Waldo Mushman's Instablog At first glance many situations appear obvious. Rigorous examination may reveal that the obvious is in fact impossible. My focus is on companies that unethically sell the impossible and thrive only with financial slight of hand. I am a retired businessman living near Austin Texas and I both delight and profit from shining some light on these deceptions. Waldo Mushman http://seekingalpha.com CSKI and the Missing Link http://seekingalpha.com/instablog/74349-waldo-mushman/150898-cski-and-the-missing-link?source=feed 150898 Shaky Structure
A very common corporate structure used by Chinese reverse mergers is a three tiered stack of holding companies. The US traded entity (Gramps) owns nothing but shares of stock in a second holding company (Dad). Dad is often located in a tax friendly locale such as BVI and also owns nothing but stock in the third tier (The Kid) which owns the Chinese operations. The Kid has title to everything and has effective control over all operations. US shareholders must look to Gramps who must look to Dad before they get up close and personal with the valuable assets they presumably own. This structure is fraught with risk for the simple reason that Gramps has no enforceable legal claim on what The Kid owns. Dad has a claim but even that is tenuous based on the limitations of China-US financial treaties.

CSKI’s Missing Link
To exhibit the frailty of this construct let me turn to one of China’s more noted RTO’s, China Sky One Medical (CSKI). In CSKI’s situation; Gramps is Nasdaq traded and domiciled in Nevada, Dad is the non-public holding company American California Pharmaceutical Group (ACPG) domiciled in California and The Kid is Harbin TDR waving hello from the distant windows of Harbin City, China.  As is fairly evident, this chain of ownership depends on Dad (ACPG) taking care of the family business. Ponder for a moment the implications to the US shareholders if that link was missing. Presume Dad died. What does Gramps have to say when The Kid won’t return his phone calls. The Kid never liked Gramps anyway and now that Dad has died The Kid has no obligation to Gramps and decides to keep everything. Gramps can bark at the moon as far as the law (and The Kid) are concerned. Sounds farfetched? CSKI will gladly show you otherwise.

Good Standing
California corporations are required to pay franchise taxes and report annually to the state. They are also required to have a registered agent to accept legal documents. To claim “Good Standing” in the state you must comply with these simple rules. Failure to comply, results in suspension or revocation of your charter. You no longer have good standing. This is the corporate equivalent of death. In CSKI’s story Dad has died. ACPG no longer has good standing in California. They had their charter suspended in 2008, briefly revived it in October 2009 but it was immediately resuspended for unpaid taxes. 100% of CSKI’s China assets are owned by a defunct California Corporation.
A lack of good standing translates into being unable to legally transact any business. You cannot defend yourself in court,  sue anyone, make binding contracts, validly receive or transfer ownership of assets, or conduct recordable business of any kind. Tax collectors in California could attach everything ACPG owns and offer it at public auction to satisfy the unpaid tax bill. The only thing ACPG owns is stock. Just to complicate the matter even more, ACPG no longer employs a registered agent. If the State of California, or anyone else in the world…hmmm, chose to sue ACPG the complaint goes unanswered and a summary judgment would naturally follow.

Hello? Anybody home?
Investors might be forgiven if they feel that Dad’s passing was worth noting. Was the omission purposeful? Considering Dad expired in 2008 and three 10-Ks have whistled past his grave, I suspect well planned neglect. It strikes me as beyond negligent for a "healthy" company to let it’s business license lapse and dismiss the registered agent. Maybe The Kid is expecting Gramps to kick off too. Silly to renew National Geo for the geezer when he has less than a month to live. CSKI should serve as a stark warning to investors in these FrankenCorps how unexpectedly a holding company can lose its grip.

CSKI Implications
Franchise taxes are normally a trivial item in the life of a corporation. The obvious question is why are these taxes unpaid.  It is not an oversight as evidenced by the October 2009 attempt to revive the charter and the very quick return to suspended status. In January of 2010 the Chinese government required certified evidence from all .cn domain owners that the entity existed. ACPG was the owner of the Harbin TDR domain. Unable to provide a valid corporate charter to the government, that web site was shut down with several hundred thousand other .cn domains.

My belief is that the IOU to California stems from the PIPE financing completed in April 2008. Funding to China was routed through ACPG. Best guess is that the tax bill for that transaction was ~$60,000. I suspect that CSKI intended to shutter ACPG and never pay the tax but were unable to do so. With penalties and interest the current tax bill is likely in excess of $100,000. CSKI tries to convince investors that they are capable of spending $37,000,000 on forest leases but they can’t convince themselves to pay a seemingly small tax bill.
As a final thought, consider that ownership records maintained by the Chinese government identify ACPG as the sole owner of Harbin TDR and all its subsidiaries. CSKI is not mentioned anywhere in the official records of China. China has never heard of CSKI and has nothing to indicate that CSKI has legal claim to anything. CSKI cannot prove they own any assets in China.
Buyer be very wary. I am cheerfully short CSKI and predict the ongoing SEC investigation will shut them down.

John
 
Business Entity Detail
 
Data is updated weekly and is current as of Friday, March 11, 2011. It is not a complete or certified record of the entity.
Entity Name:
AMERICAN CALIFORNIA PHARMACEUTICAL GROUP, INC.
Entity Number:
C2620534
Date Filed:
12/16/2003
Status:
SUSPENDED
Jurisdiction:
CALIFORNIA
Entity Address:
RM 1706 DI WANG BLDG, 30 GAN SHUI RD NAN GANG DISTR
Entity City, State, Zip:
HARBIN CHINA 150001
Agent for Service of Process:
UNITED CORPORATE SERVICES, INC.
Agent Address:
608 UNIVERSITY AVE
Agent City, State, Zip:
SACRAMENTO CA 95825
 
http://kepler.sos.ca.gov/cbs.aspx
 
15 F3d 1086 Lloyd Myers Co Inc v. Department of Agriculture
Under California law, a corporation, which has been suspended for failure to pay franchise taxes, is prohibited from conveying property or enforcing a contract. Usher v. Henkel, 205 Cal. 413, 417 (1928); Damato v. Slevin, 214 Cal.App.3d 668, 674 (1989); see also Mather Constr. Co. v. United States, 475 F.2d 1152, 1155 (Cl.Ct.1973) ("Under the law of California, a corporation which has been suspended for failure to pay franchise taxes is prohibited from suing, from defending a suit, or from appealing from an adverse decision."). We have stated that upon suspension of a corporate franchise, the business entity "[can] not function as a corporation and [is] incapable of exercising corporate powers for any business purpose." McLaughlin Land & Livestock Co. v. Bank of America, 94 F.2d 491, 493 (9th Cir.1938).
869 F2d 1235 Community Electric Service of Los Angeles Inc v. National Electrical Contractors Association Inc
Section 23301 of the California Revenue and Tax Code provides that the Franchise Tax Board may suspend the rights, powers and privileges of a corporation for nonpayment of taxes. A delinquent California corporation may neither bring suit nor defend a legal action. E.g., Reed v. Norman, 48 Cal.2d 338, 309 P.2d 809, 812 (1957). We have repeatedly acknowledged this as the law of California. See United States v. 2.61 Acres of Land, More or Less, 791 F.2d 666, 668 (9th Cir.1985) (reversing refusal to grant continuance in order to enable corporation to revive itself)
Secretary of State Certified Status
Verification of Non Payment of Franchise Taxes

..............................................
This is to notify you that process service attempt information has been updated for your One Legal Order:

Order #: 6737346
Case #: 10-cv-1091
Party to Serve: American California Pharmaceutical Group, Inc. C/O United Corporate Services

Updated Service Attempt Information:
Attempt Time
Address
Status
Description
1/20/2011 3:54 PM
608 University Avenue, Sacramento,CA 95825
Not found
Per Lauren Morales, they're no longer agent for service for company. They were suspended.


To view complete details about this order, please click the link below or copy and paste the address into your browser:

www.onelegal.com

If you have any questions or need assistance, please send an email to support@onelegal.com, and feel free to contact our Customer Support department Monday through Friday from 8:15 a.m. until 5:30 p.m. at 800-938-8815

Thank you for choosing One Legal.

One Legal 116A-SOP Northern Branch Fax 510-873-0984

 
 


Disclosure: I am short CSKI, CCME, ONP, CHBT.
]]> Sat, 19 Mar 2011 14:07:37 -0400 Shaky Structure
A very common corporate structure used by Chinese reverse mergers is a three tiered stack of holding companies. The US traded entity (Gramps) owns nothing but shares of stock in a second holding company (Dad). Dad is often located in a tax friendly locale such as BVI and also owns nothing but stock in the third tier (The Kid) which owns the Chinese operations. The Kid has title to everything and has effective control over all operations. US shareholders must look to Gramps who must look to Dad before they get up close and personal with the valuable assets they presumably own. This structure is fraught with risk for the simple reason that Gramps has no enforceable legal claim on what The Kid owns. Dad has a claim but even that is tenuous based on the limitations of China-US financial treaties.

CSKI’s Missing Link
To exhibit the frailty of this construct let me turn to one of China’s more noted RTO’s, China Sky One Medical (CSKI). In CSKI’s situation; Gramps is Nasdaq traded and domiciled in Nevada, Dad is the non-public holding company American California Pharmaceutical Group (ACPG) domiciled in California and The Kid is Harbin TDR waving hello from the distant windows of Harbin City, China.  As is fairly evident, this chain of ownership depends on Dad (ACPG) taking care of the family business. Ponder for a moment the implications to the US shareholders if that link was missing. Presume Dad died. What does Gramps have to say when The Kid won’t return his phone calls. The Kid never liked Gramps anyway and now that Dad has died The Kid has no obligation to Gramps and decides to keep everything. Gramps can bark at the moon as far as the law (and The Kid) are concerned. Sounds farfetched? CSKI will gladly show you otherwise.

Good Standing
California corporations are required to pay franchise taxes and report annually to the state. They are also required to have a registered agent to accept legal documents. To claim “Good Standing” in the state you must comply with these simple rules. Failure to comply, results in suspension or revocation of your charter. You no longer have good standing. This is the corporate equivalent of death. In CSKI’s story Dad has died. ACPG no longer has good standing in California. They had their charter suspended in 2008, briefly revived it in October 2009 but it was immediately resuspended for unpaid taxes. 100% of CSKI’s China assets are owned by a defunct California Corporation.
A lack of good standing translates into being unable to legally transact any business. You cannot defend yourself in court,  sue anyone, make binding contracts, validly receive or transfer ownership of assets, or conduct recordable business of any kind. Tax collectors in California could attach everything ACPG owns and offer it at public auction to satisfy the unpaid tax bill. The only thing ACPG owns is stock. Just to complicate the matter even more, ACPG no longer employs a registered agent. If the State of California, or anyone else in the world…hmmm, chose to sue ACPG the complaint goes unanswered and a summary judgment would naturally follow.

Hello? Anybody home?
Investors might be forgiven if they feel that Dad’s passing was worth noting. Was the omission purposeful? Considering Dad expired in 2008 and three 10-Ks have whistled past his grave, I suspect well planned neglect. It strikes me as beyond negligent for a "healthy" company to let it’s business license lapse and dismiss the registered agent. Maybe The Kid is expecting Gramps to kick off too. Silly to renew National Geo for the geezer when he has less than a month to live. CSKI should serve as a stark warning to investors in these FrankenCorps how unexpectedly a holding company can lose its grip.

CSKI Implications
Franchise taxes are normally a trivial item in the life of a corporation. The obvious question is why are these taxes unpaid.  It is not an oversight as evidenced by the October 2009 attempt to revive the charter and the very quick return to suspended status. In January of 2010 the Chinese government required certified evidence from all .cn domain owners that the entity existed. ACPG was the owner of the Harbin TDR domain. Unable to provide a valid corporate charter to the government, that web site was shut down with several hundred thousand other .cn domains.

My belief is that the IOU to California stems from the PIPE financing completed in April 2008. Funding to China was routed through ACPG. Best guess is that the tax bill for that transaction was ~$60,000. I suspect that CSKI intended to shutter ACPG and never pay the tax but were unable to do so. With penalties and interest the current tax bill is likely in excess of $100,000. CSKI tries to convince investors that they are capable of spending $37,000,000 on forest leases but they can’t convince themselves to pay a seemingly small tax bill.
As a final thought, consider that ownership records maintained by the Chinese government identify ACPG as the sole owner of Harbin TDR and all its subsidiaries. CSKI is not mentioned anywhere in the official records of China. China has never heard of CSKI and has nothing to indicate that CSKI has legal claim to anything. CSKI cannot prove they own any assets in China.
Buyer be very wary. I am cheerfully short CSKI and predict the ongoing SEC investigation will shut them down.

John
 
Business Entity Detail
 
Data is updated weekly and is current as of Friday, March 11, 2011. It is not a complete or certified record of the entity.
Entity Name:
AMERICAN CALIFORNIA PHARMACEUTICAL GROUP, INC.
Entity Number:
C2620534
Date Filed:
12/16/2003
Status:
SUSPENDED
Jurisdiction:
CALIFORNIA
Entity Address:
RM 1706 DI WANG BLDG, 30 GAN SHUI RD NAN GANG DISTR
Entity City, State, Zip:
HARBIN CHINA 150001
Agent for Service of Process:
UNITED CORPORATE SERVICES, INC.
Agent Address:
608 UNIVERSITY AVE
Agent City, State, Zip:
SACRAMENTO CA 95825
 
http://kepler.sos.ca.gov/cbs.aspx
 
15 F3d 1086 Lloyd Myers Co Inc v. Department of Agriculture
Under California law, a corporation, which has been suspended for failure to pay franchise taxes, is prohibited from conveying property or enforcing a contract. Usher v. Henkel, 205 Cal. 413, 417 (1928); Damato v. Slevin, 214 Cal.App.3d 668, 674 (1989); see also Mather Constr. Co. v. United States, 475 F.2d 1152, 1155 (Cl.Ct.1973) ("Under the law of California, a corporation which has been suspended for failure to pay franchise taxes is prohibited from suing, from defending a suit, or from appealing from an adverse decision."). We have stated that upon suspension of a corporate franchise, the business entity "[can] not function as a corporation and [is] incapable of exercising corporate powers for any business purpose." McLaughlin Land & Livestock Co. v. Bank of America, 94 F.2d 491, 493 (9th Cir.1938).
869 F2d 1235 Community Electric Service of Los Angeles Inc v. National Electrical Contractors Association Inc
Section 23301 of the California Revenue and Tax Code provides that the Franchise Tax Board may suspend the rights, powers and privileges of a corporation for nonpayment of taxes. A delinquent California corporation may neither bring suit nor defend a legal action. E.g., Reed v. Norman, 48 Cal.2d 338, 309 P.2d 809, 812 (1957). We have repeatedly acknowledged this as the law of California. See United States v. 2.61 Acres of Land, More or Less, 791 F.2d 666, 668 (9th Cir.1985) (reversing refusal to grant continuance in order to enable corporation to revive itself)
Secretary of State Certified Status
Verification of Non Payment of Franchise Taxes

..............................................
This is to notify you that process service attempt information has been updated for your One Legal Order:

Order #: 6737346
Case #: 10-cv-1091
Party to Serve: American California Pharmaceutical Group, Inc. C/O United Corporate Services

Updated Service Attempt Information:
Attempt Time
Address
Status
Description
1/20/2011 3:54 PM
608 University Avenue, Sacramento,CA 95825
Not found
Per Lauren Morales, they're no longer agent for service for company. They were suspended.


To view complete details about this order, please click the link below or copy and paste the address into your browser:

www.onelegal.com

If you have any questions or need assistance, please send an email to support@onelegal.com, and feel free to contact our Customer Support department Monday through Friday from 8:15 a.m. until 5:30 p.m. at 800-938-8815

Thank you for choosing One Legal.

One Legal 116A-SOP Northern Branch Fax 510-873-0984

 
 


Disclosure: I am short CSKI, CCME, ONP, CHBT.
]]> cski.pk ccme.ob onp chbt.pk China Reverse merger Show me the VAT http://seekingalpha.com/instablog/74349-waldo-mushman/87099-show-me-the-vat?source=feed 87099  
The Chinese tax system is in large part driven by VAT. Value Added Tax. When you purchase something you pay the price of the product plus 17% VAT. The VAT you pay to a supplier is deductible from the VAT you collect from your customers. VAT is administered by the SAT (State Administration of Taxation). Approximately 80% of all Chinese corporate taxes are generated from VAT. The reported sales amounts inclusive of VAT are confidential and unavailable to the public. But these SAT records are readily available to the tax payer. Requesting and receiving  summaries of net VAT payments is a simple request that should be honored  by the SAT within days.
ONP has a fury of attention surrounding it and virtually all critics would be satisfied with a irrefutable confirmation of revenue for the years 2008 and 2009. VAT summaries offer the company an easy way to accomplish that objective. When ONP sells $100,000 of product they are required by law to add an additional $17,000 VAT and collect the entire $117,000. ONP is then required to transfer the $17,000 to the government within three days of receipt of payment. Each transaction is electronically reported to the SAT and every transaction has a unique identifying number.
In 2009 ONP claims revenue of $102mm which would equate to VAT paid to the SAT of ~$17.3mm. They also report cost of goods (which we will assume all qualified for VAT reimbursement) totaling $82mm. The VAT they would have been obligated to pay their suppliers would therefore equal ~$14mm. That amount would be used as a credit against the amounts they collected from the customers. The final result would be that if ONP can document  net payments  to the SAT of ~$3.4mm for 2009 they will have presented an extremely compelling proof to refute the claims of the short selling community. ONP has gone to great lengths attempting to disprove the many charges leveled against them. They have taken the unusual measure of employing Deloitte Financial Advisory Services to “assist” the firm’s counsel Loeb & Loeb. The specific terms of the letter of engagement offered Deloitte and the items subject to  review are undisclosed. It is also undisclosed if Deloitte has begun investigating any of the issues covered in the engagement letter.
Presentation of the VAT summaries would resolve  the argument conclusively. The SAT would readily accommodate a request to provide relevant documentation to ONP. Any observer would be able to make the simple conversion from taxes to sales. Deloitte could vouch for the legitimacy of the tax records and provide their own "Revenue – Expenses  = Tax Paid" calculations.   The issue could be settled within days and copies of the official tax reports could be presented on the web. I am a short seller of this stock and I would cover my position if SAT records supported ONP revenue claims. The lengthy list of accusations become meaningless if the top line and bottom line are proveably  accurate. The VAT filing can definitively settle the issue .
 SHOW ME THE VAT
 VAT regulations  www.chinatax.gov.cn/n6669073/n6669088/68...
John

 


Disclosure: Short ONP]]> Wed, 11 Aug 2010 22:20:56 -0400  
The Chinese tax system is in large part driven by VAT. Value Added Tax. When you purchase something you pay the price of the product plus 17% VAT. The VAT you pay to a supplier is deductible from the VAT you collect from your customers. VAT is administered by the SAT (State Administration of Taxation). Approximately 80% of all Chinese corporate taxes are generated from VAT. The reported sales amounts inclusive of VAT are confidential and unavailable to the public. But these SAT records are readily available to the tax payer. Requesting and receiving  summaries of net VAT payments is a simple request that should be honored  by the SAT within days.
ONP has a fury of attention surrounding it and virtually all critics would be satisfied with a irrefutable confirmation of revenue for the years 2008 and 2009. VAT summaries offer the company an easy way to accomplish that objective. When ONP sells $100,000 of product they are required by law to add an additional $17,000 VAT and collect the entire $117,000. ONP is then required to transfer the $17,000 to the government within three days of receipt of payment. Each transaction is electronically reported to the SAT and every transaction has a unique identifying number.
In 2009 ONP claims revenue of $102mm which would equate to VAT paid to the SAT of ~$17.3mm. They also report cost of goods (which we will assume all qualified for VAT reimbursement) totaling $82mm. The VAT they would have been obligated to pay their suppliers would therefore equal ~$14mm. That amount would be used as a credit against the amounts they collected from the customers. The final result would be that if ONP can document  net payments  to the SAT of ~$3.4mm for 2009 they will have presented an extremely compelling proof to refute the claims of the short selling community. ONP has gone to great lengths attempting to disprove the many charges leveled against them. They have taken the unusual measure of employing Deloitte Financial Advisory Services to “assist” the firm’s counsel Loeb & Loeb. The specific terms of the letter of engagement offered Deloitte and the items subject to  review are undisclosed. It is also undisclosed if Deloitte has begun investigating any of the issues covered in the engagement letter.
Presentation of the VAT summaries would resolve  the argument conclusively. The SAT would readily accommodate a request to provide relevant documentation to ONP. Any observer would be able to make the simple conversion from taxes to sales. Deloitte could vouch for the legitimacy of the tax records and provide their own "Revenue – Expenses  = Tax Paid" calculations.   The issue could be settled within days and copies of the official tax reports could be presented on the web. I am a short seller of this stock and I would cover my position if SAT records supported ONP revenue claims. The lengthy list of accusations become meaningless if the top line and bottom line are proveably  accurate. The VAT filing can definitively settle the issue .
 SHOW ME THE VAT
 VAT regulations  www.chinatax.gov.cn/n6669073/n6669088/68...
John

 


Disclosure: Short ONP]]> onp China CSKI Patents are Valueless http://seekingalpha.com/instablog/74349-waldo-mushman/36509-cski-patents-are-valueless?source=feed 36509 CSKI Patents are Valueless
China Sky One Medical may not have many character traits that I admire but they certainly are bold. Imagine the audacity required to inflate the value of patents 30 fold in the space of three years. The same seven patents CSKI valued at less than $500,000 in 2006 now sport a classy $15mm valuation. The really bold part of the equation is that these patents are complete fabrications. The patents don’t exist.
www.waldomushman.com/patents.html
CSKI also proudly trumpets the groundbreaking work they are doing in cancer research. Endothelin-1 is mentioned dozens of times in the 10-K and represented as a patent or patent application that CSKI owns. They don’t. Unlike the other seven patents though, this one actually exists. The problem is that it is owned by some else, not CSKI. Pretty bold to claim ownership of seven non-existent patents and another that isn’t yours.
www.waldomushman.com/endothelin.html
I am short this stock and trying to increase my position.
]]> Thu, 19 Nov 2009 13:07:40 -0500 CSKI Patents are Valueless
China Sky One Medical may not have many character traits that I admire but they certainly are bold. Imagine the audacity required to inflate the value of patents 30 fold in the space of three years. The same seven patents CSKI valued at less than $500,000 in 2006 now sport a classy $15mm valuation. The really bold part of the equation is that these patents are complete fabrications. The patents don’t exist.
www.waldomushman.com/patents.html
CSKI also proudly trumpets the groundbreaking work they are doing in cancer research. Endothelin-1 is mentioned dozens of times in the 10-K and represented as a patent or patent application that CSKI owns. They don’t. Unlike the other seven patents though, this one actually exists. The problem is that it is owned by some else, not CSKI. Pretty bold to claim ownership of seven non-existent patents and another that isn’t yours.
www.waldomushman.com/endothelin.html
I am short this stock and trying to increase my position.
]]> cski.pk china short fraud CSKI Cash has Abdicated http://seekingalpha.com/instablog/74349-waldo-mushman/31962-cski-cash-has-abdicated?source=feed 31962 Cash is King. If you are invested in China Sky One Medical (CSKI), I have bad news for you. The King has abdicated. The Chinese government requires CSKI to renew its business license annually. The law mandates audited financial statements as part of the submission. The 2008 audited reports for all three operational subsidiaries show total year end cash of CNY 9,871,000 which is about $1,440,000 (6.82 CNY = $1.00).  The cash reported in China by CSKI is 1/30th the amount reported in the US.
“Hey, they just got $25,000,000 last February in that stock offering and are making money hand over fist.  They have to be rolling in dough.” American investors have certainly been led to think that is the case. A completely different story is shockingly told by audited balance sheets signed by the officers of CSKI, confirmed by independent Chinese CPA’s, approved by government regulatory and taxing agencies, and corroborated with written verifications from the capital transfer bank. The story told in China is short and not so sweet The cash is gone. CSKI has less than $1,000,000.
By the time it made its way to Chinese shores, the PIPE was reduced to $22,000,000 by fees and expenses. 2008 Chinese financials show beginning cash of CNY2,347,000 and ending cash of only CNY9,871,000 including the inflow of CNY150,040,000 from the American PIPE. The cash depletion is largely traceable to expenses of CNY127,211,000 (~$18.6mm) classified as “Advances to Suppliers”. CSKI used 85% of the money they had just raised for “Advances to Suppliers”???   Do three question marks adequately highlight the extraordinary nature of such a use of funds? Inexplicably the 10-K doesn’t include this massive transaction in Inventory or Prepaid Assets. To add to the puzzlement, even after the monumental prepayment CSKI still reports CNY 26mm in payables, virtually unchanged from the previous year.
Cash was further reduced during the year by consolidated operating losses of CNY2,294,000. “Other Receivables” (not the product related “Accounts Receivable”) increased by an additional CNY5.7mm. More cash out the door.
Five acquisitions, Chenlong, First Bio, Haina, Peng Lai and Tianlong resulted in an additional CNY21,615,000 of “Long-Term Investments”. The conflicting claims made in US documents and Chinese filings make it impossible to determine what portion of this line item was cash and what portion was the value assigned to the 405,456 shares transferred in the acquisitions.. Since Cash was down to ~CNY 20mm after the “Advance to Suppliers” we have to assume the majority of that amount reflects treasury stock.
Little wonder that CSKI’s President has hinted at possible new equity offerings. If successful, it will be another red letter event for the Suppliers.
I am short this equity, assuming that term is not overly inclusive.
Documents at www.waldomushman.com/cash.html
]]> Sat, 17 Oct 2009 22:11:22 -0400 Cash is King. If you are invested in China Sky One Medical (CSKI), I have bad news for you. The King has abdicated. The Chinese government requires CSKI to renew its business license annually. The law mandates audited financial statements as part of the submission. The 2008 audited reports for all three operational subsidiaries show total year end cash of CNY 9,871,000 which is about $1,440,000 (6.82 CNY = $1.00).  The cash reported in China by CSKI is 1/30th the amount reported in the US.
“Hey, they just got $25,000,000 last February in that stock offering and are making money hand over fist.  They have to be rolling in dough.” American investors have certainly been led to think that is the case. A completely different story is shockingly told by audited balance sheets signed by the officers of CSKI, confirmed by independent Chinese CPA’s, approved by government regulatory and taxing agencies, and corroborated with written verifications from the capital transfer bank. The story told in China is short and not so sweet The cash is gone. CSKI has less than $1,000,000.
By the time it made its way to Chinese shores, the PIPE was reduced to $22,000,000 by fees and expenses. 2008 Chinese financials show beginning cash of CNY2,347,000 and ending cash of only CNY9,871,000 including the inflow of CNY150,040,000 from the American PIPE. The cash depletion is largely traceable to expenses of CNY127,211,000 (~$18.6mm) classified as “Advances to Suppliers”. CSKI used 85% of the money they had just raised for “Advances to Suppliers”???   Do three question marks adequately highlight the extraordinary nature of such a use of funds? Inexplicably the 10-K doesn’t include this massive transaction in Inventory or Prepaid Assets. To add to the puzzlement, even after the monumental prepayment CSKI still reports CNY 26mm in payables, virtually unchanged from the previous year.
Cash was further reduced during the year by consolidated operating losses of CNY2,294,000. “Other Receivables” (not the product related “Accounts Receivable”) increased by an additional CNY5.7mm. More cash out the door.
Five acquisitions, Chenlong, First Bio, Haina, Peng Lai and Tianlong resulted in an additional CNY21,615,000 of “Long-Term Investments”. The conflicting claims made in US documents and Chinese filings make it impossible to determine what portion of this line item was cash and what portion was the value assigned to the 405,456 shares transferred in the acquisitions.. Since Cash was down to ~CNY 20mm after the “Advance to Suppliers” we have to assume the majority of that amount reflects treasury stock.
Little wonder that CSKI’s President has hinted at possible new equity offerings. If successful, it will be another red letter event for the Suppliers.
I am short this equity, assuming that term is not overly inclusive.
Documents at www.waldomushman.com/cash.html
]]> cski.pk China short CSKI Has A Secret Subsidiary http://seekingalpha.com/instablog/74349-waldo-mushman/31552-cski-has-a-secret-subsidiary?source=feed 31552  
Shareholders of China Sky One Medical (CSKI) a China based manufacturer of mass market Chinese nostrums should probably wonder about a subsidiary that CSKI bought last year. The Chinese government strictly enforces ownership disclosure. As of March 23, 2009 official government records report 100% ownership of Harbin Chenlong Medical Development by CSKI/Harbin TDR (1), acquired in 2008 but yet to be publicly disclosed.
 
2008 was not a great year for Chenlong. Audited financials filed on March 23, 2009 and signed by CSKI officers (2)show zero revenue and a loss of CNY 608,040. Most of the loss was due to "Management Expenses" of CNY 612,703. But Chenlong would seem to be a major player based on recent transactions in which it was a principal. As an example, official documents filed on April 24, 2008 (6)record Chenlong selling a 74.5% ownership position they held in another company. The total price reported in SEC filings was $8.3mm. Chenlong’s share should equal $6.18mm (~ CNY 42mm) for the 74.5% they owned. Unfortunately the 2008 annual report for Chenlong (2) doesn't reflect this massive transaction.
 
And now the story gets a little messy because Chenlong sold the $6mm stock holding to CSKI/Harbin TDR. The stock they sold was a 74.5% position in Heilongjiang Tianlong Pharmaceutical Co., Ltd, which may sound familiar. Lets jump in the way-back machine for a look at how this chain is linked.
 
Chenlong was formed in 2000 with six shareholders (3). Mr Wu Jie-Chen was Chenlong’s biggest shareholder and also general manager of Tianlong at the time. The other 5 shareholders may have also worked at Tianlong. In 2004 Chenlong contributed capital into Tianlong and became holder of 74.5% of Tianlong's stock (4). We move forward to year end 2006 and CSKI becomes involved….
 
LOS ANGELES, Calif., Dec. 13 2006/Xinhua-PRNewswire-FirstCall/ -- China Sky One Medical, Inc., has announced that a strategic agreement was reached between Liu Yan-qing, president of China Sky One Medical, Inc. and Mr. Wu Jie-chen, president of Heilongjiang Tianlong Pharmaceutical Company. As a result of this agreement, CSKI will acquire all of the products, dealership, marketing network of Tianlong Beijing office and the Beijing office staff for USD $381,700.
 
The purchase may have been more extensive than described. Government records dated March 3, 2008 (5)show that CSKI had contributed CNY 10mm into the company February 27, 2007. This document primarily documents the transfer of 100% of Chenlong stock from the original six shareholders including Wu Jie-Chen to CSKI/Harbin TDR. There is no disclosure from CSKI about this acquisition. Effective March 3, 2008 CSKI is 100% owner of Chenlong and indirectly owns 74.5% of Tianlong. And 30 days later.....
 
On April 3, 2008, ….TDR acquired 100% of the issued and outstanding capital stock of Heilongjiang Tianlong from Heilongjiang’s sole stockholder, Wu Jie-Chen a resident of China, in consideration of approximately $8,300,000, consisting of (i) $8,000,000 in cash, and (ii)23,850 shares of China Sky One    From CSKI November 2008 10-Q
The transfer of Tianlong shares to CSKI/Harbin TDR from its wholly owned subsidiary Chenlong was dutifully recorded on April 24, 2008. Mr Wu Jie-Chen was not referenced in this transaction probably because he was no longer a shareholder (6).
 
The list of reasonable questions might start with, "What in the name of Sweet Jesus is going on around here?" Each link in this chain is undisclosed, misrepresented or self dealing. The auditor for CSKI, MSPC, charged with protecting the public interest apparently remains unaware of any of these documented events.
 
Documents at waldomushman.com/chenlong.html

I am Short and trying to get shorter.
 
]]> Wed, 14 Oct 2009 11:16:01 -0400  
Shareholders of China Sky One Medical (CSKI) a China based manufacturer of mass market Chinese nostrums should probably wonder about a subsidiary that CSKI bought last year. The Chinese government strictly enforces ownership disclosure. As of March 23, 2009 official government records report 100% ownership of Harbin Chenlong Medical Development by CSKI/Harbin TDR (1), acquired in 2008 but yet to be publicly disclosed.
 
2008 was not a great year for Chenlong. Audited financials filed on March 23, 2009 and signed by CSKI officers (2)show zero revenue and a loss of CNY 608,040. Most of the loss was due to "Management Expenses" of CNY 612,703. But Chenlong would seem to be a major player based on recent transactions in which it was a principal. As an example, official documents filed on April 24, 2008 (6)record Chenlong selling a 74.5% ownership position they held in another company. The total price reported in SEC filings was $8.3mm. Chenlong’s share should equal $6.18mm (~ CNY 42mm) for the 74.5% they owned. Unfortunately the 2008 annual report for Chenlong (2) doesn't reflect this massive transaction.
 
And now the story gets a little messy because Chenlong sold the $6mm stock holding to CSKI/Harbin TDR. The stock they sold was a 74.5% position in Heilongjiang Tianlong Pharmaceutical Co., Ltd, which may sound familiar. Lets jump in the way-back machine for a look at how this chain is linked.
 
Chenlong was formed in 2000 with six shareholders (3). Mr Wu Jie-Chen was Chenlong’s biggest shareholder and also general manager of Tianlong at the time. The other 5 shareholders may have also worked at Tianlong. In 2004 Chenlong contributed capital into Tianlong and became holder of 74.5% of Tianlong's stock (4). We move forward to year end 2006 and CSKI becomes involved….
 
LOS ANGELES, Calif., Dec. 13 2006/Xinhua-PRNewswire-FirstCall/ -- China Sky One Medical, Inc., has announced that a strategic agreement was reached between Liu Yan-qing, president of China Sky One Medical, Inc. and Mr. Wu Jie-chen, president of Heilongjiang Tianlong Pharmaceutical Company. As a result of this agreement, CSKI will acquire all of the products, dealership, marketing network of Tianlong Beijing office and the Beijing office staff for USD $381,700.
 
The purchase may have been more extensive than described. Government records dated March 3, 2008 (5)show that CSKI had contributed CNY 10mm into the company February 27, 2007. This document primarily documents the transfer of 100% of Chenlong stock from the original six shareholders including Wu Jie-Chen to CSKI/Harbin TDR. There is no disclosure from CSKI about this acquisition. Effective March 3, 2008 CSKI is 100% owner of Chenlong and indirectly owns 74.5% of Tianlong. And 30 days later.....
 
On April 3, 2008, ….TDR acquired 100% of the issued and outstanding capital stock of Heilongjiang Tianlong from Heilongjiang’s sole stockholder, Wu Jie-Chen a resident of China, in consideration of approximately $8,300,000, consisting of (i) $8,000,000 in cash, and (ii)23,850 shares of China Sky One    From CSKI November 2008 10-Q
The transfer of Tianlong shares to CSKI/Harbin TDR from its wholly owned subsidiary Chenlong was dutifully recorded on April 24, 2008. Mr Wu Jie-Chen was not referenced in this transaction probably because he was no longer a shareholder (6).
 
The list of reasonable questions might start with, "What in the name of Sweet Jesus is going on around here?" Each link in this chain is undisclosed, misrepresented or self dealing. The auditor for CSKI, MSPC, charged with protecting the public interest apparently remains unaware of any of these documented events.
 
Documents at waldomushman.com/chenlong.html

I am Short and trying to get shorter.
 
]]> cski.pk china Forget it Jake, its Chinatown. http://seekingalpha.com/instablog/74349-waldo-mushman/31405-forget-it-jake-its-chinatown?source=feed 31405 In the brilliant 1982 film “Chinatown” a key plot twist was the Mar Vista Rest Home’s role as an untraceable “dead drop” for the bad guys. Noah Cross in today’s version is played by China Sky One Medical (CSKI) and the knife is being held to the investors’ nose by CSKI’s auditor, MSPC. 
Our tale of intrigue begins with this notice,” On April 3, 2008, TDR completed an acquisition …. Of 100% …. of Tianlong from Tianlong’s sole stockholder Wu Jiechen, a resident of China, ….for approximately $8.3 million.” CSKI 2008 10-K
Seem’s pretty clear who sold the stock and when. But tales of intrigue demand, well…intrigue. China maintains corporate records very much like the United States and is extremely vigilant about ownership changes. Based on official records from 2000 (1) Tianlong Pharmaceutical was incorporated in 1997 and was 100% owned by Elite Linza Inc. Elite Linza’s ownership of Tianlong had been reduced to 25.5% by April 3, 2008 when they sold out to CSKI (2). Wu Jie-Chen owned 0% of Tianlong at the time and was not a party to the acquisition by CSKI.
None of this sounds to terrible until we notice that Elite Linza has a business address in Queens, at 35-37 165th Street Flushing NY. It also seems strange that the Corporate Charter for Elite Linza (3) became defunct in March of 2000. What we are left with is CSKI completing a major acquisition with a defunct corporate entity lacking the legal authority to transact any form of business. The party named in the CSKI 10-K owned and sold no stock. The actual selling shareholders remain undisclosed. And for some reason, it has all gone unnoticed by the auditor, MSPC. At least MSPC could go knock on Elite Linza’s door and see who is there. Google maps suggest it is only a 19 minute drive from their office on 5th Avenue.
The remaining 74.5% was transferred to CSKI by CSKI’s own subsidiary Chenlong, but that is another story
Documents at www.waldomushman.com/elite.html
I am short this equity for a multitude of reasons and I would direct the reader’s attention to my website www.waldomushman.com or www.Asensio.com to appreciate the reasons for my very negative sentiments.
]]> Tue, 13 Oct 2009 11:38:37 -0400 In the brilliant 1982 film “Chinatown” a key plot twist was the Mar Vista Rest Home’s role as an untraceable “dead drop” for the bad guys. Noah Cross in today’s version is played by China Sky One Medical (CSKI) and the knife is being held to the investors’ nose by CSKI’s auditor, MSPC. 
Our tale of intrigue begins with this notice,” On April 3, 2008, TDR completed an acquisition …. Of 100% …. of Tianlong from Tianlong’s sole stockholder Wu Jiechen, a resident of China, ….for approximately $8.3 million.” CSKI 2008 10-K
Seem’s pretty clear who sold the stock and when. But tales of intrigue demand, well…intrigue. China maintains corporate records very much like the United States and is extremely vigilant about ownership changes. Based on official records from 2000 (1) Tianlong Pharmaceutical was incorporated in 1997 and was 100% owned by Elite Linza Inc. Elite Linza’s ownership of Tianlong had been reduced to 25.5% by April 3, 2008 when they sold out to CSKI (2). Wu Jie-Chen owned 0% of Tianlong at the time and was not a party to the acquisition by CSKI.
None of this sounds to terrible until we notice that Elite Linza has a business address in Queens, at 35-37 165th Street Flushing NY. It also seems strange that the Corporate Charter for Elite Linza (3) became defunct in March of 2000. What we are left with is CSKI completing a major acquisition with a defunct corporate entity lacking the legal authority to transact any form of business. The party named in the CSKI 10-K owned and sold no stock. The actual selling shareholders remain undisclosed. And for some reason, it has all gone unnoticed by the auditor, MSPC. At least MSPC could go knock on Elite Linza’s door and see who is there. Google maps suggest it is only a 19 minute drive from their office on 5th Avenue.
The remaining 74.5% was transferred to CSKI by CSKI’s own subsidiary Chenlong, but that is another story
Documents at www.waldomushman.com/elite.html
I am short this equity for a multitude of reasons and I would direct the reader’s attention to my website www.waldomushman.com or www.Asensio.com to appreciate the reasons for my very negative sentiments.
]]> cski.pk china