To OTC Journal Members: 

For those interested parties- My #1 Pick- China Media Express (NASDAQ: CCME), is ringing the opening bell at NASDAQ tomorrow morning. Tune in if you are interested and up. More importantly, the company is barn storming both buy and sell side anyalysts and fund managers over the next few weeks throughout the US. 

I've personally spoken with several guys who manage hundreds of millions- most were not familiar with the company. Watch this one over the next thirty days to see if their efforts are paying off.
 

A Bipolar Day: The Last Two- A Tail of Two Extremes

Today we finally got the last two earnings reports for Q2, and they were about as bipolar as it gets. Beacon Enterprise Systems (OTC BB: BEAC) and China Recycling Energy (NASDAQ: CREG) were the last two the party, and one walked proudly through the door, while the other limped, bleeding all over the furniture.

Before moving on to today's reviews, it's worth giving a big thumbs up nod to Biostar Pharma (NASDAQ: BSPM), one of my top 10 China ideas and a clear big winner from this earnings season.

Biostar blew me away yesterday with the quarterly report, and the market is spreading the love today. The CEO of BSPM forecast $18 million in profits for the company in 2010. After Q1, the number was in question. After Q2, the number is clearly highly attainable and now likely to be low.

Last quarter the company's profit margins were affected by extremely high advertising and marketing expenses. It seems as if it paid off. The company delivered $19.4 million in Q2 revs, up 46.4% from the same quarter last year.

Net GAAP profits came in at $5.6 million, and net non GAAP profits came in at $5.8 million. The nearness of the new numbers suggests the company is closing on a super clean balance sheet and cap structure. 

The company has delivered $7.8 million in net profits for the year, with $5.6 coming in the June quarter. Another $11 million for the back half of the year puts them at their $18 million forecast, and this assumes no growth. There will be growth.

If you're keeping track, $18 million for this company equates to about $.65 in EPS for the year. As you can see from the chart, the market loved it and rewarded the company with a nice gap up in the chart. That gap will likely be filled on a big down day in the next week or so; about $2.80 would be the perfect level to buy. Put in your limit order so it fills on a down day.
 

China Recycling Energy (NASDAQ: CREG): Another Monster Quarter

CREG, one my personal big winners, walked proudly into the party with its chest puffed out on another very strong quarterly performance. The top line? Up 102% to $22.54 million from about $11 million last year at this time.

Net income was $5.04 million, or $.10 in EPS for the quarter- up a whopping 56% over the same quarter last year. 

Here's the key with CREG- the Rental Revenue makes this company more valuable than its counterparts. The reported quarterly revenues are project related- meaning, they built a project and installed it. If not completed, the company books partial payments along the way.

Once an energy saving technology is installed in an industrial facility, it is switched on, and from that point on the customer pays rental fees in addition to bearing part of the cost of installation. The rental fees are not recognized as top line revenues, but go straight to the bottom line.

As the company installs more projects, the rental fees keep climbing with nearly zero associated cost of goods. Rental revenues can continue for as many as 10 to 15 years. As the company completes more projects, the rental revenues increase. This quarter, the rental revenues came in at $3.32 million, a new all time high, up about 10% from last quarter.

As it stands today, CREG collects about $13.28 million in revenues each year without really opening its doors. A friend of mine likes to call this "mail box" money. It's a nice way to start your year.

Technically, the stock is not treating us to any great ride. BSPM is the technical winner of the day. CREG needs more volume and a bigger following to break past the resistance level of about $3.75. If the company delivers like this throughout the rest of the year, sooner or later this stock is destined for higher levels.
 

Beacon Enterprise Solutions (OTC BB: BEAC): One Step Forward, Three Steps Back

Beacon Enterprise Solutions delivered one of the weirdest and most mind boggling quarterly reports I have ever reviewed in 23 years of looking at small companies. I don't quite get how they presented the numbers, and I hope to talk to someone for a clearer interpretation.

This company is bleeding all over the earnings season party. BEAC has become the magic act at the party- Wave the magic wand, and POOF!!!- $11 million in revenues the company already reported in FY 2010 just disappears off the income statement. 

As it turned out, BEAC decided to discontinue a $25 million project in Europe. The margins weren't up to the company's standards, and they decided to bail on the project.

Here's the weird part- they presented their numbers as if $11 million they had already booked in revenue never happened, and changed their past presentation. I've never seen this done this way. I've seen many restatements, but the company will generally file a restatement of the past quarter first, then show the updated numbers. 

BEAC then took a big charge associated with the cancellation of the project, and simply shut er down. 

There's a bunch of different ways to look at this, so let's explore the pros and cons. First of all, in their last quarterly release, I complained their gross margins were inadequate despite great top line growth. Their margin in N America was 47%, but only 16% in Europe- leading to a blended margin of 22.2%.

This quarter, albeit it on greatly reduced revenues, the gross margin came in at 58.1%. Therefore, but discontinuing the European operations, they brought their margins in line with for a company with real profit potential.

On the other hand- one can't help surmise about what this turn of events says about the management team. They obviously invested a fortune in a fool's errand, and came out extremely tainted, egg plastered all over their faces.

In summary- on the minus side, they screwed up big time. They spent a fortune and obviously lost a fortune on this $25 million low margin European Data Center. To their credit, they chose to get off the road and get back on track before the damage was fatal. 

So- Is it a temporary mistake that took the company off course, or is the ship being steered by the Captain of the Titanic? It's too early to say, but we will know over the next few quarters.

On the additional plus side, their contract back log remains at about $74 million- very impressive for a company of this size. They've already replaced about $4 million in back log they lost with the discontinued operations.

Technically, the stock is a big surprise to me. I expected to see it gets blown up today, but apparently this bad news was already priced into the stock. Therefore, we have a new baseline from which to determine the technical picture- coincidentally, we are right back where we started when I first featured this company in November of 2009 at about $.90. 

Being the eternal optimist, it strikes me this must have been a hard pill to swallow, but the medication might just get this one healthy. 

In any case, based on today's action, it's obvious this whole sequence of events was already priced into the stock, and it can probably do better from here. I'm cautiously optimistic. One overhanging problem- with all the warrant conversions, there are now 38 million shares I&O- that's a pretty high numbers, and a bit of a sloppy cap structure. 

Still, if the $74 million in back log starts coming in at an accelerated pace, once can easily argue the stock could be a double from here. Losses from continuing operations for the quarter were only about .03 per share, so not too bad.

Full disclosure: Long CCME, BSPM, CREG, and BEAC (see below)

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