Kun Run Biotech (PINK:KURU)

On April 17, 2010 Kun Run Biotechnology, Inc. entered into a Securities Purchase Agreement by and among the Company, Caduceus Asia Partners, L.P., an investment fund managed by OrbiMed and Mr. Xueyun Cui, the Chairman of the Company’s Board of Directors and the majority stockholder of the Company. 

Terms

• Company agreed to issue of up to $8,000,000 of units of the Company with each Unit consisting of (A) one share of the Series A Preferred Stock of the Company and (B) one warrant (each, a “Net Income Warrant,” and collectively, the “Net Income Warrants”) to purchase 0.30 of a share of Series A Preferred. The Net Income Warrants are exercisable only if the Company fails to achieve thresholds of net income before certain expenses in its audited income statement for the 2010 fiscal year. If the Net Income Warrants become exercisable, they have a cashless exercise feature.
  
• The Company will designate 6,800,000 shares of Series A Preferred Stock.
  
• Holders of the Series A Preferred shall have the right to convert the Series A Preferred at any time into Common Stock at an initial conversion ratio of one-to-one, subject to adjustments, including anti-dilution adjustments and proportional adjustments for stock splits, stock dividends and recapitalizations.

The Company intends to use the proceeds from the Units for the following purposes:

(i) potential acquisitions of drug products and pipeline assets,

(ii) working capital,

(iii) payment of fees of consultants of the Company,

(iv) reimbursement of fees of the Purchaser in the contemplated transaction, and

(v) repayment of certain outstanding obligations of the Company or its subsidiaries.

It appears that even if KURU meet its net income targets, EPS growth would be flat assuming full conversion of the preferred stock. (EPS of $0.26 in 2009)

Due to the company's financial performance for 2008, the GeoTeam® is taking a closer look at KURU. Please visit the KURU 2008 GeoManaged Financial Table for a sales and EPS breakdown.  Using the tax adjusted non-GAAP trailing EPS of $0.23 the stock is selling at a meager P/E of 5.65 .  The stock recently completed a reverse merger and is relatively unknown.  All the reverse merger shares have yet to be registered, which makes the stock very illiquid with a wide Bid/Ask spread.  The GeoTeam® has not been able to locate a United States Investor Relations firm, but is attempting to make contact with the company to set up an interview.   More information will be provided if warranted.