FAB Universal's Undisclosed Acquisition Of Beijing Vanpos Telecom

| About: FAB Universal (FABU)


FAB has repeatedly disclosed that it has precisely 3,954 media kiosks in Beijing since 2012.

In 1H 2013, FAB failed to disclose its acquisition of Vanpos, a company having around 1,000 kiosks in Beijing.

FAB's Beijing static kiosk count makes no sense in light of the 1,000 kiosks acquired via Vanpos.

FAB rebranded the 1,000 additional kiosks with FAB 5c logo stickers, likely to fool its auditor and other gatekeepers.

On November 5th, 2013, my investigators interviewed Chongwang Liu, General Manager of one of FAB Universal's (OTC:FABU) former media kiosk suppliers, Beijing Chongfeng Touch Control Technology (Brochure). Mr. Liu explained that FAB had recently acquired a company called Beijing Vanpos that had 1,000 kiosks located in Beijing (Interview, Summary). FAB has never disclosed the acquisition of Vanpos in its public filings, while maintaining that throughout this period the number of media kiosks deployed in Beijing has remained the same.

Following the publication of my reports, my investigators located 18 Vanpos kiosks, all of which FAB had rebranded with "FAB" and "5c" media stickers as shown in the sample images below:

Despite the presence of the "5c" media stickers, none of the kiosks appeared to have media downloading functionality.

To discover more details of the acquisition, my investigators recorded interviews of current and former Vanpos employees (see two of their resumes online). The Vanpos employees explained that:

  1. FAB acquired Vanpos in the first half of 2013.
  2. Vanpos operated a network of around 1000 "self-service" kiosks sponsored by Unicom.
  3. The "self-service" kiosks are primarily used for utility bill payment, ticket selling, prepaid phone cards, and printing coupons.
  4. Most "self-service" kiosks cannot be used for media (movie) downloads.
  5. It is difficult to make a profit from the self-service kiosk business. FAB is most likely operating the self-service kiosks at a loss.

The Vanpos acquisition was a material event that FAB should have immediately disclosed to investors. Recall that I have repeatedly challenged the existence of the 3,954 media kiosks FAB claims it has deployed in Beijing. The Vanpos acquisition should have increased the Beijing kiosk count from 3,954 to close to 5,000 kiosks.

Rather than disclosing this increase, FAB instead reaffirmed on December 10th, 2013, that its Beijing kiosk count as of September 30th, 2013 was still 3,954 units (Press Release), the same number FAB had disclosed in its 2012 proxy filing. How can the total still be the same, following FAB's undisclosed acquisition of around 1,000 Vanpos kiosks it rebranded as "5c" media kiosks during the first half of 2013?

I conclude that FAB's undisclosed acquisition of Vanpos and subsequent "5c" media rebranding was likely done to fool FAB's auditor and other gatekeepers to believe that the 3,954 Beijing media kiosk count was true.

Summaries of the interviews are available (Here).

Recordings and transcripts can be found below:

Vanpos/FAB Kiosk maintenance technician Wu Xinfeng (Interview, no transcript)

Vanpos Kiosk maintenance technician Shi Hailong (Interview, Transcript)

Vanpos/FAB Kiosk maintenance technician Liu Shuo (Interview 1, Interview 2, Transcript 1, Transcript 2)

Disclosure: The author is short FABU. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.