Asia Cork (AKRK) research, news, and more from GeoInvesting

Company description

Wed, 25 Jun 2008 04:00:00 GMT

Located in Xi'an, China, Hankersen is a rapidly growing leader in the development, manufacturing and marketing of cork-based building materials. The company's products include raw and semi-finished cork materials, and finished cork products such as cork floorboards and cork wallboards. Approximately 75% of the company's products are sold within China and the rest are sold overseas to customers in the United States, Germany, Japan and India. The company currently capitalizes on four technological patents. The company operates in China under the Hanxin brand.

Reverse Merger Filing

Liquidity Requirements

Thu, 26 May 2011 04:00:00 GMT

On October 31, 2010, a second amendment agreement was entered into between the Company and the note holders whereby the maturity date was further extended to February 28, 2011 and the interest rate under the notes remained at 18% per annum from the issuance date through the maturity date. The Company has filed a registration statement with respect to a proposed public offering with the Securities and Exchange Commission (the “Registration Statement”), with respect to certain Units consisting of Common Stock and warrants. Upon the closing of the proposed offering, the Company shall: (1) pay the investors cash by wire transfer in an amount equal to $350,000 (50% of the outstanding principal amount of the notes) and (2) the investors shall receive, upon conversion of the balance due under the note, such whole number of fully paid and non-assessable shares of the securities that is equal to the quotient of the sum of (i) $350,000 and (ii) all accrued a unpaid interest thereon, divided by fifty percent of the offering price per share of Common Stock offered in the Financing. In the event that the closing shall not occur by February 28, 2011, the interest rate under the note shall increase to 24% per annum, accruing from the first anniversary of the issuance of the note. The interest payable has been accrued and recorded as of March 31, 2011. This amended agreement was expired as the financing did not close until February 28, 2011. The company is negotiating with note holders for extension but there is no assurance that any extension can be obtained by the company.

Comments & Business Outlook

Wed, 25 May 2011 04:00:00 GMT

ASIA CORK, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(Stated in US Dollars)

	For The Three Months Ended March 31,
	2011			2010
	Unaudited			Unaudited
Revenues	$	9,737,881		$	3,634,641
Cost of Goods Sold		6,292,939			2,877,486
Gross Profit		3,444,942			757,155

Operating Expenses
Selling expenses		507,456			163,467
Bad debt expense (recover)		114,032			(3,514	)
Research & development costs		-			109,851
General and administrative expenses		287,304			208,508
Total Operating Expenses		908,792			478,312

Income From Operations		2,536,150			278,843

Other Income (Expenses)
Interest expenses , net		(32,117	)		(44,225	)
Other income , net		65,142			32,606
Total Other Income (Expenses)		33,025			(11,619	)

Income from Continuing Operations Before Taxes		2,569,175			267,224
Provision for Income Taxes		402,827			37,367

Net Income Before Noncontrolling Interest		2,166,348			229,857

Less: Net income attributable to the noncontrolling interest		179,645			19,807

Net Income Attributable to Asia Cork Inc.	$	1,986,703		$	210,050

Earnings Per Share - Basic and Diluted:
- Basic	$	0.06		$	0.01
- Diluted:	$	0.05		$	0.01

Weighted Common Shares Outstanding - Basic and Diluted
- Basic		35,827,739			35,663,850
- Diluted:		39,431,155			40,269,113

For the three months ended March 31, 2011, our revenues were $9,737,881 as compared to $3,634,641for the three months ended March 31, 2010, an increase of $6,103,240or 167.92%. The primary reason for the increase was that our major sales of finished goods comprised of wood materials and floors increased for the quarter ended March 31, 2011 as compared to the same period in 2010. In order to expand market share of products for floors, we implemented a sales promotion for our products of floors in January and February 2011, which caused the quantities of floors to increase enormously during this current period. Since we manufactured a new series of products for wood materials commencing April 2010, this generated an increase in revenues for the three months ended March 31, 2011 as compared to the same period in 2010. Likewise, we promoted the unit sales price for our products commencing the first quarter of 2011 thereby further increasing revenues this quarter.

Investor Alert

Mon, 25 Apr 2011 04:00:00 GMT

On October 31, 2010, a second amendment agreement was entered into between the Company and the note holders whereby the maturity date was further extended to February 28, 2011 and the interest rate under the notes remained at 18% per annum from the issuance date through the maturity date. The Company has filed a registration statement with respect to a proposed public offering with the Securities and Exchange Commission (the “Registration Statement”), with respect to certain Units consisting of Common Stock and warrants. Upon the closing of the proposed offering, the Company shall: (1) pay the investors cash by wire transfer in an amount equal to $350,000 (50% of the outstanding principal amount of the notes) and (2) the investors shall receive, upon conversion of the balance due under the note, such whole number of fully paid and non-assessable shares of the securities that is equal to the quotient of the sum of (i) $350,000 and (ii) all accrued a unpaid interest thereon, divided by fifty percent of the offering price per share of Common Stock offered in the Financing. In the event that the closing shall not occur by February 28, 2011, the interest rate under the note shall increase to 24% per annum, accruing from the first anniversary of the issuance of the note. The interest payable has been accrued and recorded as of December 31, 2010. This amended agreement was expired as the financing did not close until February 28, 2011. The company is negotiating with note holders for extension but there is no assurance that any extension can be obtained by the company.

Liquidity Requirements

Mon, 25 Apr 2011 04:00:00 GMT

With approximately $19.3 million of net working capital (total current assets less total current liabilities), improvements in our collections of accounts receivable and positive cash flow from operations as of December 31, 2010. This increase was primarily because our accounts receivable balance increased from improvements in credit sales for year ended December 31, 2010, despite our extension of the payment terms by our major customers to nine months as of December 31, 2010. We have been improving collection of our accounts receivable as our customers gradually recover from the financial crisis in 2009. For the year ended December 31, 2010, as a result of the extended payment terms to ours major customers, we generated total net sales revenues of $29,076,185, and the balance of net accounts receivable was $7,162,355, an increase of $1,986,116 during the year ended December 31, 2010, which accounts for 6.8% of the total net sales revenue. In the same period, we had collected $13,766,796 of the total accounts receivable. Simultaneously, in order to reduce the risk in collections, we hope to control payment terms of those major customers during the coming year. Based on the foregoing, we believe that it has sufficient resources to finance its operations for the coming year provided it keeps the current payment terms and maintains collection of accounts receivable.

Comments & Business Outlook

Mon, 18 Apr 2011 04:00:00 GMT

ASIA CORK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YAERS ENDED DECEMBER 31, 2010 AND 2009

	For The Years Ended December 31,
	2010			2009

Revenues	$	29,269,478		$	24,393,625
Discounts		193,293			-
Revenues, Net		29,076,185			24,393,625

Cost of Goods Sold		20,635,959			16,005,148
Gross Profit		8,440,226			8,388,477

Operating Expenses
Selling expenses		1,579,696			2,869,612
Bad debt		92,000			245,341
Research & development costs		110,813			182,987
General and administrative expenses		633,433			589,130
Total Operating Expenses		2,415,942			3,887,070

Income From Operations		6,024,284			4,501,407

Other Income (Expenses)
Interest expenses , net		(159,231	)		(303,882	)
Other income , net		123,852			136,016
Total Other Expenses		(35,379	)		(167,866	)

Income from Continuing Operations Before Taxes		5,988,905			4,333,541
Provision for Income Taxes		912,821			692,539

Net Income Before Noncontrolling Interest		5,076,084			3,641,002

Less: Net income attributable to the noncontrolling interest		411,574			295,592

Net Income Attributable to Asia Cork Inc.	$	4,664,510		$	3,345,410

Earnings Per Share - Basic and Diluted:
- Basic	$	0.13		$	0.09
- Diluted:	$	0.12		$	0.09

Weighted Common Shares Outstanding - Basic and Diluted
- Basic		35,663,850			35,663,850
- Diluted:		39,326,402			38,734,025

Comments & Business Outlook

Mon, 29 Nov 2010 05:00:00 GMT

2010 Q4 & Annual Financial Forecast
	2010 Annual Expected	2010 Q4 Expected
Revenues	$29,801,024	$7,364,779
Cost of Goods Sold	20,857,883	5,115,130
Gross Profit	8,943,142	2,249,650
Total Operating Expenses	2,882,845	852,664
Income From Operations	6,060,297	1,396,986
Net Income	$4,704,298	$1,038,822
Earnings Per Share
-Basic	$0.13	$0.03
-Diluted	$0.12	$0.03

“In 2010 has continued the prosperity of construction and decoration materials market since the whole market gradually recovered from the heavy shock of 2008’s financial crisis. Our sales have been rapidly recovering since then,” said Mr. Chen Peng Cheng, CEO of Asia Cork Inc. “To deal with the problem of rising prices of raw materials in 2010, the management staff have made great endeavor to adjust our expense structure and successfully controlled the expenses, while assuring the high quality of our products and our services.” In 2010, the total operating expenses are expected to be $2.88 million, a decrease of over 25% compared to $3.88 million in 2009, among which the selling expenses are cut down by around 40%, while ensuring steadily growing sales revenue.

Because of the rise of raw material prices, cost of goods sold is expected to increase from $16 million in 2009 to $20 million by 30%, and gross profit margin should decrease from 34% in 2009 to 30% in 2010. To assure the existing market share and to further expand domestic market, the company did not consider significant increase of product prices in 2010

GeoTeam® Note:

AKRK Reported 2009 EPS of $0.03 and $0.09 for the fourth quarter and year, respectively.

Comments & Business Outlook

Wed, 17 Nov 2010 05:00:00 GMT

For The Three Months Ended September 30,
		2010			2009
		(Unaudited)			(Unaudited)			(Decrease)/ Increase

Revenues		$	11,002,498		$	10,151,002		$	851,496		8.39	%
Cost of Goods Sold			7,552,944			6,481,710			1,071,234		16.53	%
Gross Profit			3,449,554			3,669,292			(219,738	)	-5.99	%
Gross Profit Percentage			31.35	%		36.15	%
Operating Expenses
	Selling expenses		615,035			1,555,095			(940,060	)	-60.45	%
	Bad debt		61,897			248,574			(186,677	)	-75.10	%
	Research & development costs		309			73,181			(72,872	)	0.00	%
	General and administrative expense		79,425			154,946			(75,521	)	-48.74	%
Total Operating Expenses			756,666			2,031,796			(1,275,130	)	-62.76	%
Income From Operations			2,692,888			1,637,496			1,055,392		64.45	%
Other Income (Expense)
	Interest income (expense), net		13,065			(41,752	)		54,817		-131.29	%
	Other income, net		32,890			26,260			6,630		25.25	%
Total Other income (Expense)			45,955			(15,492	)		61,447		-396.64	%
Income from Continuing Operations Before Taxes			2,738,843			1,622,004			1,116,839		68.86	%
Income Tax Provision			407,187			293,830			113,357		38.58	%
Net Income Before Noncontrolling Interest			2,331,656			1,328,174			1,003,482		75.55	%
	Less: Net income attributable to the noncontrolling interest		185,440			105,714			79,726		75.42	%
Net Income Attributable to Asia Cork Inc.		$	2,146,216		$	1,222,460		$	923,756		75.57	%

EPS was $0.05 vs. $0.03

Average Cost Per Square Meter					Basic Change
Product Name	2010		2009			Per Square Meter
Wood Materials	$	1.93	$	3.74		$	(1.81	)
Boards		5.84		5.71			0.13
Floors		11.31		10.94			0.37
Overall Average Products		3.67		7.33			(3.66	)

The decrease in average cost per square meter, as reflected in the table, is relatively primarily attributable to the facts that we sold much more quantities of low unit cost products of wood materials for the three months ended September 30, 2010 as compare to the same periods in 2009

Management staff believes that the company has fully recovered from the recession of 2008 and 2009. Revenues and net income have been rising steadily for the last three quarters of 2010. Management expects net income of 2010 to exceed $4 million.

Deal Flow

Wed, 22 Sep 2010 04:00:00 GMT

We are offering 1,250,000 units (the “Units”) of Asia Cork, Inc., a Delaware corporation (the “Company”) (the “Offering”). Each of the Units offered hereby consists of one share of our Common Stock, $.0001 par value per share (the “Common Stock”), and one warrant entitling the registered holder of the Unit to purchase one share of Common Stock (the “Warrants”). The Warrants are exercisable to purchase one share of Common Stock at $7.80 per share through November ___, 2015 (five years after the date of the closing). Each share of Common Stock and Warrant will not be separately tradeable for a period of one year, unless sooner as may be approved by the Managing Underwriter, in its sole discretion. The Warrants are subject to redemption commencing one year after the date hereof at $.05 per Warrant on 20 days prior written notice provided the closing price of the Common Stock for the twenty (20) consecutive trading days ending within fifteen (15) days of the date of notice of redemption averages in excess of $11.70 per share. (180% of the initial Offering price) See “Description of Securities.” None of our officers, directors or affiliates may purchase Units in this Offering.

We expect that the Offering price of the Units will be $6.50 per Unit.

We are a reporting Company under the Securities Exchange Act of 1934, as amended. Our Common Stock is quoted on the OTC Bulletin Board maintained by the Financial Industry Regulatory Authority (“FINRA”) under the symbol “AKRK.” The last reported sale price for our Common Stock on September 16, 2010 was $.22 per share, as reported on the OTC Bulletin Board. We intend to apply to have the Units listed on the American Stock Exchange (“AMEX”) or NASDAQ Stock Market LLC (“NASDAQ”) under the symbol “_____” on or promptly after the date of this prospectus. Common Stock. Prior to their separate trading we will apply to have the Common Stock and warrants comprising the units listed on AMEX or NASDAQ under the symbols “___” Common Stock [and anticipate having our Common Stock approved for listing as of the date of this prospectus].

GeoSpecial Notes

Tue, 29 Jun 2010 04:00:00 GMT

Thanks to Dan France’s analysis, the AKRK story has become slightly clearer. Minimally, AKRK shareholders will experience 66.4% dilution. This means that the company will have to grow earnings by at least this amount to experience zero EPS growth. The company’s EPS growth also will depend on its ability to complete transactions to increase capacity and gain more control of its raw material supply. The positive is that AKRK will have finally put its liquidity issues to rest. The focus will now have to be on EPS growth, something AKRK has yet to prove it can consistently accomplish and even more challenging in the short-term given the new capital structure. Shares will still trade below a split adjusted price of $8.51 and is the only reason AKRK remains on the GeoSpecial list. We anticipate that AKRK's stock will not outperform until more clarity is offered with regards to EPS growth, especially in the current market environment.

GeoTeam® Note:

Please note: On July 6, 2010, the GeoTeam® removed all Chinese stocks that were on GeoBargains and GeoSpecial lists to respective Radar lists as we complete our "quality assessment."

Short term and risk adverse investors should be aware of the quality issues currently present in the ChinaHybrid Space, questioning the validity of what seem like solid fundamental stories. It is beginning to get ugly so be cautious and understand that more pain may have to be endured, as ChinaHybrids are easy prey for short investors. The broad brush that is being applied to theses stocks appears unfair, but we can’t ignore the psychological impact this can have on investors' portfolio decisions. If history is our guide, fear will eventually create an immense opportunity to invest in the companies that prove they can meet quality litmus tests enact shareholder friendly moves. Credibility can also be restored if independent legal/SEC opinions validate accounting practices currently in question.

***Very Important GeoTeam® note. We have yet to verify if the Chinese filings for ChinaHybrid stocks we monitor match respective SEC filings. We are in the process of completing this task. Although we are not totally convinced that SAIC filings are an accurate represenation of financial statements the issue is impacting stock prices. Conservative investors may want to limit exposure or buy put options on stocks, that have this availability, as insurance against long positions, until we publish our findings. Odds are we will identify some promising companies that will fail this litmus test.

see relevant articles

GeoSpecial Notes

Mon, 28 Jun 2010 04:00:00 GMT

On June 22, 2010 Asia Cork filed an amended S-1 (Which happened to contain many typos)

We asked GeoInvesting contributor, Dan France, to summarize details of the filing.

1. AKRK is offering 1,250,000 units consisting of one share common and one warrant exercisable at $7.80 for $6.50. The only way that is possible at the stock’s current price is with a 1 for 20 reverse split. The doc does not specify the reverse split ratio only that it is subject to negotiation with the underwriter.

2. Promissory Notes outstanding that Ancora holds, will be converted into 4,588,889 common shares($700,000 of principal of the notes plus accrued but unpaid interest through September 30, 2010 at a pre-split conversion rate of $.228 per share).

3. AKRK intends to apply to have the Units listed on the American Stock Exchange (“AMEX”) or NASDAQ Stock Market LLC (“NASDAQ”) under the symbol promptly after the date of this prospectus.

4. Capital Structure:

Asia Cork Common Shares and Warrants Reconciliation		Number Shares	%	Shareholders' Equity	Net Book Value

Common shares and equivalents outstanding before offering:
	Outstanding before offering	35,663,850		21,366,733	$0.599
	Issuable upon conversion of notes payable	4,588,889		1,046,267	$0.228
Total common shares outstanding before offering		40,252,739		22,413,000	$0.557
Shares upon exercise of warrants issued to note holders		1,136,000		259,008	$0.228
Total common shares and equivalents outstanding before offering		41,388,739		22,672,008	$0.548

Common shares and equivalents outstanding assuming 1 for 20 reverse split		2,069,437	43%	22,413,000	$10.830

Common shares in offering:
	Public Units	1,250,000	26%	6,898,858	$5.519
	Underwriter Units	125,000	3%	975,000	$7.800

Common shares outstanding after offering excluding warrants		3,444,437	71%	30,286,858	$8.793

Conversion of warrants:
	Public Units	1,250,000	26%	9,750,000	$7.800
	Underwriter Units	125,000	3%	975,000	$7.800

Common shares outstanding assuming conversion of warrants		4,819,437	100%	41,011,858	$8.510

Comments & Business Outlook

Wed, 02 Jun 2010 04:00:00 GMT


	For Three Months Ended March 31,
	2010			2009
	(Unaudited)			(Unaudited)

Revenues	$	3,634,641		$	902,504
Cost of Goods Sold		2,875,512			689,587
Gross Profit		759,129			212,917

Operating Expenses
Selling expenses		163,467			125,973
Bad debt (recoveries)		(3,514	)		(808	)
Research & development costs		109,851			-
General and administrative expense		208,508			114,282
Total Operating Expenses		478,312			239,447

Income (Loss) From Operations		280,817			(26,530	)

Other Income (Expense or Loss)
Interest (expense), net		(44,225	)		(114,384	)
Other income , net		32,606			24,725
Loss on disposal of inventories		(1,974	)		-
Total Other Expense or Loss		(13,593	)		(89,659	)

Income (Loss) from Continuing Operations Before Taxes		267,224			(116,189	)
Provision for Income Taxes		37,367			2,824

Net Income (Loss) Before Noncontrolling Interest		229,857			(119,013	)

Less: Net income (loss) attributable to the noncontrolling interest		19,807			(5,472	)

Net Income (Loss) Attributable to Asia Cork Inc.	$	210,050		$	(113,541	)

Earnings Per Share - Basic and Diluted:
- Basic	$	0.01		$	(0.00	)
- Diluted:	$	0.01		$	(0.00	)

Weighted Common Shares Outstanding - Basic and Diluted
- Basic		35,663,850			35,663,850
- Diluted:		40,269,113			38,734,025

The GeoTeam® was hoping for a better EPS showing in the 2010 first quarter. However, the first quarter appears to be a historically soft quarter for AKRK. From a revenue perspective this was the best first quarter for the company over the past four years, which bodes well for top line growth in 2010. Unfortunately, EPS has yet to break out to a meaningful level. Nonetheless, comments were still encouraging:

CEO Pengcheng Chen said, “We saw a strong rebound in our operations in the first quarter compared with the first quarter of 2009, where we experienced adverse market conditions for home and commercial renovations. We increased our sales of major finished goods including wood materials, floors and boards. In addition, we sold secondary raw materials amounting to $1.18 million. There were no comparable sales in the first quarter of 2009."

“With $10.9 million in net working capital, improvements in our collections of accounts receivable and positive cash flow from operations, we have sufficient resources to finance our operations for the coming year,” Pengcheng Chen said.

Liquidity standing is improving:

Recall that AKRK has an outstanding liability issue with certain holders of convertible notes that ,as of the 2009 10K, it could not satisfy through its working capital position:

"At the present time, we do not have sufficient cash or cash equivalents to repay the promissory should the investors demand payment."

We were pleased to see from the 2010 first quarter 10Q that the tide has turned from a liquidity stand point:

"The company is in a good working capital position and now can satisfy its obligations from internal funds."

"The Company and the holders of the promissory notes and warrants are negotiating the satisfaction of the Company’s obligations under the promissory notes and warrants In the event that such negotiations fail, the Company believes it would have sufficient cash or cash equivalents to repay the promissory notes should the holders demand payment."

Does this mean that we could be in store for less dilution as it relates to a recent S-1 filing? Given the track record of the financing activities of China Hybrid stocks, we would not hold our breath. Once more clarity is offered on this issue investors will be in a better position to value AKRK shares.

GeoSpecial Notes

Thu, 29 Apr 2010 04:00:00 GMT

April 15, 2010 AKRK reported its 2009 year end results. More importantly the fourth quarter saw a nice up tick in revenues.

December Qtr.	4th Quarter 2009	4th Quarter 2008	Period Change
GAAP Revenue	$7.33 million	$3.54 million	107%
GAAP EPS	$0.03	$0.01	200%

Source: 10K for the period ended Dec. 31, 2009

December Yr.	Full Year 2009	Full Year 2008	Period Change
GAAP Revenue	$24.39 million	$21.38 million	14.1%
GAAP EPS	$0.09	$0.08	12.5%
Fully Diluted Shares	38,734,025	36,469,571	6.2%

We are still waiting in anticipation for the completion of AKRK capital restructuring process which could make or break this story in the short-term. We are most interested in observing the magnitude of dilution that will inevitably occur.

Additional topics AKRK management needs to address:

Pricing range for offering and likely dilution of existing shareholders.
Use of proceeds detailing specific acquisitions and initiatives.
What does offering do for business going forward?
How quickly will availability of proceeds from the offering impact and be accretive for the business?
Since the acquisitions are already negotiated and lined up, will the impact be fairly dramatic and show up in operating results within the next two to three quarters, if not sooner?
Guidance for QI and going forward. Investors need a basis for getting a handle on AKRK and its growth potential.
Resolution of Ancora notes. Will they take cash or convert debt to equity? It would be nice to know Ancora and related investors want to hold equity stakes in AKRK as opposed to taking cash.

GeoSpecial Notes

Mon, 15 Mar 2010 04:00:00 GMT

See new GeoWire Article

Special Situations

Thu, 07 Jan 2010 05:00:00 GMT

Further Due Diligence into the AKRK Story:

Yesterday we reported that that AKRK may have remedied an outstanding liquidity issue concerning a past due payment of $700,000 and accrued interest owed to Ancora Greater China Fund as part of a funding arrangement in June 2008. Part of our conclusion was due to the close proximity of shares that the CEO and Chairman pledged to secure the arrangement (7,630,814) vs. the amount of stock they disposed of outlined in recent S-4 filings (7,930,000). As always it’s prudent to continue the due diligence process in order to confirm a conclusion or possibly consider alternate scenarios.

Thus, we also took a look at some recent S-3 documents which show that that three board members were allotted an aggregate of2.8 million shares. After several attempts we were able to reach management for a comment on our initial assumption and offer an explanation into the recent share activity.

The Company has informed us that the 7.9 million shares were not transferred to Ancora, but to a number of high level executives in the Company. This action broadens share ownership among the Company’s top executives and board members and will help facilitate a possible public offering by meeting the stock markets' listing requirement, and also to better link the interest of the management personnel to the company. So what does all this mean?

It seems that Asia cork may be planning on a public offering which actually coincides with some information disclosed in its 2009 September quarterly filing stating that it had “signed an exclusive financial advisor agreement with Global Arena Capital Corp., to act as the Lead or Managing or Co-Underwriter or Investment Banker in connection with a proposed public offering.” The initial agreement expires on May 31st, 2010, providing us with a window of when an offering could occur.

We had also eluded that Investors may find it intriguing that an 8K filed on 12/24/2009 revealed some board changes at the company. Specifically, the December 24, 2009 8K outlines the appointment of a new COO, CTO and three independent Board of Directors members as well as the establishment of charters related to the Audit and Governance Committees. These actions can often coincide with an up-listing move and/or a financing transaction. Being that AKRK is below $3 per share it would need to affect a reverse split to minimally qualify for the AMEX, a very common move these days by U.S. listed Chinese companies. While the outstanding Ancora debt still exists we have learned that the due date for the promissory note has been extended for another year which means that AKRK is no longer past due on this obligation. obligation We believe that an offering, depending on Ancora’s involvement, could ultimately address this issue and provide necessary capital for expansion goals.

On the whole we still view these developments as a positive since it aligns management’s incentives with the best interests of public shareholders, offers conjecture that the AKRK may be preparing for an up-listing and takes a short-term liquidity problem off the table. Of course, the topic of dilution is now back on the table, which will depend on the use of funds.

Special Situations

Tue, 05 Jan 2010 05:00:00 GMT

GeoSpecial, Asia Cork Inc. (AKRK) has been on the GeoTeam’s radar since August 20, 2009. We were encouraged that, in its 2009 first quarter 10Q, the company hinted that business was on the verge of rebounding from negative effects of the global recession. Asia Cork’s second and third quarter results reflected and reaffirmed this sentiment. Add that the stock was selling below its book value per share and the story began to gain some luster.

Well, after further due diligence we eventually found the proverbial monkey in the wrench. In June, 2008, the Company consummated an offering of convertible promissory notes and common stock purchase warrants to an investor (identified as Ancora Greater China Fund in a June 2008 8K filing) for aggregate gross proceeds of $700,000. The one year note obligation was past due as of June 2009. The Company’s obligations under the promissory notes were secured by an aggregate of 7,630,814 shares of common stock pledged by the Company’s CEO and Chairman.

We were unsure as to the dilutive implications of potential activities required to rectify this issue. As indicated in our earlier article, Opportunities in Cheap Chinese Stocks, these situations often present prospects for savvy investors who can identify imminent resolutions to liquidity roadblocks. Stocks mentioned in the article such as Orient Paper (ONP), Lotus Pharmaceuticals (LTUS) and China Agritech (CAGC) have handsomely rewarded investors who followed this train of thought. We had also mentioned AKRK as a stock to watch.

On December 31, 2009 we noticed some increased trading activity in Asia Cork’s shares. Unable to locate any news on the wires, we decided to sift through SEC documents and noticed recent S-4 filings outlining a series of transactions where the company’s CEO and Chairman disposed of 7,930,000 shares. Given the CEO and Chairman pledged 7,630,814 personal shares to cover the debt obligation owed to investor, we are speculating that these shares were transferred to the investor to settle the debt obligation, maybe putting the liquidity issue to rest. Even more notable is that the transactions were valued at $0.49, nearly 100% above the price of AKRK shares at the time of the S-4 filing. If our assumptions can substantiated, we see this as a very positive development, especially since the transaction appears to be non dilutive and indicates a prominent investor’s willingness to become a large equity holder (estimated at 20%) inAKRK. Investors may also find it intriguing that an 8K filed on 12/24/2009 revealed some board changes at the company.

In light of these findings, we have added to our AKRK position, postulating that this development will be enough of a catalyst to push shares past its book value per share of approximately $0.60. Investors still need be cognizant that the company has expressed an interest to expand operations, so we can’t rule out an equity raise at some point in the near future. Also, the company has not commented on the accuracy of the scenario we have outlined.

Special Situations

Tue, 17 Nov 2009 05:00:00 GMT

On October 21, 2009, The GeoTeam® conducted an interview with Asia Cork (OTCBB:AKRK), one of our GeoSpecials, with the help of an interpreter. The Company has been a leader since 2004 in the development, manufacturing and marketing of cork-based building materials. Some common cork applications include flooring and cabinetry as it provides acoustic and thermal insulation and is a resilient building material that is less affected by impact and friction when compared to products such as hardwood and vinyl. The interview with Asia Cork reinforced our belief that the Company is certainly targeting an unique market, although there are several issues that need attention before total growth potential can be unleashed. According to the Company, global "green" initiatives, especially in China, support the growth case for the cork-based building industry. We weren't able to locate industry statistics on the cork industry.

Why Cork Products Are Green

Cork products emanate from the bark of the cork oak tree. After performing some research, we learned that cork is a “rapidly renewable material”, meaning it can it can be grown and harvested for production within a 10-year cycle or shorter. On average, each cork oak tree is harvested 15 to 18 times in its lifetime with the largest trees yielding up to 1 ton (0.9 metric ton) of cork per harvest. This translates to a reliable cheap source of raw material and makes this business appealing from a margin point of view. Asia Cork currently outsources it raw material supply, but is exploring ways to reduce dependency on outside sources, a key to potentially unlock several advantages:

Improve margins from owning the raw material.
Improve margins due to less transportation costs.
With a more centralized operation, the Company will be able to squeeze more capacity from its existing production lines.
Supply sources for its competitors would be eliminated.

Cork is grown principally in the Mediterranean region and China.

A Prospect of Growth

The Company had been experiencing consistent growth in sales and earnings over the past three years, nearly reaching full production capacity during 2008.

December Year	Full Year 2008	Full Year 2007	Full Year 2006
GAAP Revenue	$21.4 M	$16.1 M	$12.0 M
GAAP EPS	$0.08	$0.05	$0.02

Source: 10K filings

Unfortunately, the global recession stalled Asia Cork's progress by limiting the ability of the Company to raise necessary capital to expand production and purchase land to harvest its internal cork supply. In addition, demand for its products declined.

Asia Cork has indicated that it is seeing a gradual rebound in its business. This was confirmed by the release of its third quarter 10Q filing this morning. The quarter surpassed the GeoTeam's expectations. Although not a certainty, we see this quarter as a development that may bring the Company a step closer to reestablishing EPS growth.

3rd Qtr. Ended March	3rd Quarter 2009	3rd Quarter 2008
GAAP Revenue	$10.2 M	$9.0 M
GAAP EPS	$0.03	$0.04

Source: Filing quarterly period ended September 30, 2009.

As demand does return to pre-recession levels, the problem Asia Cork may face is the inability to materially increase sales past 2008 levels, an obstacle that leaves us to wonder how they will achieve this short-term goal. Growth will be contingent upon its ability to increase production capacity, internally or externally, without diluting shareholder value.

Asia Cork's business operations may become an exceptionally strong entering the second half of 2010, when the Company hopes to make acquisitions to bring its raw material supply in-house and increase manufacturing capacity. Furthermore, like many stocks we have followed in the past, to attract investor attention, Asia Cork must address some outstanding liquidity problems via the utilization of favorable financing terms.

Discussion With Management

Here is an overview on our interview with Asia Cork management:

Question: How can the Company grow its business if it reaches full capacity?

Answer: The Company has third party relationships to which it can outsource production of cork products.

Question: Do you have near-term plans to increase manufacturing capacity?

Answer:

On March 26, 2007, we initiated a vertical move to acquire one of our major providers of raw material. This Company also manufactures end user products, including a portion of ours. A deposit of $1,465,738 was made that will be applied against the purchase of raw materials from the supplier if the acquisition does not occur before the end of year 2009.”
We have an agreement to purchase a factory’s fixed assets. We have paid deposits $2,022,719 as of December 31, 2008 and $1,891,810 as of the year ended December 31, 2007. The deposit is fully refundable if the purchase does not close by September 30, 2009.
We are always exploring acquisition targets.

Question: Over 70% of you products are sold in China. What are your plans for international expansion?

Answer: The Company is currently testing a new cork product for the US market and will explore international initiatives.

Question: Please address the following excerpt contained in your filings:

On June 4 and June 12, 2008, the Company consummated an offering of convertible promissory notes and common stock purchase warrants for aggregate gross proceeds of $700,000. The notes mature one (1) year from the date of issuance and bear interest at an annual rate of 18%, payable at maturity in USD. Upon the successful closing of an equity or convertible debt financing for a minimum of $2,000,000 ("Financing"), the promissory notes will be convertible into shares of common stock at a 50% discount to the price per share of Common Stock sold in the Financing. Since the Financing did not occur within 12 months of the date of the promissory notes, each investor has the option to be paid the principal and interest due under the promissory note or convert the note into shares of common stock at a conversion price of $0.228 per share. The promissory notes are secured by Common Stock pledged by Pengcheng Chen, our Chief Executive Officer and Fangshe Zhang, our Chairman. However, at the present time we do not have sufficient cash or cash equivalents to repay the promissory notes should the investors demand payment upon maturity.

Answer: Although the Company wasn't prepared to get into a deep discussion on this subject it certainly understands the importance of resolving the situation. "The Company is seeking an extension of the maturity dates of the promissory notes and alternate financing."

GeoTeam Assessment of Risks

We feel that it is worthwhile to follow the AKRK story. Of course, there are several risks we needed to consider during our first pass of due diligence on the AKRK story.

The cork building market is an arena for which we don’t have much market data.
The favorable industry growth parameters may attract better capitalized competitors.
As far as we can tell, the agreements to complete the capacity-increasing acquisitions (referred to in our Q&A) are at or near expiration.
The Company’s accounts receivable outstanding for over half year increased to $3,333,692 "
Most importantly, we don’t have insight into when and how the Company will rectify its liquidity issues, nor how it intends to raise capital to implement its expansion plans. Are they technically in default? Dilution is a related risk. This is the biggest wrinkle.

Some Concerns Clarified

Today’s 10Q filing has provided clarity to some of the above concerns.

Concern that the agreement to acquire one of its major providers of raw materials was set to expire by end of year 2009.
3rd quarter 10Q provides clarity: Agreement has been extended to June 30, 2010
Concern that the agreement to purchase a factory’s fixed assets expired in September of 2009

3rd quarter 10Q provides clarity: Agreement has been extended to September 20, 2009
Concern regarding verbiage per the 2009 second quarter filing: "Due to adverse effect in the prior period, the Company’s accounts receivable outstanding for over half year increased to $3,333,692
3rd quarter 10Q provides clarity: As of September 30, 2009, the accounts receivable outstanding was valued at $5,599,865 (equivalent to RMB 38,226,526), nearly none of which was outstanding more than six months.

We feel these developments bode well for the Company’s goal to vertically integrate and eventually resume EPS growth. We are also going out on the limb and speculating that if the Company was comfortable with extending its purchase agreements it may be closer to a financing arrangement.

With so many unknowns, investment in AKRK may not be suitable for risk-adverse investors. As the GeoTeam's appetite for risk is abnormally immense, we have taken a chance on the stock and its motivated management team.

Disclosure: Long AKRK

Special Situations

Mon, 16 Nov 2009 05:00:00 GMT

The GeoTeam® will issue an update on GeoSpecial, Asia Cork shortly. We are awaiting the filing of the company's 10Q which will give us more direction on whether the stock will still qualify as a GeoSpecial. Specifically we need to ascertain if business has improved as was indicated in its second quarter report. We also need to achieve clarity on some liquidity issues.

Research

Fri, 16 Oct 2009 04:00:00 GMT

As a participant in the equity markets for over twenty years I am constantly seeking new profit opportunities to exploit. I came upon the US listed China market in 2005. My first investments in this venue were American Oriental Bioengineering (NYSE:AOB) and China Security & Surveillance (NYSE:CSR) when they were both on the OTCBB. Investments in this arena have continued to fuel above average returns for my portfolios, a large reason why I am always seeking new ways to identify new opportunities in the U.S. listed Chinese stock space.

I have never been a fan of investing in penny stocks, but the recent market turmoil combined with the nature of some of the China reverse merger transactions resulted in profitable Chinese firms selling for pennies, many times below book value. While I don't view book value as the most important criterion when valuing stocks, I believe in certain cases it can be a useful tool, especially when valuing companies growing their EPS. I have found that the Chinese market is full of this circumstance.

Obviously, one must ascertain why a stock is selling below book. Three major reasons why this may be the case in the China sector revolve around capital structure, liquidity and lack of exposure. The key to capitalizing on the investment opportunity is to identify a catalyst for change (see table below).

I have found that companies that can address these issues eventually see their stock prices gravitate to their book values. Here are some examples:

Symbol	Date and Price Mentioned on GeoInvesting	Book Value per Share	Catalyst for Change	High Price Since Initial Mention on GeoInvesting
China Carbon Graphite (OTC BB:CHGI)	7/1/09 @ $0.75/shr	$2.61	Improved capital structure	$1.98
Orient Paper Inc (OTC BB:OPAI)	5/22/09 @ $0.42/shr	$0.86	Net working capital turned positive; hires IR firm	$1.50
Home System Group (OTC BB:HSYT)*	7/8/09 @ $1.35	$0.24	Restructures debt payments	$2.96
China Kangtai Cactus Bio (OTC BB:CKGT)	8/14/09 @ $0.95	$1.51	Hires IR Firm	$1.80
China Agritech Inc (NASDAQ:CAGC)	8/17/09 @ $11.00	$11.64	Accounts receivable situation improving	$15.80
Asia Cork Inc (OTC BB:AKRK)	8/20/09 @ $0.27	$0.57	TBA**	$1.01

*Stock was not selling below book, but had potential liquidity issues
**The GeoTeam is currently investigating the Asia Cork story. Investors are urged to do their own due diligence before making conclusions.

The beauty about most of these examples is not only were they selling below book when we found them, but they were growing their earnings and/or have bright futures. It was an ideal situation in that these stocks had value and growth.

That being said, our initial goal with this strategy is to identify stocks for which the market will re-price risk away from a failure assumption (below book).

We have currently identified over 40 stocks selling below book value per share. Here are a few:

China Medicine Corp (OTC BB:CHME)
Lotus Pharmaceuticals (OTC BB:LTUS)
China Growth Development (OTC BB:CGDI)
Huifeng Bio-Pharma Tech (OTC BB:HFGB)
China Green Mat Tech Inc (OTC BB:CAGM)
China Agri-Business Inc (OTC BB:CHBU)
Sino Gas Intl Holdings (OTC BB:SGAS)

Due Diligence with Lotus Pharmaceuticals

Lotus Pharmaceuticals is the only company from the above list on which we have performed extensive due diligence, including an interview with the Company. We noticed Lotus was selling under book despite maintaining profitability. After reading SEC filings we came across many misleading paragraphs insinuating liquidity problems about which you can read more on GeoInvesting. An alert investor who read our notes suggested that our assumptions were incorrect and that we should call the company to get a better understanding of the situation. In a nutshell, it turns out that the verbiage in the filings was incorrect.

The company maintains that it is in good financial health. We are convinced that Lotus understands the importance of clarifying this issue in the near future. We are hopeful that investors will eventually re-price LTUS shares by eliminating liquidity issues from their analyses. The stock has actually seen its shares more than double from mid July levels.

Furthermore, the company is embarking on a 2010 growth strategy that it believes will lead to increased sales through the introduction of new products and increased distribution channels. It is somewhat impressive that the company has been able to grow its earnings in 2009 regardless of lower sales due to pricing pressures. We will be establishing a position in the stock based on a favorable risk/reward ratio.

Due Diligence with Asia Cork

We are currently investigating Asia Cork, a profitable cork-based building materials company we initially mentioned on August 20, 2009. At the time it was selling at $0.27 per share with a book value of $0.57. Although comments in its recent quarterly filing were bullish, the following commentary is somewhat worrisome:

"At the present time we do not have sufficient cash or cash equivalents to repay promissory notes should the investors demand payment upon maturity."

Ideally, a resolution to this issue (the catalyst) may pique investor interest.

As indicated on GeoInvesting, the GeoTeam established a position in AKRK, recognizing that there was a high risk for a dilutive event to rectify the current liquidity situation. There is also a convertible note outstanding which could lead to dilution.

We will soon be publishing a list of companies selling below book. We are not sure how long this market inefficiency will last, so do your homework and find a company's catalyst for change.

Disclosure: Long CGDI, AKRK, CKGT, CAGC, OPAI, CHGI

Research

Thu, 20 Aug 2009 04:00:00 GMT

Asia Cork filed its 2009 10Q last night.

Revenues decreased 5.7% to 6,003,271
GAAP earnings per share increased 50% to $0.03
Geo calculated tax-adjusted GAAP trailing earnings per share: $0.06
Tax-adjusted trailing P/E: 3.7
Geo calculated book value per share $0.56

AKRK may offer a compelling opportunity to value investors since the stock is selling at a discount to its book value per share.

Comments in its 10Q are also encouraging.

Entering the second quarter of 2009, our business gradually revived as the market recovered. We expect a continued revival of our business and growth in our revenue during the balance of 2009.

However, there is an outstanding liquidity issue that may temper investor enthusiasm:

"At the present time we do not have sufficient cash or cash equivalents to repay promissory notes should the investors demand payment upon maturity. The Company is seeking an extension of the maturity dates of the promissory notes and alternate financing, but there is no assurance the extension or the alternate financing will be obtained."

The GeoTeam® will take a small position in AKRK at $0.27, recognizing that there is a high risk for a dilutive event to rectify the current liquidity situation, at which time it would qualify as a GeoSpecial.

Source: SEC form 10Q (QUARTERLY PERIOD ENDED June 30, 2009)

Liquidity Requirements

Thu, 20 Aug 2009 04:00:00 GMT

At the present time we do not have sufficient cash or cash equivalents to repay promissory notes should the investors demand payment upon maturity. The Company is seeking an extension of the maturity dates of the promissory notes and alternate financing, but there is no assurance the extension or the alternate financing will be obtained.

Source: SEC form 10Q (QUARTERLY PERIOD ENDED June 30, 2009, page 22)