China-Biotics, Inc. (CHBT)

[rjp]

Am doing my DD on CHBT and it looks overall a great prospect but still has to prove it can ramp up that bulk production into a meaningful revenue increase.

I have a few final questions I hope someone with more knowledge of the co can help with please.

Why are Q2 revenues less than Q1?
Q2 revs were 23.6 v’s 24.9 in Q1. In both fiscal 09 and fiscal 10 Q2 revs were higher than Q1.

In fiscal ’11, bulk revs accounted for 41% of sales in Q2 v’s 40% in Q1. Since the co says bulk run rate has increased in Q2 to 75T pa from 60T pa, why was this not reflected in increased bulk revenues as % of sales?

I believe asp’s for bulk decreased from Q1, maybe this goes some way explain it?
Then again, why did asp’s drop and is there any way of knowing if they will stabilize or fall further?
Can we expect asp’s to stay within the 650 -750$/KG range going forward?

I also am questioning why they went from 103 down to 15 retail outlets in the quarter. Although the reason seems sensible and plausible, it’s also quite a coincidence that the ‘downscaling’ has happened during the period of the short attack based around doubt about the existence of many of their retail outlets. Yes, their own retail outlets added only a small percentage to sales but the point here is honesty of management.

What is the quality of this management? The new COO seems highly qualified, what about the rest of management, can any of you longer term holders give an opinion?

http://people.forbes.com/search?ticker=CHBT

Travis Cai’s CV does not say he is GAAP qualified. Would’nt it be better if he was?

There has also been some doubt cast on BDO HK. FWIW I found this quote from their CEO which suggests that CHBT as an SEC registrant, is being audited to PCAOB standards, which effectively means it effectively has a top 5 auditor since it seems to be being audited to BDO international standards and BDO claims to be no 5 in the world based on annual turnover.

Reply from Albert Au, Chairman & CEO, BDO Limited:
BDO Limited is registered with the U.S. Public Company Accounting Oversight Board and cooperates and complies with the rules and standards of that body to the fullest extent possible, including that of inspection.

The only exception is where there is a contradiction with the laws of Hong Kong and the People's Republic of China, jurisdictions in which we and some of our clients operate. Such restrictions of course apply to all firms operating in these jurisdictions. However all BDO Limited's audits of the financial statements of our SEC registrant clients are conducted in accordance with the standards of the PCAOB.

http://seekingalpha.com/article/229517-china-biotics-a-questionable-investment?source=qp_article