Thursday, November 24, 2011

Tuesday, November 22, 2011

Focus Media plunges after Muddy Waters charges

U.S.-listed shares of Focus Media Holding Ltd plunged to multiyear lows on Monday after short-selling firm Muddy Waters accused the company of "significant overstatement of the number of screens in its LCD network," among other charges.

Muddy Waters rates Focus Media Holding Ltd. (NASDAQ: FMCN) shares a Strong Sell because of significant overstatement of the number of screens in its LCD network and its Olympus-style acquisition overpayments. The $1.1 billion in write-downs from its acquisitions exceed one-third of FMCN’s enterprise value, making FMCN’s acquisitive behavior more destructive than Olympus’s to shareholder value. FMCN insiders have sold at least $1.7 billion worth of stock (two-thirds of FMCN’s enterprise value) since FMCN’s IPO. At the same time, the insiders and their business associates further enrich themselves by trading in FMCN assets, while costing FMCN shareholders substantial sums of money.
  • FMCN has been fraudulently overstating the number of screens in its LCD network by approximately 50%. This is similar to China MediaExpress Holdings, Inc. (OTC: CCME), which we reported is a fraud on February 3, 2011. We therefore question whether FMCN’s core LCD business is viable.
  • Like Olympus, FMCN is significantly and deliberately overpaying for acquisitions, writing down $1.1 billion out of $1.6 billion in acquisitions since 2005. These write-downs are equivalent to one-third of FMCN’s present enterprise value.
  • Our research shows that FMCN has claimed to acquire, write down, and dispose of companies that it never actually purchased. Investors should be concerned about to where cash actually moved in these transactions, and about the integrity of reported results.
  • FMCN has written at least 21 acquisitions down to zero and then given them away for no consideration. We show that many of these write-downs are not justified. There are several possible nefarious reasons FMCN gives acquisitions away, including doing so may put FMCN’s problems beyond the reach of auditors.
  • Insiders have used FMCN as their counterparty in trading in and out of FMCN subsidiary Allyes, with several individuals earning a total of at least $70.1 million, while shareholders lost $159.6 million.
  • Sales of FMCN shares by insiders have netted them at least $1.7 billion since FMCN went public in 2005.

 Research Report

Wednesday, November 16, 2011

American Lorain Corporation Reports 2011 Third Quarter Financial Results

Press Release

2011 Third Quarter Financial Review

American Lorain Corporation
Selected Financial Statements in USD ($ in 000s)

3 months ended

3 months ended
% Increase




Cost of Revenues

Gross Profit


Gross Profit Ratio


Income from operations


Earnings before tax


Net income attributable to common stockholders


Diluted earnings per share

Weighted average diluted shares outstanding


  • The Company reported sales for the 2011 third quarter of $55.6 million , an increase of 15.7% compared to $48.1 million in the third quarter of 2010.
  • Gross profit increased14.6% to $12.4 million from $10.8 million in the prior-year period. Gross margin declined slightly to 22.2% for the three months ended September 30, 2011 , from 22.4% for the prior-year period, due to inflation pressure. However, American Lorain expects that its margins will remain relatively stable and in the 20-25% range in the coming months.
  • Income from operations during the period was $8.2 million , an increase of 16.1% from $7.1 million reported in the prior year period. Operating margin remained the same at 14.7% for the 2011 third quarter compared with same period in the prior year.
  • The Company had net income attributable to common shareholders for the third quarter 2011 of $7.1 million , or $0.20 per diluted share based on 34.6 million diluted shares outstanding, compared to $5.1 million , or $0.16 per diluted share based on 31.8 million diluted shares outstanding in the prior-year period. The Company's net margin for the period was 12.7% compared with 10.6% in the prior year period.
  • The increase in net income was largely attributable to a $2.1 million other income we recognized in the third quarter when we sold the land previously carried on our balance sheet as short term investment. Without the effect of the land sale, our net income increased 6.1% to $5.4 million for the three months ended September 30, 2011 from $5.1 million in the same period of last year. Please refer to note 22 to the financial statements for details.

    Sino-Forest Says Probe Refutes Muddy Waters Allegations

    Article Bloomberg Businessweek

    Tuesday, November 15, 2011

    New Energy Systems Group Reports Third Quarter 2011 Financial Results

    Press Release

    DISAPPOINTING !!!!!!!!!!!!!!!!!!!!!

    Mr. Yu continued, "We expect to stabilize margins by introducing new, innovative products that carry higher margins. In addition, we have started to identify areas within our selling, general and administrative expenses where we can become more efficient. Finally, we have engaged branding strategy and financial consultants to help evaluate and execute marketing, product development and strategic alternatives. However, we expect sales and margins to remain below our historical averages until our competitive position improves."

    For the 3 Months Ended September 30

    Q3 2011
    Q3 2010
    Net Sales
    $15.3 million
    $26.4 million
    Gross Margin
    ($0.5) million
    $7.2 million
    Net Income (Loss)
    ($16.9) million
    $4.3 million
    Adjusted Net Income*
    ($2.4) million
    $5.1 million
    GAAP EPS (Diluted)
    Adjusted EPS (Diluted)*
    *Adjusted net income and adjusted E PS exclude $0.2 million of non-cash stock-based compensation expenses during Q3 2011, $0.7 million of amortization expenses and a $13.6 million impairment of goodwill.

    For the 9 Months Ended September 30

    YTD 2011
    YTD 2010
    Net Sales
    $65.4 million
    $72.2 million
    Gross Profit
    $15.4 million
    $19.8 million
    Net Income (Loss)
    ($8.2) million
    $11.6 million
    Adjusted Net Income*
    $8.1 million
    $14.2 million
    GAAP EPS (Diluted)
    Adjusted EPS (Diluted)*
    *Adjusted net inco me and adjusted EPS exclude $0.5 million of non-cash stock-based compensation expenses during nine months end of September 30, 2011, $2.2 million of amortization expenses and a $13.6 million impairment of goodwill.

    Monday, November 14, 2011

    China Kangtai Cactus Biotech Worthy To Look At?

    China Kangtai Cactus Biotech Q3 Revenue Up 39% to $13.3M; Q3 Operating Income Up 72% to $5.38M; EPS $0.18; Net Income Up 42% to $4M. YTD Revenue Up 23% to $29.2M; Operating Income Up 71% to $11.26M

    Press Release

    Or course you never know for sure a company is legitimate! The fact that Hawk Associates is still representing the company and most information is public available a little bet can be yours.

    The company earns more than their current stock price shows, but here also the risk of GOING DARK!

    Is the China Comeback Commencing?

    Article Reverse Merger & SPAC Blog

    Going Dark A Real Risk For Reverse Merger Stocks

    Going dark is a real risk for reverse merger stocks, leaving investors in the cold.

    Going Dark – An Alternative to Sarbanes-Oxley Compliance
    by Brad Jacobsen and Chris Scharman

    A client of ours recently learned first hand the significant costs that implementation of the Sarbanes-Oxley Act of 2002 (“SOX”) can have on a small business issuer. In connection with the review of the company’s quarterly report, its chief financial officer unfortunately made an off-hand remark regarding the company’s internal controls and procedures. As a result of such comment, the company’s auditors demanded that the audit committee hire independent counsel and conduct a full review of the company’s financial statements – with a materiality threshold (items requiring documented back-up to be provided to the auditors) of only $2,000. Over the next six weeks, the company incurred in excess of $300,000 in legal and auditing fees (not to mention lost opportunity costs and lost management time), filed its 10-QSB late and was threatened with potential delisting by Nasdaq. The resulting review by the auditors and the audit committee’s independent counsel found no improper or illegal acts by the company and only required that the company make adjustments to its accruals of a net aggregate amount of less than $1,000. The significant cost incurred by the company for this review nullified its entire third quarter profit.

    Like other small business issuers, our client must now seriously consider whether being a public company is in the best interest of its shareholders. As the deadline for compliance with the costly and time-consuming internal controls and procedures requirements for small business issuers nears, many public companies (small and large) are also evaluating the merits of remaining public.

    The primary means for a public company to avoid its obligation to comply with the reporting requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is to “go private.” While going private can be costly and time consuming, many companies are eligible to go private by simply filing a one-page form with the Securities and Exchange Commission (the “SEC”), a Form 15. The filing of the Form 15 without a preceding going private transaction is often referred to as “going dark” and is available to any company, with a few exceptions, that has fewer than 300 shareholders of record. While most public companies have more than 300 individual, or “beneficial,” shareholders, the ability to go dark measures only the shareholders “of record” (not the actual individual shareholders). It is estimated that over 84% of securities of most public companies are held in nominee or street name (not held of record by individual shareholders), therefore making the option to go dark available to many public companies. It should be noted, however, that there have been recent discussions to amend the Exchange Act rules to require that beneficial (actual individual shareholders) and not simply record shareholders be included in such count.

    “Going dark” and “going private” are sometimes mischaracterized and confused with one another. In fact, following a going private transaction (discussed later), an issuer will file a Form 15 in order to go dark. Going dark and going private both eliminate the obligation of an issuer to file periodic financial and other reports with the SEC, terminate the issuer’s obligations to comply with the most onerous provisions of SOX and relieve the issuer of the rules and regulations of its applicable stock exchange on which its shares were listed. However, there are important distinctions between the two, the most notable being that going dark companies usually continue to trade after the date of deregistration on a public market, such as the Pink Sheets. This article briefly discusses going private transactions, but focuses primarily on a company’s decision to go dark.
    The following sets forth certain issues and matters related to the process of becoming a private company (i.e., no longer being required to file reports with the SEC under Sections 12(b), 12(g) or Section 15(d) of the Exchange Act).

    Going Private vs. Going Dark
    There are two distinct approaches to becoming a private company. The first is referred to as “going private,” and the second is referred to as “going dark.”

    (a) Going private generally involves a transaction in which cash is exchanged for stock of a company’s existing public shareholders and is designed to reduce the number of shareholders to below the minimum threshold required to deregister a company’s stock. In fact, the transaction often results in the company’s stock being held by a single party or group of related parties. Such transactions typically include mergers, third party tender offers, reverse stock splits and self-tenders by the company. Those types of transactions are typically costly and require substantial disclosures and filings with the SEC. Going private transactions tend to be scrutinized closely by the SEC (the Schedule 13E-3 filed in connection with a going private transaction will almost certainly be reviewed and commented on by the SEC), as such transactions often include a risk of insider self-dealing. When a controlling stockholder or group of controlling shareholders is involved in the transaction (which is usually the case), the transaction will be reviewed under the “entire fairness” standard, rather than the lesser standard of the business judgment rule. If litigation ensues, which it frequently does in these cases, the board will have to meet this higher standard in defending both its decision to go private and the manner in which the company went private. Such transactions, however, are often favored by shareholders and institutional investors because they require shareholder approval in certain circumstances (mergers, reverse splits) or affirmative actions by the shareholder to tender their shares (which they have the option to do or not do depending on their perceived fairness of the transaction). Upon a merger (or reverse stock split in certain jurisdictions), shareholders will also have appraisal rights.

    (b) Going dark, on the other hand, is significantly simpler but is available only to companies whose number of record shareholders already falls below the minimum requirement for continued public disclosure under the federal securities acts (300 shareholders in the case of most small business issuers).8 Going dark essentially requires only filing a simple form, the Form 15 (also a Form 259 for companies listed on a national securities exchange such as NYSE, AMEX and Nasdaq), which suspends a company’s public status and reporting obligations (described in more detail below). Although the required form and process are relatively simple and inexpensive (see below for further discussion), a company must properly analyze all aspects of going dark to determine if it is appropriate for the company and to ensure compliance with all SEC regulations.

    Reasons to Go Dark
    In 2003 and 2004, approximately 300 U.S. companies deregistered their common stock (for reasons other than in connection with a going private transaction) by simply filing a Form 15 and going dark.

    There are many reasons companies choose to go dark, including the following:
    • reduction in the costs of being a public company, including those costs imposed by Section 404 (Internal Controls and Procedures) of SOX;
    • greater corporate governance flexibility;
    • allowing management to spend less time on compliance and reporting activities and more time on the company’s business;
    • the ability to focus more on long-term financial results and goals rather than short-term market concerns;
    • termination of the requirement to disclose competitive business and other sensitive information;
    • going dark may provide additional cash for distribution to shareholders or other corporate purposes;
    • reduction of potential liability of directors;
    • limitation to the risk of litigation (other than in connection with actually going dark) due to the lower number of shareholders; and
    • termination of the compliance obligations with the proxy rules, insider reporting obligations, periodic reporting requirements and regulation FD, along with their associated legal liability and costs.

    Potential Disadvantages of Going Dark
    Going dark also has potential disadvantages that should be carefully considered, including the following:
    • reduced liquidity of a company’s stock;
    • reduced ability to use a company’s stock as currency in acquisitions;
    • perceived loss of prestige;
    • potential to make stock-based incentive plans less attractive to employees;
    • loss of access to the capital markets to raise money;
    • the risk that a company’s shareholder base will grow above 500 record shareholders requiring the company to again become a public reporting company;
    • not having audited financial statements and complying with certain of the requirements of SOX may make a company less attractive as a potential acquisition target or for future financings;
    • as a result of no longer filing periodic reports, holders desiring to sell pursuant to Rule 144 will usually be required to hold their securities for two years rather than one year;
    • the substantial risk of shareholder litigation regarding the decision to go dark;
    • potential loss of stock value12 and, even if the company maintains trading status on the Pink Sheets,13 lower trading volumes; and
    • no payments are made to shareholders in connection with the loss of liquidity that going dark will bring.
    Shareholder Requirements
    To go dark, a company must have fewer than 300 record shareholders or, where the total assets of the company have not exceeded $10 million on the last day of each of the company’s three most recent fiscal years, 500 record shareholders.14 Upon filing the Form 15, the company’s obligation to file periodic reports is suspended for a 90-day review period (see below for further discussion). If the company’s shareholder base increases above the minimum shareholder number requirement during such period, then the company would again be obligated to begin filing periodic reports. This can happen for reasons outside of a company’s control, such as when a broker that holds company stock in street or nominee name distributes that stock to the beneficial owners, thereby effectively increasing the number of record owners. Following the 90-day period, the company would not again become obligated to file periodic reports unless its shareholder base exceeded the minimum requirement of 500 shareholders that applies to any other private corporation, irrespective of the deregistration.15

    Filing the Form 15 (and Form 25 if Applicable)
    To effectuate the termination of a company’s obligation to comply with the Exchange Act reporting requirement, a company must file a Form 15 with the SEC. A company that engages in a going private transaction must also file a Form 15 in order to terminate its reporting obligations. The Form 15 requires a company to certify that it meets the above-referenced record shareholder number requirements.

    If the company is listed on a national securities exchange (Nasdaq, NYSE, AMEX), it will also need to file a Form 25. Pursuant to Rule 12d2-2 under the Exchange Act, ten days prior to filing the Form 25, the company must first notify the appropriate exchange, issue a press release regarding the imminent filing (filed as a Form 8-K, Item 3.01 “Notice of Delisting...,”) and post a notice on its website. The Form 25 delists the issuer’s shares from the relevant stock exchange. The delisting is effective ten days after the filing (unless the SEC postpones the effectiveness) and withdrawal from Section 12(b) reporting (reporting required by virtue of having a class of securities registered under Section 12(b) of the Exchange Act) by the issuer will take effect 90 days later. As with the Form 15, the requirement to file periodic reports is suspended on filing, although the tender offer and proxy rules will continue to apply to the issuer until the deregistration is effective. Although delisting under the Form 25 will terminate registration under Section 12(b) of the Exchange Act, the company’s SEC reporting obligations are not terminated because the shares will still be registered under Section 12(g). The company will then additionally need to file a Form 15 as described above.

    The going dark/private transaction becomes effective 90 days after the filing of the Form 15 with the SEC, unless the SEC denies the application. Even though a company’s duty to file periodic reports (i.e., Forms 10-K, 10-Q and 8-K, but not necessarily proxy statements or Forms 3, 4 and 5) is suspended immediately upon filing the Form 15 with the SEC, if the SEC denies the Form 15, or it is otherwise withdrawn, then the company is required within 60 days to file all reports that would have been required had the Form 15 not been filed.

    Recently Effective Registration Statements
    A company registered under Section 15(d) of the Securities Act will not be able to suspend reporting during the fiscal year in which a registration statement covering a class of securities is declared effective. Additionally, no issuer may suspend reporting obligations under Section 15(d) unless the company has filed all of its annual and quarterly reports for the shorter of: (a) its most recent three fiscal years and the portion of the current year preceding the filing of the Form 15; or (b) the period since the company became subject to reporting obligations.17

    Approval Procedure and Legal Risks
    (a) Shareholder approval is not required to go dark, but a company’s board of directors must approve and authorize the going dark procedures and the filing of the Form 15. Board approval must be given at a duly-called meeting of the board or, alternatively, by unanimous written consent of the company’s board. In approving a decision to go dark, a board of directors must fulfill its fiduciary duties. The precise duties that apply in the context of going dark are not entirely clear, although it is clear that the board of directors must believe in good faith that going dark is in the best interests of the company and its shareholders and be able to provide reasonable justifications for reaching that conclusion. As previously described, a board’s decision will usually be reviewed under the business judgment rule standard.

    (b) Although there is no affirmative duty to ensure a market in a company’s stock, a shareholder may argue that going dark is a breach of fiduciary duty because shareholders assumed or expected the company’s stock would have greater liquidity and that the company encouraged this perception. To reduce this possibility, companies not already listed on the Pink Sheets should consider taking steps to ensure that their stock will continue to be traded on an active secondary market such as the Pink Sheets. For stocks to be traded on the Pink Sheets, a market maker is required. See Note 13 of this Article for additional information regarding the Pink Sheets.

    Contractual Obligations to Report
    Certain contractual obligations may require a company to keep its stock public and comply with SEC reporting regulations. Those contractual obligations may be found in registration rights agreements, shareholder agreements, credit agreements, loan agreements, indentures or other similar agreements. The company should review all material agreements and charter document provisions to identify any ongoing reporting obligations contained therein, if any.

    A company should, at a minimum, take the following steps if considering going dark:
    • establish a special committee of its board of directors, comprised solely of independent directors, with separate legal, accounting and financial advisors, to consider all options of the company, including other transactions, such as a merger, a preceding “going private” transaction, sale of assets, sale of stock, etc., and to thoroughly analyze the effects going dark would have on the company and its shareholders;
    • make any such determinations sooner rather than later in the event that the Exchange Act rules are changed as recommended to count beneficial, rather than record, shareholders in order to qualify to go dark;
    • consider the impact going dark will have on the company’s ability to raise funds, make acquisitions, obtain financing, attract qualified employees, etc.;
    • carefully review all material agreements and charter document provisions for obligations to remain a public company;
    • keep proper records of all such proceedings;
    • comply with all filing and disclosure requirements with the SEC;
    • analyze the possibility of the shareholder base exceeding the minimum shareholder number requirements in the future;
    • consider announcing its intention to go dark two to eight weeks prior to filing the Form 15 and/or Form 25 in order to give shareholders time to sell their shares prior to going dark; and
    • consider continuing to publish the company’s audited financial statements on its website.
    • An issuer’s decision to “go dark” or “go private” is complex and complicated. Companies must weigh the costs and benefits of being public with the costs and benefits of being private. Although there may be important benefits to going dark, a board should carefully and thoroughly consider the decision with the advice of its legal, accounting and financial advisors.

    Sancon Resources (SRRY) Deregisters Its Shares

    Investors weren’t the only ones fleeing the stock market this year. Companies are also heading for the exits. And a growing number of investors are taking the hit if hundreds of small companies “go dark” or voluntarily deregister their shares. Especially in the US-China RTO space. The result is often a falling share price and investors left in the dark about the firm’s finances and prospects.
    What does it all mean?

    When a firm “goes dark” it deregisters with the Securities and Exchange Commission (SEC) and delists its shares. Deregistered firms are no longer required to make SEC filings such as annual reports, proxies, 10-Ks, 10-Qs and other important documents. And they’re no longer required to have annual meetings or elect outside directors

    Form 15

    Friday, November 11, 2011

    China Marine Reports Third Quarter 2011 Financial Results

    Press Release
    Financial Summary
    Third Quarter 201 1 Results

    Q3 201 1
    Q3 20 10
    Net Sales
    $ 30.9 million
    $ 22.7 million
    +36. 4 %
    Gross Profit
    $ 7.7 million
    $ 8.3 million
    - 7. 5 %
    Net Income
    $ 0.8 million
    $ 4.2 million
    - 80. 6 %
    Diluted EPS *
    $ 0. 03
    $ 0. 14
    - 78.6 %
    Adjusted Net Income* *
    $ 2. 0 million
    $ 4.8 million
    - 5 7 . 1 %
    Adjusted Diluted EPS* *
    $ 0. 0 7
    $ 0. 16
    - 5 6 . 3 %

    Nine Month Results
    Nine M onths ended September 30 ,

    YTD 2011
    YTD 2010
    Net Sales
    $ 79.6 million
    $ 69.9 million
    + 1 4 . 0 %
    Gross Profit
    $ 24.5 million
    $ 25.1 million
    - 2. 7 %
    Net Income
    $ 7.4 million
    $ 14.9 million
    - 50. 1 %
    Diluted EPS
    $0. 2 5
    $0. 5 1
    - 51.0 %
    Adjusted Net Income*
    $ 10. 4 million
    $ 16. 7 million
    - 3 7 . 2 %
    Adjusted Diluted EPS*
    $ 0. 36
    $0. 5 7
    - 3 6 . 8 %

    "I was pleased to see a stabilization in our snackfood business since the middle of the second quarter and our growth of snackfood sales and Hi-Power through our third quarter," exclaimed Mr. Pengfei Liu , Chairman and CEO of China Marine . "As a result of increased marketing support and food safety advertising for Mingxiang® foods, our seafood snack sales grew by 7.6% from the second to the third quarter, with sales in Fujian Province growing by 16.9%. "Hi-Power" sales were robust, signifying that our investments in advertising and marketing have yielded positive results. As we see more reorders and expect to selectively add new distributors, we believe "Hi-Power" sales are poised to maintain very solid growth into 2012." 

    2011 Guidance:
    Based on current market demand, Management is reiterating full year 2011 financial guidance as follows:  

    % Change vs 2010
    Consolidated Revenues:
    $130+ million
    + 5.9 %
    Consolidated Adjusted Net Income:
    $14.8 million
    -37 .0 %
    Adjusted Diluted EPS:
    $ 0. 50
    -3 8 .3 %

    Thursday, November 10, 2011

    SEC Tightens Rules On Reverse Mergers

    Article FT

    The Securities and Exchange Commission has approved new rules proposed by stock exchanges to make it harder for private companies to go public by merging with a shell company, a response to concerns that Chinese groups were using such deals to skirt accounting rules.

    Reverse mergers will now require a “seasoning period” of one year during which companies will only be able to trade in over-the-counter markets but will still have to file financial statements according to listed-company standards.

    They will also have to meet a minimum share price requirement of a $4 closing price for 30 of the 60 days before applying to list with an exchange.

    In the past, the exchanges said, promoters of such deals were able artificially to inflate prices to meet standards.
    “We believe the more rigorous standards for reverse mergers will benefit investors and issuers, and we applaud the SEC for its thoughtful attention and leadership on this important matter,” the NYSE said in a statement.

    Longwei Petroleum Announces Financial Results for First Quarter Fiscal 2012

    Press Release

    "We are pleased to report another quarter of strong profitability," stated Mr. Cai Yongjun, Chairman and CEO of Longwei. "We carefully managed our cash flow to take advantage of declining international oil prices during the quarter by building our inventory position, while balancing the funding required to complete our purchase of the Huajie Petroleum assets. The Huajie Petroleum assets will add another 100,000 metric tons to our storage capacity and we believe will better position us to serve China's rising demand for petroleum products. By remaining focused on executing our growth strategy, we expect to deliver continued shareholder value improvement in fiscal 2012."

    Thursday, November 3, 2011

    Tuesday, November 1, 2011

    Fushi Copperweld: Compelling Upside With Very Limited Downside

    Article Seeking Alpha

    Fushi Copper MBO candidate !!!!

    Fraud At China Organic Agriculture?

    No More Grapes For You

    Monday, October 31, 2011, 7:00 am
    Lender puts Bellisimo Vineyard into receivership
    China Organic purchased estate, vineyards in 2008 for $14.75 million

    By Jeff Quackenbush, Business Journal Staff Reporter 

    The 5,300-square-foot main house and guest houses have had solid bookings, according to local real estate agents. The property also has a 53-foot-long pool overlooking the vineyard.

    SONOMA COUNTY — The 153-acre Bellisimo Vineyard estate Sonoma County’s Knights Valley attracted attention in early 2008 when a publicly traded Chinese agriculture company purchased it for $14.75 million more than three years ago, but it passed quietly into receivership as this harvest was about to begin.

    China Organic Agriculture, Inc., based in northeast China, acquired the luxurious estate and 75 acres of vines at 8322 Franz Valley Road in February 2008, announced plans to import wine to that continent and took a majority stake in a wine marketing company in China. But on Sept. 14 of this year, an affiliate of Iowa-based insurer Transamerica, which financed $8.52 million of the purchase price, filed a notice of default, claiming $508,374 in missed monthly payments and other costs since June, according to public records. A receiver was appointed for the property on Sept. 20.

    The phone number for China Organic’s Los Angeles office has been disconnected, and the company website was removed in the past month. Attempts to reach company officials by email were unsuccessful. The New York-based attorney for the company listed in the most recent federal securities regulatory filings from May and June said he is no longer representing China Organic.

    The appointed receiver, St. Helena-based veteran wine industry turnaround, bankruptcy, management and marketing adviser John Hawkins, did not return calls for comment.

    Default and receivership actions surprised some wine industry mergers-and-acquisitions experts who have been working with a new wave of foreign investors, including a number based in China.

    “I’ve never heard of a Chinese investment company having problems in this area,” said Mario Zepponi of Zepponi & Company in Santa Rosa.

    For example, Goldin Financial Holdings, a Hong Kong-based publicly traded company, purchased the 40-acre Sloan Family Winery property in Rutherford on June 10 for $40 million and announced plans to build a $30 million wine distribution center in China. Zhang’s Winery Inc. acquired the 40-plus-acre Lupine Hill Vineyard in Napa Valley in April for $3 million.

    A number of well-publicized problems with the financial backing of China-based investors are giving some financiers pause. Allan Hemphill, a longtime wine industry consultant and property agent as well as current chairman of Summit State Bank, said the lending community is starting to raise the collateral requirements for foreign investors beyond just securing financing by the property itself.

    “If the money is in China, you can’t get the money,” he said. “I know of some lenders that are looking at lending to Chinese companies now are looking for large compensating balances or a source income on this side of the water,” he said.

    The Bellisimo Vineyard lender moved quickly to take control of the property, according to documents. In July, a letter went to China Organic about a pending default notice and accelerated loan maturity for the $7.87 million outstanding balance and pursuing receivership in a Sonoma County court a month later. On Sept. 20, a Sonoma County judge granted receivership under Mr. Hawkins. His Realty Capital Solutions advisory represented unsecured creditors in the massive Legacy Estates bankruptcy and was the receiver for Kirkland winery near Napa.

    Real estate agents involved with the 2008 sale of Bellisimo Vineyard said they have talked with Mr. Hawkins about some interests from buyers for the property. He was brought in so quickly to ensure revenue from the pending harvest of 250 tons of grapes on the property, according to Will Densenberger and Mark McLaughlin of Pacific Union Real Estate — Christies’s Great Estates.

    “There was substantial income ready to come in,” Mr. Densenberger said.

    Over the years, the grapes have been sold to Dry Creek Vineyard, Clos Du Bois and more recently Ledson Winery and Gallo Family Vineyards. In December 2007, Steve Ledson filed to trademark the Bellisimo
     name and was granted registration two years later.

    A class-action lawsuit against China Organic was filed in federal district court in December 2008, claiming the company’s reports and press releases misled investors about the value of ventures, including the Bellisimo acquisition. The company settled the suit a year ago for $300,000.

    The company’s stock price in Pink Sheets trading late last week was 3 cents a share. The company was founded in 2005 and went public in 2007 in a reverse merger.

    In July I had an email conversation with a lady called Jennifer Yang from China Organic. I asked when we could get some updates. The answer you see below.
    Firstly, the management are negotiating with the candidates and present subsidiaries about the future cooperation possibilities and manners. As per the audit issue. I can only say sorry that we cannot control or order the auditor. We cannot make ourselves clear why on earth they refuse to sign the financials off until now. The management keep on communicating with them and their response is to wait and see. They also haven't signed off their other two companies' financials yet.
    We still need your patience anyway.