China Yongxin (PINK:CYXN)

China Yongxin Pharmaceuticals has plans to continue to dilute shareholders' interests:

"We intend to use the net proceeds of this offering for acquisitions, marketing, working capital and general corporate purposes."

The GeoTeam® will be conducting further due diligence into CYXN due to a propensity to continually tap equity markets.

See note from June 4, 2010.

Financial results for the second quarter ending June 30, 2010.

• Revenues for the second quarter of 2010 were $11.16 million, a 21.8 % increase from $9.16 million for the same quarter in the prior year.
  
  
  • Revenues from its wholesale segment were $7.62 million, an increase of 27.4% over $5.98 million in the same quarter of the prior year.
    
  • Revenues from the retail segment were $3.5 million, an increase of 11.3% over $3.18 million in the same quarter last year.
    
• GAAP EPS was $0.09 vs. $0.26.
  

GeoTeam® Adjustment: Non-GAAP EPS was $0.11 vs. $0.09.

The increase in revenue was attributable to both retail and wholesale operations. In the retail segment, the Company added 7 new drug stores in the second quarter. In the wholesale segment, the Company added new accounts through a national competitive bidding process, which increased wholesale revenue.

Mr. Yongxin Liu, Chairman and Chief Executive Officer of China Yongxin commented, "We are very confident that our plans to build an extensive network of state of the art retail stores will provide a path to continued growth. We are also beginning to establish an outreach program to enhance our distribution capabilities throughout Northeastern China. We plan to expand our reach throughout three of China's northeast region provinces, including the Jilin, Liaoning, and Heilongjiang provinces. We are currently one of a limited number of government-approved qualified distributors in Jilin province. We are continuing to expand our retail store count, having established ten new retail stores and three franchises during 2010, bringing our total store presence to 110 throughout Northeastern China."

    Mr. Liu also added, "We continue to be well positioned to take advantage of increased government support for expanded access to modern health care services and products in China. In 2010, the government accelerated implementation of its reforms, extending benefits to rural areas. We are very confident that the Chinese government's efforts toward health care reform will continue to boost domestic spending on health-related products."

Added to the GeoSpecial list on December 31, 2009 @ 4.56 (adjusted for a 1 for 12 reverse split)
 
Catalyst: Stock was selling below book; Appeared to be on the verge of an EPS breakout; Aggressive pharmacy expansion plans; Strong commentary.
Peak performance: Reached a high of $10.56 on April 8, 2010.
Current Price: $5.06

Current road block:  After adjusting for gain/loss from discontinued operations, net income actually  decreased 44.0% to $450 thousand in the 2010 first quarter; Adjusted EPS fell 50% to $0.01; The company has been a dilution machine.  This is evidenced, as of the 2010 first quarter, by an increase of  92.3% in the split adjusted share count to 4.97 million. The most recent raise was  at an insane discount to market prices and occurred just as the stock appeared to be on the verge of a break out. (raise was completed at $0.06 pre split)!!!; Giving away stock at these level does not portray management confidence and can send a message that investors see significant risk in this story. This is not the first time China Yongxin has completed a raise with such terms. Investors need to attain a better grip on dilution to have full confidence in this story. The company has left the door wide open for more dilutive events:

"The Company is planning to open an additional 35 retail drug stores in 2010, including 15 retail stores located in Chuangchun city, 10 retail stores in Baishan city and 10 retail stores in Tianjin city. The total capital expenditure budget for the additional of such retail drug stores is approximately $2.5 million. Other than working capital and loans, we presently have no other alternative source of working capital. We may need to raise additional working capital to complete the projects. We may seek to raise additional capital through the sale of equity securities. No assurances can be given that we will be successful in obtaining additional capital, or that such capital will be available in terms acceptable to our company."

Remains on the GeoSpecial list, but on a thin line.  The company is profitable and still sells below book.  With a poor first quarter bottom line performance, dilution concerns and without financial guidance we are hard pressed to make a strong play on China Yongxin in the current market environment.

Similar stocks in this space include: China Nepstar Chain Drugs Adr (NYSE:NPD), China Jo-Jo Drugstores (NASDAQ:CJJD), Biopharm Asia Inc (OTC BB:BFAR), Lotus Pharmaceuticals (OTC BB:LTUS)

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."

***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.

see relevant articles

• Revenues for the first quarter of 2010 were $10.68 million, a 16.3% increase from $9.18 million for the same period of 2009.
  
• Revenues from retail drug stores for the first quarter of 2010 were $3.99 million, an increase of 19.5% compared to $3.34 million for the first quarter of 2009.
  
• Revenues from the wholesale pharmaceutical distribution business for the first quarter of 2010 were $7.69 million, an increase of 7.0% from $7.19 million for the first quarter of 2009.
  
• Fully diluted earnings per share increased to $0.04 for the first quarter of 2010 compared to $0.01 for the first quarter of 2009, based on 59.6 million shares and 31.0 million shares for the first quarter of 2010 and 2009, respectively.

Mr. Yongxin Liu, Chairman and Chief Executive Officer of China Yongxin commented, "During the first quarter of 2010, we were selected as the sole pharmaceutical distributor for the Shenyang Military Region medical centers located throughout three of China's northeast region provinces, including Jilin, Liaoning and Heilongjiang, and one of the qualified distributors for Jilin province. We have also opened six new drug stores including three in Changchun City and three in Baishan City. This is in line with our strategy to further our new retail oriented sales strategy. We plan to open an additional 35 new retail stores in 2010, including 15 additional retail stores located in Changchun City, ten retail stores in Baishan City and ten retail stores in Tianjin City. The opening of new stores will continue to reflect the growth of our retail drugstore business to drive revenue growth."

Mr. Liu also added, "Our steady revenue growth, especially growth from our retail business in the first quarter of 2010, we believe indicates that our business is well-positioned to take advantage of increased government support for expanded health care. In 2010, the government accelerated implementation of its reforms, extending benefits to rural areas. We are very confident that the Chinese Government's efforts toward healthcare reform will continue to boost domestic spending on the products we sell. "

China Yongxin released its 2009 10K today.  They released some positive commentary going into 2010:

"Since last year, the Company has added products with higher profit margins to our operations to increase our gross profit, such products including cosmetics and certain health and organic products.  Management believes that the addition of such products will increase our overall gross profit in 2009 and the next few years.  Management believes that our sales and gross profit margins will improve with better economic conditions in 2010."