Jiangbo Pharaceuticals (JGBO, Financial) is a Florida incorporated company. It is traded at NASDAQ under the symbol of “JGBO” but does most of its business in China as a pharmaceutical company. Google Finance shows it started to have trading history data from June of 2010 and it has since declined from above $8 per share to less than $6 per share today.
Its latest quarterly report says that it has total number shares outstanding of $12.7 million as of November 14, 2010 and that number has changed as of this morning.
Here is the press release that came out a couple of days ago:
So when this is said is done, the total number of shares outstanding is about 13.6 million shares.
Even with the new number of shares and the price it is trading at ($5.58), the company has a market cap of less than $76 million.
In the 10-Q filed on November 15, 2010 for the quarter ended on September 30, 2010, the company listed a cash balance of $124 million, restricted cash of $14 million, A/R of $31 million, investor of $2 million.
The company lists a total debt of $61 million.
Do the math like Ben Graham would do, one reaches a net-net value of about $101 million. Yet the company is trading at a market cap of $76 million.
Company calculates its shareholders’ equity at $157 million. The stock is trading at less than half of its book value.
It is not as if the company is losing money perpetually. Earnings Per Share has been phenomena in the past two years:
In the recent quarter ended on September 30, 2010, the company announced it made $0.88 per share. In the most recent 12 months, the company made $3.22 per share.
Currently, Google Finance lists the company trading at P/E of 1.77.
The stock price is in the dust. Why?
The answer is easy, one word – fear.
First of all, the market is discounting all the Chinese companies that found their way through a so-called “reverse merge” process. Recently, a few high-profile frauds have been revealed and the who sector is depressed. Read this WSJ news, this WSJ column and this Barron’s article to gain further insights if you have not followed the phenomena. Not surprisingly, Frazer Frost is listed as the auditor for JGBO, according the company’s 10-K for 2010.
Secondly, the decline in JGBO stock price is a result of its claimed inability of repatriating cash out of China to pay its debts. Here is the description of the debts as they appeared in the 10-K of 2010 (Note 13):
On the November 2007 Convertible Debentures
On May 2008 Convertible Debentures
As you read in today’s new release, apparently it was not that easy to send money out from China to repay the interest and principal. In the end, the debt holders have to accept the shares instead of US dollars as payment.
When the company could not pay the creditors, what do you expect the investors in equities to do to the stock?
With today’s announcement, at least temporarily, the company removed one major default concern. But will the company be able to send money out of China in the future? For twice a year, the company needs to satisfy its debenture obligations.
Regardless of these concerns, value investors ought to take a look at this fast growing, low P/E, Ben Graham net-net company.
Its latest quarterly report says that it has total number shares outstanding of $12.7 million as of November 14, 2010 and that number has changed as of this morning.
Here is the press release that came out a couple of days ago:
LAIYANG, China, Jan. 21, 2011 /PRNewswire-Asia-FirstCall/ -- Jiangbo Pharmaceuticals, Inc. (Nasdaq:JGBO - News) ("Jiangbo Pharmaceuticals" or the "Company"), a pharmaceutical company with its principal operations in the People's Republic of China, today announced that it has reached a settlement with the holder of its November 2007 Debenture and with the holders of its May 2008 Notes under which the Company has agreed to issue to such holders a total of 886,277 shares of its common stock as a payment for all delinquent interest and associated penalties with respect to its November 2007 Debenture and May 2008 Notes. As part of the settlement, the holders of its November 2007 Debenture and May 2008 Notes have agreed to waive events of default that occurred as a result of the Company's failure to make timely payments on interest due on November 30, 2009, on May 30, 2010 and on November 30, 2010. Additionally, the holder of its November 2007 Debenture has agreed to extend the due date on the November 2007 Debenture to February 28, 2011.Strange things have happened here. In the respective year, the company issued two batches of debt -- November 2007 Debenture and May 2008 Notes, and not too long after that, the company found it having difficult in repatriate JGBO is Only a small portion of the 886,277 shares is so called “Interest Shares”, the rest are so called “Penalty Shares”. Here is a paragraph from the company’s SEC 8-k filing on the event:
Pursuant to the Letter Agreement, the Company agreed that (i) the number of Interest Shares payable to all holders of the 2007 Notes and the 2008 Notes shall be 366,048 shares of which, 273,547 shall be paid to Pope and (ii) the number of Penalty Shares payable to all holders of the 2007 Notes and the 2008 Notes shall be 520,229 shares, of which 386,449 shall be paid to Pope.
So when this is said is done, the total number of shares outstanding is about 13.6 million shares.
Even with the new number of shares and the price it is trading at ($5.58), the company has a market cap of less than $76 million.
In the 10-Q filed on November 15, 2010 for the quarter ended on September 30, 2010, the company listed a cash balance of $124 million, restricted cash of $14 million, A/R of $31 million, investor of $2 million.
The company lists a total debt of $61 million.
Do the math like Ben Graham would do, one reaches a net-net value of about $101 million. Yet the company is trading at a market cap of $76 million.
Company calculates its shareholders’ equity at $157 million. The stock is trading at less than half of its book value.
It is not as if the company is losing money perpetually. Earnings Per Share has been phenomena in the past two years:
In the recent quarter ended on September 30, 2010, the company announced it made $0.88 per share. In the most recent 12 months, the company made $3.22 per share.
Currently, Google Finance lists the company trading at P/E of 1.77.
The stock price is in the dust. Why?
The answer is easy, one word – fear.
First of all, the market is discounting all the Chinese companies that found their way through a so-called “reverse merge” process. Recently, a few high-profile frauds have been revealed and the who sector is depressed. Read this WSJ news, this WSJ column and this Barron’s article to gain further insights if you have not followed the phenomena. Not surprisingly, Frazer Frost is listed as the auditor for JGBO, according the company’s 10-K for 2010.
Secondly, the decline in JGBO stock price is a result of its claimed inability of repatriating cash out of China to pay its debts. Here is the description of the debts as they appeared in the 10-K of 2010 (Note 13):
On the November 2007 Convertible Debentures
On November 7, 2007, the Company entered into a Securities Purchase Agreement (the “November 2007 Purchase Agreement”) with Pope Investments, LLC (the “November 2007 Investor”). Pursuant to the November 2007 Purchase Agreement, the Company issued and sold to the November 2007 Investor, $5,000,000 consisting of: (a) 6% convertible subordinated debentures due November 30, 2010 (the “November 2007 Debenture”) and (b) a three-year warrant to purchase 250,000 shares of the Company’s common stock, par value $0.001 per share, at an exercise price of $12.8 per share, subject to adjustment as provided therein. The November 2007 Debenture bears interest at the rate of 6% per annum and the initial conversion price of the debentures is $10 per share. In connection with the offering, the Company placed in escrow 500,000 shares of its common stock. In connection with the May 2008 financing, the November 2007 Debenture conversion price was subsequently adjusted to $8 per share (Post 40-to-1 reverse split)…
The November 2007 Debenture bears interest at the rate of 6% per annum, payable in semi-annual installments on May 31 and November 30 of each year, with the first interest payment due on May 31, 2008.
On May 2008 Convertible Debentures
On May 30, 2008, the “Company entered into a Securities Purchase Agreement (the “May 2008 Securities Purchase Agreement”) with certain investors (the “May 2008 Investors”), pursuant to which, on May 30, 2008, the Company sold to the May 2008 Investors 6% convertible debentures (the “May 2008 Notes”) and warrants to purchase 1,875,000 shares of the Company’s common stock (“May 2008 Warrants”), for an aggregate amount of $30,000,000 (the “May 2008 Purchase Price”), in transactions exempt from registration under the Securities Act of 1933, as amended (the “May 2008 Financing”)..
The May 2008 Notes are due May 30, 2011, and are convertible into shares of the Company’s common stock at a conversion price equal to $8, subject to adjustment pursuant to customary anti-dilution provisions and automatic downward adjustments in the event of certain sales or issuances by the Company of common stock at a price per share less than $8. Interest on the outstanding principal balance of the May 2008 Notes is payable at a rate of 6% per annum, in semi-annual installments payable on November 30 and May 30 of each year, with the first interest payment due on November 30, 2008.
As you read in today’s new release, apparently it was not that easy to send money out from China to repay the interest and principal. In the end, the debt holders have to accept the shares instead of US dollars as payment.
When the company could not pay the creditors, what do you expect the investors in equities to do to the stock?
With today’s announcement, at least temporarily, the company removed one major default concern. But will the company be able to send money out of China in the future? For twice a year, the company needs to satisfy its debenture obligations.
Regardless of these concerns, value investors ought to take a look at this fast growing, low P/E, Ben Graham net-net company.
