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ZST Digital Networks, Inc. Message Board

  • wirelesstechchen wirelesstechchen Jul 21, 2011 3:42 AM Flag

    Can someone explain the irrgular office purchase?

    ZSTN made me attention because of large cash position. It seems pretty under valued. But when I looked last quarter's earning release, the irrgular office purchase made me very uncomfortable about the cash position. They made two purchases. When you compare the two purchases, the price of the second purchase (paid $7.8 million for 2880 sq meter) just does not make any sense. It is too expensive. Can anybody enlight me why they paid so expensive for the office? Here is the what said about the purchase from the last quarter's report:

    •On January 28, 2011, the Company announced that as a part of its ongoing expansion strategy, it entered into a purchase agreement for two floors of an office building located near its existing offices in Zhengzhou City, China. The purchased area is approximately 2,880 square meters, for a total purchase price of approximately US$7.8 million. Previously, in March 2010, the Company agreed to purchase additional office space of approximately 2,100 square meters in the same building for approximately US$1.7 million. In addition to providing additional workspace and growth capacity, the new office space purchase puts a significant tangible asset on ZST's balance sheet.

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    • Chairman's Letter

      April 29, 2011

      Dear Shareholders,

      ".......

      Purchase of Office Space

      Like all fast-growing companies, we recently purchased additional office space, and we are pleased to answer your questions regarding these recent purchases. We were fortunate to be able to secure all the needed space in one building, which is the most efficient solution to our need for additional space; and in addition, we are fortunate to have secured both additional spaces at a cost below the average purchase price for comparable space on a per square meter basis. We purchased the 27th – 29th floors at an average price of 5,300 RMB per square meter (zoned for mixed commercial or residential development) in March 2010, with a subsequent purchase of the 3rd – 4th floors in December 2010 at an average price of 18,000 RMB per square meter (zoned for commercial use-only). Naturally, the commercial space on lower floors is more desirable and therefore commands a higher price as compared to the mixed-use upper level floors.

      Some of you have also asked how we were able to purchase the property before the developers had obtained a sales license. Based on our knowledge of the property owners and their previous track record in real estate, we were confident that the license would be granted. Furthermore, through the structuring of a subscription agreement, which committed both buyer and seller to the transaction prior to the seller receiving a sales license, we were able to secure a more favorable per square meter price.

      Please find below a summary of our research on prices per square meter in the

      surrounding area. We have included contact information for each property in an effort to be as transparent as possible; please feel free to contact the property managers directly if you would like to confirm the data we have included herein or simply visit the follow website www.soufun.com,.

      ......"

      • 1 Reply to geosmart668
      • Geosmart668, Thanks for the information. The explaination from the CEO does not make any sense. 27th to 29th floors normally is more expensive than 3rd to 4th floors. This is common sense. What the CEO said, " naturally the commercial space on lower floors is more desirable and therefor commands a higher price". This is completely not true. I owned few rental offices in China shanghai. The offices are more expensive on higher floors since it has better view. The company paid 18,000 RMB for 3rd to 4th floor and earlier only paid 5300 RMB. This tells me something happened behind the scene during the later transaction. Why did the company pay 18000 RMB is a big puzzle here. Surprised me is that the CEO even dared to write such an explaination letter which he thought the investors' are fool.

        Here is a link shows the average price for the Zhengzhou city where the company is: http://www.f-paper.com/?i611814-Average-price-of-6269-yuan-in-Zhengzhou-housing-sales-decline-are-the-first-property-market-oversupply

        The average price is 6269, but the company paid 18000 yuan for the office. I don't get it. It makes the company's first deal, but not the second one.

        I was planning to buy this stock. After I read the letter and conduct some study, I decided to pass the opportunity.

        Geosmart668, thanks again for the information.

    • I apprciate you think Im funny.
      Bottom floors that are used for retail sell more to customers than top floors, hence the higher price. Also, they bought at a later time period. I dont have a friend in China, and you can accept ZSTNs explanation or not.
      Im sure youre more knowledgable than me.

      Concerning the low-priced auditor, youre right, they upgraded on purpose mainly to show credibility to investors by bringing in a bigger and better auditing firm.

      If youre only concern is their 2nd purchase of commercial space, and youre happy with their 1st purchase and you have no other issues, then this stock should rocket higher based upon your comments.

    • tmkay, the low priced auditor and the second purchase lead me doubt the company. From one of your posts, you said the company will buy back shares. If the company will buy back shares, I would buy ZSTN. According to the company earning projection, the company will be profitable. The company has more than $40 M cash, the company should use the $10 M to buy back its shares.

      Let's see whether the company will buy back or not. The fraudulent company CHBT has a lot of cash, but the company didn't want to buy back shares. Later, it found the cash was not real. Let's hope all the money ZSTN has is real and the company will spend $10M to buy back its shares.

      I will buy when the company does that.

      Good luck.

    • Like all fast-growing companies, we recently purchased additional office space, and we are pleased to answer your questions regarding these recent purchases. We were fortunate to be able to secure all the needed space in one building, which is the most efficient solution to our need for additional space; and in addition, we are fortunate to have secured both additional spaces at a cost below the average purchase price for comparable space on a per square meter basis. We purchased the 27th – 29th floors at an average price of 5,300 RMB per square meter (zoned for mixed commercial or residential development) in March 2010, with a subsequent purchase of the 3rd – 4th floors in December 2010 at an average price of 18,000 RMB per square meter (zoned for commercial use-only). Naturally, the commercial space on lower floors is more desirable and therefore commands a higher price as compared to the mixed-use upper level floors.

      Some of you have also asked how we were able to purchase the property before the developers had obtained a sales license. Based on our knowledge of the property owners and their previous track record in real estate, we were confident that the license would be granted. Furthermore, through the structuring of a subscription agreement, which committed both buyer and seller to the transaction prior to the seller receiving a sales license, we were able to secure a more favorable per square meter price.

      Please find below a summary of our research on prices per square meter in the

      surrounding area. We have included contact information for each property in an effort to be as transparent as possible; please feel free to contact the property managers directly if you would like to confirm the data we have included herein or simply visit the follow website www.soufun.com,.

      Comparable Real Estate:

      Jin Yi Guo Ji Hua Du (Pinyin): address: northwest of the intersection of Tubai Road and Mianfang Road
      Price (Residential): RMB 7,500 per square meter
      Price (Commercial): over RMB 20,000 per square meter
      Tel: +86 400-813-0000 ext. 52466

      Jong Yuan Xin Cheng: address: intersection of Tongbai Road and Longhai Road
      Price (Residential): RMB 7,600 per square meter
      Price (Commercial): RMB 20,000-30,000 per square meter
      Tel: +86 400-813-0000 ext. 52519

      Jiu Long Cheng: address:300 meters west of the intersection of Tongbai Road and Nongye Road
      Price (Residential): RMB 6,600 per square meter
      Tel: +86 400-813-0000 ext.52530

      Zheng Zhou Zhong Yuan Wan Da Guang Chang: address: southwest of the intersection of Zhongyuan Road and Qinling Road
      Price (Residential): RMB 7,200 per square meter
      Price (Commercial): RMB 27,000 per square meter
      Tel: +86 400-813-0000 ext.53331

      Jin Long Jia Yuan: address: west of the intersection of Zhongyuan Zhong Road and Hua Shang Road, Zhongyuan District
      Price (Residential): RMB 6,000 per square meter
      Tel: +86 371-67638298

      Da Shang Jin Jie: address: 100 meters south of the intersection of Songshan Road and Huaihe Road
      Price (Commercial): RMB 18,000 per square meter
      Tel: +86 371-68970000

    • I agree with you. I have many friends in China and none of them says it makes any sense. Higher floors ALWAYS command higher premiums - just like buildings here!

    • The CEO said that the upper floors are residential while the bottom floors are both commercial. It seems to me commercial footage is always more expensive than residential footage.

 
ZSTN
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