FAB Universal's Failure To Disclose 100 Million RMB Debt Adds To Problems

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Questions regarding the motives of the FAB Universal (FU) management team and the transparency of its Chinese operations first surfaced in back to back Seeking Alpha articles published on September 26 and October 1 discussing massive dilution headwinds on the horizon. The dilutive events that could ultimately result in 37.9 million shares hitting the market arose from the back door RTO transaction that FAB's Chinese subsidiary used to go public in April 2012.

Next, after an over two-year hiatus since Alfred Little (A*L) published his last report leading to the delisting of a ChinaHybrid, SinoTech Energy, A*L broke his silence. On Thursday November 14, 2013, A*L put out a scathing report concluding that FAB Universal is a fraud. A*L's report went beyond capital structure issues and addressed FU's operations through intensive on-the-ground research. He found FAB guilty of rampant piracy, back-end deals with franchisees that guarantee returns, and of inflating its kiosk count by as much as 10 times. A*L's findings put into question 90% of FAB's kiosk revenues of $26 million reported for the first nine months of 2013 (see page 28 of the Q3 10-Q). We had opened up an investigation into FU's operations several months ago and our initial attempt (or should we say inability) to locate FAB kiosks in Beijing leads us to believe A*L's claim that FAB has grossly exaggerated its kiosk count.

New Evidence of Deception Brought to GeoInvesting's Attention

On Friday, November 15, 2013, a Seeking Alpha contributor, "Unemon1" alerted GeoInvesting to an undisclosed RMB 100 million ($16.4 million) Chinese bond issuance by FAB. The implications of this development are significant, especially when one considers that FAB operates through Variable Interest Entities (VIEs) wherein U.S. investors have been found historically to have questionable legal claims to assets and cash flows.

Verification of FAB's

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