Call(s) to Action: Shorting CBAK. Main subsidiary defaults on loan payment. Complicated terms of this transaction result in the company only owning two remaining subsidiaries that we believe are currently non-operating.

Here are the stories that the GeoTeam is following today… (Please see full disclosures at bottom)

  • ChinaHybrids
    • CREG ($1.69) – Issued $18.6 million worth of common stock, no details provided on the financials of acquired company or whether the shares are restricted.  The transaction increases diluted share count by roughly 15 % adding to the potential stock selling activity we mentioned in our article “2 Large Shareholders Appear Ready To Dump Shares of China Recycling Energy”.  No press release issued at this time.
    • NQ ($4.58) – Muddy Waters Research issued an update on the NQ saga titled, “ NQ: Oops”, alleging that NQ deliberately held back admissions so that NQ China insiders and their proxies could illegally dump more shares at existing shareholders expense and that NQ is once again misrepresenting the true state of its audit.
    • DSKY (IPO) –  The largest independent mobile game publishing platform in China expected to begin trading soon, no official date announced yet.
    • KNDI ($14.00) – Has received a national subsidy of RMB197 million (approximately US$31.8 million) for sales of over 3,000 Electric Vehicles between June and December in 2013 and sales of over 1,000 EVs during the first quarter of 2014.
    • YONG ($7.05) – Announced closing of going private proposal.
    • SFUN ($10.51) – There is a rumor that SFUN is going to invest share interest in one of biggest Chinese real estate agency and consultancy companies, Shenzhen Worldunion Properties Consultancy Inc. (SHE: 002285). Right now the Worldunion is halted trading on the exchange with announcement that the company is going to conduct private placement in the coming future. We will keep tracking the updated information regarding this rumor.  This could calm the dispute over pricing issues between agencies and SFUN that jeopardized some of SFUN’s real estate product offerings.
    • SIMO ($21.49) – Raised Q2 revenue and gross margin guidance.
  • Pump and Dumps
    • WSTI ($0.72) – Responded to our short thesis article. We stand by our original short thesis conclusion that WSTI is a pump and dump whose shares will continue to go lower.

For more timely information, particularly during the daily trading session, we urge our members to read our message board posts daily.

Disclosure: Short CBAK, CREG, WSTI ; Other Long Positions; Other Short Positions; Pump & Dump Positions (Password GEO2014)

Summary of general highlights:

On the Asian Front…

China Bak Battery (NASDAQ:CBAK) ($4.05) –  CBAK together with its subsidiaries, engages in the manufacture, commercialization, and distribution of standard and customized lithium ion (Li-ion) rechargeable batteries. On July 3, 2014, CBAK filed an  8K disclosing  that CBAK’s main operating  subsidiary  defaulted on  some  loans:

“On June 30, 2014, the Company received from Mr. Wang notice that due to Shenzhen BAK’s default under the Loans, he had foreclosed his security interest in and sold and transferred to a third party the Pledged BAK International Equity for a purchase price of RMB520 million.

As a result of the above foreclosure, the Company currently owns a Hong Kong subsidiary, China BAK Asia Holdings Limited, which in turn wholly owns two Chinese subsidiaries, Dalian BAK Trading Co., Ltd. and Dalian BAK Power Battery Co., Ltd. (“Dalian BAK Power”). Dalian BAK Power is engaged in the business of developing, manufacturing and selling new energy high power batteries, which are used in electric cars, light electric vehicles and other high power applications. “

Thus CBAK no longer own Shenzhen BAK, which is BAK’s  only substantial operating entity.  And  only owns Dalian BAK Power and Dalian BAK Trading Co., Ltd..

In CBAK’s most recent 10Q, it carries information as follows:

“Dalian BAK Trading Co., Ltd. (BAK Dalian), a wholly owned limited company established on August 14, 2013 in the PRC; vii) Dalian BAK Power Battery Co., Ltd. (Dalian BAK Power), a wholly owned limited liability company established on December 27, 2013 in the PRC;”

According to SAIC  filings, Dalian CBAK was only a company established on December 27, 2013.

“Up to the date of this report (May 20, 2014), the Company is in negotiation with the Business Administration Bureau of Dalian District for extension of payment of the initial capital of $6,000,000.”

Therefore, it appears that Dalian BAK Power  did not have any substantial business as of May 20, 2014.  We believe this is still the case.  We are going to perform OTGDD regarding Dalian BAK’s new development in coming days.

China Recycling Energy (NASDAQ:CREG) ($1.69) – CREG provides environmentally friendly waste-to-energy technologies to recycle industrial byproducts for steel mills, cement factories and coke plants in China.  In a 8k filed on 7/3/2014 CREG entered into an Asset Transfer Agreement with Qitaihe City Boli Yida Coal Selection Co., Ltd., a limited liability company incorporated in China.

“The Transfer Agreement provides for the sale to Xi’an TCH of a 15 MW coke oven gas power generation station which has been converted from a 15 MW coal gangue power generation station (the “Transfer Asset”) from the Seller. As consideration for the Transfer Asset, Xi’an TCH will pay to the Seller RMB 115,000, 000 (approximately $18,690,677) in the form of the common stock shares of the Company at the average closing price per share of the Stock for the 10 trading days prior to the closing date of the transaction (the “Shares”). The exchange rate between U.S. Dollar and Chinese RMB in connection with the stock issuance is the rate equal to the middle rate published by the People’s Bank of China on the closing date of the assets transfer. The Company will file a Form S-3 Registration Statement to register the resale of the Shares for the Seller.”

The transaction increases diluted share count by roughly 15 % adding to the potential stock selling activity we mentioned in our article “2 Large Shareholders Appear Ready To Dump Shares of China Recycling Energy”.  No press release issued at this time.

Kandi Technologies Group (NASDAQ:KNDI) ($14.00) – KNDI is a China-based vehicle machinery producer, concentrating on three areas of small vehicle production: go-karts, special purpose vehicles and casual purpose vehicles.  KNDI announced :

“the manufacturing subsidiary of Kandi Brand electric vehicles, Kandi Electric Vehicles Group Co., Ltd. (the “JV Company”) has received a national subsidy of RMB197 million (approximately US$31.8 million) for sales of over 3,000 Electric Vehicles (“EVs”) between June and December in 2013 and sales of over 1,000 EVs during the first quarter of 2014. The subsidy payment includes the 2013 year-end subsidy and advance subsidy payment for the first quarter of 2014. The JV Company is a 50/50 joint venture between Kandi and Shanghai Maple Guorun Automobile Co., Ltd., a 99% owned subsidiary of Geely Automobile Holdings Ltd., one of China’s largest automakers.”

“Additionally, the city of Hangzhou, where the Company has launched its innovative short-term EV rental and long-term EV leasing program, is expected to announce its local subsidy policy for new energy vehicles in the near future.

Mr. Hu Xiaoming, Chairman and Chief Executive Officer of Kandi, commented, “This first subsidy payment to the JV Company will greatly benefit Kandi and will permit the Company to accelerate both EV sales and the implementation of existing EV programs, while expanding the development of potential EV projects in other major Chinese cities.”

Yongye Intl (NASDAQ:YONG) ($7.05) – a leading developer, manufacturer, and distributor of crop nutrient products in the People’s Republic of China announced the completion of its going private proposal for $7.10 per share.

Silicon Motion Tech (NASDAQ:SIMO) ($21.49) – a global leader in designing and marketing NAND flash controllers for solid state storage devices and specialty RF IC solutions for mobile devices, announced

“based upon its preliminary financial results, sequential revenue growth for the second quarter is expected to be in the 30 to 32% range, significantly above its original guidance range of 10 to 15% that the company issued on April 29, 2014. Gross margin (non-GAAP) is expected to be in the 51 to 52% range, above the company’s original guidance range of 48 to 50%.”

China IPO’s Set to Begin Trading…

IDREAMSKY TECHNOLOGY LTD (NASDAQ:DSKY) – DSKY is the largest independent mobile game publishing platform in China based on the number of active users in 2013, according to the Analysys Report. In the first quarter of 2014, the company had average monthly active users, or MAUs, of 98.3 million. The mission of the company is to deliver fun and engaging mobile games and entertainment to mobile users, thereby enriching their mobile lifestyle. DSKY filed its formal F1 on 07/03/2014 to raise up to $115 million in an initial public offering. The company intends to list on NASDAQ, but the pricing terms are still not disclosed.

Pump and Dumps…

Windstream Technologies (OTCCB:WSTI) –  On 7/1/2014 we published a short thesis article on WSTI titled, “Regulator Halt Risk For WindStream Technologies, Inc. Appears High”.  This morning,  WSTI responded to our short thesis article.  We still stand by our original short thesis conclusion that WSTI is a pump and dump whose shares will continue to go lower.  We are preparing our response for the statements the company’s management made and will release a follow-up thesis regarding the responses.

For more timely information, particularly during the daily trading session, we urge our members to read our message board posts daily.

Sincerely,

The GeoTeam