Seeking Alpha
, GeoInvesting (871 clicks)
Long/short equity, special situations, growth, small-cap
Profile| Send Message|
( followers)  

Summary

  • China BAK Battery made false and misleading statements in its July 28, 2014 press release.
  • We hope that the Nasdaq will not take CBAK management’s statements lightly.
  • The company has still not addressed the fact that it just lost its primary revenue-generating asset to foreclosure.

For 3 years, firms like GeoInvesting have been exposing misrepresentations made by U.S. listed China-based companies that have stolen billions of dollars from U.S. investors. Regardless of this fact, it looks like China-based management teams still show no fear that U.S. exchanges will quickly call their bluff even after making outrageously false claims to investors. Maybe they feel untouchable since regulators have been unable to meaningfully punish the players involved in deceitful actions. Who knows? But one thing is for certain: Investors keep getting hurt by the Exchanges' delayed actions against patently false and misleading press releases.

This brings us to CBAK. We were shocked by the obviously false statements management made in yesterday morning's press release, causing shares to rise around 15%.

CBAK Blatantly Misrepresents Itself In Its July 28, 2014 Press Release

On July 28, 2014, China BAK Battery, Inc. (NASDAQ:CBAK) published its first press release in over a year; one that appeared to contain highly misleading false statements that far surpassed the usual hype and hyperbole of most "pump-style" press releases. This comes on the heels of two negative articles published last week that questioned CBAK's viability after the Company lost its primary operating assets (CBAK International Limited) to foreclosure.

  1. GeoInvesting Article- Loan Default And Foreclosure Bring China BAK Battery's Solvency And Viability Into Question
  2. Rick Pearson Article- Watch For A Sharp Drop In China BAK Battery

Rather than address the issues raised, not the least of which is the company's ability to generate revenues and cash flows from operations, management instead announced a "cooperation agreement" with the Dalian Institute of Chemical Physics of Chinese Academy of Sciences.

The false claims in the press release are so obvious that anyone who reviewed CBAK's recent SEC filings could immediately spot them:

  1. CBAK claimed to be, "the world's leading lithium battery manufacturer and electric energy solution provider." This is a silly claim. The company is currently scrambling to build a new production facility after having lost its primary operating assets to foreclosure. As far as anyone can determine CBAK has no current ability to generate revenues or cash flows from operations and has creditors breathing down its neck. Yet management claims they are THE WORLD LEADER? Even before the foreclosure, at $185 million in reported revenues for 2013 with a $116M loss, can CBAK really be "the world leader?" Please provide evidence that you are indeed the world leader.
  2. Further, the release claims, "CBAK possesses China's first production base specially engaged in power battery…" Really? CBAK disclosed that its only operating facilities were lost in foreclosure. Its Dalian facility is under construction. So how does CBAK currently "possess" any production base?
  3. The release also includes a picture/drawing of a seemingly fully constructed facility when in fact our on-the-ground due diligence established that CBAK's new production facility in Dalian is still under construction with no assurance that it will be completed on a timely basis. In fact, the company admits the project is still under construction. We view the picture in the press release as a deceitful move management has taken to pump its stock. Management should actually address the capital needed to complete the construction of its Dalian facility, its working capital and overall current capital position.
  4. The Company touts its, "strategic cooperation agreement with Dalian Institute of Chemical Physics of Chinese Academy of Sciences ("DICP"). Under the agreement, the two parties "will jointly research and develop the next-generation key technologies and materials in power battery with an aim to produce the most powerful battery worldwide." Those are lofty goals for a company that currently has no operations and appears to be in dire need of capital.

Conclusion

We find it remarkable that management did not take the opportunity to address the grave issues facing CBAK. After having lost its primary operating assets to foreclosure there have been no statements from management regarding the Company's plan of operations or how it will fend off creditors and survive to fund construction of the new manufacturing facility or working capital for production. We believe that management is simply skirting the most important issues facing CBAK while misrepresenting the business to attract investors.

We view the press release as an outlandish attempt to pump the stock that mimics the tactics promoters use to tout defunct pump and dump penny stocks here in the U.S.

We would hope and expect that Nasdaq sees these claims and acts in the interest of U.S. investors.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: China BAK Battery's Exaggerated Claims Should Alarm Nasdaq