WEB NEWS Liquidity Requirements
Our principal sources of liquidity have been cash generated from its operating activities. As of December 31, 2008, 2009 and 2010, we had US$1.6 million, US$6.2 million and US$82.6 million in cash, respectively. Our cash is mainly used to fund our daily operations and pay deposits to newspapers for exclusive rights to operate contracted newspapers, and investment in media. We expect that
more cash is needed to fund its expansion of business, especially to fund deposits to newspapers which will allow it to compete in more cities.
Research
China TopReach Inc finally filed its 2009 10K . We are removing from GeoSpecial on the radar list for three reasons:
1. The company did not issue a press release discussing its 2009 results and outlook.
2. Share counts in a previous SEC fling differ drastically from the 2009 10K.
3. The company will need to raise money to fund its growth:
"We expect that more cash is needed to fund its expansion of business, especially to fund deposits to newspapers which will allow it to compete in more cities."
We will still track this story due to the existence of a 2010 net income target of $41.0 million. This compares to 2009 and 2008 net income of $17.4 million and $11.5 million respectively. The problem is that we do not know:
What the new share count will be if the company decides to raise capital.
If the targets assume that the company receives financing.
At $3.35, the stock currently sports a trailing P/E of 3.4.
Investor Alert
Investors need to be aware that China TopReach has:
Yet to embark on an investor relations campaign.
Not filed its 2009 Annual Report (10K) with SEC.
This is quite disturbing in a time where investors are beginning to highly scrutinize U.S. Listed Chinese stocks (China Hybrids).
Financials
Nine Months Ended
(in thousands, except per share data)
Year Ended
(in thousands, except per share data)
September 30, 2009
(Unaudited)
September 30, 2008
(Unaudited)
2008
(Audited)
December 31,
2007
(Audited)
2006
(Audited)
Consolidated Statement of Operations Data
Revenues
$ 48,643 $ 41,598 $ 56,216 $ 23,033 $ 12,463
Cost of Sales and business taxes
25,861 26,444 36,336 14,575 8,812
Income from operations
17,302 10,567 13,057 5,233 1,714
Net income
$ 14,826 $ 8,460 $ 11,511 $ 4,285 $ 1,319
Net income per ordinary share - basic
$ 1.94 $ 1.21 $ 1.53 $ 0.57 $ 0.18
Net income per ordinary share - diluted
$ 1.62 $ 1.01 $ 1.28 $ 0.48 $ 0.15
Weighted-average common shares outstanding *
Basic
7,535,803 7,535,803 7,535,803 7,535,803 7,535,803
Diluted
9,006,212 9,006,212 9,006,212 9,006,212 9,006,212
Special Situations
Financial Target Agreements
Original Earn-out Arrangement were to be issued to OMH Shareholders upon the achievement of 2009, 2010, 2011 and 2012 after-tax profits targets by China TopReach, based on the following schedule:
2009
2010 2011 2012
Net Income RMB
136 M
197.2 M
278 M
394.4 M
Net Income U.S $
$20 M
$29 M
$41 M
$58 M
Earn-out Shares (non-cumulative), pre-revision
2.0 M
2.5 M
2.5 M
2.5 M
Revised Earn-out Arrangement : To compensate for the additional risk assumed by three shareholders in providing collateral to facilitate the consummation of the Private Placement, China TopReach issued 5,500,000 shares to Topbig (3,309,813 shares), Blazing Sun (1,530,712 shares) and Keep Profit (659,475 shares), whereupon Topbig, Blazing Sun and Keep Profit also agreed to surrender their entitlement to receive 5,500,000 Earn-out Shares regardless of whether the profit targets are achieved in future. The rights of the other OMH Shareholders, who did not provide personal guarantees and collateral during the Private Placement, to be issued the remaining 4,000,000 Earn-out Shares are unaffected by the above arrangement and are still subject to the achievement of the profit targets based on the following schedule:
2008 Reported
2009
2010 2011 2012
Net Income RMB
n/a
136 M
197.2 M
278 M
394.4 M
Net Income U.S
$11.5 M
$20 M
$29 M
$41 M
$58 M
Earn-out Shares (non-cumulative), post-revision
n/a
n/a
1.0 M
1.0 M
1.0 M
GeoCalculated EPS.
$1.28
n/a a
$1.30 to $2.02
$1.76 to $2.68
$2.39 to $3.56
Fully Diluted Share Count (Worst case scenario)
9.0 M
$9.0 M
14.3 M to 22.3 M
15.3 M to 23.3 M
16.3 M to 24.3 M
a The 2009 net income target could not be attained as a result of the shortfall in working capital available to OMH during the year 2009. Therefore, the business development and expansion of OMH could not take place as quickly as originally planned. Subsequently, China TopReach waived its right to have the Escrowed Shares put in escrow pending the achievement of 2008 and 2009 profits targets, and such shares were released from escrow,
a move of good faith towards its shareholders. The company reported EPS of 1.62 for the 2009 nine months period. Warrants exist that are exercisable at $6.00 per share.
