Sleuthing Around Asia Cork's Filings

GeoSpecial, Asia Cork Inc. (OTCBB:AKRK) has been on the GeoTeam’s radar since August 20, 3009. 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 (NYSE Amex:ONP), Lotus Pharmaceuticals (OTCBB:LTUS) and China Agritech (NASDAQ: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%) in AKRK. 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.