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.
AI
