OCI International Holdings Ltd. (DGTLF)

[newmedman]

Ok, I just finished reading the prospectus for restructuring again. It takes a little while as there are 100+ pages.
http://www.dragonite.com.hk/upload/news/1294655964_E329_CR.pdf

In the appendix, I gathered some interesting info regarding the e-cig side of the biz. They took a big hit last year, but in light of the new information 2011 looks very good to me. Here is the story-----------------------------------------------------------------------------


6. BUSINESS REVIEW FOR THE YEAR ENDED 31 DECEMBER 2009
BUSINESS REVIEW
2009 was an extremely difficult year for the Group. As a result of the poor
financial performance, the Group faced serious financial problems and was unable to
meet full payment of the scheduled redemption under the amended terms of the
convertible bonds of the Group.
Turnover of the Group for the year ended 31 December 2009 decreased by
76. 99% to approximately HK$97, 586, 000. Except for the reason of the global financial
crisis, the decrease in turnover was mainly due to the following reasons:
a) The marketing and advertising activities in relation to the Group’s electronic
cigarette products throughout the year were reduced as compared with
previous years. In particular, advertisement and promotion on television were
reduced in order to save costs.
b) The sales of electronic cigarettes products declined as a result of the
growing threat from counterfeit brands and new regulatory restriction
imposed against import of electronic cigarettes products by some overseas
countries including but not limited to North America and Israel. Moreover,
as quality issue happened in one of our electronic cigarettes products in
September 2009, sales return was recorded in the second half of 2009.
c) In October 2009, the Good Manufacturing Practices (“GMP”) license of the
Group’s factory in Shenyang for health care products expired and the Group
failed to renew the license immediately, leading to return of goods from
customers during October to December 2009. The GMP licence was
subsequently renewed in February 2010.
Loss for the year 2009 increased by 169. 62% to approximately HK$443, 907, 000
and was mainly attributed to the following adverse factors:
1. Provision for impairment of inventory at about HK$191, 706, 000 was made
as a result of technical or commercial obsolescence. Provision was also made
for the returned electronic cigarette products and pharmaceutical products
due to quality or licensing issues mentioned above.
2. Impairment loss on trade receivables in the amount of HK$78, 904, 000 was
made. It was mainly related to the customers with long outstanding balances.
As mentioned above, quality issue happened in our electronic cigarette
business and the Group failed to renew the GMP license of its factory
immediately after its expiry during the year. As a result, customers have
once lost confidence in the Company’s products and a number of customers
have delayed or even refused to settle their outstanding balances. It is
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
– 81 –
expected that the Group will commence legal proceedings against such
customers in order to recover the receivables if the situation does not
improve in the coming year.
3. Impairment loss on property, plant and equipment and intangible assets in
the amount of HK$20 million was made. It was mainly resulted from the
continuing deterioration in the business of the Group due to the decline in
turnover, customers’ purchase orders, production scale and customer
confidence as a consequence of the financial crisis and the factors mentioned
above. The decline in production scale significantly reduced the recoverable
amounts of the fixed assets which is much lower than their carrying value.
Since 2008, various well-known multinational corporations of health care products
have established their branch factories in the PRC by way of, among others,
acquisition, mergers and leasing. At present, about 400 imported health care foods have
been approved and launched in the PRC, generating a great competitive force. Although
we are facing a very competitive market situation and the sales volume of health care
products declined due to the fact that the GMP license of our factory temporarily
expired in October 2009, we will strengthen management of our sales team and develop
the sales market, while leveraging on the products and brand advantages of the
Company and actively search for the sole agents and regional agents for our products
with traditional features. By making better use of our agents, network and mechanism,
the sales volume of products is expected to increase in future.
As for the pharmaceutical business, the Essential Medicine List being introduced
by the national authority brought mingled hope and fear for pharmaceutical enterprises.
Azithromycin Granules (II), a pharmaceutical product of the Group, has been listed in
the National List of Essential Drugs (2009 Edition). The sales market has been
developed and a new niche for profit growth of the Company is formed.
In 2009, the sales of electronic cigarettes products declined significantly as a
result of the growing threat from counterfeit brands and new regulatory restriction
imposed on the importation of electronic cigarettes products in some overseas markets.
The regulatory status for the Company’s electronic cigarette around the world is
constantly shifting. Classifications and enforcement range from free sales as a smoking
alternative to outright bans. In the United States (the “US”), import of electronic
cigarettes has not been fully resumed after restrictions were imposed in mid-2009 by
the US Customs. Future regulations and related enforcement for this market may
change again. Nevertheless, the Group has worked closely with partners and
governments to launch core products, explore new markets, strengthen patent
protection, address regulatory concerns and compete with illicit brands and
manufacturers. As a result, distribution business in North America, the United
Kingdom, France, Korea, Malaysia, Israel, Scandinavia, and Greece was improved; and
regulatory approvals were obtained in France, Spain, Italy, Germany, Sweden, Japan,
Russia, Malaysia, Australia and other countries.
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
– 82 –
Invention patents were granted in Israel during the Year 2009. Additional lawsuits
against illicit manufacturers and vendors of electronic cigarettes were initiated in PRC
and some of the lawsuits were concluded in favour to the Group. Significantly, the
patents of a substantial number of counterfeit manufacturers were also invalidated by
the Chinese Patent Authority, due to violations of the Company’s own patents in the
PRC.
PRODUCT DEVELOPMENT
Azithromycin Granules (II), a pharmaceutical product of the Company, has been
listed in the National List of Essential Drugs (2009 Edition). The sales of this product
experienced significant growth which forms a new niche for profit growth of the
Company. Rosiglitazone Hydrochloride Capsules is the only product among other
succeeded in bidding with sales that is expected to grow further. We are confident in
the market sales in 2010.
The Company continues to market the “one-time” use RUYAN Jazz