"so far,I like what I am finding out"
< really ???>
<Ok, so here's part 1 of clyde's summary of lgov...>
Problem 1: LPG glut
Since no companies were prepared or able to supply a sufficient amount of LPG to this new consumer market, a number of government owned or operated companies were set up.
Now LPG inventory exceeds demand. And the lack of sufficient storage facilities has also resulted in cut-throat pricing and other poor business practices. These factors caused an unstable and chaotic market that has prevailed over the past 18 months in Yunnan, and has hampered Xinmao from operating efficiently and achieving profitability.
The glut of LPG in the market place, along with the need of the government owned companies to reduce excess inventories, enabled the evolution of a "black market" for LPG which allowed many consumer abuses to arise, prices to plummet, and fly-by-night distributors to plunder the market.
Problem 2: cut-throat pricing
In the Tertiary market are the many small independent distributors and individuals who operate illegally in what is referred to as the "black market" - some without a license, others violating safety laws, others unfairly profiting by short-filling LPG bottles.
The Kunming LPG Administration is aware of these abuses, but, unless a blatant case is presented to it, it is ignoring the problems until the market consolidates to a greater degree.
However, as of April 15, 1999, the Kunming LPG Administration established "minimum pricing" regulations which set a base price for both wholesale bulk and bottle sales, and retail bottle sales. This regulation will help stop the uncontrolled cut-throat pricing competition that occurred over the past 18 months.
It will be incumbent upon the nine major LPG companies to form task forces to assist the LPG Administrator in enforcing these regulations.
Also this practice of cheating the consumer has been prevalent over the past several years. Xinmao is now challenging customers, by means of a "weighing program" to "be aware" of what they are paying for.
Problem 3: unregulated competition
Retail or direct distribution is accomplished by the ten major LPG companies who deal directly with the end user.
Nine of these companies are government owned and operated to some degree, leaving Xinmao as the only privately owned and operated company.
The only concern these Government companies have had has been to provide LPG to the consumers, regardless of cost. These companies have neither management experience nor financial expertise, and are not motivated to make a profit.
The government companies are content to expand their reliance on distributors rather than to market for retail business.
In addition to licensed companies, there are hundreds of small independent distributors that purchase from other distributors.
The Company does not have any Government contracts.
Probelm 4: little contact with big companies
Xinmao generally purchases from domestic sources inside China because of the availability of guaranteed price contracts for one year, lower transportation costs and ease of distribution. On occasion it also purchases from Mobil Oil Hong Kong and Caltex.
Problem 5: indebtedness
Revenues for fiscal 1998 of approximately $2.2 million decreased to approximately $1.4 million in fiscal l999.
Operating Loss $(1,095,991) $(2,732,268) $(1,598,242)
Identifiable Assets, Net $0 $0 $0
Additionally, current liabilities exceed current assets by $4,873,675 at March 31,1999
The Company also has litigation contingencies.
As the Company has not generated taxable income since inception no provision for income taxes has been provided.
From inception (January 16, 1987) to date (April 24, 1999) the United States entities of the Company have had no assets, no revenues and no operations. During this period however, the United States entities have incurred significant losses. < how did they manage to do that!!>
Problem 6: limited time vs uncertain political climate
The Operating Agreement was made between Xinmao and the Hong Kong Company on August 28, 1992, for a term of ten years, ending on August 28, 2002.
Trade conflicts are trends that might lessen the prospects for the Company's Success in China. |
