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  • GeoInvesting Responds To China Mobile Games' Rebuttal Of January 15, 2015 Article [View article]
    Geo, a lot of things to consider but for now I want to focus my questions on these SAIC filings:

    1) Who is claiming the revenue in the SAIC filings? You have looked at the SAIC filings extensively, therefore can you tell/show whether respective SAIC revenues suggest CMGE is being fully paid for these games, or whether Zhongzheng is being fully paid for these games? Since these games may be significant drivers of CMGE's revenues, the SAIC filings should correspond to this.

    2) Do the SAIC filings for either CMGE or Zhongzheng provide evidence that revenues from these games are at levels consistent with substantial downloads?

    3) In your article, you provided a link that was for the "Shenzhen SAIC Database", however when I click on that link, I am taken to the home page of "Market and Quality Supervision Commission of Shenzhen Municipality". I assume the SAIC filings are somewhere within that website. Please can you navigate me through this website to the section that contains SAIC filings for these companies.
    Jan 27, 2015. 05:22 AM | 4 Likes Like |Link to Comment
  • Kandi Technologies: Investable Macro Revisited (And Visited) [View article]
    The reply from frellgem about cash issues is complete nonsense. A very large part of Kandi's current liabilities is money owed to suppliers. frellgem is now suggesting that instead of paying off these suppliers within one year (which is already long enough), that they may have to wait even longer than a year to get the cash they are owed. This is not a great idea. If the company does pay off its, suppliers, it will not have much cash left.

    Also, why is Kandi taking so long to pay its suppliers when it is supposed to have the cash on the balance sheet that frellgem was so keen to point out? Why did Kandi pay a huge chunk of cash in ADVANCE payments for equipment to some obscure entity to fit out a new factory, when construction in progress in Kandi's balance sheet of only a meagre $55,491 by Q3 2014 shows that virtually nothing has been done to construct the factory building itself. Huge advance payments have been made to supply equipment within an unbuilt factory and this took priority over paying everyday suppliers essential for running the business. Again, this is not a great idea.

    frellgem deliberately attempted to mislead readers about Kandi's financial health by suggesting the company had loads of cash, without mentioning that it had also had substantial liabilities, some of which are pressing. This is a big problem when Kandi is not being paid in time by its own JV, and it is not the primary reason why US tech companies need to raise cash.

    A GAAP profit or sales growth is nothing to be excited about if the company is not being paid on time for a large part of its sales. Not being paid on time severely limits "cash flow options" for growth. It is also highly suspicious to make a GAAP profit when the principle final end user of Kandi's products (ZZY via the purchase of assembled EVs from the JV) is still losing money despite apparently being able to purchase EVs so cheaply and already having thousands of EVs on the streets. Making a GAAP profit but incurring losses further downstream in ZZY is not a respectable business model.
    Jan 19, 2015. 06:50 PM | 4 Likes Like |Link to Comment
  • Kandi Technologies: Investable Macro Revisited (And Visited) [View article]
    The cash amount of $1.35 that frellgem uses simply demonstrates the company does not presently have enough money to pay all its obligations. Using the same format as frellgem, Kandi also owes $1.48 per share to its suppliers and others in the form of both account and notes payables. They are listed as current liabilities, generally meaning they have to be repaid or refinanced within a year, and these alone more than offset the gross amount of cash that the company holds. On top of that, there is also $0.76 per share of debt owed by the company because of short term bank loans and bonds. The main concern here is the amount of money Kandi owes to suppliers, why its grown so large, and how much cash the company may have left after payment to service all its other liabilities and working capital requirements. There are also currently only very limited extra borrowing facilities to fall back on. The company states in its Q3 2014 filing:

    "As of September 30, 2014, the Company had credit lines from commercial banks of $41,910,331, of which $35,412,606 was used as of September 30, 2014."

    it is frellgem who appears to be the one confused about local and central government subsidies. Illuminati's central point is about the actual cash payment of government subsidies and subsequent liquidity flows between the JV and Kandi, The vast majority of EVs the JV sells to ZZY are for ZZY's own car share program, therefore it is the JV, in its role as a dealer who sells to an end customer, and not ZZY, that is meant to get paid most of the actual cash from local government subsidies. In its role as a manufacturer, the JV is also paid cash from central government subsidies.

    Despite the JV receiving a big central government subsidy cash payment in Q3 2014, the money owed by the JV to Kandi continued to go up. At the end of Q2 2014, the JV owed Kandi some $34.5m, but at the end of Q3 2014, the amount the JV owed Kandi amount leaped up to $58.8m, even though the JV had received a central government subsidy cash payment during that third quarter. Sales are only impressive if they are fully paid for and on time.

    If the JV does not soon start substantially paying down the money its owes to Kandi, the company will almost certainly need to hit the market again with more share issues. Looking at Kandi's cash flow statement, for just the first nine months of 2014, the proceeds received from previous common stock and warrants issued, added together with proceeds from warrants exercised, equates to a whopping $2.17 per share, out of which only $1.35 of cash remains. Worse still, despite receiving all this new cash then burning through a big chunk of it, the company still did not manage to pay down its significant liabilities over the same period.
    Jan 16, 2015. 08:21 AM | 5 Likes Like |Link to Comment
  • Kandi Technologies: Investable Macro Revisited (And Visited) [View article]
    I am very aware of what Kandi is supposed to be claiming as revenue and net profits, frellgem.

    You will have a lot of fun reconciling those numbers while sniffing around the filings and press releases, particularly after you said in an earlier comment:

    "Considering that Mr. Hu had held up all shipments to Hangzhou for the last 3 months pending subsidy payment"

    Effectively meaning no deliveries and therefore apparently no sales to Hangzhou in Q4 2014.
    Anyway back to my original point. You are saying that the JV factories' car parks are stuffed with thousands of idle EVs, sitting there for months, and classified as unsold until they are delivered from those car parks with license plates? How many thousands of these idle EVs were observed during the investors' trip?
    Jan 15, 2015. 12:52 AM | 3 Likes Like |Link to Comment
  • Kandi Technologies: Investable Macro Revisited (And Visited) [View article]
    Tom, all 14,378 of those EVs delivered cannot be operational on delivery if there are a number of months waiting period for the license plate. For most of the year, at any one time there must have been thousands of idle EVs parked somewhere for months waiting for a license plate before they can be used.

    Did you observe thousands of completed EVs parked at the factories you visited? Very approximately how many did you see?
    Jan 14, 2015. 08:32 PM | 2 Likes Like |Link to Comment
  • Kandi Technologies: Investable Macro Revisited (And Visited) [View article]
    Tom, it can take a number of months for an EV to get a license plate once purchased by ZZY, the largest customer of the Kandi JV who also owns 19% of ZZY. Since 2013 ZZY has purchased thousands of EVs. Can you tell us where ZZY stores thousands of these non-revenue earning EVs for months until they receive their license plates and can be finally used in ZZY's car share/leasing programs?
    Jan 14, 2015. 05:21 PM | 3 Likes Like |Link to Comment
  • Kandi Crushed: Mary Jo White's "Broken Windows" Policy Makes An SEC Enforcement Action Inevitable [View article]
    Mark,, the local government subsidy money is not paid to ZZY when ZZY purchases the EVs for its own use in its own car share, which historically has been the majority reason for the ZZY purchases. It is paid to the JV (and so is the central government subsidy). ZZY receives the benefit of the discounted car price as a result of the local (and central) government subsidies, but it is the seller of the EV who must apply to the local government to receive the cash payment for the discount given to the customer. In this case the JV is effectively the dealer. There are multiple references that state this. However if ZZY then sells on the EVs to another dealer, the local government subsidies might be paid to that dealer instead; it probably depends on exactly how each local subsidy program is defined.

    My view on the relationship between Kandi and Geely in the JV is simply that Geely is doing other things in the China EV market without Kandi, same bed different dreams (and different partners) and all that. Other people have a more bearish view, such as Shufu leaving long before the end of his term as chairman at the Kandi JV, and then just a little while later Geely starts up a new EV JV with a competitor. I also don't think the Ningbo agreement to build a new EV factory and base another EV HQ with another competitor just down the road from Kandi was great news either. I can understand different people will have their own interpretations of this.

    I don't think its just all about there being enough market share to go round. The China EV market will become more competitive as new capacity piles in from all over the place, combined with annual step declines in subsidies and consequential pressures on costs. This article here has an interesting take on this subject:

    There are obviously problems at ZZY if its still losing money despite being able to buy EVs so cheaply after the subsidies, and despite it already having apparently thousands of EVs on the streets on Hangzhou.

    I guess your reply for after sales, etc for Kandi itself was meant for someone else. We will just have to agree to disagree on the after sales stuff in the JV itself.

    Most of the serious risks that I am aware of for this company have not been discussed in public but are publicly sourceable.

    Good luck with your CFA exams, I remember from my own experience that its no fun to work and do these at the same time, especially the higher level ones, but they are easy enough to pass if you do the work, and the CFA designation is a very valuable asset to have, especially when combined with other useful qualifications.
    Jan 9, 2015. 02:48 PM | 3 Likes Like |Link to Comment
  • Kandi Crushed: Mary Jo White's "Broken Windows" Policy Makes An SEC Enforcement Action Inevitable [View article]
    Once again Luca's statements are wrong.

    He is now suggesting the new JV will be insignificant because Xindayang has only limited capital and manufactures only one model. But the new JV has a registered capital contribution of Rmb1 Billion, the same amount as the Kandi JV. From the new JV announcement:

    "The Geely Parties will contribute all the equity interest in the Lanzhou Plant valued at RMB500 million as their contribution to the registered capital of the Joint Venture. The Joint Venture Parties will contribute all of their interest in Shandong Xin Dayang valued at RMB500 million as their contribution to the registered capital of the Joint Venture."

    That's Rmb500m from Geely, and Rmb500m from the joint venture partners. However Luca thinks Rmb1 Billion in total will be confined to only $8m. Incredible.

    In the same way Geely helped the Kandi JV develop more models, they will do the same with this new JV.

    In fact it is Xindayang that is currently working with Zotye Auto in Zhejiang province to produce an EV planned to sell for just $17,800:

    Luca picks numbers out of the air, such as 100,000 EVs production per annum production capacity, and declares this to be the full operational capacity of the new JV. No where in the new Geely joint venture official announcement does it mention that production capacity. No where in in the new Geely joint venture announcement does it mention 2018. That data is not given. But coincidentally this exact same data is mentioned in the Ningbo announcement late last year:

    "The new partnership will start production in 2018 with an initial annual capacity of 100,000 units."

    Luca even specifically states the implied date of this announcement in his earlier comment, so he knows about it:

    "It's been made well known in the Chinese media weeks ago."

    It is very obvious that Luca has confused the just announced new Geely JV with a separate announcement late last year related to Ningbo only.

    Luca has still not understood the main issue with what Geely is doing, and that is to team up with competitors instead of using only Kandi for its expansion plans across China. This new joint venture is not the only Geely electric vehicle initiative to exclude Kandi this year. The company plans to launch its new Emgrand EC7-EV electric vehicle in the first quarter of this year, once again with the exclusion of Kandi:

    Its even mentioned in the Geely monthly presentation for this January on their website.

    Keep going Luca, I am loving it.
    Jan 9, 2015. 12:31 PM | 2 Likes Like |Link to Comment
  • Kandi Crushed: Mary Jo White's "Broken Windows" Policy Makes An SEC Enforcement Action Inevitable [View article]
    No Luca you are wrong.

    Production from this new joint venture will begin very quickly. According to the China Daily, this Sunday in fact:

    "Geely Auto has joined hands with Taizhou Xindayang Group Co to produce an electric passenger car model ZD in Gansu province, and is set to roll off the joint venture’s first car on Sunday."

    The ready to use factory that Geely contributes to this new joint venture is in Lanzhou, which also happens to be in Gansu province.

    Even without this news, it is also obvious that a joint venture formed this January 2015, with available factories and other facilities already in place, is highly unlikely to wait until 2018 before its first car rolls off the production line. However such common sense seems to escape Luca.

    You are confusing this joint venture with a memorandum agreement announced late last year, also involving Geely and Xindayang (which loosely translates in to "New Ocean" or "Gem"), to build another separate EV factory operation and HQ in Ningbo, which is expected to be ready in 2018.

    Ningbo is on the east coast of China in Zhejiang province, same as Kandi's home ground, and the factory is located around 140-150 miles from Hangzhou. Coincidentally, one of the new joint venture investors, Ningbo Shuanglin Automobile Parts and Components Company, is also located in Ningbo, and is a automotive parts manufacturer listed on the Shenzhen stock exchange. There is no suggestion that Ningbo Shuanglin will be supplying parts to the Gansu facilities, but it is a reasonable expectation they may pitch to be a supplier for Ningbo. There is no suggestion about whether the Ningbo factory may become part of the new joint venture, or if this will remain a separate project despite two of the partners being common.

    Geely has chosen to partner with a competitor in a memorandum agreement to build a new EV factory and EV HQ base in Ningbo, right on the doorstep of Kandi. The implications are obvious.

    In your confusion over highlighting the Ningbo project, all you have achieved is to give me the opportunity to demonstrate further proof that Geely is expanding across China without Kandi, including on Kandi's doorstep. Keep it up.
    Jan 9, 2015. 09:02 AM | 3 Likes Like |Link to Comment
  • Kandi Crushed: Mary Jo White's "Broken Windows" Policy Makes An SEC Enforcement Action Inevitable [View article]
    I do not agree with your assessment Mark T, Phillips. Of course the Kandi/Geely JV must offer an after sales service, it is supposed to be the manufacturer of the EVs, and manufactures do indeed offer warranties, even in China. This section of an SEC correspondence with Kandi says warranties exist within the JV:

    "For the EV products that we sell in China, we understand there is a 3 year or 50,000 kilometer manufacturer warranty. As discussed in our response 7 above, the impact of this warranty on the Company will be reflected to us through our participation in JVC which will be the ultimate manufacturer for the EVs. We have no knowledge with respect to any dealer warranties concerning these products after their sale to the dealers."

    It also says in the Kandi/Geely JV agreement that the JV carries out repairs. This is detailed in the Q1 2013 filings:

    "4.2 Main Business and Business Scope

    The main business the JV company is EV development, manufacture and sale business and auto parts development, purchase and sale as well as investment in the companies that engaged in above business. The vehicle models to be included in the JV business scope will be: Kandi EVs, the remodeled Panda Mid-Leve EV, IG and other models which will be developed by the JV company. The above models will be developed, manufactured, sold and REPAIRED by the JV company or its subsidiaries.";pdf=

    Irrespective of whether sales are to private consumers or car sharing companies, the manufacturer must surely offer some form of after sales service. Are you suggesting that the Kandi/Geely JV offers no after sales service whatsoever on the new EVs that it sells? No service to honor its manufacturer warranties? No repairs for any faults?

    You state that no where in this new Geely JV does it say the EVs will be used for car sharing. But this new JV announcement also does not say that it will participate exclusively in sales to private consumers, neither does it exclude the possibility of car sharing, or both car sharing and sales to private consumers at the same time. There could even be sales to taxi businesses, etc. It does not exclude anything. The Chinese private consumer market still does not appear ready for mass purchases of EVs, but there is a great belief among Kandi bulls that car sharing is such a great business; so which business model do you think this new Geely JV is more likely to adopt first?

    You have also not acknowledged a primary relevance of this new JV to Kandi, and that is Geely is prepared to team up with other entities to expand its EV business across China, rather than only use the Kandi JV. This should be no surprise to anyone, because the Kandi JV must be desperate for cash at the moment given the ever growing mountain of money it is owed from unpaid local government subsidies, which in turn may restrict the pace at which it can grow.

    As for your comment about Li Shufu's endorsement of Mr Hu, do you think instead him publicly saying nasty things about a business partner was ever an option and good for business?
    Jan 8, 2015. 05:54 PM | 4 Likes Like |Link to Comment
  • Kandi Crushed: Mary Jo White's "Broken Windows" Policy Makes An SEC Enforcement Action Inevitable [View article]
    frellgem's comment is beyond belief. The US listed Chinese reverse merger space is a train wreck littered with accounting fraud, numerous questions are being asked about Kandi's accounting integrity, and its management have been quoted by the SEC as participants in a illegal stock promotion scheme, but with all this going on, frellgem claims the sole reason the SEC has raised its investigation of Kandi to a formal level is because of options, related to employment contracts.

    Very bizarrely, frellgem also shrieks out that so many investment funds are untroubled by this formal SEC investigation, even though it is a well known fact that the institutional holding in this stock is extremely low.

    I thought it could not get worse when frellgem claimed in previous comments in another article that the company had great cash flow and that ZZY was profitable, both of which are untrue along with many other statements this person has made, but now she explains the sole reason for the formal SEC investigation is because of incorrectly dated options in employment contracts. Quite incredible.
    Jan 8, 2015. 10:20 AM | 2 Likes Like |Link to Comment
  • China Zenix: This Probably Won't End Well [View article]
    MBoller99, the Hong Kong stock exchange is full of Chinese companies, including small caps. Those companies that cannot list on the main exchange of HKEx instead list on the Hong Kong Growth Enterprise Market (GEM), and if they are good boys, they get uplisted to the HKEx at a later date. The GEM route, which has much more relaxed listing requirements, would be the more likely bet compared to a much stricter requirement of doing an initial and direct listing on Hong Kong's main stock exchange.

    There is also the option of listing on the Shenzhen Stock Exchange in mainland China, which tends to be more accommodating for small to medium sized enterprises (albeit many are tech companies) compared to the Shanghai Stock Exchange. You are right in saying Singapore SGX has probably had enough of Chinese companies after suffering a series of accounting scandals from them, almost as bad as the US experience.

    A listing on another stock market is not the only option. The management may no longer wish to have the hassle of a public stock exchange listing anywhere, and simply run the business as privately owned, but bought out as cheaply as possible. Another scenario would be to take the company private as cheaply as possible, then sell the business to another entity (or do a joint venture) or private equity group.

    There are a large huge number of US listed Chinese companies that have gone dark, and a large number of frauds, so I don't think a track record of a shady past with a US listing is a strong deterrent. Moreover, the company is not yet officially on record for fraud, and instead buying it cheaply then selling it later for a much higher price after "magically" making it much more profitable again could be seen as a sign of strong business acumen (except from the perspective of US shareholders).

    As the author and I have both pointed out, no matter how you look at, if management are not intent on adding shareholder value and as a result are coming up with ridiculous proposals like swapping the wheels business for an online vacation company, then this company does not seem like a great investment proposition for US shareholders. It is also telling us that management want to own the wheels business for themselves as cheaply as possible with a disregard to US shareholders.
    Jan 5, 2015. 09:02 PM | 1 Like Like |Link to Comment
  • China Zenix: This Probably Won't End Well [View article]
    Thanks Ian.

    The VAT calculation may be more accurate if I compared the VAT receivable to the cost of sales for the international business, instead of comparing it to international revenue itself, because this should be a VAT rebate based on paid input VAT costs (ie a rebate on input VAT paid on costs of goods manufactured, not output VAT levied on sales), however this would be offset by also taking in to consideration another factor, and that is both sales and costs of sales are reported net of the VAT numbers in the income statement, hence roughly the same interesting result is produced.
    Jan 5, 2015. 08:16 PM | 1 Like Like |Link to Comment
  • Kandi Technologies: Import Data Suggests Company Greatly Overstated Go-Kart Sales [View article]
    Harris, this is a formal SEC investigation. The big clue is the subpoena. A subpoena is only used in a formal SEC investigation. Direct from the SEC website:

    "With a formal order of investigation, the Division's staff may compel witnesses by subpoena to testify and produce books, records, and other relevant documents."

    Subpoenas are not used when the investigation is not formal. There are a lot of other sources that confirm the same thing - subpoenas are only used in formal SEC investigations and not informal SEC investigations. This information is easy enough to verify in a Google search.
    Jan 4, 2015. 11:46 AM | 3 Likes Like |Link to Comment
  • China Zenix: This Probably Won't End Well [View article]
    Interesting article.

    I do see a number of red flags in this company's financial statements, but the one that currently interests me the most is the "Value-added tax receivable" of Rmb40.8m shown in the last 20-F. At a VAT rate of 17%, this Rmb40.8m equates to about Rmb240m of sales. Under China's input-output VAT system, this could reflect factors such as unbilled account receivables, input VAT refunds from exports, and/or VAT invoices that have not yet been verified for the receipt of an offsetting VAT claim/payment. It is unknown how much of this VAT receivable relates to domestic sales, but all other things remaining both equal and normal, there should obviously be a VAT payable on average, not a VAT receivable, resulting from domestic sales. This means the respective VAT receivable is probably the result of yet to be paid input VAT refunds on exports (ie international sales).

    But if Rmb40.8m of VAT receivables equates to some Rmb240m of international sales, this compares to total international sales of Rmb547.2m for the whole year, meaning the company has yet to receive a VAT refund for around 44% of these international sales. This is significant. Some companies record VAT on the balance sheet as a number net of both VAT receivables and payables, and given that there should on average be a VAT payable, the gross VAT receivable from international sales could therefore be even larger before subtracting the average VAT payable offset. The export VAT refund rate looks like it is equal to the input VAT rate. In other words, the company is taking a very long time to reclaim its VAT on exports, and one reason for this may be because there is a lack of supporting documents that verify the authenticity of these international sales. I am open minded to a sensible discussion on this, but since this is a SA Pro Article, I may not have access to responses on it soon.

    A large share holding from the company management is not a fraud deterrent. There are many instances of fraud, including theft of assets, among Chinese companies where the management had significant share holdings. There are also occasions when the share price itself is pumped up so the management can take out loans using their shares as collateral, for example AutoChina International:

    In the case of China Zenix Auto, the action of hugely downgrading the quality of the auditor and attempts to swap the wheels business for some nonsense online vacation business are clearly not symptoms of a share pump job, but could be attempts to legally reduce the perceived value of the company as much as possible so it can be bought much cheaper than its real value, and/or to remove traces of historic fraud activities from the balance sheet. Even if there is no fraud, if management action displays no genuine intent to add shareholder value and its majority control prevents the company from being taken over in a hostile bid, then the company's shares still do not look like a good proposition for US investors.
    Jan 4, 2015. 08:15 AM | 2 Likes Like |Link to Comment