
Hi Stan, didn't plan to cut it that close....I'll abide by whatever the judges decide on that one.
Trade SIMC for CEDA.ob
2morrowsGains, I guess you meant that no recent Form 144s were filed for BBC? I see 2.2MM shares filed for sale in the past year, with a big chunk of those coming around the peak for the stock earlier in the year.
http://www.nasdaq.com/asp/holdings.asp?mode=&page=&symbol=BBC&symbol=&symbol=&sy...
Public float (via Yahoo):
Share Statistics
Average Volume (3 month)3: 371,788
Average Volume (10 day)3: 216,788
Shares Outstanding: 18.18M
Float: 10.71M
% Held by Insiders4: 40.34%
% Held by Institutions4: 15.50%
Shares Short (as of 10-May-06)3: 825.46K
Short Ratio (as of 10-May-06)3: 1.4
Short % of Float (as of 10-May-06)3: N/A
Shares Short (prior month)3: 676.72K
I have seen in previous filings that 3MM shares were issued to early Bodisen shareholders back in March 2004:
"On February 24, 2004, the Company issued 3.0 million shares of its Common Stock to the stockholders of Bodisen International, Inc., in connection with the acquisition of the Company’s current sole operating subsidiary, Yang Ling Bodisen Biology Science and Technology Development Company Limited. See Item 1, “Description of Business, Introduction and Background,” above. The sale was effective pursuant to a private placement under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.
------------------
According to my understanding of Form 144, as long as these shareholders aren't insiders, then they can sell without restrictions after the 2 year mark. Hard to know how much of the 2.2MM shares already sold via 144 comprise these 3MM shares or not....
EP, CXTI has hit the 2.40 level several times and sold off. My guess is that this is the price at which the CD holders will start to hedge the potential position they can take if the remainder is converted into stock:
"Conversion Price. The conversion price in effect on any Conversion Date shall be equal to the lesser of (a) $1.80, subject to adjustment herein (the “Set Price”) and (b) 75% of the average of the 5 consecutive VWAPs immediately prior to the applicable Conversion Date (subject to adjustment herein)(the “Conversion Price”).
75% of 2.40 is 1.80. Expect some pretty stiff resistance anywhere above that price until the closing period of the CD (sometime in October, I believe.)
Tomorrowsgains, I agree about BBC. There is a serious supply of stock for sale....I've been trying to get an updated public float number to no avail. I may have to call the company in China and hope that someone there speaks enough English to get my request for information on this approved.
I have some suspicions that some formerly restricted stock has become freely tradeable, but it could also be a) shorters or b) a large institutional position being liquidated.
Stocklemon just posted a warning about HOM.....as usual, they have an agenda and are most likely short the stock.
http://www.stocklemon.com/06_02_06.html
They have a pretty decent track record of finding stocks likely to trade lower. They usually post some pretty persuasive stuff and there are a lot of shorters who follow them.
I have no position in HOM, but I know that there are a few VMCers who like the stock.
Hweb, re NGA. This is the key element in your argument for NGA:
"if they are successful in passing along those increases.."
The economy was very strong in Q1 but we are seeing some signs of weakening in Q2. Even NGA seems to think that they will have some difficulty maintaining price increases:
"Commenting further, Mr. Evans said, "First quarter volume improvement reflects the increase in capital goods spending and general improvement in the economy. Additionally, our employees' focus on customer service and quality is showing positive results. However, with continuing increases in zinc pricing, the market could react by substituting other corrosion protection alternatives, such as paint, or by postponing projects. The Company cannot be assured that continuing zinc price increases will be absorbed by the market."
I think a safer play is the zinc producers, if one was inclined to invest in this area. NGA appears to be involved in the production of steel products:
"North American Galvanizing is a leading provider of hot-dip galvanizing and coatings for corrosion protection of fabricated steel products. The Company conducts its galvanizing and coating business through a network of plants located in Canton, Ohio; Denver, Hurst (Dallas/Forth Worth), Houston, Kansas City, Louisville, Nashville, St. Louis and the Tulsa area. Hot-dip galvanizing provides metals corrosion protection for many product applications used in commercial, construction and industrial markets.
If anyone is going to get squeezed first, my guess is it will probably be these kinds of companies in the middle...
Michael T, thank you very much for your comments. Your explanations help clear up some of my confusion over the application of the rules....
It appears that option expenses will continue to appear for some time among companies that routinely use them for compensation. As they vest and are expensed over these long-term periods (3+ years), I would say that we should probably NOT exclude them from quarterly earnings as they are not one-time in nature.
Jtomm had an earlier post to me that was very eye-opening regarding this issue. He makes some excellent arguments as to why options should be counted as expenses on the income statement even though they already impact earnings via increased dilution.
jtomm, great post. Thanks for your insights!
I take it that you don't back out option expense from the income statement when evaluating earnings? You've made some very persuasive arguments for leaving it in....
Michael, perhaps you can clear up some confusion I may have with the rule about expensing options.
Are options expensed when granted or when vested? Does the strike price impact this expense recognition (i.e. are out-of-the money options counted as an expense when granted or vested?)
Thanks.
BTW - do you exclude option expense when calculating earnings and PE?
Jtomm, I think the reason that incentive employee stock options evolved and grew over time was two-fold: they were tax writeoffs to the company and were only expensed in footnotes, so the cost of issuance was hidden to most shareholders who didn't read the footnotes. The only immediate impact was the rise in fds on the income statement, and even that was mitigated by the use of the treasury stock method.
Result? An explosion in the use of options as a way to compensate upper management. I won't argue with that....but the issue for me is the use of options as a way to expense compensation. If options are going to be valued using a time premium going out 4+ years, doesn't that overstate the expense in the period its incurred? Why not amortize this over that specified time period?
Let's say that using options as compensation are now a bad idea given how they will be expensed. (Using Black-Scholes or other models) If a company just granted stock, and transferred all the risk of ownership to the new owner, then would that remove the time value component of the expense? If issued at market price, then wouldn't the "intrinsic value" of that stock be expensed by the company in the quarter the stock was granted? Sounds much cleaner to me, and from an accounting perspective is more in line with what the income statement is supposed to represent (i.e expenses associated with actions taken to generate sales in a certain time period).
Ideally, I would want managers to buy stock on the open market like the rest of us, and benefit from the long-term rise in price. Options and stock grants were supposed to align shareholders' interests with those of management, but not if management is dumping this stock because it views it as part of its compensation and not an investment. I would rather that management get cash bonuses that are clearly tied to certain agreed upon operating targets (approved by shareholders, and not a compensation committee!)
And I thought it was spelled "bagel"......
Wade, I think you answered your own question. If you have identified these companies (and I'm most familiar with ALDA) as being cyclical in nature, then yes, they are probably being pressured as some shareholders sell because of the anticipation of a slowing economy in future quarters.
ALDA is a supplier of golf shafts; golf is probably not a "growth" market and Aldila has been able to grow its sales by taking market share at the premium end of the market. This trend has been ongoing for several years and they've done a nice job of improving margins and earnings as a result. How much farther can they go? Backlog growth slowed down in its most recent quarter, but they do have a new shaft hitting the market. I think the jury is still out here, but caution is warranted.
The TTM PE is low (11-12x), but I think there is some anticipation of slower sales growth in upcoming quarters. Market is always looking out 6 mos and the most difficult thing to anticipate is a shrinking PE multiple when no perceptable change in business has occurred. Earnings may be solid for ALDA (and with the other stocks you mentioned) but if investors view the future eps growth outlook as being slower than in the past, they won't give a high multiple on either trailing or future PE. Value stocks can sometimes become "value traps" in a slowing economy.
Hweb, just a couple of points to consider regarding TATTF's report.
1. Sales were up over 100%, but adjusted for the acquisition were actually flat y/y.
"The increase in revenues and profit is mainly due to the acquisition of Piedmont Aviation Component Services, LLC which contributed more than $8,000,000 to sales and due to the efficiency measures applied by the company since its acquisition.
Had the Piedmont sales been included in last year's numbers, sales growth would have been <1%. (16407 v 16389)
2. Pretax margins are dropping, falling from 14.4% last year to 12.5% this year. Could be the new revenue mix from Piedmont or inefficiencies that haven't gotten worked out yet....still a bit of a red flag.
3. They are in a fairly "hot" sector (airplane equip suppliers) which has shown strong growth recently. Its still a fairly cyclical group will probably not warrant a high PE from the market, esp if these earnings are peaking right now....
4. The new orders are certainly nice to see, but they appear to have a fairly lengthy pattern:
"In accordance with manufacturing projections for the aircraft, the estimated sales potential for TAT Technologies in this program over the next 15 years is in excess of 17 million USD.
That's only 1.1MM avg per year, and will probably be lumpy and hard to estimate from a timing perspective.
Wade, re ACSEF. There were some Form 144 filers who sold about 193k shares back on April 28 - May 4, catching the ST peak in the stock. That capped the rally and buyers have become hesitant. We haven't seen any new 144 filings since then; probably need news about Q2 results and expectations for Q3 to spur any movement higher.
Researcher, I thought the consensus had been to toss out the non-cash expenses, including options....but slowly, grudgingly, I think this is changing.
IMHO, valuing options based upon the expected benefits that accrue to the option holders is poor accounting, as it seems to overstate their expense to the company. After all, the company receives money from the exercise of those options, so in my mind, the only real "expense" to the company is the difference in the strike price vs the market price at the time of exercise. However, options are valued using esoteric systems like Black-Scholes that bring volatility expectations into play. Why should the company have to record this as part of the expense? Its not like executives are able to benefit from this premium....they only get the market price on the day they choose to exercise. Not to mention that issuing options already impacts earnings by increasing the fd share count.......so it could be argued that expensing options is double-counting the true expense.
If any good can come out of this, I hope it is that this will change the way execs are currently compensated. Certainly, option grants have been way overdone and perhaps illegally timed (as per recent headlines on this). Now that GAAP forces an option expense to be recorded on the income statement, perhaps shareholders will wake up and demand that execs get MUCH less options in the future.
I was wondering when this was going to finally sink in....
Market Broke Down as Options Expenses Hit
By Rev Shark
RealMoney.com Contributor
5/25/2006 1:28 PM EDT
Click here for more stories by Rev Shark
About two weeks ago, the major suppliers of earnings estimate data started adjusting their numbers to reflect stock-option expenses. If you have read any earnings reports recently, you know that it is now a requirement that option expenses be accounted for each quarter.
The numbers are not insubstantial. For example, Broadcom (BRCM:Nasdaq) had earnings estimates of $1.47 per share for 2006 and $1.66 for 2007 before option expenses. Reuters and First Call are now including option costs that reduced the estimates for BRCM to 90 cents for 2006 and $1.12 for 2007. There are plenty of other examples of companies where estimates have been similarly reduced.
Is it just a coincidence that this change in earnings estimates started to appear right as the market began to break down? I'm not sure there is a direct cause-and-effect relationship, but I would hypothesize that this has helped keep buyers on the sidelines. A stock like BRCM is not nearly as attractive when you go from a P/E of 22 on current earnings to 37.
------------------------
This will impact our small and micro-caps because many of them make extensive use of options to compensate senior executives. Something to keep in mind as we progress through the year...
Read those footnotes from last year; some of our stocks may be in for an earnings 'shock'.....
Researcher, MVK doesn't benefit from rising steel prices as it is a cost input for them. The fact that earnings have risen has been their ability to pass on these price increases:
Steel Costs of Our Products
The cost of steel component historically has represented approximately 55% to 65% of our costs of goods sold. Accordingly, a key driver of our profitability is the cost of steel and our ability to pass that cost to our customers. Because we value our inventory using an average cost methodology, the steel component of our cost of goods sold lags steel purchase price changes by approximately three to four months. The average cost of steel in our cost of goods sold for the first quarter of 2005 was approximately $750 per ton compared to an average of approximately $606 per ton in the first quarter of 2006.
-Q1 06 10Q
---------------------------
What's the current price of steel/ton? The WSJ article I quoted earlier said it was $550/metric ton, but that doesn't appear to be the same measure that MVK uses in it Q.
Len, I think you still have some small control over format in Yahoo portfolio:
Click on My Portfolios.
Within the drop-down box select Manage Portfolios.
Select "Customize Display Options" which is on the right side highlighted in blue.
You should see color and alert formats.
Hope that helps.
MVK rolling over today, now down below 45. Current expectations forecast decent eps growth in FY06 and FY07:
http://finance.yahoo.com/q/ae?s=MVK
Stock is trading at 6.7x FY06 estimates.
Perhaps some are lowering their forecasts based upon the strength in steel pricing?
Steel Prices Are Likely to Jump,
Adding to Manufacturers' Woes
By PAUL GLADER
May 24, 2006; Page A2
Steel prices, which had been expected to taper off in the second half of the year, are now expected to rise nearly 19% from current levels in the third and fourth quarters to offset rising iron-ore costs.
The increase could put extra cost pressure on manufacturers contending with rising energy and commodities prices.
Some analysts ratcheted up forecasts for steel prices following 19% increases in prices for iron ore, a steelmaking ingredient, from the world's three largest iron-ore exporters -- London's Rio Tinto PLC, Brazil's Companhia Vale do Rio Doce and Australia's BHP Billiton Ltd., which control 75% of iron ore shipped abroad. The three have negotiated price increases with major European and Asian steelmakers in recent days.
----------------
In listening to previous MVK CCs, I believe they had forecast flat steel prices through this year....not sure how much this could impact margins, but obviously someone wants out today.
10bagger, can you quickly summarize the rev recognition policies for BGH.v that worried you? And are you familiar with how they are recognizing the SilverTip revenues and expenses?
Thanks.
In 2005, CHID had 2.6% of the worldwide market for these products, which was $8.4 B in 2005
2.6% of 8.4Billion = 218,400,000.
CHID's reported FY05 rev: 12,742,000
Mikeo56, how did you come up with these numbers?
Bob, thanks for relaying the text of your communication with DD. I did have one question about this:
"If ncnc files a financing statement, he said the charges/income changes from the derivative financing will end. This filing is in process and will likely take a month to become official."
I don't think DD is aware that a convertible debt arrangement will carry derivative charges until all shares have been converted into equity and the "debt" is no longer on the books. Also, the company could pay off that CD, but I doubt they are in a financial position to do that. Filing a registration form (if that's what he meant) has nothing to do with these mark-to-market quarterly charges.
At least that's my interpretation of the accounting rules on this....
Nelson, thanks for pointing that out....careless mistake on my part.
R59, I'm seeing operating income in Q4 as negative for DECT...<990>
Formatting the chart is a problem, otherwise I'd post the complete quarterly breakdown.
Where do you get 0.27 pretax??
bbotcs, while Walmart is phasing out sales of guns, its still selling gun accessories like the cleaning kits DAAT supplies. Will some WalMarts not be restocked? Perhaps....but I think demand will determine whether DAAT's gun cleaning kits get dropped completely at those stores that no longer sell guns.
DAAT has seen serious PE compression in the past year; the stock is closer to 52 week lows even though its earnings continue to improve. I would guess that its 52 week trailing PE is probably as low as its been in its history.
Curlews, DAAT is the victim of rounding off in Q1. The eps gain looks flat, but they actually did pretty well in the quarter (which is one of their weaker ones seasonally).
They continue to struggle with pretax margin improvement, but sales and net both up 20%+ is a solid result.
Some catalysts to come:
"The Company continues to develop new products, as well as expanding its direct import and private label programs. A new game processing kit and gun carrying case with built-in cleaning kit are expected to be on the market in the next few months. The Company has also reached an agreement with Kmart to put its GunMaster cleaning kits into approximately 1,100 stores."
Its amazing how well those gun cleaning sets are still selling; up 37% y/y vs Q1 05. They'll now be sold in Kmart as well, starting next quarter I presume.
The details of the Laseter sale/company purchase of stock were also disclosed:
" Dan Lasater and members of his family, affiliates of the Company executed a stock purchase agreement as of May 4, 2006, where by Mr. Lasater and family have sold their combined 679,065 common shares ownership in the Company to several individual investors for a gross sales price of $1,174,782.45 or $1.73 per share. Of such number, the Company purchased 57,065 shares for $99,933.95.
Not much of a stock buyback (~1% of fds); but at least the constant selling by Lasater is now gone, hopefully replaced by stronger owners. The company used cash to buy back the shares, and got nearly a 20% discount to market price.
I apologize if this has been mentioned before as a reason behind the decline in GACF shares....seems as if the President has been selling 250k chunks of shares over the past year:
http://biz.yahoo.com/t/77/5025.html
Still has over 1.6MM to go....
Anyone more familiar with this and can shed some light on why he's selling right now??
Hweb, I think the recent convertible deal has probably soured the near term outlook for EVNSF:
http://biz.yahoo.com/bw/060222/20060222005382.html?.v=1
A total of 10MM potentially new shares appears to be quite dilutive, based upon last year's fds count of 28.4MM shares.
Had been on a run rate of roughly 0.02/qtr....now, its possible that it may be closer to 0.01 - 0.015/qtr.
Stock had gotten ahead of itself in the 0.80s, IMO. Very conservative valuation at present, but probably not unjustified given the poor operating history here and the need for a convertible loan.
On the plus side, I wonder if this money was used to pay off the Cornell Capital note?? Anyone more familiar?
Very nice job shorting ERS, researcher. In the long run, fundamentals do ultimately win out.
Valuemind, CPHI had a great Q1 report. However, they will need to raise cash at some point this year, given that they only have 74k on the balance sheet at the end of Q1.
Some other observations:
1. OCF was -452k in Q1. That used up nearly all the cash they had at the end of last quarter. Reason? See #3.
2. An increase in stock was authorized:
"During the period ended March 31, 2006, the Company amended its articles of
incorporation to increase its authorized shares from 30,000,000 shares to
60,000,000 shares."
3. A/R takes a long time to collect (normal in China):
"Analysis of financial position
------------------------------
At March 31, 2006, cash and cash equivalents of $74,924, which were 4.34% of the
total current assets, were decreased by 83.76% compared to the same item at
December 31, 2005. The net value of property and equipment was $ 2,757,705,
13.6% of the total assets.
The trade accounts receivables were $8,251,166 and the valuation of inventory
was $6,550,268 at March 31, 2006. Trade accounts receivable and inventory
amounted to 40.7% and 32.3% respectively of the total assets. The dramatic
increase of sales revenues from the subsidiary of TS in China, Helpson, caused
the increase of the value of trade receivables. The long collection period of
accounts receivable also caused that the accounts receivable was increased by
44.51% compared with at December 31, 2005. Considering the slow collectibility,
the Company plans to pay more attention to collecting trade accounts receivable,
try to use cash-sales when selling products to new customers or small-sized
customers.
4. Risk factor as outlined in 10K:
WE MAY NEED TO RAISE ADDITIONAL CAPITAL WITHIN THE NEXT TWELVE MONTHS TO FUND
OUR OPERATIONS AND FAILURE TO RAISE ADDITIONAL CAPITAL MAY FORCE US TO DELAY,
REDUCE, OR ELIMINATE OUR PRODUCT DEVELOPMENT PROGRAMS
Due to the large funds required for research and development and the subsequent
marketing of products, the pharmaceutical industry is very capital intensive.
The industry is characterized by large receivable turnovers, which signifies
that we will need more working capital as our revenues increase. We have
traditionally been committed to biomedical R&D, and are now developing
traditional chemical medicines within specific market segments such as those of
anti-flu and anti-infection. It is likely that we will need to raise additional
capital within the next twelve months. Additional capital may be needed for the
development of new products or product lines, financing of general and
administrative expenses, licensing or acquisition of additional technologies,
and marketing of new or existing products. There are no assurances that we will
be able to raise the appropriate amount of capital needed for our future
operations. Failure to obtain funding when needed may force us to delay, reduce,
or eliminate our product development programs.
--------------------
The company needs to borrow money or issue stock or some combination of the two. I think I'll wait until I see what they decide to do, as my guess is that it will be a dilutive PIPE deal. They could try the cash up front approach on any new sales, but that will hurt sales growth.
They are in a tough spot right now. Other Chinese OTCs have make the difficult hurdle, but they'll have to be smart about who they get in bed with. AOBO is good example of the pros and cons of early PIPE financing.
Nice catch Mandjb. Here's something interesting in the deal:
"Dear Richard Pierce,
I understand that you and/(or your associates) are the principal shareholder(s) of GFR Pharmaceuticals Inc. (“GFRP” or the “Company”) a Nevada corporation, which is a public corporation that has approximately 18 registered shareholders, and is looking for combination with an operating business. You have offered to sell 200,000 shares out of the total of 570,000 shares in the Company which you own or control for the cash sum of $350,000, as part of the transactions outlined herein. There are currently a total of 1,079,940 shares outstanding.
-------------
That cash paid equals 1.75/share, and the stock is now trading at 1.25. Looks like we could go as high as that, but you're right to be wary of this deal. No financials for Pallane Medical have been posted.
If there are any ANII shareholders still out there....be warned the company just filed its proxy statement today and it intends to do a reverse split of 1:500 that will essentially enable the company to delist itself from the OTC.
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Introduction
Our board of directors has unanimously adopted resolutions approving a proposal to effect a reverse split of our common stock, subject to the approval of our shareholders. The reverse split, as approved, will combine our outstanding common stock on a one share for 500 shares basis. In other words, once the reverse split takes place, every 500 shares of common stock held by shareholders will be reduced to one share. Accordingly, the 4,733,678 shares currently issued and outstanding will be reduced to approximately 9,467 shares (subject to rounding) issued and outstanding.
Reasons for the Reverse Split
As of the date of this proxy statement, we have over 2,500 record and beneficial shareholders, numerous of whom own less than 500 shares. It is expensive and time consuming for us to communicate with these shareholders. Additionally, brokerage commissions make it expensive for shareholders to sell small numbers of our shares. Upon approval of the reverse stock split and the payment of the fair market value of the fractional shares to shareholders with less than 500 shares, we expect to substantially reduce the number of our shareholders and therefore the costs associated with communicating with these shareholders. Moreover, cash payments to shareholders will be based on the market price of our common stock and as described below and will not be diminished by brokerage commissions.
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I haven't owned ANII in well over a year, but still followed the stock. This kind of announcement has sadly become more common with the advent of new SOX rules.
Hweb, do you think that investors should back out stock option expenses (in general)? I've heard arguments on both sides, but I'm curious as to your view....
Any other comments are welcome, and it would be interesting to hear the consensus on this issue from the VMC group.
DAAT out with some pretty big news (IMHO) this AM: It announces an expansion of its Kmart/Sears relationship and also reveals that a big insider has been bought out. I think this is great news as it removes the periodic selling from this insider (Dan Lasater) that had been an overhang on the stock.
DAC Technologies Announces Private Transaction
Tuesday May 16, 8:45 am ET
LITTLE ROCK, AR--(MARKET WIRE)--May 16, 2006 -- DAC Technologies (OTC BB:DAAT.OB - News) today announced a private transaction in which accredited investors and DAC Technologies agreed to purchase all the outstanding shares (679,065 shares) from Dan Lasater and his family. Keane Securities of New York City handled this transaction.
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David A. Collins, Chairman and CEO, stated, "The Company has reached an agreement to put its GunMaster gun cleaning kits into Sears/Kmart's approximately 1,100 stores in the July/August time frame."
Collins further stated, "Mr. Bob Goodwin, the Company's CFO, was recently hospitalized, but has now returned to work. This has caused the Company to file for a one week extension for the filing of its 10Q for the quarter ended March 31, 2006."
About DAC:
DAC Technologies Group International, Inc. is an outsource manufacturer of high quality, reasonably priced security safes, gunlocks, gun cleaning kits and security products, as well as accessory items for the sporting goods market. DAC distributes its products through mass merchandisers such as Wal Mart and Kmart, and sporting goods retailers and distributors such as Dick's, Big Five, Cabela's, Acusport, Jerry's, RSR and others. DAC also provides gunlocks to OEM gun manufacturers such as Glock, SigArms, Savage, Marlin and Taurus, as well as others. Also, DAC's products are distributed through catalog companies.