In light of our recent discussions on New Energy Systems (OTC:NEWN) at GeoInvesting, we felt it necessary to start a formal investigation into the company's ownership structure. To preface our update, we have included a portion of the Q&A from NEWN's recent year end conference call.
Excerpt from New Energy Systems 4th quarter 2010 conference call:
Dan Lavine (Individual Investor) : Oh, congratulations on a great quarter and year. I am new to your story and hold a small position, but would like to add at current prices. So excuse my ignorance here, because like I said, I’m new to NEWN. Can you please give me some color on the shareholder tenure with respect to New Power and Kim Fai Solar pre-acquisition [inaudible]? For example, have the shareholders at Kim Fai been the same since inception?
Ken Lin (VP, Investor Relations) : I’m sorry, you mentioned the shareholder from original three subsidiary we acquired?
Dan Lavine: Yes, mm-hmm. The New Power and Kim Fai Solar, pre-acquisition.
Ken Lin: Yes, and I’m sorry – what exactly information you want to know about those shareholders?
Dan Lavine: Well, I guess for example, have the shareholders at Kim Fai been the same ever since the beginning?
Ken Lin: For Kim Fai and for those three companies we acquired, those shareholders, they are still the same shareholders as their original company.
Dan Lavine: Okay
Ken Lin: For example, Kim Fai’s shareholders have eight shareholders, and those eight shareholders is Kim Fai’s shareholders. And Anytone—I’m sorry, Anytone I don’t remember exactly, but Anytone as I remember also have eight shareholders over there, and that eight shareholders is—they are separated. There is no relationship for those shareholders, but they are—they all remain as the shareholders of each subsidiary.
Dan Lavine: Okay, thank you.
The GeoTeam has just obtained information indicating that Kim Fai shareholder base changed several times before its acquisition by NEWN. The last shareholder change before the acquisition by NEWN (Nov. 25, 2010, SAIC date) was only three months (Aug. 25, 2010, SAIC date) before the acquisition. Furthermore, the age of these eight shareholders, who acquired Kim Fai on Aug. 25, 2010 and sold Kim Fai to NEWN, were fairly very young at the time of the acquisition. Furthermore, the age of these latest shareholders are fairly young, arousing our suspicions that they could not have been original shareholders: The age distribution of these eight shareholders are as follows:
Pre acquisition age distribution of Kim Fai Shareholders: (8 shareholders of Kim Fai are from 19 (1992) to 30 (1981) )
- one 29 year old (Born 1981) (Xiaowei Wang)
- one 27 year old (Born 1983) (Yijie Li)
- two 25 year old (Born 1985) (Qiongqiong Wang & Gong Wei)
- two 22 year old (Born 1988) (Feng Cheng & Chunfeng Zhang)
- one 20 year old (Born 1990) (Qing Xiong)
- one 18 year old (Born 1992) (Di Yuan)
None of the above occupy more than 15% shares (6*14%, 9% and 7%).
Investors should begin to ask questions, as this new information clearly diverges from public statements made in the 2010 year end conference call. Now we need to ask why
"For Kim Fai and for those three companies we acquired, those shareholders, they are still the same shareholders as their original company."
We also discovered that three of these eight shareholders (Di Yuan, Qiong Xiong & Xiaowei Wang) reside in Decheng District, Dezhou City. This location coincides with the location of the current legal representative of New Power (Mr. Xiong Guofu) and the current legal representative of E'Jenie (Ms. Fang Xuemei). Two of these young shareholders (Wei Gong & Feng Cheng) appear to live in Chibi City (county), which is the same city (county) that the current legal representative of Kim Tai (Mr. Liu Qunli) and current legal representative of Anytone (Mr. Weihe Yu, the Chairman of NEWN) also seem to reside.
Meanwhile, even though Kim Tai started its business on December 8, 2005, it only changed its name and business direction to include solar energy operations after September 21, 2009 which is only one year from the acquisition deal with NEWN. At the time of these changes, the two shareholders of Kim Tai were Wei Gong (one of the eight young shareholders) (70%) and Weihai Yu (30%). Weihai Yu and Weihe Yu (the chairman of NEWN) have the same last and middle names. Based on the Chinese name tradition, it is possible that Weihai Yu and Weihe Yu are related (brothers).
Based on the Chinese name tradition, it is possible to assume that Weihai Yu and Weihe Yu are related. Thus, we would like the company to comment on this:
One year later, after these significant changes involving Kim Tai business dealings, NEWN spent USD 24 million (USD 13 million cash and 11 million restricted share) to acquire a company which appears to have commenced its solar energy business for only one year, yet claims to generate significant revenues.
- We are still reviewing further details regarding the NEWN story, including information surrounding past management stock sales. We are also conducting a deeper review of PRC filings, originally obtained by our team, that reveals a much smaller business for E'Jenie and Anytone than what has been portrayed in SEC documents and SAIC filings recently provided by the company (we would like to know if these filings were sent to the SAT agency).
- Yesterday's S-3 filing is quite perplexing.
Disclosure: Short NEWN at time of post.