quarterly report out , page-5

Seems like not much new information has been contained in the quarterly report. Some highlights:

0. This year's been a bad year. Total sales are 20% lower than last year. This is meant to be a growing company! How can sales be falling off such a low base already!

We're bleeding cash. Without the capital raising Cardia will have had about $120K in the bank at year end, not even enough to cover 1 month's staff costs! (In fact, it appears that Cardia would have run out of money if it hadn't been for the $2.1M raised in the first 3 quarters of FY11)

1. Solid order book for the Sep '11 quarter of $1,078,000 so far. Compared to FY11 total sales of $1.7M, and '10 of $2.2M, it seems like we're off to a good start. However, it's not clear if these are "repeat" orders. It will be necessary to see whether or not we get consistent sales numbers throughout the FY before I can be more certain of the company's value proposition.

Honestly, my current view is that this year's subdued sales has little to do with the economic climate (why the sudden increase now, given all the European sovereign risk, US debt ceiling, China interest rate and Local Govt loans risks?). Instead, it goes to show that Cardia's sales are isolated, uncorrelated events, and you can't take 2 months' worth of orders and project a pattern of growth using them.

2. Expansion of manufacturing capacity through JV, and upgrading the Nanjing plants, are all good. But my concern still stands whether or not the demand is there. Report says expansion is a result of the "anticipated increase in customer demand over coming quarter and year". At this stage this sounds like speculation (cf Point 1). Looking forward to more info on this over the next quarter.

3. My concern about the uptake, during this economic climate, of Cardia's environmentally friendly plastics is not allayed. No significant commitment to Cardia products has come from the FMCGs and other strategic partners yet. Areas to keep an eye on include:

-Retailers and FMCGs
Cardia has been marketing directly to these firms, most of whom are in in-market trials. Although some orders have come through by FMCGs "back specifying" Cardia's products, the report admits it's "from a low level". We could see good news here soon, but too early to tell. It's encouraging, to see these firms take an active interest in environmentally sustainable packaging. But it's sobering to see they're not jumping through hoops for it either.

-Packaging suppliers/Product Launches
Looks like Cardia has been pushing with other packaging makers to use its Biohybrid technology. It's good because this gives Cardia access to more customers through the marketing efforts of these suppliers. But since most of these are new product launches, their demand is still uncertain.

BUT!! I'm tired of hearing about more partners and new products, and not seeing the sales volume to back it up. With the planned capital expenditures and other costs this year--and seeing how cash from sales in FY11 barely covered just staff costs, let alone any of the other cash uses--we may need another equity raising by next year if things don't pick up.

4. Cardia still plans to invest into its CO2 polymer starch blending technology. At this stage, I think management should just leave this, unless customers have specifically asked for it. But if they have, let them JV.

All in all, this was an announcement which doesn't really resolve any main uncertainties regarding the sales potential of this company. Things are still moving really slowly. My interpretation of the cash flow is that we can't AFFORD to move this slowly! The market felt that too, and price fell after the announcement (at least went from a Bid-Ask spread of 0.8-0.9c to 0.7c-0.8c). This quarter probably won't generate many surprises. I hope the Christmas quarter will.