Asia Cork (PINK:AKRK)

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.

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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:

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

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.