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When I think of penny stocks I tend to assume the company’s are risky start-up or early stage ventures not businesses with a solid history of growth and earnings.  AKRK is an established business that has grown organically and is seeking the capital through a secondary offering that will allow management to complete the acquisition of additional cork forest acreage and factory and other fixed assets needed to increase production capacity.  The acquisitions are all under contract management just needs to capital to close the deals.  The transactions will facilitate accelerated growth. 

The following table reflects actual operating data for the two years ended Dec. 31, 2007 and 2008 and my estimate for 2009.  Note that operating results in QIV 2008 and QI 2009 were below trend due to the sharp contraction in worldwide economic activity that took place during that period.  The Company’s operating results showed sharp improvement in QII and QIII 2009.  My QIV 2009 estimate is only 20% more than Asia Cork generated in Q IV 2007 so I think it is reasonable.

If my 2009 estimate is in line with actual results AKRK is selling at less than 7x eps.  Given the Company’s solid business model and management’s plans to grow the business it is hard to imagine this stock staying under $1 for much longer.  I believe patience will pay off with Asia Cork and longer term investors will do very well.

Agreed on all points. Just time to be pateint now.

Maj, The GeoTeam

If AKRK does a secondary offering the benefits will far outweigh the negative impact of dilution.  A successful offering will provide the capital necessary to complete several pending transactions to acquire additional cork forest acreage and production assets.  The acquisitions would vertically integrate operations resulting in greater operational efficiencies, increased profit margins and the capacity to aggressively increase international distribution.  In addition, the offering would trigger the conversion of the Ancora Greater China Fund promissory note to equity resolving the $700,000 debt issue and making Ancora a major shareholder.  Having a prestigious investor like Ancora with a large equity stake in the Company has to help.  Finally, a secondary offering would broaden the shareholder base which would be supported by Global Arena Capital Corp. the investment banking firm retained by Asia Cork to do the offering.   Essentially the offering would provide the funds needed to jumpstart the business and kick AKRK to the next level. 

The biggest unknown for now is how long it will take the Company to complete the offering especially since a Form S-3 filing with the SEC is probably required.   The SEC might require the Form 10K be filed before the S-3 which could push the offering off until April.  Who knows though, the offering might happen next week.  However long the process takes though, the wait will be well worth it. 

" Dear Gentlemen, i read your article about CIWT.OB and i would like your insight about some other chinese stocks like AKRK.OB (Asia Cork Inc. from the green building material sector)".

 GeoTeam Response:

Located in Xi’an, China, Asia Cork, Inc. is a rapidly growing leader in the development, manufacturing and marketing of cork-based building materials. Cork is a ‘green’ renewable resource harvested only from the bark of the cork oak tree, thus leaving forests generally undamaged.

The GeoTeam does not generally invest in penny stocks, however this stock has piqued our curiosity, due to its involvement in the green industry.

Positive Factors:

• The company is the leader in its industry. (Best of Breed).

• The company is profitable, albeit still minimal on an EPS basis.   For its second quarter 2008 the company reported $.02 EPS on a 79% increase in revenues to $6.37 million.  The GeoTeam will monitor the next few quarters to see if the company can report more meaningful EPS numbers.

• Asia Cork Completed a New Factory to Expand Production, which is expected to increase margins.

• Per the second quarter 2008 the company has a healthy operating margin of 15%.

• Balance sheet is healthy with a current ratio of 6:1 and no long term debt.

• At $.22 the stock is selling at a discount to book value per share of $.44.

• 60% insider ownership. 
 
• Although it should be verified, an excerpt from page 23 of the 2008 second quarter 10Q implies that the company may not have to raise capital, reducing chances of dilution:

“With approximately $5.2 million of net working capital (total current assets less total current liabilities) and positive cash flow from operations as of June 30, 2008, we believe we will have sufficient resources to finance our operations for the coming year.”

Points to consider that investors may want to ponder before making an investment decision:

• Financing needs should be verified.  Raising capital at such a low stock price could lead to dilution.  It’s very common for Chinese firms to return to the equity markets to raise additional capital, which has often resulted in dilution for many of these firms.

• The GeoTeam is attempting to decipher details outlined in an 8K filed on June 20, 2008 as it relates to potential dilution.  We encourage investors to do the same.

• Although AKRK seems to be on the right track they have not issued guidance.

• The Geo team feels that it is important for AKRK to report more meaningful EPS numbers for it to garner serious attention from investors.

• AKRK is a penny stock which may limit its attractiveness to potential investors.  The GeoTeam feels that it would be beneficial for the company to consider a reverse split, resulting in the stock trading over $1.

• The GeoTeam will follow this story closely.  The third quarter should shed some more light on the company’s progress. 

This discussion is not intended to be investment advice.  It is provided to aid investors in making their own investment decisions.