WEB NEWS Comments & Business Outlook
Results for the second quarter and six month periods ended June 30, 2011.
Sales in the quarter declined from $6.47 million a year earlier to $4.64 million, and for the first half in 2011 were $8.56 million compared with $14.06 million in the first six months of 2010. A net loss incurred in the 2011 quarter widened to $2.88 million from $248,000 in the same period a year ago. Through the first six months of 2011, the Company reported net income of $29.15 million or $11.78 per share, on 2.52 million shares outstanding, compared with a net loss in the first half of 2010 of $702,000. The year over year increase in the six month period was due to a reversal of an allowance for bad debt resulting from a renewal of a third party guarantee on accounts receivable . Shareholder's equity of $25.17 million at June 30, 2011, compared with a negative net worth at the same time last year of $4.5 million.
The Company noted that the gross profit margin through the first six months of the year increased 1.34% to 8.96% from 7.62%, and to 8.4% in the second quarter compared with 7.35% in the second quarter last year. This was a consequence of adjusting the sales prices for key products in line with the sales strategy management established at the start of the year. At the same time, other key objectives of the strategy were not achieved, as the Company's low priced products were still priced too high to attract support from telecom operators, and sales of higher priced products were weak as new sales channels could not be established to foster sales growth.
The Company reported other key factors which contributed to lower net income in the second quarter were a newly accrued bad debt allowance for accounts receivable not covered by guarantee contracts, as well as additional interest penalties accrued on outstanding loans.
With respect to guarantees on the Company's very substantial accounts receivable, (the latter reached $100.36 million at June 30, 2011), on August 19, 2011 the guarantee contract signed on March 30, 2011 was again renewed. The guarantee amount for receivables from Xingwang, the Company's primary distributor, also was increased from RMB 500 million to not more than RMB 650 million.
Going Concern and Cash Problems
Mr. Guoji Liu, CEO of the Company, stated, "As our accounts receivable have continued to grow, our major problem is our weak cash flow which has resulted in a serious going concern issue. Our working capital is not sufficient to support the operation of the Company and raises doubt about our ability to continue as a going concern."
He added, "Recoverability of a major portion of our assets amounts is dependent upon the continued operation of the Company which, in turn, is dependent on the Company's ability to raise additional capital and secure financing . As such, we continue to explore, among other things, a strategic merger possibility and an offering and sale of equity. In the latter regard, on August 12th we filed a shelf registration statement with the Securities and Exchange Commission, which, if approved, would give us flexibility with respect to the possible sale of a variety of corporate equity and debt securities with an aggregate price of $6 million."
Mr. Liu also reported that the Company is continuing to follow procedures with respect to remaining listed on the NYSE Amex, but can provide no assurance that it will be successful.
Product Strategy
"If the Company is successful in achieving its financing goals, it will be positioned to pursue more vigorously a shift in its product and marketing strategy," Mr. Liu added. He said this includes focusing on marketing in new regions such as Africa, while expanding in the Company's traditional domestic market with products that more closely meet the needs of the telecom operators.
"In summary," Mr. Liu concluded, "we face a substantial challenge, but continue to believe it is possible to achieve healthy development with the solutions we have designed, and are working hard to accomplish this."
Deal Flow
We may offer and sell from time to time our common stock, preferred stock, warrants, subscription rights and debt securities. We may sell any combination of these securities in one or more offerings with an aggregate initial offering price of $6,000,000 or the equivalent amount in other currencies or currency units.
Investor Alert
NEW YORK, NY -- (Marketwire ) -- 07/20/11 -- Orsus Xelent Technologies, Inc. ("Orsus" or the "Company") (NYSE Amex: ORS) reported today that on July 14, 2011 the Company received a letter from the NYSE Amex LLC (the "Exchange") staff indicating it is no longer in compliance with the Exchange's continued listing standards as described below and its securities are therefore subject to being delisted from the Exchange. In response to this, the Company said it is taking the steps necessary to request a hearing before a committee of the Exchange to appeal the staff determination.
The notification from the Exchange indicated the Company was not in compliance with Section 1003(a)(iv) of the Exchange's Company Guide with respect to its financial condition, which makes it questionable in the opinion of the Exchange as to whether the Company will be able to continue operations or timely meet its obligations.
The Company previously submitted a plan on May 23, 2011 to the Exchange advising the Exchange of actions it had taken or would take to regain compliance, and had supplemented its plan with additional letters as recently as July 1, 2011. After review of the plan and the supplemental letters the Exchange determined the Company did not make a reasonable demonstration of its ability to regain compliance with Section 1003(a)(iv) by July 21, 2011.
The Company said it believes it is in the best interests of the Company and its shareholders to maintain a listing on the NYSE Amex and therefore is pursuing an appeal, although there is no assurance it will be successful.
Investor Alert
The GeoTeam has been looking into the Orsus Xelent Technologies (NYSE AMEX:ORS) story and reached the following conclusions that are explained in more detail in our report, linked below:
ORS has no discernible business operations;
Even if the management team of ORS is conducting substantial business operations, US shareholders may have no ownership interest in whatever the true operations are;
ORS faces an immediate liquidity crisis that if unresolved will likely force the company to suspend operations at the end of QII or during QIII 2011;
Due diligence performed by Reuters corroborates our on-the-ground-findings.
Please see the details of our findings here: http://geoinvesting.com/companies/duediligence/ORS_Report06222011.aspx
Investor Alert
On May 23, 2010, we informed our premium users, via our message boards, that we were going short ORS.
First note
Second note
Third note
ORS Shares had been on fire earlier this week, reaching a high of $3.33 on May 24,2011 . It seems that investors were excited about what appeared to be strong 2011 first quarter results released on March 23, 2011.
The headline 2011 vs. 2010 first quarter EPS figure was $12.73 vs. $(0.18). However, a closer look reveals that net income was aided by a one time non-cash gain.
First Quarter Results :
Sales in the quarter declined to $3.91 million , compared with $7.6 million a year earlier.
The Company achieved income from operations in the period of $342,000 .
However, mainly due to a non-cash reversal of allowance for bad debt generating other income of $32,022,000 in the quarter, the Company reported net income of $32.03 million or $12.73 per share, compared with a loss of $(446,000) or $(0.18 ) per share a year earlier.
By our calculations, after stripping out non-cash items from both years, the YOY EPS comparison tells a different story:
Let's take a look at some other figures in the 2011 first quarter 10Q
Cash= $4,000
Account Receivables= $94.1 million or 6 times the current annualized revenue run rate
Operating Cash Flow= ($1,000)
Tax Payable= $33 million
Investors may have also been excited about:
The renewal of its account receivable insurance:
The reversal of the allowance for bad debt is a consequence of the fact that following a year-end write down of those doubtful accounts (accounts receivable) in 2010 which were not covered by an expired third party guarantee agreement, on March 30, 2011 the Company entered into a Credit Guarantee Contract with Beijing Xingwang Shidai Tech and Trading Co. Ltd. ("Xingwang") and Zhong Hui Guarantee Corporation ("Zhonghui"), by which Zhonghui renewed its guarantee for any sales to Xingwang. Under this new agreement, coverage was increased from RMB 300 million (U.S. $44.2 million) to not more than RMB 500 million (U.S. $73.6 million) up to the period ending December 31, 2011 .
The possibility that ORS's growth tract will awaken if it were to receive a life line:
Mr. Guoji Liu, CEO of the Company, stated, " We are pressing ahead with our previously described plans for a strategic merger and/or a capital raise and/or a loan to resolve our cash flow problem. We believe we have made progress in this regard, but have not yet succeeded and cannot predict the final outcome of our various discussions . It is only with success in securing additional cash that we will be able to move forward with plans to strengthen operations. These plans include a focus on product sales in developing regions such as Africa and the introduction of new products that conform to consumer demand and the needs of China's telecom operators ."
Quite honestly, this is news we would have gone long on when ChinaHybrids were in vogue not too long ago. We would have expected such news to lead to an increase in a company's stock price as investors re-priced its risk premium. And that is what they did in the case of ORS. (Shares had more than doubled from a price of $1.09 after the release of the first quarter press release).
However, there are still significant risks to this story:
Status with the exchange at risk:
NEW YORK, NY--(Marketwire - Apr 27, 2011 ) - Orsus Xelent Technologies, Inc. ("Orsus" or the "Company") reported today receipt of a letter from the NYSE Amex LLC ("the Exchange"), which stated the Company is not in compliance with Section 1003 (a) (i) of the Exchange's Company Guide based on the Company's reporting of less than $2 million in stockholders' equity and losses from continuing operations and net losses in its two most recent fiscal years ended December 31, 2010; and Section 1003 (a) (iv) of the Exchange's Company Guide with respect to its financial condition, which makes it questionable in the opinion of the Exchange as to whether the Company will be able to continue operations or timely meet its obligations . Additionally, the Company has been advised its common shares may not be suitable for auction market trading due to their low selling price.
The company was very clear in stating that more pressing matters are at hand, besides attaining accounts receivable insurance:
The Company noted the reversal in the quarter of the previously expensed bad debt did not generate cash. The Company's most pressing concerns -- and the continuing primary focus of management attention -- are cash flow and related going concern issues .
ORS's SEC filings reveal that the clock is ticking for the company to resolve its liquidity issues.
We anticipate that our cash reserves will be sufficient to fund our cash requirements only until the second quarter of 2011 . We are evaluating various alternatives that may include, among other things, a strategic merger possibility and an offering and sale of equity , which, if successful, would improve our cash flow situation
To be clear, ORS has been very up front about the risks it currently faces, risks that investors may want to be aware of too.
Even if ORS does receive a life line in the way of financing, an acquisition or undertakes another RTO transaction, we need to consider at what cost it will be in this unfriendly ChinaHybrid market. Investors will be asked to trust an RTO
Nonetheless, the next thirty days will be key for ORS. We are currently short this name, but acknowledge that its small float could send shares sharply higher if the company is able to structure a life saving deal that investors will trust in an un-trustworthy ChinaHybrid environment.
Comments & Business Outlook
First Quarter Results :
Sales in the quarter declined to $3.91 million, compared with $7.6 million a year earlier.
The Company achieved income from operations in the period of $342,000 .
However, mainly due to a non-cash reversal of allowance for bad debt generating other income of $32,022,000 in the quarter, the Company reported net income of $32.03 million or $12.73 per share, compared with a loss of $(446,000) or $(0.18 ) per share a year earlier.
Mr. Guoji Liu, CEO of the Company, stated, "We are pressing ahead with our previously described plans for a strategic merger and/or a capital raise and/or a loan to resolve our cash flow problem. We believe we have made progress in this regard, but have not yet succeeded and cannot predict the final outcome of our various discussions . It is only with success in securing additional cash that we will be able to move forward with plans to strengthen operations. These plans include a focus on product sales in developing regions such as Africa and the introduction of new products that conform to consumer demand and the needs of China's telecom operators ."
GeoTeam ® Note : 2011 vs. 2010 First Quarter Adjusted EPS was nil vs. $0.33 .
Investor Alert
NEW YORK, NY--(Marketwire - Apr 27, 2011 ) - Orsus Xelent Technologies, Inc. ("Orsus" or the "Company") reported today receipt of a letter from the NYSE Amex LLC ("the Exchange"), which stated the Company is not in compliance with Section 1003 (a) (i) of the Exchange's Company Guide based on the Company's reporting of less than $2 million in stockholders' equity and losses from continuing operations and net losses in its two most recent fiscal years ended December 31, 2010; and Section 1003 (a) (iv) of the Exchange's Company Guide with respect to its financial condition, which makes it questionable in the opinion of the Exchange as to whether the Company will be able to continue operations or timely meet its obligations. Additionally, the Company has been advised its common shares may not be suitable for auction market trading due to their low selling price.
As such, the Exchange requires the Company to submit a plan by May 23, 2011 addressing how it intends to regain compliance with Section 1003 (a) (iv) by July 21, 2011, and by Oct. 21, 2011 with Section 1003 (a) (i). Further, by July 21, 2011, the Company must effect a reverse split. Should the Company fail to regain compliance within the specified time periods, the Exchange will initiate delisting proceedings.
The Company reported it intends to comply with requirements in the letter from the Exchange and will submit a timely plan of compliance. The Company also reported it shortly will effect a reverse split of its common stock to raise the selling price.
Liquidity Requirements
The liability for possible settlement to accounts payable of US$12,601,000 arose from the provision of penalty for unpaid accounts payable to suppliers as of December 31, 2010. In the purchase contracts signed between suppliers and the Company since 2006, an agreed term between BOXT and the suppliers acknowledges that any outstanding payment which exceeds the agreed payment schedule, will be imposed on an additional 0.3% per day delayed payment penalty based on principle amount of contract liability. However, some of the purchase contracts were signed before 2006, according to relevant PRC civil laws and regulations, if the creditors did not claim for the right in writing to the Company within two years from the date on which the liability was due, the periods of prescription will be expired after two years from the date on which the liability was due. We note that at the present, no legal letters related to this part (0.3% penalty arising from outstanding payment) liability were issued from our suppliers in past 4 years. However, from the point of prudence principle, we accrued this liability based on the terms of the contract. At December 31,2010, the accrued possible penalty provided based on such penalty term is US$10,161,000 and this liability has been recorded in the “Other Expenses” of statement of operations for the year ended December 31, 2010.
We anticipate that our cash reserves will be sufficient to fund our cash requirements only until the second quarter of 2011. We are evaluating various alternatives that may include, among other things, a strategic merger possibility and an offering and sale of equity, which, if successful, would improve our cash flow situation.
Investor Alert
There are two legal disputes with two suppliers of BOXT. Shenzhen Songding Industry Ltd., (“Songding”) provides battery chargers and Beijing Baoxin Packing Materials Co., Ltd. (“Baoxin”) provides packing materials to BOXT. The legal disputes with above mentioned suppliers arose because the Company did not accept accessories and materials supplied by Songding and Baoxin due to the quality issues. The management of BOXT determined to cease the payment to Songding and Baoxin accordingly. The dispute between Baoxin and BOXT started from the arbitration applied by Baoxin on October 2006 which has been arbitrated by Beijing Arbitration Commission on October 24, 2006. BOXT should pay Baoxin US$246,000. Currently BOXT and Baoxin are processing the final negotiation based on the arbitration result. As such, Baoxin applied for the property preservation to the court and one of BOXT’s bank account is blocked accordingly. BOXT has recorded the arbitration result as account payable to the supplier after the arbitration. The balance of account payable to Baoxin as of December 31, 2010 is US$38,000.
The dispute between Songding and BOXT started from the arbitration applied by Songding on January 12, 2010 which is still pending for final arbitration. The disputed amount is US$281,000 by Songding. BOXT recorded account payable to the supplier with the amount of US$200,000 as of December 31, 2008. Since Songding applied for the property preservation to the court, one of BOXT’s bank accounts is blocked accordingly. The balance of account payable to Songding as of December 31, 2010 is US$56,000.
Comments & Business Outlook
Full Year 2010 Results :
Full year 2010 sales were $24.4 million, down from $77.4 million in 2009 , but about in line with prior guidance.
Reflecting lower sales and a decision to provide a non-cash allowance for doubtful accounts of $33.84 million, the Company incurred a net loss in 2010 of $47.4 million, compared with a net loss of $6.4 million in the prior year.
Gross margins of 7.5% in 2010 compared with 12.2% in 2009 with the decline primarily due to the year over year decrease in sales volume. Further, with a continuing inability during 2010 to sell higher margin special application phones, the Company reverted to sales of lower priced, low margin phones in its highly competitive traditional mass markets.
While the Company believes over time it will receive installment payments on accounts receivable from its largest customer (accounting for most accounts receivable) it determined it was prudent to write down all receivables aged more than 360 days that were not covered by the $44 million third party guarantee in place through December 31, 2010. Entering 2011, the Company reported receivables of $60 million, and said an extension of the guarantee agreement has been principally agreed to by the parties and a new agreement is expected to be signed shortly.
Further affecting reported results was an accrued possible penalty for purchase contracts signed after December 31, 2008 amounting to $12.6 million of which $9.3 million was reported as "other expense net" for the year 2010, which compared with $2.9 million in 2009
EPS ($1.57) vs. $($0.21)
Mr. Guoji Li, CEO of the Company, stated, "The Company was unable to reach the objectives established at the beginning of 2010 for our product strategy and operating results. We simply were unable to establish sales channels for our higher priced products, and our production costs were too high to compete effectively at the low end of the market ."
For the overall cell phone market in the PRC , user volume increased over 12.7% in 2010 from 2009, while the GSM market increased by 9.2%. In the GSM market, since the Personal Handy-Phone System was withdrawn from the market for policy reasons per government strategic arrangements, low priced GSM products become the preferred choice of PHP users. At the same time, China Mobile, a telecom operator, provides stronger support to other domestic cell phone producers such as ZTE and Huawei which lead to a rapid growth of low priced GSM cell phones. Middle and high priced GSM products are still controlled by leading multinational cell phone producers. The CDMA market realized a rapid development with 31% increase in users and WCDMA products taking a leading position. Smart phone producers such as Apple have taken advantage of this increased market. The Company did not reach the objectives established at the beginning of 2010 for its products strategy and operation results. For low priced products, the cost was not low enough to obtain the incentives and support from telecom operators; while for middle and high priced products, the establishment and development of successful sales channels were not strong enough. Looking forward to 2011, we will focus on the R&D of products which match the requirements from telecom operators to maintain an established sales channel.
In the meantime, we are exploring, among other things, a strategic merger possibility and an offering and sale of equity. If we are able to complete a strategic merger or sale of equity, we believe our cash flow situation will be improved significantly. As a further business strategy plan, we also plan to enter into new 3G markets in emerging countries in the coming quarters of 2011.
The Company is experiencing cash flow issue, however, we are confident our efforts and solutions will be able to reduce this issue in the coming quarters of 2011. In summary, the Company predicts it will obtain healthy development based on the strengthening of its financial position in the coming fiscal year.
Share Structure
ORS Plans for reverse split: (v206995_8k.htm )
Approval of an Amendment to the Certificate of Incorporation to Implement a Reverse Stock Split.
Comments & Business Outlook
Beijing, China--(January 3, 2011 )- - Orsus Xelent Technologies, Inc., announced today the Company
anticipates sales for the year ended December 31, 2010 of approximately $25.1 million (unaudited), compared with $77.4 million in 2009.
The Company said that preliminary unaudited results for the fourth quarter 2010 indicate
sales in the period of $5.1 million ,
small net profit of approximately $235,000 .
As a consequence, the Company anticipates trimming its net loss in 2010 to ($349,775) compared with a reported net loss in 2009 of approximately ($6.4 million). The Company expects to report audited results on March 31, 2011.Competitive Environment 400,950 cell phones sold by the Company in 2010, approximately 71% were low margin products sold for between RMB 500 to RMB 1,200 , as the Company sought to maintain market position in the midst of the continuing market reshuffling by the major telecom carriers. The overall number of cell phone users in China was up 15.7% during the year. However, in the fourth quarter, as telecom networks were upgraded, competition was particularly fierce in smart phones on 3-G platforms as the telecom carriers launched a series of campaigns to build market share with ultra-cheap phones. Low end CDMA phone sales also increased as many customers shifted to them from Xiao Linton phones. According to Mr. Liu, the Company was slow to react to the shift in the market, and did not penetrate the carriers to gain subsidies achieved by other cell phone makers.Hopeful About 2011 Other Matters 30 to 1. Shareholders also elected five directors and approved the appointment of independent auditors.
Comments & Business Outlook
Revenues in this year's third quarter decreased significantly year over year from $19,125,000 to $5,907,000 .
The Company achieved a gain in the quarter of $117,000 compared with net income of $1,370,000 .
EPS was $0.00 vs. $.05 per share in the third quarter last year.
The Company said results in the recent quarter were affected by a decline in demand in the market for low-priced, non 3-G products, a major focus of the Company, as many of the larger telecom companies have focused on gaining market share in the rural areas of China. Additionally, the Company's distributors experienced a decline in the number of anticipated large orders from their major customers.
Investor Alert
On October 6, 2010, Orsus Xelent Technologies, Inc. received a letter from NYSE Amex LLC indicating that, due to its low selling price, the
Company's common stock may not be suitable for auction market trading . The Exchange also notified the Company, in accordance with Section 1003(f)(v) of the Exchange’s Company Guide, that it
deems it appropriate under the circumstances for the Company to effect a reverse stock split to address its low selling price. If the Company fails to affect the reverse split or other action to address its low selling price within a reasonable time after receiving the letter, the Exchange may consider suspending dealings in, or removing from the list, the Company's common stock. In that event, the Company would become subject to the procedures and requirements of Section 1009 of the Company Guide, which could, among other things, result in the Exchange initiating delisting proceedings.
Comments & Business Outlook
In the first six months of 2010, revenues declined from $43.05 million to $14.06 million year over year, which produced a net loss of $(702,000) or $(0.02) per share in this year's first half, compared with net income of $4.68 million or $0.15 per share in the first half last year.
The Company noted that the operating scenario in the second quarter this year mirrored on a larger scale the pattern of the past several quarters, which reflect the changes in China's telecom market resulting from the restructuring of the industry and lagging effects of the financial crisis. These have shifted the attention of phone manufacturers to the faster growing but much more competitive rural markets. For the Company, this has meant a loss of higher margin business, such as its special application handsets, and a need to compete with lower cost, low margin handsets in carefully selected markets.
According to Mr. Guoji Liu, CEO, "We have had only limited success based on the popularity in particular of our full-featured, modestly priced DX9188, which represented 62% of second quarter sales. We continue to look for an improvement in the market situation later this year, stimulated in particular by the introduction of 3-G phones. We are prepared to sell higher margin Company designed 3-G handsets as that market develops, and also see potential for the special application phones which were the Company's hallmark before the shakeup in the industry."
Long Aged Accounts Receivable
Mr. Liu noted further, "Unfortunately, we meanwhile continue to be severely squeezed by the situation with respect to our very large accounts receivable from our major distributor. While we rely on this distributor for sales of most of our products, and have a good working relationship in this regard, our limited cash necessitates financing to develop alternatives in what is still a difficult financing environment." He added, "With a belief that our distributor is emerging from its own difficulties engendered by the current marketplace, and with the backing of a Credit Guarantee Contract issued by a third party for long aged receivables should this not be the case, we continue to be optimistic that we can consummate a financeable transaction that will revitalize the Company."
Mr. Liu concluded, "While these issues have created a difficult experience for the Company and its shareholders, we are resolute that a favorable outcome is within our sights, and are continuing to work very hard to achieve this as quickly as circumstances permit."
Comments & Business Outlook
We remain cautiously optimistic that full year revenues will improve moderately, although they may not reach our goal of a 15% advance . At the same time, we believe it will be possible for our full year bottom line results to outpace the growth in revenues.”
FULL YEAR 2009 Guidance Ending December
Full Year 2009 Full Year 2008 Period Change
GAAP Revenue
$124.00 million
$107.83 million
15.00%
Comments & Business Outlook
Looking ahead, the Company said that the downturn in the world economy is likely to continue in 2009, making predictions difficult in what it sees as a very choppy environment, particularly in the first half of the year.
Overall, the Company believes it will continue to demonstrate in tougher times the characteristics that have fueled its excellent growth over the years, namely its flexibility, innovativeness and entrepreneurial drive. As the industry strengthens and the economy improves, it sees significant opportunity ahead in the vast Chinese telecom market. Despite the slowdown since June 2008, the Company sees enormous potential in this market. One key reason for this is the current market penetration estimate by industry sources of only about 47% , based on approximately 640 million current mobile subscribers. Various forecasters believe the number of subscribers will easily grow to more than 700 million in 2010 .
FULL YEAR 2009 Guidance
Full Year 2009 Full Year 2008 Period Change
GAAP Revenue
$124.00 million
$107.83 million
15.00%
Comments & Business Outlook
In the guidance being provided for the full year ending December 31, 2008 , the Company stated that it sees revenues growing to between $120 million and $130 million , which would translate to an estimated gain of above 30% compared to the recently reported record sales achieved in 2007 of $89.9 million . (Source: press, April, 2008) The following are some of the GeoTeam's concerns :
