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Healthy life with China Kangtai Cactus Bio-Tec (CKGT)

|Includes: China Kangtai Cactus Bio-Tech, Inc. (CKGT)
China Kangtai Cactus Biotech, Inc. is a leading grower, developer, producer, and marketer of cactus-derived products, including nutraceuticals, nutritious food, health and energy drinks, beer, wine and liquor, extracts and powders, and animal feed. China Kangtai controls over 387 acres of plants and maintains an active R&D group that holds 18 product patents and is seeking another 12. China Kangtai's high-quality “green” products are sold throughout China via a distribution network that covers 12 of China's 23 provinces and two of China's four municipalities.
 
In April they announced that it has signed a three-year marketing and sales agreement with Yongkangmen Health and Drug Chain Store Group Ltd. to sell its nutritious and patented cactus-based products, including nutraceuticals, health food, and health and energy drinks.
 
Yongkangmen Health and Drug Chain Store, headquartered in Beijing City, has controlling ownership in more than 3,000 drugstores throughout China. Additionally, Yongkangmen owns one pharmaceutical manufacturer and three pharmaceutical wholesalers in Hebei Province, and farms Chinese herbal medicine plants on its land in Baekdu Mountain (also known as Changbai Mountain) in Jilin Province.
 
Under the agreement, all the Yongkangmen drugstores nationwide will promote, market and sell China Kangtai’s cactus-derived products for the next three years.
 
China Kangtai CEO Jinjiang Wang said, “Traditional Chinese beliefs view herbal-based medicine and dietary supplements as an alternative to healthcare. The demand for our cactus health products has been expanding every year. By leveraging Yongkangmen’s prominence in the health product retail industry, we can expand our market share into new territories exponentially, which creates a win-win situation for both Yongkangmen and Kangtai.”
 
Last Monday they released their first quarter results (ending March 31). Revenues 2010 increased 66% to $5.5 million from $3.3 million. Net income totaled $2,352,638 as compared to the net income of $956,673 in the same period of 2009. The increase in net income was caused partially by the income from revaluation of Series A Preferred Stock and A, B, C, and D warrants with characteristics of liabilities at fair values. (See Note 11 to Financial Statements in 10-Q). Absent this income, the company would have had a net income of $836,723 in the first quarter of 2010, as compared to net income of $693,948; and basic and diluted earnings per share would have been $0.04 and $0.04.
 
With other words: Adjusted net income was up 20.5% to $836,723 or $0.04 per share. GAAP net income was $2.4 million versus $956,673. Gross profit margin was 27% compared with 37% in the first quarter of 2009, primarily attributable to the increased sales of our raw and intermediate materials. The gross profit rate is about 11% for our raw and intermediate materials products. Income from operations increased 34% to $1.2 million from $880,530 in 2009.
 
Weighted average number of diluted shares outstanding was 21.7 million as of March 31, 2010 compared with 19 million as of March 31, 2009
 
Especially the Q1 Product Categories Performance was good. 
 
Nutraceuticals revenue increased 32.6% from $1.4 million in 2009 to $1.8 million, or 33% of the total Q1 2010 sales.
Beverages revenue increased 43% from $1.0 million in 2009 to $1.4 million, or 25% of the total Q1 2010 sales.
Raw and intermediate materials segment revenue increased 170% from $0.6 million in 2009 to $1.6 million, or about 30% of the total sales.
Cactus feed revenue increased 82% from $257,844 in 2009 to $468,373, or about 8.5% of the total sales, due to cactus hog feed launched in Q4 2009 after the successful launch of cactus cattle feed and fish feed in July 2008.
Packaged foods provided no revenue in the quarter, compared to $123,592 in Q1 of 2009
Cactus cigarettes, launched in Q4 2009, reported revenue of $212,638, or 4% of total sales.
 
Management Comment
 
China Kangtai CEO Jinjiang Wang said, "Our first quarter of 2010 was marked by continued strong product sales in our largest product segments nutraceuticals, beverages and raw and intermediate materials. Sales in our two traditional core businesses, nutraceuticals and beverages rose 33% to $1.8 million and 43% to $1.4 million respectively. Sales of raw and intermediate materials were up 170% to $1.6 million. This had a negative impact on our gross margin because the gross profit rate for raw and intermediate materials is about 11%, compared with substantially higher margins in the other two categories.
 
“We were pleased with the 82% gain in cactus feed, reflecting the introduction of new animal feed lines. And we saw our initial revenues from the sale of cactus cigarettes, which we believe will provide us with excellent growth for the remainder of the year,” Mr. Wang said.
 
What attracted me to this story were the health benefits that some Cactus plants seem to have. My wife is from Mexico and in Mexico Nopales is widely used in capsule form for all kind of treatments.
 
The Nopal cactus (Opuntia ficus-indica), also known as "prickly pear," is a plant native to the mountains of Mexico. It has been used since ancient times as both a food and as a medicine for its health benefits. The Aztecs considered the cactus, which derives some of its properties from the volcanic soil in which it grows, as a food fit for royalty and a fortifying substance for warriors. A powdered form of Nopal has become popular in modern times as a treatment for a variety of metabolic, digestive and heart problems.
 
Stabilizes Blood sugar
 
Nopal cactus contains a large amount of slowly-digestible fiber and tends to slow down the digestion of foods when it is taken just before or with a meal. The cactus has the effect of lowering the Glycemic Index (a measure of how quickly a food raises blood sugar levels) of any foods it is eaten with. Clinical testing has shown that people with high morning blood-sugar levels who ate Nopal cactus for breakfast subsequently had lower or normal blood- sugar levels.
 
Lowers Cholesterol
 
The fiber and sterols in Nopal bind with a bile salt in the intestines, which helps limit the amount of blood fats (cholesterol and triglycerides) absorbed by the body, thereby lowering blood cholesterol levels.
 
Scrubs Blood Vessels
 
Plaques are areas of inflammation that form on the walls of the blood vessels, where they trap blood fats that can harden or even block the arteries. Nopal cactus sterols, along with its polyphenols and glycoproteins, serve as antioxidants that help reduce inflammation and keep plaques from forming.
 
Sweeps the Colon
 
The insoluble plant fibers in Nopal cactus provide dietary roughage, which make it easier to maintain bowel regularity. Nopal also contains soluble plant fiber, which helps absorb toxins, including carcinogens, as it sweeps the colon clean.
 
Soothes the Stomach
 
Nopal contains a high amount of mucilage, which helps balance the pH of the stomach and soothes the stomach lining. Tests have shown that Nopal stimulates the healing of stomach ulcers and reduces stomach inflammation.
 
Protects the Liver
 
Because Nopal contains antioxidant flavonoids, it helps neutralize free radicals before they can overtax the liver. It also helps absorb toxins, decreasing the liver's load. By supporting the liver, it frees that organ to balance bodily functions, including the immune system.
 
Hangovers and Obesity
 
Nopal is sometimes used to help counteract the effects of alcohol consumption. It helps rehydrate the body, soothes the stomach, and improves liver function, thereby preventing the headache, stomach ache and toxic "morning after" feeling. When taken before meals, Nopal's roughage can help create a sensation of fullness that may help prevent overeating and helps stabilize the blood sugar, to ward off hunger. Nopal cactus also contributes calcium and valuable amino acids and other nutrients.
 
If you ask me a lot of health benefits, also the recent price drop from $ 3.00 in January to $ 1.60 right now makes it an interesting play in the health scene. The book value per share is around  $1.56. Because of the  marketing and sales agreement with Yongkangmen I think there is enough space for healthy growth. 
 
Also the sale of low nicotine and zero nicotine cigarettes under the registered trademark "Shengcao" brand, have a huge potential for growth in China and abroad. China has about 390 million smokers, accounting for 30% of global smokers. Their revolutionary product can not only capture a significant portion of smokers, but also promote consumer consumption in their other health products such as nutraceuticals, nutritious food, health and energy drinks, beer, wine and liquor.

POSITION: NOT YET "NEVER CATCH A FALLING KNIFE"
 


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