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 Tracking 1051 U.S. listed China Stocks and Counting...
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Created: 01-Jan-2008   

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Poster
Public11950 Addfavorites 
 

www.reuters.com/article/2011/09/18/us-china-investment-idUSTRE78H0SP20110918

Looks as tho' even the Chinese Authorities are getting fed up.

Public11844 Addfavorites CMED
 

Investors should use extreme caution when investing in Chinese companies listed in North America. From the information gathered and I believe CMED is another Chinese fraud which raised foreign capital by selling a growth China story. The capital is used to grossly overpay for acquisitions from oblique, often directly related counter party.

1) The due diligence investigation started from the comparison of SAIC vs. SEC reporting. As can see from below table, there is 300mm difference between their local & SEC reporting. I can’t tell why this is such a difference, but the main issues are mainly in 2007 and 2008 while they launched their “high profitable” FISH business.

Company Level (RMB)

Revenue

12/31/2006

12/31/2007

12/31/2008

12/31/2009

12/31/2010

Total Difference

CMED reported

495,580,000

794,622,000

1,112,122,000

795,978,000

787,680,000

SAIC revenue

301,145,200

789,775,884

833,725,200

1,017,073,600

714,080,000

Difference

(194,434,800)

(4,846,116)

(278,396,800)

221,095,600

(73,600,000)

(330,182,116)

Breakdown

GP

-

21,841,300.00

123,323,200.00

394,060,000.00

404,550,000.00

YDME

301,145,200.00

740,444,084.04

690,089,900.00

605,720,000.00

309,530,000.00

BBE

-

27,490,500.00

20,312,100.00

17,293,600.00

NA

GP-Only

SAIC

12/31/2006

12/31/2007

12/31/2008

12/31/2009

12/31/2010

Total

Revenue

-

21,841,300

123,323,200

394,060,000

404,550,000

943,774,500

SEC

12/31/2006

12/31/2007

12/31/2008

12/31/2009

12/31/2010

FISH (GP)

0

98,074,000

284,482,000

393,505,000

462,424,000

1,238,485,000

Difference

0

(76,232,700)

(161,158,800)

555,000

(57,874,000)

(294,710,500)

YMDE & BBE

SAIC

12/31/2006

12/31/2007

12/31/2008

12/31/2009

12/31/2010

Total

Revenue

301,145,200

767,934,584

710,402,000

623,013,600

309,530,000

2,712,025,384

SEC

12/31/2006

12/31/2007

12/31/2008

12/31/2009

12/31/2010

HIFU/ECLIA

495,580,000

696,548,000

827,640,000

402,473,000

325,256,000

2,747,497,000

Difference

(194,434,800)

71,386,584

(117,238,000)

220,540,600

(15,726,000)

(35,471,616)

2) History of Related Party Transactions: like other Chinese fraud names, CMED engaged a bunch of unclear and questionable acquisitions. These activities raise significant concerns about Management motivations.

  1. Bought original ECLIA business (2004) from the chairman for $30.2mm
  2. Bought main building from chairman for $7.8mm
  3. Sold the headline business, HIFU, to chairman for $53.5mm, received over 2.5 years
  4. Bought BBE-Ekon indirectly from Yimin, owned by ex-assistant to chairman.
  5. Bought FISH (2/07) and SPR (12/08) business from CytoTrend
    1. Chen Zhong, chief scientist post FISH acquisition files many patent applications on behalf of Cytotrend/CMED some related to SPR, before SPR is bought but after he is CMED employee. When SPR deal announced his tie to them or even potential conflict not disclosed.

a) BBE Acquisition:- CMEDannounced on 11/08/2007 that it purchased entire equity interest in Beijing Bio-Ekon Biotechnology Co., Ltd, a local Chinese firm, for $28.8mm. When I checked the SAIC filling for BBE, the local government filing shows that the entire consideration was roughly $7.5mm. So question is where did $21mm go?

Sep 2006 to Mar 13 2007 - An entity called Yimin buys up lots of individual Ekon holders on private deals. It pays RMB 49mm. Yimin is controlled by Chen Shu Jun, a 30 year old former assistant to CMED’s CEO Wu Xiaodong. Its pre-acquisition assets are comprised of a small cash balance and 2 HIFU machines. (Mr. Wu even issued a letter to confirm Yimin’s purchase of HIFU machines from YDME which used to help the SAIC registration process)

Apr 18 2007 - Clear Castle Investments Limited (BVI) buys East Crest Enterprises Limited (Hong Kong) from READY-MADE INCORPORATIONS LTD (BVI) i.e., East Crest is a clean empty shell.

May 30 2007 – Yimin sells Ekon to East Crest for RMB 53.6mm and records investment income of RMB4.85mm for FY2007.

Nov 26 2007 - CMED announced it will pay $28.8mm for BBE. It does not disclose the seller nor mention East Crest, Clear Castle, nor Yimin. The only asset it says it acquired is BBE.

Jan 08 2008 – CMED completed acquisition. In 20-F for FY ‘07 (Mar 2008) it lists only BBE as a subsidiary and announces that the seller is Finnea International Limited, with no other details. In 20-F for FY ’08 (Mar 2009) it finally also lists Clear Castle and East Crest as subsidiaries above BBE.

Conclusion – CMED “overpaid” $21mm for an asset that traded twice for $7.5mm only six months prior with one of those trades done by a potentially related party.

b) FISH & SPR acquisitions – CMED claimed it bought FISH assets from Supreme Well -> Molecular Diagnostics -> CytoTrend in Feb 2007. Paid $136.8mm plus $40mm earn out. Chen Zhong, a former Utah professor and former co-director of University of Utah cytogenetic lab, small owner and director in CytoTrend in the past and filer of many patents on its behalf, becomes CMED chief scientist. He signs a 5 year employment and non-compete agreement with CMED as a condition of acquisition. From the merger agreement (filed Sep 2007) it is clear CMED is contemplating purchasing the SPR business from CytoTrend as well (does so in Oct 2008, almost two years later). Both FISH and SPR are research businesses with no revenues prior to the acquisition.

There is possible connection between Chen Zhong and Molecular Diagnostics (MD). He used to be the chairman of CytoTrend and owned 1 share, while MD owned the balance. It is hard to believe that he was the face of the company, led the research effort but had no equity at time of sale. In the official bio, or discussion of the acquisitions, there is no mention of his relationship with CytoTrend though he used to own it, was its chairman, and filed patents on its behalf.

July 20 2007 – CMED pays $22mm as good faith money to Supreme Well for SPR.

Aug/Sep 2007 – Chen Zhong files 20 patent applications with either CMED or CytoTrend as assignee (hard to tell original since it may have been changed later). If it is CytoTrend then he is actively working for them even though they are in negotiations on SPR. If it is CMED then CMED already gets many SPR patents, even though they have not yet acquired SPR. What exactly did they acquire if they already have the IP?

Nov 19 2007 – Chen Zhong becomes CTO of CMED.

Oct 07 2008 – CMED announces SPR acquisition for $345mm, paid over one year. There is no mention of Chen Zhong’s connection to CytoTrend. They are asked on the call about the seller and all they say is that they’ve bought FISH from them before. In the press release they estimate SPR potential market size at $700mm and expect $23 to $26mm revenue in FY09. In FY10 they sold $4mm worth. In their latest presentation they estimate the market will be $250mm in five years.

3) Audit committee received a letter in 2009 alleging improper conduct of senior management in connection with asset acquisitions and sales. Contents were not disclosed. Announced after “independent investigation” completed and found no evidence.

4) The funding environment was getting worse this year after the massive Chinese frauds. CMED might find the capital markets closed to them on corporate governance concerns according to Fitch. On their recent analyst call, CMED claimed that they have access to other sources of funds such as commercial banks in China to provide liquidity. Based on my conversion with some analysts spoke to company earlier, the company told them it’s very hard to get the funding in current tighten credit environment locally. I am surprised that they changed their tone so easily only after two months. Also note CMED doesn’t have any valuable fixed assets as collateral.

Recommendations: Strong Sell.

Public11546 Addfavorites CMED
 

Tiger:

Thank you - I have been watching - was in the stock in 2009 when it was 25.00 made a little money and never looked back until recently - they had a few PR lately and they do have a convertible but best I can tell - they bought calls to limit the dilution from the convert.

Any info will be greatly appreciated.

Public11545 Addfavorites CMED
 

MB,. Think this an excellent DD candidate. Low P/E, nice EPS estimates and appears to have little dilution risk. Can't say I am a buyer until DD is performed. Will discuss with the team this week.

Public11542 Addfavorites CMED
 

Has anyone on GEO done any due diligence on CMED - auditor is Price and they have filed their 2010 20F - thinking about a position - they report on Aug 16 - any input will be greatly appreciated.

Answer9456 Addfavorites PUDA, SBAY, YONG
 

Value, so far. Per my conversations with players  familiar with the Yongye Intl (NASDAQ:YONG) situation.... They  have not come right out and admitted fraud, nor would I have expected them to.  However, i am conflicted by the fact that analysts have reduced estimates, while the company has maintained guidance.  I guess it is possible that analysts want to get out of the way before a possible hit piece.

As far as OTGDD goes, we plan to begin DD within three weeks.  Puda Coal (OOTC:PUDA) , Subaye (OOTC:SBAY) and a few more potentially seriously fraudulent companies in the pipeline have monopolized our time.

Question9454 Addfavorites 
 

Hi Maj,

   Could you please let me know if you have found any fact based discrepancies in YONG till now (based on your DD till date)? I would think that it's one of the best China and agri plays if the numbers and story can be believed. Please let me know if you know of anyone who talked to the ROTH and Rodman analysts personally to figure out if they believe there is a chance of fraud here.

   I would also appreciate if you could please let me know the timeframe within in which you will be able to wrap up your OTGDD.

Thanks.

Public4825 Addfavorites FCPG
 

Article sent to us by a GeoUser.  First China (OTCCB:FCPG) shares are pulling back sharply today after a sharp run from around $1.00. Shares are down sharply to $3.20 in early trading today after soaring yesterday.

Source: http://www2.smallcapfortunes.com/firstchina/index.html


Dear Fellow Investor:

The bidding war could be just weeks away. But it gives us a “window” to buy First China Pharmaceutical Group (FCPG on the OTCBB) at the incredible price of just $1 to $1.50 per share.

As America’s #1 buyout target, FCPG shareholders could easily score 2,800% profit, turning a modest $3,000 investment into $84,000, or a $36,000 investment into $1 million.

This isn’t “pie in the sky.” But more accurately, it's a virtual foregone conclusion!

First China Pharmaceutical Group has been flying under the radar. And very few people know the unique set of circumstances surrounding its “impenetrable market position” that practically guarantees fortune-making profits!

But here’s the advance information you need...

The fastest growing
drug market in the world
is consolidating
under unprecedented
healthcare reform!

Advertisement, see disclaimer on bottom

American FCPG can be among the biggest winners in this massive transformation! Here’s why..

China is where the action is today. Even during the Great Global Recession, its white-hot 12% annual growth rate dropped to just “a sizzling 9%” rate (6 times better than the current U.S. rate).

Now, First China Pharma Group is about to become one of the biggest winners in an $850 billion transformation of China’s massive and severely antiquated drug distribution system, the purpose of which is to create..

A modern $80 billion drug market by 2013!

China’s National Development and Reform Commission (NDRC) is responsible for consolidating China’s major industries. First, they did the auto and auto-parts industries. Next, they did the cement industry. And now they’re doing drug distribution (with more to follow).

But here’s what’s important to FCPG shareholders who get their shares at today’s bargain prices...

China’s “drug distribution consolidation plan” is one of the most important aspects of the massive $850 billion healthcare overhaul by 2013, providing government-healthcare to every Chinese citizen, even in rural areas!

It’s the biggest government healthcare overhaul in the world, and a key part of an even bigger plan to make China the world’s #1 economic power by 2025!

If you haven’t already heard, China is ending it’s one-baby-per-couple law, beginning in 2011, with a total phase-out by the end of 2013. Which means the population will swell by tens of millions, and all these people will be using medications and OTC remedies.

FCPG is already a successful $21 million drug distributor in Yunnan, China’s fastest-growing province with a population of 46 million people!

Currently, FCPG has a 5,000 item product line (just small enough to let us buy shares today for $1 to $1.50). But very quickly FCPG will become one of the biggest companies under consolidation...

As it expands to other provinces and grows the pharmaceutical line to 30,000 products, while at the same time doubling its profit margins, as it gobbles up weaker competitors who will be forced out of business!

How can such a dramatic thing happen in such a short time? Because...

FCPG has been “chosen” by the Chinese Government to be one of just 14 companies licensed to sell drugs over the Internet.

Within a year, FCPG could be a $300 million company as it rapidly gobbles up weaker competitors who won’t be able to compete on price, quality, delivery, service, or anything else!

But even before FCPG reaches a $300 million market value, it’ll likely be bought out for $600 million. Why? For one, FCPG’s profits could double. But also...

Because buying FCPG represents possibly the only way for one of the “Big Four US Drug Distributors” to get into the fast-growing Chinese pharmaceutical market, now the 3rd largest in the world, and fast on its way to #1.

MOST IMPORTANT to us — At a $600 million value, FCPG shares will be worth about 28 times today’s share price. And that’s when...

 Your $3,000 investment rockets to $84,000. Or your $36,000 investment vaults to $1 million!

Would you like a payday like that? Who wouldn’t! It’s the...

The profit opportunity
of the decade!

Hi, I’m Eric Dickson of Breakaway Stocks. I’ve done a ton of research on this Nevada-based company that has “privileged relationships” in China...

And after witnessing the number of multi-millionaires created in the Chinese auto and cement industry consolidations, I was anxious to find a hot play in “drug distribution” that would do the same for my readers.

FCPG is it! And that’s why I say call your broker or go online to your trading account right now!

FCPG is the only American company licensed and ordained by the Chinese Government to sell drugs over the Internet in China – a key part of the consolidation plan that will eliminate thousands of middlemen who now won’t be able to compete. More on this just head, but first...

Let me give you just one example of the kind of profits investors on the inside track can make on Chinese industry consolidation...

Advertisement, see disclaimer on bottom

You could score $$$ like
Goldman Sachs

Recently, Goldman Sachs put up $80 million for a small interest in Hongshi Cement Co in Zhejiang. Why cement? And why Hongshi?

Because China’s NRDC had “anointed Hongshi” as one of the 10 biggest winners under cement-industry consolidation (in the same way FCPG has just been anointed in drug distribution).

And there was a very good reason for this.

China is the world’s #1 cement market, and it previously had 5,000 cement producers, but the top 10 Chinese cement makers controlled only 20% of the market.

The NDRC believed that was way too fragmented, way too inefficient, and way out of line with China’s plans to become the #1 economic superpower in the world.

So, they forced consolidation, anointing ten big winners and weeding out thousands of weaker players, so that the top producers would then control 80% of the market.

Rigged? Yes. Fair to the losers? No. But...

The benefit to the country as a whole was lower prices, higher quality cement, speedier delivery, and faster industrial growth, which of course lifts the fast-rising middle class (who will of course be using drugs sold by FCPG).

In any case, who cares if “consolidation” is a rigged game, if we’re on the winning end of the fix. Goldman Sachs sure didn’t.

They sneaked in and grabbed a piece of one of the “anointed” cement producers. And already they’ve made 5 times their money, and will likely score 50 times their investment once consolidation is complete.

And the good news is that we can make the same kind of deal Goldman made, simply by picking up shares of FCPG today.

The Chinese government has given FCPG its “seal of approval” by granting it one of just 14 Internet drug sales licenses. In effect, its saying to FCPG – We want you to be one of the biggest drug distributors in China.

That’s why I say call your broker, or log-on to your investment account, and pick up FCPG right now, while shares are still just $1 to $1.50!

Let me tell you more about the consolidation process, and specifically the “competition-slaying advantage” of the Internet sales licensing scheme (the main reason we can make 2,800% profit).

Just 14 Internet Sales Licenses for all
of China’s 1.5 billion people!

China’s archaic system currently has 6,000 drug distributors, but after the consolidation and modernization plan is fully implemented, just 30 or 40 companies will remain...

And, specifically, just 14 of them will be the biggest winners because they’ll be the only ones with the Internet sales licenses.

As you know, modern business today is conducted over the Internet with very sophisticated sales and customer-service software. Think of what IBM, Oracle and SAP do for their clients.

No outmoded or lesser systems can compete on price, convenience, speed of delivery, or customer service. Which means...

Thousands of small Chinese drug distributors may soon be gobbled up by FCPG and its 13 peers because they simply can’t compete!

In fact, thousands of drug distributors already know they’re doomed because the Chinese Government just placed a...

Country-wide
“Moratorium” on
Internet Drug
Sales Licensing

This moratorium is likely to be in force for several years as the consolidation plan is fully played out.

Can you see why FCPG shares should rocket, and why the company could become America's #1 buyout target?

FCPG literally has a license to steal business from hundreds of competitors. And among the 14 Chinese companies that have this valuable license,” FCPG is the only one that is American-owned!

Yes, the only one (and I’ll show why just ahead).

This fact alone should have you rushing to your online trading account to grab FCPG shares (on the OTCBB exchange). Because...

Nobody else — not any Chinese company, not any American company, not any company anywhere – can now get a license to legally sell drugs over the Internet in China!

The deal is sealed. Just 14 Internet licensees will now dominate an $80 billion drug market. And FCPG is one of them!

Excited? I sure am! But there’s much more to the amazing FCPG story that practically guarantees us 2,800% profit. And to prove it, I need to provide answers to some key questions...

Why did they limit
Internet licensing to just
14 reliable companies?

Two reasons, one of which you already know...

First, to consolidate and modernize China’s archaic drug distribution system, in order to make it highly efficient and eventually on par with the best in the world.

The same thing happened in America back in the ‘60s and ‘70s. Ultimately, 600 American drug distributors consolidated down to just half a dozen big players today.

Here are the top four US companies today...

 

Advertisement, see disclaimer on bottom

And in just a moment, I’ll show you why it’s practically inevitable that these four companies will get into a bidding war over FCPG, with the final buyout price easily hitting $28 a share.

But first, you need to know that...

The 6,000 Chinese drug distributors mostly comprised two and three unnecessary layers of middlemen that:

 

That’s one BIG reason for consolidation, but there’s a second reason, and its equally important...

China was recently gripped with a rash of counterfeit drug frauds and illicit Internet drug sales. Yes, I’m talking about fake drugs, but also real prescription drugs sold illegally to consumers over an uncontrolled Internet.

The People’s Republic Of China (PRC) didn’t tolerate that for very long...

And the subsequent brutal crackdown resulted in dozens of perps being jailed, and to be frank these guys may never see the light of day again, if they’re lucky enough to keep their heads, and I mean that literally!

The PRC considers drug fraud among the most serious crimes against its people. And no wonder...

Britain controlled China (and its trade) through opium trafficking from 1787 on, winning the two Opium Wars in 1839 and 1856, and humiliating the Chinese into accepting opium addiction as well as British colonial domination for 156 years.

Make no mistake about the sensitivity – and seriousness — of the drug issue...

The PRC knows full well China can’t become the world’s #1 economic power if its people are addicted to drugs. Nor can it become #1 if its people can’t get authentic and pure prescription meds at a low cost, and in a timely manner.

For these reasons, consolidation has been given a top priority in the government’s $850 billion healthcare overhaul to be completed by 2013.

And they’ve chosen just 14 proven reliable companies to use the Internet business model because it’s a number they feel they can monitor and regulate, not only to ensure drug quality but to prevent fraud and abuse.

Are you beginning to love FCPG? Or more accurately, grasping what owning its shares can do for you because this American company is one of the fortunate fourteen? Let me show you...

Here’s what the Internet business
model can accomplish

Depending on the province and local customs, FCPG’s Internet business model will eliminate at least two — and in some cases three — layers of unnecessary middlemen. And the result may be...

1. Lower prices on drugs for hospitals, clinics, and drugstores by an average of 15%.
2. Higher profit margins for FCPG by 100%! 

Imagine what growing 15 times bigger in a year, combined with a doubling of the profit margins, could do for FCPG shares. And if you have any doubts this will happen, just ask yourself...

What Chinese businessman in his right mind would pay 15% or more for the same product? And then get worse service, slower delivery, and no government guarantee of drug purity?

Also consider that Chinese hospitals, health clinics, drug stores, and traditional Chinese medicine shops will now be able to lower prices for their own profits.

Also consider that the fast-growing Chinese middle class are buying more and more American medicines, including popular over the counter remedies like Advil, Prilosec, and Neosporin, to name just a few of the thousands of Western products FCPG will sell!

Remember, the 14 anointed companies must serve 1.5 billion people, so they’ll be expanding very rapidly, especially since the goal of the PRC government is to provide uniform healthcare to all of its citizens, even in rural areas, by 2013!

This story just keeps getting better. Check out FCPG’s brilliant growth strategy...

FCPG’s corporate structure and
business expansion plan
(and how we could score 2,800% profit)

Advertisement, see disclaimer on bottom

Here’s why FCPG’s business could spread like wildfire, why its shares should multiply many times over, and why it could become America’s #1 buyout target, thus setting up our 2,800% profit score!

FCPG is a publicly-traded US-firm based in Nevada. This is a big advantage because you can confidently invest in a US company, rather than take a chance on a Chinese firm. And even moreso in this case because...

FCPG uses a unique corporate structure, the Wholly Owned Foreign Entity (WOFE), which was created specifically to protect Hong Kong capitalists when that island was returned to China by the British in 1997.

The privileged WOFE structure works like this...

A foreign corporation buys a Hong Kong corporation that buys a Chinese company. In this case, FCPG set up a Hong Kong corporation that bought the successful drug distributor in Yunnan Province who then obtained the Internet license. And under the WOFE structure, FCPG enjoys the following major advantages...

1.Freedom to implement the parent company’s worldwide business strategies without the restrictions of Chinese Law.
 
2.Ability to conduct business in China, invoice in Chinese currency (RMB) and collect receivables in RMB.
 
3.The right to convert Chinese RMB profits to US dollars and take them out of the country and home to shareholders.
 
4.Greater protection of intellectual property rights.
For two examples of very successful WOFE corporations that started out small, check out Suntech Power Holdings (STP: NYSE) with a market cap of $1.6 billion. Or Semiconductor Manufacturing International Corp (SMI: NYSE) with a market cap of $1.5 billion.

FCPG could be next in line for spectacular growth, and here’s what ensures we’ll score BIG on the coming buyout!

No other American company is a WOFE that owns all or any part of the other 13 Chinese drug distributors who’ve been granted the Internet sales licenses.

FCPG is the only one. It’s an incredible advantage. In effect, a legal monopoly!

Remember, China is the 3rd largest pharmaceutical market in the world. It’s also the fastest growing drug market in the world. That’s why I say go online to your trading account and act on FCPG now!

Still need to know more. Okay, consider this...

Every big US drug distributor wants a piece of the action, preferably a big piece. But not one can get the Internet license now, and therefore not one can compete in China. Which brings us to the most important point..

The only way US companies can tap into
the Chinese drug market is to buy FCPG.

Yes, here’s the earth-shattering news you’ve been waiting for that practically guarantees us 2,800% profits!

The Big Four — McKesson, Cardinal Health, Amerisource-Bergen, and Owens-Minor – have a problem...

How can they grow? The US market is mature, and while there could be some growth under the new Healthcare Reform Bill, it won’t be fully implemented for 5 years, provided it isn’t repealed first.

Meanwhile, a report on the “US drug distribution” industry, prepared for institutional investors by the prestigious research firm, Gerson-Lehman Group, concluded the US giants have only 3 ways to grow...

 Vertical integration, such as buying up cancer clinics and then becoming the sole provider of cancer drugs to those clinics.
 Merging with European firms, but they’ll pay dearly for any deal because the European market is also mature. 
 Getting into the Chinese market, the fastest growing pharmaceutical market in the world, currently #3 but on it’s way to becoming #1. 

Advertisement, see disclaimer on bottom

Gerson-Lehman says none of these options will be easy, and the 3rd one will be the most difficult because of the hurdles and hoops US companies must jump over and through in China.

Chinese market near impossible to crack
(but FCPG offers easy entry)

The American Chamber of Commerce recently surveyed 388 large companies doing business in China and released an alarming report — It’s getting harder and harder to do business in China.

China joined the World Trade Organization in 2001, and ever since it’s put on a public face of “welcoming foreign companies” but the reality on the ground is entirely different.

US firms say trading conditions have actually worsened because of 3 things: (1) the Chinese mandate to buy home-grown technologies; (2) highly inconsistent regulatory interpretations; (3) irregular enforcement of laws, province by province.

But the good news for us is that FCPG bypasses all of these problems because of its WOFE status.

The WOFE advantage cannot be underestimated. Look here..

Recently four Rio Tinto executives were jailed on bribery charges (and of course they couldn’t do business without first making those bribes). And you’ll recall Google’s ongoing fight with the PRC over “freedom of Internet” usage in China.

But wait! Can’t one of the BIG FOUR set up its own WOFE and bypass these kinds of problems...

Potentially, yes. It takes about a year and $1 million to get the Hong Kong corporation and WOFE structure in place.

But they’d still have to get one of the remaining 13 Chinese Internet licensees to give up stock and partner with them. And why would any of them do that?

These companies just won the lottery. They’ve been given a license to become DRUG KINGS. To paraphrase an old popular movie – “They don’t need no stinking partners!”

What’s more, China has made their decision on the 14 consolidation winners. Just one is an American-owned WOFE, and it’s highly unlikely they’d allow any others (take my word for it – they won’t).

Next question: FCPG still has to compete with 13 other companies with Internet licenses. Can they still win big? You bet they can!

First, FCPG succeeded in becoming a very profitable, well respected, and fully trusted (by the gov’t) drug distributor, when they competed against all comers on a level playing field.

And now they’ve got the enormous advantage of the Internet license to serve 1.5 billion people. When you consider that 4 major players serve 300 million people in America, you realize there’s plenty of business for 14 big companies in China. Second...

The FCPG Business Strategy includes desirable membership benefits.

To leverage Internet fulfillment and speed its growth, FCPG will offer enticing membership benefits to its customers, as follows:

1.FREE Personal Computer to all customers agreeing to place 70% of their orders with FCPG (at 15% savings). And this computer will have a fast-access link to FCPG’s proprietary customer-service web site.
 
2.Access to a 30,000 strong product line, including difficult to obtain specialty drugs, which will cover 100% of most client’s needs.
 
3.More favorable payment terms than competitors can offer.
 
4.Discount pricing on volume purchases (beyond 15% savings).
 
5.Store signage indicating FCPG membership, thus ensuring government-backed drug authenticity and purity, as well as branding for future drug-store-chain retail operations (think Walgreen’s or CVS in America).
FCPG is making it really easy for customers to switch, or to expand current purchasing because it can offer 100% of what their customers need — all at 15% lower prices with faster delivery!

Again, no competitor without the Internet license can compete, but how fast can they grow? And...

What’s FCPG’s total market size?

Right now, FCPG is the only Internet licensee serving the 46 million people in Yunnan province. And they’ve been invited into Ningxia province, with 6.2 million people. And their business plan also calls for expansion into the following provinces.

 

Advertisement, see disclaimer on bottom

That’s a total market of nearly 500 million people! And for the final proof of our 2,800% profit potential, look and see how.

FCPG grows from a $21 million company to a $300 million company in one year, and then gets bought out for $600 million because:

1. FCPG currently has 4,700 customers that fulfill 10% of their needs from the company’s 5,000 item product line. But with the free PC and ease of Internet ordering, plus expansion to 30,000 products, plus a 15% price cut, customers are projected to fulfill 70% of their needs, which is a 7-fold increase in sales to $147 million annually.
2. FCPG also expects to add at least 5,000 new customers the first year, based on the same benefits above. Assuming the same cus- tomer profile (placing 70% of their orders with FCPG), revenues will more than double to $300 million.
3. Finally, $300 million is based solely on business projected in Yunnan and Ningxia provinces (52 million people) and doesn’t count expansion into the other provinces, comprising another 400 million people (although this expansion will come after the first year).

With the Internet business model, FCPG’s profit margins could double!

Now do you see why FCPG will likely be bought out for $600 million, and possibly even more?

I’m convinced McKesson, Cardinal Health, AmerisourceBergen, and Owens-Minor will be fighting over FCPG very soon. They have to, if they want to break into the fastest-growing pharmaceutical market in the world!

Remember, FCPG is the only American company with WOFE privileges that also has the Internet license, making it free of onerous Chinese laws and restrictions. In other words, GAME OVER and FCPG wins!

I’m telling you, if ever there was ever a slam-dunk winner, the American FCPG with its Chinese Internet drug sales license and WOFE privileges is it!

It’s the fastest (maybe the only) way for one of America’s BIG FOUR to get into the fast-growing Chinese drug market, setting up our 2,800% profit score!

Check with your investment advisor, check my facts, do your due diligence. But call your broker or go online and get your FCPG shares today. Any price under $5 is great, but hurry and you can get them at $1 to $1.50 per share.

I say First China Pharma Group could be the most successful investment of the decade, and possibly the biggest score of your investing career!

ACT ON FCPG TODAY!

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Try my letter risk-free. I know you’ll be glad you did. But first, act on FCPG right now!

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IMPORTANT NOTICE AND DISCLAIMER: This featured company sponsored advertising issue of Breakaway Stocks does not purport to provide an analysis of any company’s financial position, operations or prospects and this is not to be construed as a recommendation by Breakaway Stocks or an offer or solicitation to buy or sell any security. First China Pharmaceutical Group, (FCPG), the company featured in this issue, appears as paid advertising, paid by Mediacom Strategies Inc. to provide public awareness for FCPG. Mediacom Strategies Inc. has approved and signed off as “approved for public dissemination” all statements made herein regarding First China Pharmaceutical Group’s history, assets, technologies, current as well as prospective business operations and industry information. Breakaway Stocks and Capital Financial Media (CFM) have used outside research and writers using public information to create the advertisement coming from Breakaway Stocks about FCPG. Although the information contained in this advertisement is believed to be reliable, Breakaway Stocks and CFM makes no warranties as to the accuracy of any of the content herein and accepts no liability for how readers may choose to utilize the content. Readers should perform their own due-diligence, including consulting with a licensed, qualified investment professional or analyst. Further, readers are strongly urged to independently verify all statements made in this advertisement and perform extensive due dili- gence on this or any other advertised company. Breakaway Stocks is not offering securities for sale. An offer to buy or sell can be made only with accompanying disclosure documents and only in the states and provinces for which they are approved. Many states have established rules requiring the approval of a security by a state security administrator. Check with http://www.nasaa.org or call your state security administrator to determine whether a particular security is licensed for sale in your state. Many companies have information filed with state securities regulators and many will supply investors with additional information on request. CFM has received and managed a total production budget of $600,000 for this advertising effort and will retain any amounts over and above the cost of production, copywriting services, mailing and other distribution expenses, as a fee for its services. Breakaway Stocks is paid $3,000 as an editorial fee from CFM and also expects to receive new subscriber revenue as a result of this advertising effort. *More information can be received from First China Pharmaceutical Group’s investor relations firm, or at First China Pharmaceutical Group’s website www.firstchinapharma.com. Further, specific financial information, filings and disclosures as well as general investor information about publicly traded companies like First China Pharmaceutical Group, advice to investors and other investor resources are available at the Securities and Exchange Commission website www.sec.gov and www.nasd.com. Any investment should be made only after consulting with a qualified investment advisor and after reviewing the publicly available financial statements of and other information about the company and verifying that the investment is appropriate and suitable. Investing in securities is highly speculative and carries a great deal of risk especially as to new companies with limited operations and no history of earnings. The information contained herein contains forward-looking information within the meaning of section 27a of the Securities Act of 1993, as amended, and section 21e of the Securities Exchange Act of 1934, as amended, including statements regarding expected growth of the featured company. In accordance with the safe harbor pro- visions of the Private Securities Litigation Reform Act, First China Pharmaceutical Group notes that statements contained herein that look forward in time, which include everything other than historical information, involve risks and uncertainties that may affect the Company’s actual results of operations. Factors that could cause actual results to differ include the size and growth of the market, the Company’s ability to fund its capital requirements in the near term and in the long term; pricing pressures, technology issues etc.
 
 
 
 

 

 

Public4792 Addfavorites 
 

 Red Flags Commonly Used to Insinuate Fraud

A. Financial

  1. SAIC documents do not match SEC.
  2. SAT documents do not match SEC.
  3. Low R&D expense, especially when company has unique technologies. BORN
  4. Unusually low accounts payable position.  ZSTN
  5. High margins compared to competitors.
  6. Allegations of low credit rating when SEC filings look pristine. CCME

B.  Internal Controls/Corporate Governance

  1. Ineffective internal controls, especially when issue exists for an extended period of time.  SKBI
  2. High CFO turnover. CSKI
  3. Resignation of several members of the board of directors. BORN
  4. High auditor turnover, especially if company goes back to old auditor.

C.  Ownership Structure Issues  

  1. A significant delay in meeting registered capital requirements upon an RTO transaction.  This could imply that original players were not comfortable infusing capital into a company.  WKBT
  2. Desire to switch ownership structure to a variable interest entity (VIE) from a foreign invested enterprise (FIE). ONP, CHGY. This could insinuate difficulties in securing capital from original players of the the RTO transaction.
  3. Establishing a VIE structure when money could not be raised to meet PRC registered capital requirements pertaining to formation of FIE.  SUWG
  4. Illegal corporate structure as defined by PRC law.  CEU note

D. Share transactions

  1. Several equity offerings within a tight time period.
  2. Company raises money when it has excess capacity
  3. IPO that priced well below desired price, yet company does not cancel or delay offering.  BORN
  4. Company raises money despite adequate cash balance. CBP note
  5. Company raises money despite contradictory comments in filings and press releases. TSTC note
  6. Equity offerings at low valuations when balance sheet is healthy and at least 30% EPS growth is expected.  RTO stocks in general.

E. Miscellaneous

  1. High land right use. LTUS
  2. Company won’t disclose sellers related to certain transactions.  CGA
  3. Company won’t disclose address or names of retail locations, distributors and subsidiaries.
  4. Lies about date of establishment of acquired business.
  5. Negative commentary by media outlets in PRC.  KGJI note
  6. IPO rejected in the PRC if firm claims to be a leader.  KGJI
  7. Inadequate Website. CEU note
  8. Low executive salary.
  9. Regulatory interventions (SEC, PCAOB, etc).

Suggested Steps Companies Should Consider to Establish Credibility

A. Financial

  1. Disclose SAT through an independent source.  PRC law, as it relates to annual inspection process among several governmental bodies, implies that for FIE, SAIC should match SAT.  However, a linear relationship for VIE between SAIC and SAT filings can not be assumed which is why SAT verification is particularly important for VIE company structures.
  2. Reconcile SAT/SAIC filings with SEC fillings when they do no match.
  3. Auditor should make a statement verifying they saw cash and SAT information and obtain this information independently.  Access to documents should be made available at any time without company knowledge to avoid speculation that company has had time to employ fraudulent short-term measures.
  4. Also consider giving an independent source random access to SAT filings and cash balances.
  5. If you have engaged in tax avoidance schemes request a letter from PRC government forgiving past indiscretions and/or just settle the issue. ( we understand this may not be practical). Ideally, this should be done before going public.
  6. Request a letter from the PRC that SAT filings are in line with SEC filings.

B. Internal Controls/Corporate Governance

  1. Retain a Top 10 auditor (Top 4 is the most ideal)
  2. Ideally, internal controls should be in check from day one. Even if a company can’t afford a top auditor on a full time basis one should at least be retained to implement effective internal controls such is the case with CBP.  Internal control procedures should also be promptly reevaluated upon the completion of acquisitions.
  3. Qualified Board of Directors should be in place upon going public.
  4. Consider an independent advisory panel

C.  Share Transactions

  1. Do not issue equity at absurd valuations when you have (a) ample cash on hand, a healthy current ratio, a healthy cash ratio and (b) guidance or EPS estimates that imply at least 30% EPS growth.

    Additionally, make a statement that you will not have to issue equity in order to grow EPS and stand by these words, unlike TSTC and SPU.  If you do issue equity, reduce the share raise by utilizing cash so that healthy EPS growth will still occur.
     
  2. Consider raising post public money with a top tier underwriter as opposed to PIPES or low tier underwriter
  3. Consider the use of some debt over equity when possible
  4. Cancel incentive shares to minimize dilution. AUTC note

D.  Establish Investor Confidence

  1. Issue EPS guidance. NEWN FSIN ALN GFRE (Ideally, for upcoming quarter and year)
  2. Implement buy back programs when valuations are low as a way to increase EPS growth. CHBT CFSG ZSTN FMCN
  3. Release monthly reports on status of buy back program.
  4. Management buys stock.  CMFO CCME  
  5. Declare special or quarterly dividend.  CCME
  6. Issue annual reports with letter from Chairman of the Board/CEO/President
  7. Pay proper taxes
  8. At some point, dual list shares

Clues that an Equity Raise is on The Horizon

  1. Be aware that boiler plate language insinuating that current capital is sufficient to maintain current operations can offer a false sense of security vs. explicit language in SEC documents inferring that a company does not see a need for an equity raise.
  2. Look for contradictions in press releases that infer no need for capital vs. opposite jargon in SEC documents. 
  3. Compare “liquidity” sections in SEC documents to “risk disclosure” sections for contradictions regarding a potential need for capital.
  4. Look for changes in statements about the need for capital when the level of business has remained unchanged/increased, yet liquidity standing has not seen significant changes.
  5. Company has never raised money since going public.
  6. Sudden cancelation to attending investment conferences and not returning calls or emails.  This could imply that a company is in a quiet period.  YUII note
  7. No Q&A section during earnings conference calls can also signify that a company is in a quiet period.  SPU
  8. The “Offering” document filed with the SEC includes the proposed share amount of a potential offering, the amount of funds to be raised and the expected offering price.
  9. When a foreign invested enterprise (FIE) has not met its registered capital requirements.  WKBT note
  10. When a company plans to switch to FIE from a variable interest entity (VIE).  VLOV note
  11. A company that grows by acquisition.
  12. A company is at full capacity. CHGY
  13. Requesting the removal of anti dilution provisions TPI note
  14. Company with liquidity issues  AKRK note
Public4746 Addfavorites JOBS, KGJI, STV
 

by Maj Soueidan

As indicated in my recent article, Limit Risk While You Invest in ChinaHybrids (U.S. Listed Chinese Stocks),  I track daily new highs in an attempt to identify momentum value plays.  A trend I have noticed is that even as the RTO stocks have once again corrected many ADRs, some with premium multiples are attaining new 52 week highs. Short investors have asserted that ADRs are of higher quality than their RTO counterparts and that their PRC filings match SEC filings.

ADR/ADS stocks listed on major exchanges that attained 52 new highs even as the Chinese RTO space has pulled back:

51 Job Adr (NASDAQ:JOBS)
China Digital Tv Holding Adr (NYSE:STV)
7 Days Group Holdings Adr (NYSE:SVN)
Global Sources (NASDAQ:GSOL)
China Techfaith Wireless Adr (NASDAQ:CNTF)
3 Sbio Inc Ads (NASDAQ:SSRX)
Hollysys Automation Tech (NASDAQ:HOLI)
Fabrinet (NYSE:FN)
Elong Adr (NASDAQ:LONG)
China Yuchai Intl (NYSE:CYD)

A couple well-followed RTO stocks have recently attained new highs:

Lihua Intl (NASDAQ:LIWA)
Puda Coal (NYSE AMEX:PUDA)

The following stocks on the BB have recently attained new highs, most on light volume:

China Electronics (OTC BB:CEHD)
Horiyoshi Worldwide (OTC BB:HHWW)
Shun Cheng HK (OTC BB:BRBH)
Zhongchai Machinery (OTC BB:EQPI)
China Agri-Business (OTC BB:CHBU)
Gfr Pharmaceuticals (OTC BB:GFRP)
Sino Oriental (OTC BB:SMPN)
China Shesays Med (OTC BB:CSAY)
Jinhao Motor Co Common (OTC BB:GIMC)
Asia Pacific Wire & Cabl (OTC BB:AWRCF)

I also like to observe stocks that are within striking distance of a 52 week new high. One such RTO stock caught my attention due to the fact that it sports a trailing P/E multiple of over 20 that most RTO stocks would kill for.  I was obviously excited, thinking that the market had placed its quality stamp of approval on Kingold Jewelery (NASDAQ:KGJI).  Shares have risen from a 52 week low of $0.56 to $8.87, off its high of $11.95 in August 2010.

The company also claims to be the leader in its industry:

"Kingold Jewelry, Inc. is one of the leading professional designers and manufacturers of gold jewelry in the central part of China including Hubei, Hunan, Henan, Jiangxi, Anhui and Sichuan Provinces. According to statistics provided by Gems and Jewelry Trade Association of China, KGJI ranked first and second in the PRC's gold industry nationwide in total volume of production in 2007 and 2006, respectively."

As a precaution, I now run many of my potential ChinaHybrid stock selections through my Chinese attorney I call "Bob" in order to respect his privacy. Recall that Bob was instrumental in my article, The SEC vs SAIC Fact Finding Mission, published on August 25, 2010.  I asked Bob if he was aware of KGJI.  He was, and the news was quite interesting.

Bob writes:

KGJI tried to list in Shenzhen stock exchange in China in 2008.  However, it was rejected by China Securities Regulatory Commission on Aug 4th. 2008 (http://www.csrc.gov.cn/pub/zjhpublic/G00306202/200810/t20081027_34946.htm). 

KGJI planned to sell 33,340,000 shares which would have equated to 25% of the total shares after the planned IPO.  The book value per share before the IPO is RMB 1.59 yuan. As the IPO is rejected by China Securities Regulation Commission, we do not know what the planned price was. However, if we assume KGJI would have applied a 20 P/E (China market has a high P/E), the price shall be around RMB 0.30 per share.

Translation from CSRC site:

"China Securities Regulatory Commission, the Audit Committee issued its 115th meeting in 2008 at the August 4, 2008 meeting, the meeting reviewed the results now announced as follows: Wuhan Golden Phoenix Jewelry Co., Ltd. is not approved."

I am 100% percent sure this KGJI Wuhan Golden Phoenix Jewelry are one the same. Wuhan Golden Phoenix Jewelry has the same address, same legal representative and financial statements as well. In its prospectus submitted to CSRC, KGJI applied its English name as "Kingold Jewelry" on the cover which is the same as KGJI. Wuhan Golden Phoenix Jewelry is the direct translation of its Chinese name. When you say the logo of KGJI, it is a golden phoenix.

Bob goes on to comment:

The media reported that possible reasons for the rejection dealt with falsified financial books.  There were several reasons applied to challenge the prospectus submitted to China Securities Regulatory Commission (CSRC) by KGJI (Prospectus: http://www.csrc.gov.cn/n575458/n776436/n804920/n2466277/n10731196.files/n10731195.pdf). 

At first, it has been speculated that the company intentionally increased (forged) the value in its asset appraisal report for machinery and raw materials invested by Zhihong Jia, CEO, in 2004. Secondly, the increase of the revenues from 2006 to the first season of 2008 was challenged.   Thirdly, it has been speculated that suspicious share transactions from Zhihong Jia to other shareholders existed.  (http://money.163.com/08/0805/03/4II6GVGS00251RJ2.html)

I read the prospectus of KGJI in China (2008), the reverse merger documents and its S-1.  Apparently, the annual increase rate of revenue of KGJI is more than 100% for three years.  The Chinese media challenged the increase in 2008.  The financials in the PRC prospectus, reverse merger documents and the S-1 match, so the company used the same filings submitted to the CSRC.  Now, we need to figure out more details in 2010.

To be clear, the CRSC did not mention that it rejected the application for the IPO due to fraud allegations.

In addition to Bob’s findings and with help from a new due diligence panel I have assembled, I have provided the following information that investors may find useful:

  • It looks like the Company will tap the equity market, as determined by a recently amended S-1 and a blurb in the 2010 third quarter 10Q -

“We expect that cash generated from financing activities may increase significantly as a result of additional financing being obtained.”

We will continue our probe into the KGJI story in order to confirm or refute fraud allegations.  From the strong possible pricing indicated in the S-1 it appears that investors have given a vote of confidence. We welcome input from investors.

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