Asia Cork (PINK:AKRK)

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.

“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.

EPS was $0.05 vs. $0.03

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.

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.