This is a reprint from our earlier research note dated
I. On-the-ground Due Diligence Commences (See Entire Report)
What started out as a basic curiosity about the ownership structure of Subaye (NASDAQ:SBAY) led to an on-the-ground investigation into the fundamental operations of the company. Our initial red flags were born out of misrepresentations of ownership structure as well as questions into the effectiveness and potential of the company's website and "cloud business products" in garnering meaningful revenues. We eventually came to a startling realization that a major discrepancy exists between the purported size of SBAY's workforce versus what we determined to be physical limitations due to the lack of office space and/or non-existent offices and employees altogether.
Our investigator visited Subaye in Guangzhou on the morning of March 8, 2011 where he spoke to one maintenance individual who works at the facility and two employees of a car wash company adjacent to SBAY. Our investigator also visited SBAY's claimed facility in Beijing on March 22, 2011, where he was unable to verify the presence of a workforce at this facility. Our investigator took several pictures of the Guangzhou and Beijing facilities. We also conducted extensive internet research on SBAY and pulled the company's SAIC filings as well as those of an associated company, Guangzhou Aixi Software Co., Ltd.("Aixi").
Based on our investigation, we alerted our readers on March 7, 2011 to tread cautiously when considering an investment in SBAY. We also disclosed that we established an initial short position in the company's shares as a result of our findings. On March 15, 2011 we published more information regarding our findings.
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Disclosure: Short SBAY at time of this report.