China Energy Corp (OTC BB:CHGY)

News from the GeoTeam.

(Please note that any protected blog posts and pages need the password GEOTEAM for access It is case sensitive)

Shengkai Innovations (NASDAQ:VALV) ($1.60)

Please see our thoughts on VALV's decision to change auditors.

China Ceramics Co (NASDAQ:CCCL) ($4.05)

Although many facets of the the OTGDD on CCCL were positive, we are still digging into the CCCL story, especially with regards to its SAIC filings and a related party transaction issue. The original SAIC filings that we pulled did not match the SEC filings. However, the SAIC filings that we pulled at a later date were on par with the SEC filings. Thank you for your patience as we develop this story.

We are neither long nor short shares of CCCL.

China Energy Corp (OTC BB:CHGY) ($0.44)

China Energy Corp has finally achieved a positive net working capital position for the first time since going public in late January 2007, reversing the trend of 4 straight years and 17 straight quarters of a negative net working capital position. However, a good deal of this reversal was generated from repayment of a related party note receivable that had been on the balance sheet for several quarters.

"As of May 31, 2011 we had a working capital surplus of $6,310,207, compared with a working capital deficit of $21,723,598 as of November 30, 2010. The improvement of liquidity was mainly due to (i) the full repayment of notes receivable amounting to $14.7 million which was lent for strategic purposes to related parties affiliated to the Company through family members of the Chairman; (ii) net income from the operating business in the first half of 2011; and (iii) proceeds from finance obligation amounting to $9.3 million. We anticipate that the combination of our sales and collection of accounts receivable with our longer accounts payable cycle, customer deposits and proceeds from bank and shareholder loans will generate sufficient cash flow to sustain our working capital needs." (http://geoinvesting.com/companies/chgy_china_energy_corp/research)

Investors may also want to know that CHGY recently changed its corporate structure to a Variable Interest Entity (VIE) from a Foreign Invested Enterprise (FIE).

http://geoinvesting.com/companies/chgy_china_energy_corp/research/investor_alert/0026085

We have no position in CHGY

Please visit the following links:

Recent changes in short positions (JVA, TRIT, CMCI, GCHT) - http://blog.geoinvesting.com/?page_id=1256

Long positions (new) - http://blog.geoinvesting.com/?page_id=2489

China Co Conference calls and beats/misses (new) - http://blog.geoinvesting.com/?page_id=2443

Also make sure to subscribe to message boards to receive timely information on U.S. and ChinaHybrid companies. The following had been put out on TRIT:

http://geoinvesting.com/forums/yaf_postsm11526_Covered-TRIT-short-position-Price-now-fully.aspx#singleMsg.

We are also performing on-the-ground due diligence on a couple of companies for which we found positive initial findings, as well as on a few companies where the initial due diligence has been negative. Stay tuned!!!

Its obviously been tough on the U.S. front for many of the micro companies we follow. Overall, the financial results have been mostly positive. GeoSpecial CMT came through with the best quarter thus far. http://geoinvesting.com/companies/cmt_core_molding_technologies/research/comments_business_outlook/0031718.

Management comments were particularly strong, going out on the limb to say that business looks good all the way to 2013. Once this market turns around, provided we don't enter a severe recession, we think this stock could easily double to $16.00. We tepidly bought some shares, but may be more aggressive as market sentiment improves

GeoSpecial VSR has seen shares recover today after it announced a potentially significant contract award this am. http://geoinvesting.com/companies/vsr_versar/alerts We are eagerly awaiting the release of the company's 2011 second quarter release to see if the company will set a new EPS barometer.

Sifco Industries (NYSE AMEX:SIF) ($18.14) reported dynamite quarterly numbers this morning. We will nibble at shares and look to code as a GeoSpecial if our review the 10Q is positive. A recently completed acquisition could propel EPS for the next few quarters.

Usa Mobility (NASDAQ:USMO) ($14.68) and Multi Color Corp (NASDAQ:LABL) ($21.03) are also beginning to pique our curiosity.

Please be aware that shares of CMT, VSR and SIF are thinly traded.

We will be sifting through the recent market carnage to identify companies whose shares were punished despite reporting strong second quarter financial results. There are plenty.

**All prices are as of business close August 10, 2011.

Sincerely,

The GeoTeam

China Energy Corporation (the “Company”) is a Nevada corporation, formed on October 11, 2002 under the name Omega Project Consultations, Inc.  The name was changed to China Energy Corporation on November 3, 2004.  On November 30, 2004, the Company entered into a share exchange agreement with Inner Mongolia Tehong Coal Group Co., Ltd. (“Coal Group”), and Inner Mongolia Zhunger Heat Power Co. Ltd. (“Heat Power”) and their respective shareholders. The transaction was accounted for as a reverse merger, a procedure that treats the transaction as though Coal Group had acquired the Company.  Under the accounting for a reverse merger, the assets and liabilities of the Company, which were nil at the time, were recorded on the books of Coal Group, the continuing company, and the stockholders’ equity accounts of Coal Group were reorganized to reflect the shares issued in this transaction.

The share exchange agreement, which resulted in the Company’s acquisition of the Coal Group and Heat Power, was governed by and valid under Nevada law and was not perfected under the then People’s Republic of China (“PRC”) law.  It was not until certain changes in PRC law, which became definitive in 2006, that the series of procedures of governmental approvals and corporate actions were clarified and the Company acknowleged the condition precedents to that perfection.

The Company does not believe the lack of perfection impairs its ability to exercise control over the Coal Group and Heat Power as it continues to exercise control over them, consistent with the intent of the original shareholders.

The Company is in the process of completing the necessary actions to meet the current PRC legal requirements related to the acquisition of Coal Group and Heat Power.  On July 13, 2009, the Company entered into a framework agreement which detailed the actions contemplated for the restructuring of the Company, Coal Group and Heat Power under a "variable interest entity" (“VIE”) structure to meet the current requirements of applicable PRC law.

The framework agreement provides that (i) the Company will establish a newly-formed, indirect subsidiary of the Company incorporated in the PRC (“CEC China”), (ii) CEC China will enter an exclusive service agreement and option agreement with each of Coal Group and Heat Power (collectively, the “Operating Companies”) and a share pledge agreement with each of the Operating Companies and certain of their respective PRC Shareholders (“PRC Shareholders”). The framework agreement also requires the PRC Shareholders to fully authorize CEC China to exercise all shareholders’ rights that the PRC Shareholders can exercise in the Operating Companies. By entering into the framework agreement and subsequently setting up the structure involving the use of VIEs, the Company will have the control and the economic benefits and costs of ownership of the Operating Companies consistent with PRC regulatory requirements.