Add
CKGT.OB to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| CKGT.OB > SEC Filings for CKGT.OB > Form 10-Q on 14-Aug-2008 | All Recent SEC Filings |
14-Aug-2008
Quarterly Report
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report, including statements in the following discussion, which are not statements of historical fact, may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as "plans," "intends," "will," "hopes," "seeks," "anticipates," "expects," and the like, often identify such forward-looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward-looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives, or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10-Q and in the Company's other filings with the Securities and Exchange Commission. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results. These forward-looking statements are made as of August 14, 2008; the date of the filing of this Form 10-Q and the Company undertakes no responsibility to update these forward-looking statements.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes and the other financial information appearing in Part I, Item 1 and elsewhere in this report. The Company's fiscal year end is December 31.
Overview
As used in this report, "we", "us", "our", "CKGT", "our Company" or "the Company" refers to China Kangtai Cactus Bio-Tech Inc. and all of its subsidiaries and affiliated companies.
Our Company was initially incorporated as InvestNet, Inc. on March 16, 2000 under the laws of the State of Nevada. Prior to June 3, 2005, the Company's operations consisted of real time software and IT solutions which the Company held through its subsidiaries, Champion Agents Limited (which wholly owned DSI Computer Technology Company Limited) and Interchance Limited. Due to the fact that the Company was unable to generate sufficient cash flows from operations, obtain funding to sustain operations nor reduce or stabilize expenses to the point where it could have realized a net cash flow, management and the board of directors determined that it was in the best interests of the stockholders to seek a strategic alternative so that the Company could continue to operate. On May 13, 2005, InvestNet entered into a series of agreements to effect a "reverse merger transaction" with BVI China Kangtai.
These documents included a Stock Purchase Agreement, pursuant to which InvestNet issued 30,000,000 shares to a stockholder of BVI China Kangtai for $300,000. Additionally, InvestNet entered into an Agreement and Plan of Reorganization, pursuant to which the stockholders of BVI China Kangtai exchanged 12% of BVI China Kangtai's outstanding shares for 110,130,615 shares of InvestNet. Additionally, InvestNet issued the Convertible Note to BVI China Kangtai or its designees in the amount of $8,070,000 plus accrued interest at a rate of 5% per annum or convertible at the option of the holder(s) in the event that InvestNet effected a one for seventy reverse split of InvestNet's common stock into the remaining 88% of the outstanding shares of BVI China Kangtai. The Company effected a one for seventy reverse split of all of its outstanding shares of Common Stock and changed its name (to "China Kangtai Cactus Bio-Tech Inc.") and trading symbol (to "CKGT") on August 25, 2005. The holders of the Convertible Note converted the Convertible Note on August 26, 2005 into 14,248,395 shares of Common Stock of the Company. As the result of the share exchange and conversion of the Convertible Note, the Company completed a "reverse merger transaction" whereby InvestNet acquired 100% of BVI China Kangtai, which wholly owns Harbin Hainan Kangda. Harbin Hainan Kangda is presently our main operating subsidiary. Harbin Hainan Kangda is in the business of farming, selling and producing cacti and cactus related products in the PRC as more fully described below. In connection with the "reverse merger transaction", we completely sold all the Company's real time software and IT solutions operations by selling all of the stock held by the Company in its prior wholly owned subsidiaries, Champion Agents Limited (which wholly owned DSI Computer Technology Company Limited) and Interchance Limited to V-Capital Limited, a Republic of Mauritius corporation which is controlled by a former director of InvestNet.
In contemplation of the aforementioned resignations, also on June 3, 2005, the Board of Directors appointed in accordance with Section 3.04 of the Company's Bylaws, Jinjiang Wang, Chengzhi Wang, Hong Bu, Jiping Wang and Song Yang as members of the Company's Board of Directors, subject to the fulfillment of the filing and mailing requirements, including the 10 day waiting period of its Schedule 14f-1 that was sent to all stockholders of the Company pursuant to section 14(f) of the Securities Exchange Act of 1934 which occurred on July 22, 2005 and appointed the following officers to serve immediately: Jinjiang Wang, President; Chengzhi Wang, General Manager; Hong Bu, Chief Financial Officer and Treasurer; Fengxi Lang, Secretary; Changfu Wang, Vice General Manager; Zhimin Zhan, Vice General Manager; and Lixian Zhou, Assistant General Manager of the Company.
On July 20, 2005, InvestNet's sole director, Vivian Szeto, and a majority of the Company's stockholders unanimously approved and ratified a one for seventy reverse split (the "Reverse Split") of the Company's common stock and the amendment and restatement of the Company's Articles of Incorporation to effect a name change of the Company from "InvestNet, Inc." to "China Kangtai Cactus Bio-Tech Inc.". The Reverse Split became effective on August 25, 2005; 20 days after the Company sent an Information Statement to all of its stockholders and after filing of the Amended and Restated Articles of Incorporation with the Secretary of State of Nevada. As a result of the Reverse Split, the number of issued and outstanding shares of common stock of the Company, now named China Kangtai Cactus Bio-Tech Inc., was reduced from a total of 200,000,000 shares outstanding to 2,857,143 shares outstanding. A day after the Reverse Split on August 26, 2005, the Convertible Note was converted by its holders(s) into 14,248,395 shares of the Company, which increased the total outstanding shares of the Company to 17,105,625 shares. The Company's trading symbol was changed by the OTC Bulletin Board Stock Market ("OTCBB") to "CKGT" to better reflect the Company's new name. The Company has also changed its Web site to www.xrz.cn.
Organizational Background of China Kangtai and Harbin Hainan Kangda
BVI China Kangtai was incorporated in the British Virgin Islands on November 26, 2004. BVI China Kangtai operates through its wholly owned subsidiary, Harbin Hainan Kangda which BVI China Kangtai acquired in November 2004. Harbin Hainan Kangda was formed under the laws of the PRC on December 30, 1998 as a joint stock liability corporation, which is analogous to a limited liability company in the United States, but changed its structure from a joint stock liability corporation to a wholly owned foreign enterprise under the laws of the PRC in March 2005, due to being acquired by BVI China Kangtai.
Business Background
The Company, through its main operating subsidiary, Harbin Hainan Kangda, is principally engaged in the production, R&D, sales and marketing of products derived from cacti. The Company's product lines include cactus nutriceuticals, cactus nutritional food and a variety of beverages derived from cacti, as well as cactus raw and intermediate materials.
The Company has established over 387 acres of cactus-farming bases in Guangdong and Heilongjiang Provinces of China. The Company predominantly grows three species of cacti, Mexican Pyramid, Mexican Milpa-Alta and Mexican Queen. Mexican Pyramid and Queen Cacti are used by the Company to produce cactus fruit drinks and nutraceutical products and Mexican Milpa-Alta is predominantly used by the Company to produce cactus nutritional food products. The Company's annual production capability of cactus fruit and edible cactus in 2007 is 73,000 tons. Cactus palms and most fruits are processed into cactus extracts and fruit juice, which is the raw material for cactus nutritional drinks. Other harvested edible cacti leaves are processed into dry powers, which are raw materials for cactus nutriceuticals.
The Company engages with, by co-operative production agreements, local pharmaceutical, food and beverage manufacturers to produce its products. This strategy allows the Company to fill the orders quickly with short production runs and to reduce the requirements in fixed assets investment.
Two of first such agreements are with Shandong Tsingtao Beer Inc (Harbin subsidiary)'s Acheng Branch and Harbin Ice Lantern Noodle Factory first dated March, 2004 to jointly produce cactus beer and noodles for long term cooperation. The Company has renewed these contracts every year and most recently on January and March of 2008. Pursuant to these contracts, the Company provides raw materials, quality control guidelines and technical support while the processors (Shandong Tsingtao Beer Inc. Acheng Branch and Harbin Ice Lantern Noodle Factory) provide other materials, processing facilities and labor, and strictly follows the Company's guidelines and instructions for production. The Company inspects all of the final products.
The Company also has co-operative production agreements with two nutriceutical producers, Harbin Diwang Pharmacy Co. Ltd. (a GMP certified processor) and Harbin Bin County HuaLan Dairy Factory.
In 2006, the Company had entered two new co-processing agreements with Huimeijia Bio-tech Ltd. to produce nutriceutical soft capsules and Kangwei Health Foods Ltd. of Mudanjiang City to produce cactus palm dry powder products.
In October 2007, the Company has signed a new agreement with Harbin Meijia Bio-Tech Co., Ltd.
All of the above co-operative production agreements have been renewed during January and March of 2008.
The Company has also established its own cactus beverage and fruit wine production facilities. The Company's cactus beverage product category includes cactus beer, cactus fruit wine (including the brand name of Overlord Scourge Flower Imperial Wine), cactus palm juices and cactus fruit drinks.
Cacti have been proven to contain the following nutritional elements: protein and amino acids; organic fat; carbohydrates; vitamins; microelements; and organic acids.
The Company's nutraceutical products containing cactus extracts include Cactus Protein Nutrient, Cactus Calcium Peptide Soft Capsule, and Cactus Shuxin.
Cactus Protein Nutrient
Cactus Protein Nutrient is produced with Yu lotus, a protein and agglomerate element. It has been proven to be effective on stomachaches, tardiness gastritis, digestibility canker and duodenum canker.
Cactus Calcium Peptide Soft Capsule
Cactus Calcium Peptide Soft Capsule is made of cactus, and contains active albumen peptide of soybean and liquid calcium. It has the following characteristics:
A) Several nutritional components including, protein, vitamins A, B, C, and amber acid that can be easily absorbed; and
B) It contains an albumen peptide of soybean which can enhance the absorption of calcium, phosphor and other mineral elements, consequently raising the calcium in the body and fighting fatigue.
Cactus Shuxin Capsule
Cactus Shuxin Capsule is made with cactus and hawthorn extracts. It has been proven to have an effect on raising the flow capacity of coronary artery blood, alleviating drowsiness and improving red blood cell's oxygen carrying capability.
The Company has its own R&D facility, the Heilongjiang Sino-Mexico Cactus Development and Utilization Institute, which is certified by Heilongjiang Science & Technology Committee. The Institute has independently developed many patented cactus-based nutriceuticals and nutritional food and drink product formulas and production processes. Currently, the company has 15 patents approved and 16 pending with Chinese patent bureau.
In order to quickly penetrate the markets in China, enhance the efficiency of distributions, lower sales costs and administrative overheads, starting August 2006, the Company has reformed its sales and distribution models and gradually disposed its own domestic distribution network of approximately 200 self-owned, franchised chain and Kangtai branded stores in Harbin, Beijing, Guangzhou and other cities in China. The Company has adopted the strategies of distributions and sales of its products primarily through various types and levels of provincial and municipal distributors and agents in Liaoning, Heilongjiang, Harbin, Beijing, Guangzhou, Tianjin, Shenzhen, Jilin, Daqing, Mudanjiang, Suifenhe, Qinhuangdao, Shijiazhuang, Taiyuan, Qingdao, Jinan, Changsha, Lanzhou, Hangzhou in China. There are also group orders from organizational consumers, and direct orders of raw and intermediate materials from other manufacturers in the same industry.
The growing list of the distributors is as follows:
Liaoning Shenneng Trading and Development Ltd.
Jilin Yanji Economic and Trading Company, Ltd.
Jianshuang Zhang - Hubei.
Hunan Green Food Distribution Company, Ltd.
Harbin Huadingwei Trading Company, Ltd.
Hangzhou Hesheng Economic and Trading Company, Ltd.
Guangdong Jinpei Lin.
Fujian Tianyi Economic and Trading Company Ltd.
Beijing Yaping Liu.
Hunan Tianxiang Trading Company, Ltd
Jinan Qitai Economic and Trading Center
Lanzhou Xinhui Economic and Trading Company, Ltd.
Qingdao Furui Economic and Trading Company, Ltd.
Shanxi Anyang Food Distribution Company
Suzhou Hongde Economic and Trading Company, Ltd.
Copies of the distribution agreements with these distributors are listed as exhibits in this or previous reports.
Consolidated Results of Operations
The three-month period ended June 30, 2008 as compared to the three months ended June 30, 2007
For the three months ended June 30, 2008, revenues increased by $1,295,606 or 34.9% to $ 5,101,920 from $3,715,314 in the corresponding period of the prior year. The increase in revenues was attributable to the fact that the Company is continuing to expand its productions and distribution, and its products are better accepted by the Chinese market customers. These products include Cactus Protein Nutrient, Cactus Calcium Peptide Soft Capsule and Cactus Shuxin Capsule, among others.
For the three months ended June 30, 2008, cost of sales increased by $1,129,240 or 47.9% to $3,486,955 from $2,357,715, as compared to the corresponding period of the prior year. The increase was mainly due to the increase in the sale of raw cactus to $1,319,985 for the three months ended June 31, 2008, as compared to $131,681 for the three months ended June 30, 2007.
For the three months ended June 30, 2008, operating expenses increased by $37,788, or approximately 16.6% to $265,449, as compared to $227,661 for the three months ended June 30, 2007. Although we have reduced selling expenses by $46,817 or 66.6%, our general and administrative expense incased by $79,675 or 79.3%. The increase in general and administrative expenses was mainly due to increase in salaries and related benefits.
For the three months ended June 30, 2008, income before income taxes increased by $113,954 or 10.2%, to $1,231,748 from $1,117,794 for the corresponding period of the prior year. The increase was primarily due to the increase in gross profit, despite the large increases in general and administrative expenses. As a result, net income also increased by $112,913 or 12.2% to $1,308,306 from $925,393.
For the three months ended June 30, 2008, total income increased by $272,536, or 22.8% from $1,194,988 to $1,467,524. This increase was due to larger foreign currency translation adjustment gains.
The six month period ended June 30, 2008 as compared to the six month period ended June 30, 2007
For the six months ended June 30, 2008, revenues increased by $1,686,993 or 27.7% to $ 2,553,662 from $2,115,165 in the corresponding period of the prior year. The increase in revenues was attributable to the fact that the Company is continuing to expand its productions and distribution, and its products are better accepted by the Chinese market customers. These products include Cactus Protein Nutrient, Cactus Calcium Peptide Soft Capsule and Cactus Shuxin Capsule, among others.
For the six months ended June 30, 2008, cost of sales increased by $1,248,496 or 31.4% to $5,222,754 from $3,974,258, as compared to the corresponding period of the prior year. The increase was mainly due to the increase in the sale of raw cactus to $2,320,248 for the six months ended June 30, 2008, as compared to $604,748 for the six months ended June 30, 2007.
For the six months ended June 30, 2008, operating expenses increased by $188,297, or approximately 48.9% to $573,451, as compared to $385,154 for the six months ended June 30, 2007. This increase was the result of substantial increases in general and administrative expenses.
For the six months ended June 30, 2008, selling expenses decreased by $22,768,
or 23.3% to $75,059 from $97,827 as compared to the corresponding period of the
prior year. General and administrative expenses increased by $201,246 or 115.1%
to $376,040 from $174,794 as compared to the corresponding period of the prior
year. The decrease in selling expenses was due to decrease in advertising
expenses. The increase in general and administrative expenses was mainly due to
(i) warrants issued to the Company's new attorney valued at $59,225; (ii)
increase in slaries and related benefits and (iii) increase in the allowance for
returns and doubtful accounts by $138,547.
For the six months ended June 30, 2008, income before income taxes increased by $234,883 or 13.8%, to $1,941,027 from $1,706,144 for the corresponding period of the prior year. The increase was primarily due to the increase in gross profit, despite the large increases in general and administrative expenses. As a result, net income also increased by $234,289 or 16.6% to $1,644,822 from $1,410,533.
For the six months ended June 30, 2008, total income increased by $1,015,931, or 57% from $1,783,103 to $2,799,034. This increase was due to larger foreign currency translation adjustment gains.
Liquidity and Capital Resources -June 30, 2008
Operating. For the six months period ended June 30, 2008, the Company's operations provided cash resources of $2,475,512 as compared to utilizing cash resources of $532,671 for the six months period ended June 30, 2007, an increase of cash provided by operating activities of $3,035,183, or 539%. The increase was mainly due to (i) $988,031 decrease in inventories in 2008 as compared to a $743,035 increase in inventories in 2007 and (ii) $353,033 increase in accounts receivable, net in 2008 as compared to a $1,708,367 increase in accounts receivable, net in 2007.
For the six months period ended June 30, 2008, the Company's financing activities generated $500,000 cash resources, as compared to $0 for the same period ended June 30, 2007. This is due to the PIPEs financing completed in March 2008, which the company issued Series A preferred stock and two classes of warrants to T-Squared Investments, LLC. (See note 8 to the notes to consolidated financial statements contained in this report for details). The conversion feature and the value of the warrants included in the issuance of Series A preferred stock had a negative impact on the common shareholders and resulted in a net loss attributable to common stockholders of $1,090,500, and a negative net income per share of $0.03 for the quarter.
The company had a cash position of $566,258 on June 30, 2008, an increase of $419,085, or 277% from $150,173 on June 30, 2007.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have, or are in the opinion of management likely to have, a current or future material effect on the Company's financial condition or results of operations.
|
|