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.

Timing

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.

Recommendations:

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

China Marine Reports Third Quarter 2011 Financial Results

Press Release
Financial Summary

Third Quarter 201 1 Results
	Q3 201 1	Q3 20 10	CHANGE
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	CHANGE
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:  

	Projections	% 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 %

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."

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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.

Best,

Jennifer

 

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Stock Trader's Almanac 2012

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Alerts you to little-known market patterns and tendencies to help forecast market trends with accuracy and confidence. An indispensable annual resource, trusted for over 40 years by traders and investors. The data in the Almanac is some of the best in the business. For its wealth of information and the authority of its sources, the Stock Trader's Almanac stands alone as the guide to intelligent investing.

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China To Tackle Business Fraud, Fake Products and Applications

Last Friday China’s official news agency Xinhua reported a statement. The statement was released after a State Council executive meeting chaired by Premier Wen Jiabao. It says the following,

 “China needs to create an honest and faithful society.”

The State Council has concluded that, in Chinese society, “lack of credibility remains a prominent problem.” It listed business fraud, manufacture and sale of fake products, fraudulent applications and claims, and improper academic behavior are some of the key problems.

A new plan is in place, however, to establish a nationwide social credit system over the next five years, also known as the 12th Five-Year Plan period (2011-2015). This system will keep record of all citizens’ credit history, and will include establishing credit ratings for industries and government departments. The government will share credit rating information with the whole country and promote the use of credited products. At the same time, the government will work on improving its own credibility through increased transparency and promoting education and social honesty.

Interesting, but I think the Chinese culture nowadays depends to much on Cai (wealth, money), so people get greedy. While in the Western world you see now that money (greed) becomes less and less important. Our society is having a cultural change with the Occupy Movement.

Chinese people have to focus more on moral standards (heart, kindness,mind, etc). Help people who suffer, be social.

China Quizzes Audit Giants On Documents

Article Reuters

China's financial regulators have asked the world's biggest audit firms to urgently review their work on U.S.-listed Chinese companies and give details on information they may have provided to overseas regulators, two sources told Reuters.

Rodman&Renshaw Dropping Coverage on US-listed China Stocks

Press Release

ChinaCast Education Corporation Provides Business Update Summary and Reiterates Annual Guidance

Press Release

Ron Chan, Chairman and CEO of ChinaCast Education explained, "It is our intention to always maintain full transparency with our shareholders. Since we know not everyone was able to participate in the call last Thursday, we took the proactive approach to publicly disclose the material information discussed. Our business remains strong and we look forward to providing our shareholders further updates to our business when we report our third quarter earnings in early November."

New Interesting China Books

Eclipse: Living in the Shadow of China's Economic Dominance



By most accounts, China has quickly grown into the second largest economy in the world. In this controversial new book, Subramanian argues that China has already become the most economically dominant country in the world in terms of wealth, trade and finance. Its dominance and eclipsing of US global economic power is more imminent, more broad-based and larger in magnitude than anyone has anticipated. Subramanian compares the economic dominance of China with that of the two previous economic superpowers, the United States and the United Kingdom, and highlights similarities and diff erences. One corollary is that the fundamentals are strong for the Chinese currency to replace the dollar as the world's reserve currency. The final chapter forecasts how the international economic system is likely to evolve as a result of Chinese dominance.

A Heart for Freedom: The Remarkable Journey of a Young Dissident, Her Daring Escape, and Her Quest to Free China's Daughters



The dramatic and fascinating story of Chai Ling, commander-in-chief of the student protesters at Tiananmen Square and witness to the massacre of thousands of Chinese civilians. Risking imprisonment and possible death for her leadership role in the student democracy movement, she was on the run in China for ten months while being hunted by the authorities. She eventually escaped to the U.S., completed her education at Princeton and Harvard, found true love, and became a highly successful entrepreneur. But her desperate quest for freedom, purpose, and peace—which she had sought in turn through academic achievement, romantic love, political activism, and career success—was never satisfied until she had an unexpected encounter with a formerly forbidden faith. Her newfound passion for God led to her life’s greatest mission: Fighting for the lives and rights of young girls in China.

HR Due Diligence: Mergers and acquisitions in China (Chandos Asian Studies) [Paperback]



This book examines how to conduct due diligence on mergers and acquisitions for organisations in China written from a management perspective. Aimed primarily at practitioners within the field of International Human Resource Management, it highlights models that appear straightforward and yet are susceptible to oversights and failings. It examines the roles of human resource practitioners from when a target company is identified for mergers or acquisitions, through to assessing its risks. The book incorporates adopting human resource management strategies under differing business conditions, negotiating to secure the deal and integrating the new business unit to the merged or acquired organization. This title gives a fantastically detailed analysis of due diligence, capturing the nuances of the Chinese way of doing things and how this affects a business environment.

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Longwei Petroleum Withdraws $50 Million Shelf Registration

Press Release

Mr. Cai Yongjun, Chairman and CEO of Longwei, commented, "We are withdrawing the shelf registration to mitigate investor concerns regarding the issuance of securities at the current share price levels. Our operating cash flow is sufficient to fund the total RMB 700 million (approximately $108.3 million USD) purchase price for the assets of Huajie Petroleum, and our balance sheet and operating results remain strong as we head into our second fiscal quarter."

As of June 30, 2011, Longwei had paid a RMB 550 million (approximately $85.1 million USD) deposit toward the total purchase price of RMB 700 million (approximately $108.3 million USD) for the purchase of the assets of Huajie Petroleum Co., Ltd., a fuel storage depot in northern Shanxi Province with a 100,000-metric-ton storage capacity.

New Energy Systems Group Introduced 3 New Consumer Products at Macworld Asia 2011

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Sino Agro Food Could Be A Great Opportunity

Pink Sheet company Sino Agro Food could be a great play if US-listed China stocks are in favour again.

On Friday they announced that the company has become among the largest developer of modern Recirculating Aquaculture Systems (“RAS”) in China based on completed and pending projects. Sino Agro Food, Inc. (OTC Markets: SIAF.PK), is an emerging integrated, diversified agriculture technology and organic food company with subsidiaries operating in China.

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Man Shing Exceeds 2011 Fiscal Year End Guidance With $9 Million in Net Income or $0.21 EPS

HONG KONG--(Marketwire -09/28/11)- Man Shing Agricultural Holdings, Inc. (OTC.BB: MSAH.OB - News) (OTCQB: MSAH.OB - News) (" Man Shing" the "Company," "we," "us," or "our"), located in the Shandong Province and one of the largest Chinese exporters of high quality, fresh ginger to Japan, the United Kingdom, and the Netherlands, today announced the financial results for the fiscal year ending June 30, 2011. Net income for the 2011 fiscal year totaled $9 million, or basic earnings per share of $0.21, exceeding guidance of $8.8 million.
Financial Highlights for the Fiscal Year Ended June 30, 2011

• Revenue increased 43.8% year-over-year to $32.3 million;
• Gross profit increased 61.8% to $13.6 million; gross margin improved to 42.2%;
• Net income increased 72.1% to $9 million;
• Basic earnings per share of $0.21 based on 42.3 million weighted average shares outstanding;
• Cash and cash equivalents totaled $7.1 million;
• Working capital increased year-over-year by $13.3 million to $23.6 million.

Operational Highlights for the Fiscal Year Ended June 30, 2011

• Successfully leased an additional 2.4 million square meters of farmland in March 2011, increasing total farmland by approximately 45% to 7.7 million square meters.
• Focused on producing high quality ginger which provides several important advantages including a higher price point and increased customer confidence.
• Appointed Mr. Xuguang Qiao and Mr. Kun Xu to the Board of Directors, each of whom have extensive experience in the agricultural industry.
• Approximately 3.4 million preferred shares outstanding were canceled.

Mr. Shili Liu, Chairman and Chief Executive Officer of Man Shing, stated, "We are pleased that we generated $9 million in net income and exceed our guidance. Additionally, we successfully increased our land capacity by 45%, from 5.3 million to 7.7 million square meters, allowing us to significantly increase our production capacity for the current fiscal year. We completed planting on all 7.7 million square meters in April and will begin to harvest the ginger by October 2011. The uniqueness of our business model is apparent as we increase our land capacity and are able to continually implement our quality standards without incurring additional expenses. This enabled us to increase our gross margins year over year from 37.5% in fiscal 2010 to 42.2% in fiscal 2011. Our company is well capitalized and as of June 30, 2011, we had approximately $7.1 million in cash which will provide us with sufficient capital to fuel the future growth of the Company."
Financial results for the twelve months ended June 30, 2011

 

----------------------------------------------------------------------------
Year to Date Financials (USD) (unaudited)
----------------------------------------------------------------------------
Twelve months ended June 30,          2011            2010         CHANGE
----------------------------------------------------------------------------
Revenue                           $32.3 million   $22.4 million    +43.8%
----------------------------------------------------------------------------
Gross Profit                      $13.6 million   $8.4 million     +61.8%
----------------------------------------------------------------------------
Gross Profit Margin                   42.2%           37.5%        +12.5%
----------------------------------------------------------------------------
Net Income                         $9 million     $5.2 million     +72.1%
----------------------------------------------------------------------------
Basic EPS*                            $0.21           $0.18        +16.7%
----------------------------------------------------------------------------
Diluted EPS **                        $0.15           $0.07        +114.3%
----------------------------------------------------------------------------
* Based on 42.3 million and 28.8 million shares outstanding for fiscal 2011
and 2010, respectively.
** Based on 59.6 million and 72.3 million fully diluted shares outstanding
for fiscal 2011 and 2010, respectively.
----------------------------------------------------------------------------

An older article about some short sellers - The 'Shorts' Who Popped a China Bubble

SPECIAL REPORT - The 'Shorts' Who Popped a China Bubble

Article Yahoo

RPT-Documents shed light on pitfalls of China audits

Article Reuters

China Marine Group Provides Update on Seafood Snacks Business

China Marine Group Provides Update on Seafood Snacks Business

print

China Marine Food Grp. Limited Common Stock (AMEX:CMFO) Intraday Stock Chart Today : Monday 26 September 2011 China Marine Food Group Limited (NYSE Amex: CMFO) ("China Marine" or the "Company"), a China-based manufacturer of Mingxiang(R) seafood-based snack foods, "Hi-Power" marine algae-based beverages, and distributor of frozen marine catch, today provided an update on its Mingxiang(R)-branded seafood snacks business. The Company reported sales in August of $4.6 million, an approximate 4.0% increase from $4.4 million in the previous month. Beginning in the second quarter of 2011, sales of the Company's seafood snacks were negatively impacted by consumers' concerns stemming from the nuclear disaster in Japan and the safety of ocean-based products. China Marine has taken several actions to alleviate those concerns including increased advertising and more frequent communications with its distribution partners. Sales have stabilized since June, with month-over-month data showing positive sales trends and a return of consumer confidence in July and August. The Company is also in discussions with prospective distributors in new and existing regions sales territories. Management is committed to expanding distribution to untapped cities and provinces as a long term goal. "We are pleased to report our seafood snack food sales have steadily improved since June," stated Chairman and CEO, Mr. Pengfei Liu. "Because we source our fish from several local areas completely unaffected by the disaster in Japan, we remain confident in the long-term health of our business and anticipate a full recovery of sales momentum for Mingxiang(R)-branded seafood snack foods. I am also encouraged with the progress we have made with our seaweed extract 'Hi-Power' beverages. Through effective in-store promotions and multimedia advertising campaigns, more consumers are buying our healthy beverages." About China Marine China Marine Food Group Ltd. is a food and beverage manufacturer of Mingxiang(R) seafood-based snack foods and "Hi-Power" marine algae-based health drinks, and a wholesaler of frozen marine catch in five provinces in the PRC. Founded in 1994, China Marine has grown steadily and positioned its Mingxiang(R) brand as a category leader in 3,200 retail food sales points and 15,000 beverage sales points in China. The Company has received "The Famous Brand" and "Green Food" awards. Located in Fujian province, it is one of the largest coastal provinces in the PRC and a vital navigation hub between the East China Sea and the South China Sea. The Company is committed to the highest standard of quality control with the ISO9001, ISO14001, HACCP certification and EU export registration.

The Harbin Land Shuffle - A Classic Bait and Switch

Article Geoinvesting

26 Chinese Firms Delisted in 2011; More are Likely to Follow

Article Ichinastock

VIE-Stucture China Companies Under Threat

Article CNBC

China Nutrifruit: Matching Filings Make A Great First Impression

Article Seeking Alpha

Questions About Silvercorp. (NYSE: SVM, TSX: SVM CN)

An anonymous Whistle Blower send letters all over the place to manipulate the share price.

Published Research on ChinaStockWatch

China Security & Surveillance (CSR) Voted In Favor For Merger

Wednesday, September 14, 2011

Going Private News

SHENZHEN, China, September 14, 2011 /PRNewswire-Asia/ -- China Security & Surveillance Technology, Inc. ("CSST" or the "Company") (NYSE:CSR), a leading integrated surveillance and safety solutions provider in the P.R.C., today announced that, at the annual meeting of CSST stockholders held earlier today, the Company's stockholders voted, among other things, in favor of the proposal to adopt the previously announced Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"), dated as of May 3, 2011, by and among Rightmark Holdings Limited, a British Virgin Islands company ("Parent"), Rightmark Merger Sub Limited, a Delaware corporation and a wholly owned, direct subsidiary of Parent ("Merger Sub"), the Company and Mr. Guoshen Tu (solely for the purpose of Section 6.15 of the Merger Agreement), pursuant to which Merger Sub will be merged with and into the Company with the Company surviving the merger as a wholly owned subsidiary of Parent. Approximately 84.98% of the Company's total outstanding shares of common stock voted in person or by proxy at today's annual meeting. Approximately 69.31% of the shares outstanding were voted in favor of the proposal to adopt the Merger Agreement. The proposal to adopt the Merger Agreement was also approved by approximately 59.91% of the shares of common stock outstanding held by unaffiliated stockholders, satisfying the "majority of the minority" voting requirement set forth in the Merger Agreement.

The parties currently expect to complete the merger in September 2011, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement. If completed, the proposed merger would result in the Company becoming a privately held company and its common stock would no longer be listed on the New York Stock Exchange.

For more on this subject read the article US-Listed China Stocks Vulnerable To MBO's

Hit Piece Lihua International Investors: Do You Believe In Miracles?

Article Seeking Alpha

Nowadays a lot of writers, analysts etc see so many ghosts and think that every US-listed China company is a fraud. Plain BS of course!

Longwei Petroleum Announces Financial Results for Fiscal 2011

Fiscal Year 2011 Financial Highlights: (Year-over-Year Results)

• Revenues increased 40% to $481.6 million, compared with $343.2 million.
• Operating Income increased 42% to $91.7 million, compared with $64.4 million.
• Non-GAAP* Net Income Attributable to Common Shareholders increased 44% to $68.0 million, compared to $47.2 million.
• Non-GAAP* Basic Earnings per Share ("EPS") increased to $0.69 per share and Diluted EPS to $0.67 per share, compared to $0.55 per share basic and $0.50 diluted EPS for the fiscal year ended June 30, 2010.
• GAAP Net Income Attributable to Common Shareholders increased 52% to $62.5 million, compared with $41.1 million.
• Basic Earnings per Share ("EPS") increased to $0.64 per share and Diluted EPS to $0.61 per share, compared to $0.48 per share basic and $0.43 diluted EPS for the fiscal year ended June 30, 2010.
• The Company's Taiyuan and Gujiao fuel storage facilities contributed revenues of $269.7 million and $188.3 million, respectively. Agency fees contributed $23.5 million to revenues.
• Stockholders' Equity increased $83.9 million to $261.7 million, compared with $177.8 million

Press Release

IBD-article on Short-selling websites

Short-selling websites are hardly disinterested parties, but may be providing a Darwinian service by weeding out “phony” Chinese firms seeking to dupe investors. China’s fast-growing economy has created many great opportunities for investors — and hucksters. With global accounting giants barred from directly auditing U.S.-listed Chinese firms, reliable financials are hard to find.

Into this void, short-seller sites such as Alfredlittle, Citron Research and Muddywaters have seized on alleged irregularities at several firms. They include China Media Express, Deer Consumer Products and Longtop Financial Technologies. The allegations have prompted SEC investigations, delistings (including Longtop) and trading halts involving more than a dozen China-based firms since March.

IBD recently conducted email interviews with the people behind these short-seller sites. An examination of their data and techniques hints that much of what they publish may be true. Yet it’s hard to verify research in China without boots on the ground.

How do short sites gather information in a nation thousands of miles from the U.S., and can you believe what they say?
Alfredlittle.com says it uses local analysts. They are said to comb public documents in Chinese. They also pose as customers and carry out video surveillance. And they compare SEC filings with data on file at China’s equivalent to the SEC. “Very often what is reported to the U.S. exchanges is different to what is reported to local China bureaus,” alfredlittle.com editor Simon Moore said via email. Local probers are said to be paid on a per-project basis based on the work, difficulty or danger involved. They get bonuses if their findings hit home.

Deserved Profits?

Alfredlittle.com doesn’t hide the fact that researchers profit from their data, including short selling the companies probed. “The reports are the product of many people’s labor and they justly deserve to profit,” Moore said.

But short sites also have critics.

“They carpet-bomb the company with allegations all over the place,” said Mitchell Nussbaum, chair of New York law firm Loeb & Loeb’s emerging-markets practice, which represents Chinese firms in the U.S. Nussbaum says if some claims haven’t been disproven it’s because SEC findings or independent probes are pending. Alfred Little, via email, defended his work: “No allegations made on the site have ever been disproven by the companies targeted.”

Little advised against investing in Chinese firms with more than one or two of 12 warning signs in a list published on blogger site seekingalpha.com. They include:

• Reverse mergers with high short interest.  
• Unnecessary dilutive share issuances when the company has excess cash or production capacity.  
• Amazing revenue and earnings growth relative to peers.  
• Weak balance sheets with large receivables vs. sales and unwillingness to disclose customer, distributor or supplier details.  
• Weak governance indicated by high CFO and auditor turnover and lack of involvement of truly independent directors.

 On the flip side, Alfred Little’s identity is shrouded in mystery. Some say Little is a pseudonym or that his findings represent the work of a group. Little communicated with IBD via emails or representatives.

Muddy Waters founder Carson Block uses investigative techniques similar to Alfredlittle.com.

“Start with an understanding of the movement of the target company’s product or service through the supply chain,” said Block, who appears on CNBC.

Block says shady Chinese companies often create phony suppliers or customers because they know these “counterparties” aren’t going to be audited.

Case in point: Muddy Waters in February alleged that China Media Express, which sells ads in Chinese buses, had less than half the buses it said were in its network. China Media denied it. But its shares tanked, its U.S. auditor quit and Nasdaq delisted it in May.

Locavesting, the Revolution in local investing and how to profit from it

My bookreview about
Locavesting, the Revolution in local investing and how to profit from it



The book Locavesting is an interesting book about alternative ways of investing. The traditional funding sources for small businesses - savings, friends and family, venture capital, and bank credit and loans - have become scarce since the financial crisis.

Today a lot of people, are buying local and eating local, but we are still not investing local. Financial markets have evolved to serve big business (corporates), at least it seems when you look to the numbers. Of all the trillions of dollars flashing through the financial markets, less than 1% goes to productive use. Meaning poviding capital to companies that will use it to hire, expand or develop new products. More than 99% of the money is sucked into trading and speculation.

Small businesses create three out of four jobs and generate half of GDP, but each year a staggering amount of subsidies, grants and tax breaks go to the most profitable and politically connected corporations with little economic or social pay off. In our 21st century financial system we can conclude that there is a massive misallocation of capital away from its most productive uses.

The book Locainvesting offers and explains new ways of investing from crowdfunding to direct public offering (DPO). Did you hear about the story of Cops&Doughnuts, nine cops in Michigan that saved a 111-year old bakery. Just read the book and act accordingly!

Another book that I didn't read but could be interesting is

Buying 5 Stocks That Are Consumer Trending And Will Profit From China

Article Seeking Alpha

Lihua International Price Target $ 20

Research Report Global Hunter Securities

TechFaith Launching Android Based Motion Gaming Solutions

Press Release

China to help firms investing abroad

By Ding Qingfen (China Daily)

XIAMEN, Fujian - Chinese firms need a more "open and convenient" global investment climate and the government will introduce measures to help companies invest internationally, the country's top commerce official said on Thursday.

The government will launch more measures to aid companies investing overseas and create a win-win situation for both China and other countries, Minister of Commerce Chen Deming said at the International Investment Forum 2011 in Xiamen, Fujian province.

The forum is part of the five-day 15th China International Fair for Investment & Trade that started on Wednesday.

"Some developed nations have tried to block Chinese investment citing national security," Chen said. "This does not help efforts to combat the global financial crisis."

One prime example of this involved China's leading telecom provider, Huawei. The company was blocked from a series of overseas deals, in 2008 and 2010, amid concerns in the US over national security.

Despite obstacles, China overtook Japan and the United Kingdom in 2010 as the fifth-largest overseas investor.

"China's outbound direct investment (ODI) has created huge benefits for both China and other nations," Chen said.

By the end of 2010, China's total ODI was $317.2 billion, the 17th largest, with investments in 178 nations and regions.

Even with political challenges, there are growing opportunities for Chinese companies to invest overseas, officials and experts believe.

Foreign officials attending the fair said that they welcomed Chinese investment.

"China has become the largest development partner and an important investor in Sri Lanka, especially in infrastructure projects," D.M. Jayaratne, Sri Lankan prime minister, said.

"There are plenty of opportunities and areas that we can exploit for our mutual benefit.

"Sri Lanka offers a wide variety of investment opportunities and incentives to foreign companies."

By the end of 2010, the Asia-Pacific region and Latin America were the top two destinations for China's ODI. But the EU and Oceania witnessed the most rapid growth in recent years.

Fonotoe Nuafesili Pierre Lauofo, Samoa's deputy prime minister and minister for commerce, industry and labor, said that "Samoa continues to enjoy a cooperative arrangement with China and is keen on strengthening trade and investment relations".

Officials from the commerce ministry predicted that China's ODI will exceed foreign direct investment (FDI) in three years.

"We will provide more effective support in terms of policy and service to Chinese companies," Chen said.

China is studying and exploring new ways to broaden the use of its foreign exchange reserves, and looking at channels and methods to expand cross-border yuan flows.

"Although China is facing new challenges, including higher labor costs, China's foreign investment environment will continue to remain competitive in the long term thanks to good infrastructure and labor resources," Chen said.

FDI expanded to $114.7 billion in 2010 from $46.9 billion in 2001, and China has opened its manufacturing sectors and more than 100 service sectors since 2001.

Attracting FDI was cited as a priority in the 12th Five-Year Plan (2011-2015).

"We will further improve the investment environment to provide equal treatment for companies at home and abroad, and come up with innovative ways of attracting FDI and widening the area for FDI," Chen said.

Coca-Cola announced in August that it will expand its investment, worth $4 billion, in China over the next three years on top of the $3 billion investment announced in 2009.

"New factors are boosting the competitiveness of China's investment climate, including world-class clusters of industry in coastal regions, a talented and educated workforce and the government's steps to protect intellectual property rights," said Hisao Sakuta, chairman of Omron, a leading electronics manufacturer.

"China is well on track to transforming itself into the world's quality manufacturing powerhouse from a low-cost processing and assembling base."

SEC files enforcement action against Deloitte in China

Enforcement Action

SEC Files Subpoena Enforcement Action Against Deloitte & Touche in Shanghai

Securities and Exchange Commission sent this bulletin at 09/08/2011 02:19 PM EDT

You are subscribed to Press Releases from the Securities Exchange Commission. A new press release is now available.

SEC Files Subpoena Enforcement Action Against Deloitte & Touche in Shanghai

The Securities and Exchange Commission today filed a subpoena enforcement action against Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to the SEC’s investigation into possible fraud by the Shanghai-based public accounting firm’s longtime client Longtop Financial Technologies Limited.

Harbin Electric Refutes Latest Anonymous Blog Post and Unfounded Market Rumors

Press Release

When land use rights issues are common practice in China, why short sellers fight against it?

Just let it GO, you can't change a culture!

Chinese Government Officials Confirm HRBN and DEER Committed Multi-Million Dollar Land Fraud -- Time for U.S. Regulators to Act

Article short seller Alfred Little

The Era of Uncertainty: Global Investment Strategies for Inflation, Deflation, and the Middle Ground

From the Inside Flap
The economic crisis has placed the business cycle back in the spotlight, but as individual investors and financial professionals start the arduous task of portfolio building and rebuilding, the greatest danger they face is relying too much on the past for guidance when the future may look very different.

No one can say for certain what our economic future will look like. What investors can do is prepare. The Era of Uncertainty provides a new way of thinking about investing in a dynamic, macro-driven world, examining the importance of macroeconomic perspectives in a global economy rife with instability. This book presents a framework for using big-picture investment strategies to profit from the interwoven inflationary and deflationary scenarios likely to evolve in the coming years.

Written by FranÇois Trahan, former Chief Investment Strategist of Bear Stearns and one of the first strategists to warn about the housing bubble before it burst, and Katherine Krantz of Miracle Mile Advisors, The Era of Uncertainty addresses the likely causes and consequences of each possible scenario, offering investment strategies to profit from each potential outcome. Drawing on experiences derived from previous credit-driven deleveraging cycles and containing insights into the financial future, the book marks an important step for macroeconomics in the post-recession financial world.

A practical resource for anyone who intends to succeed in today's environment, The Era of Uncertainty shows what it will take to make it in such a dramatically altered market, and how to incorporate macro strategies into everyday investment endeavors in order to achieve lasting success, no matter what lies ahead.

Coca-Cola to spur per capita sales in China

Article China Daily

A New Way Of Investing, Appbackr is the App Marketplace for Investors

Tired of losing money on the Stock Exchange,  try a shot at Appbackr

Do you want to be an angel investor or venture capitalist in interesting applications for iPhone or  Android operation systems, try

Appbackr was launched in October 2010. appbackr is a wholesale marketplace for applications. App developers find investors (backrs, wholesale buyers) to fund applications and drive sales.
Of cours the return on the investor’s investment depends on whether or not the app sells well. This sounds risky for the investor, but if you screen on the success rate of the developer, social media impact of the developer (followers, etc.) and some other metrics you have a great chance of success that the app you are funding is not a one trick pony. Also the fact that you can promote yourself the app you are backing by several ways makes it a worthly investment.

appbackr is a wholesale marketplace designed to help developers and app investors (called backrs) by enabling them to connect and transact with one another. The investor (backr) purchases a quantity of apps at a wholesale price, and gets the difference when the app sells in the story. Basically you make money on the spread between the wholesale and retail price.

It’s essentially a three step process:

1. Developer posts their app in the marketplace. The wholesale price is based upon the retail price and whether the product already exists today or is in development. The developer is not sellingproviding an ongoing right to sell copies of an app, only the right to promote the number of app instances purchased via the appbackr marketplace.
2. A “backr” purchases instances of the app at a wholesale price, and then promotes them in whatever means they choose. At the moment of initial wholesale purchase the developer receives a cut of the purchase price immediately.
3. As apps are sold, the backr earns the bulk of the profit, while the developer receives an additional payment per app as they sell. Backrs are credited with sales in one of two ways. If a developer chooses sequential payment, the first buyer of apps is credited with the first sales on the Apple or Android markets. When their quantity of apps is sold, the second buyer is credited with the next sales and so forth. The other payment method gives backrs a percentage of sales on the Apple and Android markets based upon the percentage of app instances that they purchased divided by the quantity purchased by all backrs.

Here’s the very clear video intro:


Developers who participate in appbackr must be a registered Apple and/or Android developer.
For the app developer, the marketplace provides immediate revenue to pay salaries and fund app improvements or additional apps. It also takes the “risk” of marketing activity out of the question for them. Because the people who make apps are generally NOT marketers, this risk reduction is a serious benefit.

Because a concept app may not have a set launch date if it's still in development, the potential return to the backr is much higher. Concept apps have a potential profit of 54% while backing a finished app that already is live and selling has a potential profit of 26%.

A nice way of diversification in an investment portfolio is this new alternative way of investing.

Stung, Chinese Firms Now Look to Go Private

Article Wall Street Journal