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Monday, February 09, 2009 1:51:41 PM

Re: DigiTech post# 26

Post# of 110
Reposting Digi explanation of the visit:

If this stock turns out to be a scam stock too, it tells me that even visiting and seeing the operation directly means squat, which is sad.

they said they will file their SEC filing and move to .OB from .PK but I haven't seen that happening yet.

Anyone dare to add at these levels...?

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Report on GENX's visit. (VMC repost)

On the 17th I flew from Korea to Tianjin. Tianjin is a very large city of 14 M located next to Beijing. They will have several events of the Olympics in that city. Many biotech companies are located in Tianjin.

At the airport I was met by 2 young ladies from the Golden Group. One of them was the assistant to Mr. Song the Chairman of GG and owner of 72% of GENX shares. The Golden Group is a conglomerate of several companies owned by Mr. Song and his son. Total workforce is 1500.

After lunch we went to visit the new GENX factory. I was met there by the GM, the Golden Group, the operation manager and the CFO of GENX. Unfortunately I do not have any photos since my camera was stolen the following week. The building is very large. I estimated around 300,000 sq ft with room to expand. It is located in an economic zone of Tianjin with many foreign companies. The shell of the building is completed and I counted around 50 to 75 workers on a Saturday!

I was a bit chocked at the size of the building. 50% of the building will be for GENX. The outside will be completed in 3 month with production starting in Q4. Full production will be possible in Q1 2008. When I asked what production level they expected I really taken aback. They expect to be able to increase production from 5 times 10 times the present production. They also expect that the production cost will be tremendously reduced due to the volume and new equipment. My immediate question was: “Can you sale the increased production?” the answer: “absolutely yes”

My internal calculator went to work right away:

$700K (Q run rate) X by 5 X by 4Q = $11.2 M revenue

$ 0.01 (Q profit per share) X by 5 X by 4 Q = $ 0.20 per share

I kept it as a straight line and did not include cost reduction just to be conservative.

Not bad for a 12 to 15 c stock !!!!!!!! You should try the numbers with 10 X production.

After that we went to the Golden Group factory. This is a very large place located close by. They house several of the Biotech companies of the Group as well as the Chemical division. The site is not exactly modern. It is and old Chemical factory China style. Meaning, forget about safety. The Biotech building looked more recent. The size of the land is around 100 to 200 acres.

The conference room was very very large (sorry no photo) On the walls they had photos of Mr. song with the Chairman of China Hu Jintao during his visit of the plan. Hu Jintao was seating at the same place I was (Too bad I did not have my VMC T shirt) . Mr Song is well connected.

The discussion covered many different subjects. I will give you the reader’s digest version of it because it was very painful at some points due to the translation.
Yes they now have a new WEB site. www.RBX-BMP.com. It is in Chinese only since they do not sale outside of China.

I asked if they will have an info page in English for stockholders. They told me that they are negotiating with a PR firm. I did mention that this could be done in a couple of hours!


They will be filling their 10 K on time and yes Q4 will be better than Q3.

Q3 was impacted by a big squeeze on pricing control by the Government. Several competitors did not survive. GENX did survive and increased their market share. The plant expansion will enable them to reduce the cost and maintain their profitability at the same time.

I could not get a very good answer about the tax liability due to late filling in 2004 and 2005. I think it is because the auditors are handling it and that the number is not significant.

Now for the infamous loans.

The loans have been made to several companies that are part of the group. There are no warrants attached as I previously believed. I made my point very strongly that this is not a good idea. They should have an arms length relationship between companies in the group. Their point was that it is the way business is done in China. The loans were used to finance the building expansion GENX is part of. Without the loans GENX would not have been able to expand production and marketing reach and be able to share resources with the other companies. It is true that GENX uses a lot of the Group’s resources.
I would not buy this in the US or Europe but this is China and I have seen the same thing done in several other companies.
However if GENX grows 5 or 10 X by 2008 who cares!

I asked again if they can really sale the forecasted output of the plant and the answer was very positive. The market is supplying only a small portion of the need. The problem has always been the cost. With lower cost the market will absorb the supply. This would mean that the revenue multiplier would be impacted but price sensitivity is only around 20 to 30%.

Their expansion to the dental market is also on track. 10 hospitals are now testing the product. This market could be larger than the bone injuries market and has a potential for Export. We discussed the export aspect. They would need to go the licensing way since they would no be able to resolve the regulatory issues themselves.


We had also a very long discussion about the stock market, investments in new venture etc. I told them some of the steps they have to take starting with moving out of .PK. and establishing practices that are in line with western expectations of public companies behavior. I urged them to do some PR about the company status and I will help them do that. I have a lot of work to do there but I will get there. BTW thanks to everybody that sent some private and public posts about .OB procedures.


Overall a good visit. If they execute the plan this could be an easy 5 or 10 baggers but this is China so who knows!
By keeping on top of them at least we have a better chance.

They invited me to come back in a couple of month. I guess they did not mind a shareholder asking questions.

BG
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