Chinese Companies "Going Dark"

After two years of turmoil in the market for China-based small cap stocks most of the companies find themselves in a dire situation. Their stock price has collapsed and the company's market value is only a fraction of what it was before RINO's demise. The trading volume for most stocks has collapsed as well and there is almost no chance to raise capital anymore. At the same time the cost of being a public company has risen significantly, and probably will continue to rise from current levels. That leaves very many Chinese companies unhappy with their public status as the costs by far outweigh the benefits and many U.S.-traded firms no longer wish to be a public company.

Most of the expenses of being a public company arise from the reporting requirements with the SEC. The manadatory Form 10-K (annually) requires that the company's financial results are audited by an independent accounting firm, additionally the quarterly Form 10-Q's have to be reviewed by this auditor. Those forms also trigger legal fees, technical expenses as formatting them for the EDGAR system, and the company has to pay professional staff, training them in U.S. GAAP accounting and Sarbanes-Oxley compliance. Last but not least a Chief Financial Officer is usually required, a senior management position most small companies would not fill if they weren't publicly traded.

Auditing costs have risen significantly over the past three years as the market turmoil and increased scrutiny led to an increased risk of auditing a Chinese company for most accounting firms.



Other expenses arising from a company's public status are compensation for independent directors, spending more capital on investor relations in an effort to distinguish itself from other Chinese companies in such a hostile environment, and increasingly also legal costs to defend the company against short seller allegations and class action suits. After years of trouble and only small benefits from their public status many companies now simply wish to reduce these costs by giving up on their public status, ceasing to be a fully reporting company.

We have seen many "Going Private" transactions or proposals over the past twelve months - more on this in one of the next articles in this series - but not every small company can raise the capital necessary to repurchase their stock from its public shareholders. That leaves most companies who wish to stop being a public company only one option: to stop filing quarterly and annual reports with the SEC, also known as "Going Dark," without buying back its shares.

Form 15

There are basically two ways of "Going Dark," the orderly and legal way of deregistering its shares by filing a Form-15 with the SEC, and the illegal way of simply disappearing from the public eye. However, not every company is allowed to file a Form-15 and the SEC has to accept the filing for it to become effective. The main requirement for a Form-15 is that the company has less than 300 shareholders of record, or less than 500 shareholders and its net assets for each of the last three fiscal years was less than $10 million. Additionally, with very few exceptions, the SEC requires that the company is current with its reporting obligations at the time of a Form-15 submission.

Here is a list of Chinese companies that were "Going Dark" by filing a Form-15:

2012-10-04 -- CHME China Medicine
2012-08-31 -- CCGY China Clean Energy
2012-08-13 -- ZSTN ZST Digital Networks
2012-06-29 -- AGSO AgriSolar Solutions
2012-05-11 -- LTUS Lotus Pharmaceuticals
2012-04-20 -- ONBI One Bio Corp
2012-03-30 -- ALIF Artificial Life
2012-03-30 -- EESC Eastern Environment Solutions
2012-03-29 -- CSNH China Shandong Industries
2012-03-13 -- XNYH Xinyinhai Technology
2012-02-09 -- CNER China New Energy Group
2012-02-08 -- SGLA Sino Green Land
2011-12-30 -- DFEL China TMK Battery Systems
2011-11-14 -- SRRY Sancon Resources Recovery
2011-10-20 -- CIWT China Industrial Waste Management
2011-06-20 -- CRJI China Runji Cement
2011-05-18 -- GHNA GHN Agrispan Holding
2011-01-13 -- RINO RINO International
2011-01-03 -- ENHD Energroup Holdings

Those stocks are still quoted on the pink sheets, and the companies still have certain responsibilities to its public shareholders as they didn't buy back its stock. This includes maintaining a board of directors and holding annual shareholder meetings. If these "Form-15 Companies" wish to regain compliance in the future the SEC has the following regulation in place: "If the certification of termination on Form 15 is subsequently withdrawn or denied, the company must file all reports that would have been required if the Form 15 had not been filed."

Going Dark

It is much harder, if not impossible, to reactivate its stock in the future if the company has chosen to "go dark" illegally. Simply ignoring its reporting obligations might cause the SEC to take action, which might lead to its stock to become untradeable, even on the pink sheets. Still, the reasons for "going dark" might be the same as for "Form-15 Companies," it doesn't necessarily indicate fraud or criminal behaviour. Investors holding any of these stocks are encouraged to independently and persistently contact the company and find out as many of its reasons and future plans as possible.

There are many more Chinese small- and micro caps that are still traded on the OTC but face similar problems than those that were "going dark." Another group of possible "going dark" candidates can be found in the large number of companies that have seen their stock getting delisted from a senior exchange with little or no chance of regaining that listing. It pays off to take a close look at the filing history of these names and look out for possible warning signs.

Here is a comprehensive list of China-based companies that were "going dark" without filing a Form 15:

AKRK -- Asia Cork
(Performance Dec 31, 2010 to Sep 30, 2012: -97.95%)
2011-05-23 -- Last SEC Filing
2011-05-23 -- Last Quarterly/Annual Report: Q1/FY2011 ended March 31, 2011

BEER -- Tsingyuan Brewery
(Performance Dec 31, 2010 to Sep 30, 2012: -95.10%)
2012-04-02 -- Last SEC Filing
2012-02-10 -- Going Private Transaction indicated (loose plans)
2011-11-18 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

BFAR -- BioPharm Asia
(Performance Dec 31, 2010 to Sep 30, 2012: -98.62%)
2011-06-24 -- Last SEC Filing
2011-02-16 -- CEO Appointment
2011-02-15 -- CEO Resignation
2011-02-14 -- Auditor Engagement
2011-01-30 -- CFO Appointment
2011-01-27 -- CFO Resignation
2011-01-20 -- Auditor Terminated
2010-11-22 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CAGM -- China Green Material
(Performance Dec 31, 2010 to Sep 30, 2012: -98.10%)
2012-04-02 -- Last SEC Filing
2012-03-27 -- Auditor Resignation
2011-11-21 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011
2011-07-13 -- Auditor Change
2011-04-27 -- Auditor Change

CGDI -- China Growth Development
(Performance Dec 31, 2010 to Sep 30, 2012: -95.84%)
2010-03-31 -- Last SEC Filing
2009-11-18 -- Last Quarterly/Annual Report: Q3/FY2009 ended September 30, 2009

CGPI -- China Redstone Group
(Performance Dec 31, 2010 to Sep 30, 2012: -99.54%)
2011-07-01 -- Last SEC Filing
2011-05-13 -- CFO Appointment
2011-04-22 -- CFO Resignation
2011-03-02 -- CFO Appointment
2011-03-02 -- CFO Resignation
2011-02-14 -- Last Quarterly/Annual Report: Q3/FY2011 ended December 31, 2010

CHBU -- China Agri-Business
(Performance Dec 31, 2010 to Sep 30, 2012: -95.62%)
2012-03-30 -- Last SEC Filing
2011-11-21 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

CHNC -- China Infrastructure Construction
(Performance Dec 31, 2010 to Sep 30, 2012: -96.88%)
2012-04-20 -- Last SEC Filing
2012-04-20 -- Last Quarterly/Annual Report: Q3/FY2012 ended February 29, 2012

CKGT -- China Kangtai Cactus
(Performance Dec 31, 2010 to Sep 30, 2012: -75.73%)
2012-08-15 -- Last SEC Filing
2011-11-14 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

CNOA -- China Organic Agriculture
(Performance Dec 31, 2010 to Sep 30, 2012: -96.98%)
2011-05-17 -- Last SEC Filing
2011-03-18 -- CFO Resignation
2011-03-18 -- CEO Resignation
2011-01-24 -- Auditor Engagement
2011-01-20 -- Auditor Resignation
2010-12-21 -- CFO Appointment
2010-12-21 -- CFO Resignation
2010-11-22 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CNPI -- China Power Technology
(Performance Dec 31, 2010 to Sep 30, 2012: n/a)
2011-08-09 -- Last SEC Filing
2011-06-10 -- CFO Resignation
2011-05-16 -- Last Quarterly/Annual Report: Q1/FY2011 ended March 31, 2011

CNVP -- China Environmental Protection
(Performance Dec 31, 2010 to Sep 30, 2012: -99.56%)
2012-09-24 -- Last SEC Filing
2011-08-11 -- Auditor Engagement
2011-01-21 -- Auditor Resignation
2010-08-23 -- Last Quarterly/Annual Report: Q3/FY2010 ended June 30, 2010

CRUI -- China RuiTai International
(Performance Dec 31, 2010 to Sep 30, 2012: -97.00%)
2012-03-30 -- Last SEC Filing
2011-11-14 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

CSGH -- China Sun Group High-Tech
(Performance Dec 31, 2010 to Sep 30, 2012: -91.23%)
2012-06-25 -- Last SEC Filing
2012-06-19 -- CFO Resignation
2012-04-13 -- Last Quarterly/Annual Report: Q3/FY2012 ended February 29, 2012

CSGJ -- China Shuangji Cement
(Performance Dec 31, 2010 to Sep 30, 2012: -87.95%)
2011-03-31 -- Last SEC Filing
2010-11-22 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CSOL -- China Solar & Clean Energy
(Performance Dec 31, 2010 to Sep 30, 2012: -97.06%)
2012-08-09 -- Last SEC Filing
2012-08-06 -- CFO Resignation
2011-11-21 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

EMDY -- Emerald Dairy
(Performance Dec 31, 2010 to Sep 30, 2012: -90.57%)
2011-12-01 -- Last SEC Filing
2011-10-26 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

GCHT -- GC China Turbine
(Performance Dec 31, 2010 to Sep 30, 2012: -95.38%)
2012-08-15 -- Last SEC Filing
2012-02-22 -- CFO Resignation
2011-11-21 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011
2011-09-21 -- Auditor Change

GHII -- Gold Horse International
(Performance Dec 31, 2010 to Sep 30, 2012: -93.36%)
2012-06-30 -- CFO Contract expired
2012-05-16 -- Last SEC Filing
2012-05-10 -- Last Quarterly/Annual Report: Q3/FY2012 ended March 31, 2012

HFGB -- Huifeng Bio-Pharma
(Performance Dec 31, 2010 to Sep 30, 2012: -94.12%)
2011-08-12 -- Last SEC Filing
2011-08-09 -- Auditor Engagement
2011-04-15 -- Auditor Resignation
2010-11-15 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

HSYT -- Home System Group
(Performance Dec 31, 2010 to Sep 30, 2012: -97.16%)
2012-04-02 -- Last SEC Filing
2012-03-08 -- Auditor Engagement
2011-12-13 -- Auditor Resignation
2010-11-15 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

IDCX -- North China Horticulture
(Performance Dec 31, 2010 to Sep 30, 2012: -99.34%)
2012-04-02 -- Last SEC Filing
2011-11-21 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

JADA -- Jade Art Group
(Performance Dec 31, 2010 to Sep 30, 2012: -89.45%)
2010-11-16 -- Last SEC Filing
2010-11-15 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

LEGE -- Legend Media
(Performance Dec 31, 2010 to Sep 30, 2012: -50.00%)
2010-09-28 -- Last SEC Filing
2010-05-17 -- Last Quarterly/Annual Report: Q3/FY2010 ended March 31, 2010

LZEN -- Lizhan Environmental
(Performance Dec 31, 2010 to Sep 30, 2012: -91.74%)
2012-04-24 -- Last SEC Filing
2012-04-12 -- Last Quarterly/Annual Report: FY2011 ended December 31, 2011

PFGY -- Perfectenergy International
(Performance Dec 31, 2010 to Sep 30, 2012: -96.25%)
2012-08-01 -- Last SEC Filing
2012-04-01 -- CFO Resignation
2011-08-22 -- Last Quarterly/Annual Report: Q3/FY2011 ended June 30, 2011

RDBO -- Rodobo International
(Performance Dec 31, 2010 to Sep 30, 2012: -91.94%)
2011-12-30 -- Last SEC Filing
2011-08-15 -- Last Quarterly/Annual Report: Q3/FY2011 ended June 30, 2011

YYINE -- Yayi International
(Performance Dec 31, 2010 to Sep 30, 2012: -77.28%)
2012-08-15 -- Last SEC Filing
2012-04-13 -- CFO Resignation
2012-02-14 -- Last Quarterly/Annual Report: Q3/FY2012 ended December 31, 2011

Chinese Delistings on U.S. Exchanges

The singlemost important goal for every Chinese company that decided to become publicly traded in the U.S. was to obtain a listing on a senior exchange, NASDAQ or NYSE / NYSE Amex. The reason that many companies chose a reverse merger as their method of going public was that it was much faster and significantly cheaper than a traditional IPO. And many of those reverse merger companies succeeded in getting their stock listed on a senior exchange within a few years.

This listing comes with a number of benefits. First of all it is much cheaper to raise capital when the stock is no longer just quoted on the bulletin boards. And raising capital is a primary reason for going public also for Chinese companies. Secondly this listing creates a liquid market outside of the PRC for Chinese shareholders, and in China money, personal wealth, and with it status is of prime importance, not comparable with Europe or the U.S.

That leads to the third, and probably most important reason for going public in the U.S.: recognition and prestige for the company and its officials. Being a U.S. public company with a NASDAQ or NYSE listing leads to prestige with both customers and suppliers, but also local banks and government. The good will of especially banks and local government officials is extremely important for a small Chinese company. In a country where success in business is largely based on networking and guanxi, status and prestige are invaluable assets for a young company.

But it also means that a delisting notice from NASDAQ or NYSE comes with great embarrassment for the company. In most cases not only the stock price will collapse, but the repercussions for the company's business in China could be severe if it loses that good will from banks and influential officials in the local government administrations. A Chinese company with a delisting notice will always pull all strings possible to maintain their senior exchange listing, not for the best of its foreign shareholders but for their very own survival.

There is no such thing as a "voluntary delisting" from a Chinese company. If you read such a phrase, stay away from the stock. A company that had its stock delisted without much of a fight is either a fraud or it has given up on its public status, in both cases you don't want to touch the stock.

We have seen more than 50 Chinese delistings over the past two years, and with very few exceptions all those companies were frauds or they have now stopped filing reports with the SEC for other reasons. Only the handful of companies that stayed current in filing its Form 10Qs and 10Ks at all times since the delisting are worth a second look.

Chinese Delistings from NYSE/NASDAQ:

2012-09-25 -- SCEI Sino Clean Energy -- Delisting from NASDAQ
2012-09-21 -- CVVT China Valves Technology -- Delisting from NASDAQ
2012-09-07 -- BEST Shiner International -- Delisting from NASDAQ
2012-07-11 -- CDII China Direct Industries -- Delisting from NASDAQ
2012-06-25 -- CAST ChinaCast Education -- Delisting from NASDAQ
2012-06-21 -- CNEP China North East Petroleum -- Delisting from NYSE Amex
2012-06-15 -- XINGF Qiao Xing Universal Resources -- Delisting from NASDAQ
2012-06-15 -- WUHN Wuhan General Group -- Delisting from NASDAQ
2012-06-15 -- QXMCF Qiao Xing Mobile Communication -- Delisting from NASDAQ
2012-06-15 -- CNGL China Nutrifruit -- Delisting from NYSE Amex
2012-05-29 -- AOBI American Oriental Bioengineering -- Delisting from NYSE Amex
2012-05-10 -- CKUN China Shenghuo Pharmaceutical-- Delisting from NYSE Amex
2012-05-08 -- UTRA Universal Travel Group -- Delisting from NYSE
2012-04-26 -- ZSTN ZST Digital Networks -- Delisting from NASDAQ
2012-03-08 -- CSKI China Sky One Medical -- Delisting from NASDAQ
2012-03-08 -- CHNG China Natural Gas -- Delisting from NASDAQ
2012-02-10 -- FEED Agfeed Industries -- Delisting from NASDAQ
2012-01-26 -- DGWIY Duoyuan Global Water -- Delisting from NYSE
2011-12-29 -- CEAI China Education Alliance -- Delisting from NYSE Amex
2011-11-30 -- ABAT Advanced Battery Technology -- Delisting from NASDAQ
2011-11-18 -- CIIC China Infrastructure Investment -- Delisting from NASDAQ
2011-10-21 -- ORSX Orsus Xelent Technologies -- Delisting from NYSE Amex
2011-10-19 -- CTESY SinoTech Energy -- Delisting from NASDAQ
2011-10-17 -- CCDM China Century Dragon Media -- Delisting from NYSE Amex
2011-10-07 -- KEYP Keyuan Petrochemicals -- Delisting from NASDAQ
2011-10-04 -- AUTCF AutoChina International -- Delisting from NASDAQ
2011-09-26 -- APWR A-Power Energy -- Delisting from NASDAQ
2011-09-12 -- WATG Wonder Auto Technology -- Delisting from NASDAQ
2011-09-02 -- PUDA Puda Coal -- Delisting from NYSE Amex
2011-08-17 -- LGFTY Longtop Financial -- Delisting from NYSE
2011-08-04 -- JGBO Jiangbo Pharmaceuticals -- Delisting from NASDAQ
2011-07-21 -- YUII Yuhe International -- Delisting from NASDAQ
2011-07-12 -- HQSM HQ Sustainable Maritime -- Delisting from NYSE Amex
2011-07-05 -- CHBT China-Biotics -- Delisting from NASDAQ
2011-06-24 -- SBAY Subaye -- Delisting from NASDAQ
2011-06-24 -- NIVS NIVS IntelliMedia Technology -- Delisting from NYSE Amex
2011-06-24 -- CRTP China Ritar Power -- Delisting from NASDAQ
2011-06-15 -- CBEH China Integrated Energy -- Delisting from NASDAQ
2011-06-14 -- CILE China Intelligent Lighting -- Delisting from NYSE Amex
2011-06-14 -- CELM China Electric Motors -- Delisting from NYSE Amex
2011-05-20 -- CAGC China Agritech -- Delisting from NASDAQ
2011-05-19 -- CCME China MediaExpress -- Delisting from NASDAQ
2011-04-13 -- DYNP Duoyuan Printing -- Delisting from NYSE
2011-03-29 -- FUQI Fuqi International -- Delisting from NASDAQ
2010-12-08 -- RINO RINO International -- Delisting from NASDAQ

We have identified 24 additional Chinese companies that have already received a delisting notice from their exchange or will likely get such a letter in the near future. Those companies will have their common stock delisted within the next six months unless they take immediate action, usually a reverse stock split (approved by the exchange) will do the trick of getting their stock price above the crucial one dollar level.

Some companies have already completed a reverse split, including Cleantech Solutions International (CLNT, 1:10 Reverse Split on 2012-03-06), China Precision Steel (CPSL, 1:12 Reverse Split on 2012-08-28), and China Information Technology (CNIT, 1:2 Reverse Split on 2012-03-02). Even though the stock price usually suffers even more after a reverse split, this is actually a good sign as the company decided not to give up on its senior exchange listing. Again, any Chinese stock that was delisted for violating the $1 minimum bid price rule without the company fiercly fighting for its survival on NASDAQ or NYSE should be avoided no matter what.

Chinese Stocks Facing Delisting:

BWOW Wowjoint Holdings
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on October 29, 2012)
CADC China Advanced Construction Materials
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on February 19, 2013)
CALI China Auto Logistics
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on January 28, 2013)
CBAK China BAK Battery
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on November 21, 2012)
CJJD China Jo-Jo Drugstores
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on February 27, 2013)
CNET ChinaNet Online
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on November 26, 2012)
CNYD China Yida Holding
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on December 31, 2012)
CPGI China Shengda Packaging
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on November 5, 2012)
DEER Deer Consumer Products
-- Trading Halted since 2012-08-13
DQ Daqo New Energy
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on February 20, 2013. Reverse Split likely.)
GPRC Guanwei Recycling
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on January 7, 2013)
HEAT SmartHeat
-- Trading Halted since 2012-05-30
HGSH China HGS Real Estate
-- Minimum $1 Bid Price Rule Violation (NASDAQ Delisting Notice served on January 18, 2012, status unclear)
KONE Kingtone Wirelessinfo Solution
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on December 17, 2012)
LZEN Lizhan Environmental
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on October 8, 2012)
MCOX Mecox Lane
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on February 4, 2013. Reverse Split intention announced.)
NFEC NF Energy Savings
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on February 26, 2013)
QKLS QKL Stores
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on March 4, 2013)
SIHI SinoHub
-- Trading Halted since 2012-09-07 (Delisting certain)
SUTR Sutor Technology
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on December 24, 2012)
THTI THT Heat Transfer Tech
-- Trading below Minimum $1 Bid Price since September 10, 2012
VALV Shengkai Innovations
-- Minimum $1 Bid Price Rule Violation (Compliance period ends on December 31, 2012)
VISN VisionChina Media
-- Trading below Minimum $1 Bid Price since June 6, 2012
ZOOM Zoom Technologies
-- Trading below Minimum $1 Bid Price since August 31, 2012

NYSE Amex does not have a $1 Minimum Bid Price Rule, yet their regulations state that they can delist a stock when "the aggregate market value of the security has become so reduced as to make further dealings on the Exchange inadvisable." It should also be noted that NYSE Amex recently amended its listing regulations to include several paragraphs about reverse merger companies which now have increased initial listing requirements. Given the large number of Chinese RTO blow-ups on NYSE Amex over the last two years we see the following eight Chinese small caps at risk duet to their low stock price:

AXN -- Aoxing Pharmaceuticals (Day Close below $1.00 since July 18, 2011)
CBP -- China Botanic Pharmaceutical (Day Close below $1.00 since November 11, 2011)
CHGS -- China Gengsheng Minerals (Day Close below $1.00 since February 14, 2012)
CNAM -- China Armco Metals (Day Close below $1.00 since August 17, 2011)
CPHI -- China Pharma Holdings (Day Close below $1.00 since September 29, 2011)
NEWN -- New Energy Systems (Day Close below $1.00 since November 15, 2011)
SHZ -- China Shen Zhou Mining (Day Close below $1.00 since May 8, 2012)
TPI -- Tianyin Pharmaceutical (Day Close below $1.00 since November 15, 2011)

The Current State of the Market for US-listed China Stocks

Soon we have the opportunity to observe the second anniversary of the first Chinese delisting from Nasdaq. RINO International (RINO) was delisted just three weeks after short-seller Muddy Waters Research published a damaging report on the company and RINO had to concede that some of its claims about contracts were made-up. This was the beginning of two terrible years for U.S.-listed companies that are based in China. Many more frauds and severe accounting irregularities were uncovered, followed by dozens of delistings from NYSE and Nasdaq and a general hostility towards Chinese companies that led to a massive sell-off of Chinese stocks by foreign investors.

Small cap stocks were most affected while Chinese blue chips, mostly ADRs, survived the turmoil relatively unharmed. Of the ~280 U.S.-listed small- and micro-cap China stocks we are tracking at Trading China, only 9 stocks saw price gains between December 31, 2010 and September 30, 2012. The vast majority has lost more than half its value, and more than one third (94 stocks) dropped more than 90% during that time. And all of this happened while the general U.S. markets saw massive gains.

While Chinese blue chips have seen the occasional hiccup, their performance since 2010 clearly shows that foreign investors have not abandoned them and that the sell-off has been mostly confined to the small cap space. An index of 20 U.S.-listed China-based blue chips has gained 5.5% since January 1, 2010, clearly underperforming the general U.S. markets (S&P 500 +29.19%, NASDAQ Composite 37.33%), but even more clearly outperforming the Chinese domestic market, as the leading Chinese index, the Shanghai Composite, lost 36.35% since the beginning of 2010.

In a series of articles we will recap the past two years for Chinese small cap stocks and look at the current state of those companies in the market.

1. The Fatalities
2. Delistings
3. Going Dark
4. Going Private
5. Reverse Mergers

The Fatalities

All of the following companies lost their senior exchange listing and most are now quoted on the pink sheets. All of them have been delisted for good reason, many are blatant frauds, others had auditors and senior management resign or they stopped filing reports with the SEC. Those are all failed companies, whether or not there is fraud involved... it doesn't matter anymore. Investing in, or even trading those stocks comes with extreme risk, especially as the SEC has already revoked the registration for several stocks, and others will probably disappear as well.

ABAT -- Advanced Battery Technology
(Performance Dec 31, 2010 to Sep 30, 2012: -91.30%)
2012-02-06 -- Last SEC Filing
2011-11-30 -- Delisting from NASDAQ
2011-11-15 -- Trading halted by NASDAQ
2011-10-25 -- CFO Resignation
2011-08-15 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

AOBI -- American Oriental Bioengineering
(Performance Dec 31, 2010 to Sep 30, 2012: -73.34%)
2012-06-15 -- Last SEC Filing
2012-06-15 -- Auditor Change
2012-05-29 -- Delisting from NYSE Amex
2012-03-16 -- Trading halted by NYSE Amex
2011-11-14 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

APWR -- A-Power Energy
(Performance Dec 31, 2010 to Sep 30, 2012: -97.26%)
2011-11-08 -- Last SEC Filing
2011-10-04 -- Auditor Change
2011-09-26 -- Delisting from NASDAQ
2011-09-15 -- Auditor Engagement
2011-08-17 -- Receives SEC Subpoena
2011-07-05 -- CFO Change
2011-06-27 -- Trading halted by NASDAQ
2011-06-26 -- Auditor Resignation
2010-12-01 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CAGC -- China Agritech
(Performance Dec 31, 2010 to Sep 30, 2012: -97.64%)
2012-06-27 -- Last SEC Filing
2012-01-16 -- CFO Resignation
2011-05-20 -- Delisting from NASDAQ
2011-04-06 -- Auditor Engagement
2011-03-14 -- Trading halted by NASDAQ
2011-03-14 -- Auditor Resignation
2010-11-13 -- Auditor Change
2010-11-10 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CBEH -- China Integrated Energy
(Performance Dec 31, 2010 to Sep 30, 2012: -94.00%)
2012-09-24 -- Last SEC Filing
2012-09-18 -- CFO Change
2011-07-21 -- Auditor Engagement
2011-06-15 -- Delisting from NASDAQ
2011-05-19 -- CFO Appointment
2011-04-28 -- CFO Resignation
2011-04-26 -- Auditor Resignation
2011-04-20 -- Trading halted by NASDAQ
2011-03-16 -- Last Quarterly/Annual Report: FY2010 ended December 31, 2010

CCDM -- China Century Dragon Media
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2011-10-17 -- Delisting from NYSE Amex
2011-09-01 -- Last SEC Filing
2011-03-22 -- Auditor Resignation
2011-03-21 -- Trading halted by NYSE Amex
2010-11-22 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CCME -- China MediaExpress
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-08-28 -- SEC Registration REVOKED
2011-05-19 -- Last SEC Filing
2011-05-19 -- Delisting from NASDAQ
2011-03-13 -- CFO Resignation
2011-03-11 -- Trading halted by NASDAQ
2011-03-11 -- Auditor Resignation
2010-11-09 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CELM -- China Electric Motors
(Performance Dec 31, 2010 to Sep 30, 2012: -99.34%)
2011-09-20 -- Last SEC Filing
2011-09-16 -- CEO Appointment
2011-09-15 -- CEO Resignation
2011-06-14 -- Delisting from NYSE Amex
2011-05-31 -- Auditor Resignation
2011-05-31 -- CFO Resignation
2011-03-31 -- Trading halted by NYSE Amex
2010-11-12 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CIIC -- China Infrastructure Investment
(Performance Dec 31, 2010 to Sep 30, 2012: -88.41%)
2011-12-16 -- Last SEC Filing
2011-11-18 -- Delisting from NASDAQ
2011-11-14 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011
2011-09-21 -- CFO Resignation

CILE -- China Intelligent Lighting
(Performance Dec 31, 2010 to Sep 30, 2012: -99.97%)
2011-12-28 -- Last SEC Filing
2011-12-21 -- CFO Resignation
2011-06-14 -- Delisting from NYSE Amex
2011-04-01 -- Auditor Engagement
2011-03-24 -- Trading halted by NYSE Amex
2011-03-23 -- Auditor Resignation
2010-11-08 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CNEP -- China North East Petroleum
(Performance Dec 31, 2010 to Sep 30, 2012: -96.19%)
2012-09-24 -- Last SEC Filing
2012-06-21 -- Delisting from NYSE Amex
2012-03-01 -- Trading halted by NYSE Amex
2011-11-09 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

CNGL -- China Nutrifruit
(Performance Dec 31, 2010 to Sep 30, 2012: -98.93%)
2012-05-10 -- Last SEC Filing
2012-06-15 -- Delisting from NYSE Amex
2012-04-26 -- Trading halted by NYSE Amex
2012-02-14 -- Last Quarterly/Annual Report: Q3/FY2012 ended December 31, 2011

CRTP -- China Ritar Power
(Performance Dec 31, 2010 to Sep 30, 2012: -71.16%)
2012-02-15 -- Last SEC Filing
2011-06-24 -- Delisting from NASDAQ
2011-04-18 -- Trading halted by NASDAQ
2010-11-15 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CSKI -- China Sky One Medical
(Performance Dec 31, 2010 to Sep 30, 2012: -95.27%)
2012-04-03 -- Last SEC Filing
2012-03-12 -- Auditor Resignation
2012-03-08 -- Delisting from NASDAQ
2012-02-16 -- Trading halted by NASDAQ
2011-12-16 -- CFO Resignation
2011-11-09 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

CTESY -- SinoTech Energy
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-05-30 -- SEC Registration REVOKED
2012-05-14 -- Last SEC Filing
2011-10-19 -- Delisting from NASDAQ
2011-08-16 -- Trading halted by NASDAQ
2011-08-05 -- Last Quarterly/Annual Report: Q3/FY2011 ended June 30, 2011

CVVT -- China Valves Technology
(Performance Dec 31, 2010 to Sep 30, 2012: -95.42%)
2012-09-21 -- Delisting from NASDAQ
2012-09-11 -- Last SEC Filing
2012-07-16 -- Trading halted by NASDAQ
2012-07-09 -- Auditor Resignation
2012-05-08 -- Last Quarterly/Annual Report: Q2/FY2012 ended March 31, 2012

DEER -- Deer Consumer Products
(Performance Dec 31, 2010 to Sep 30, 2012: -79.44% | currently halted)
2012-08-13 -- Trading halted by NASDAQ
2012-08-09 -- Last SEC Filing
2011-08-09 -- Last Quarterly/Annual Report: Q3/FY2012 ended June 30, 2012

DGWIY -- Duoyuan Global Water
(Performance Dec 31, 2010 to Sep 30, 2012: -97.66%)
2012-05-11 -- Last SEC Filing
2012-01-26 -- Delisting from NYSE
2011-04-06 -- Trading halted by NYSE
2011-04-04 -- CFO Resignation
2011-03-22 -- Last Quarterly/Annual Report: FY2010 ended December 31, 2010

DYNP -- Duoyuan Printing
(Performance Dec 31, 2010 to Sep 30, 2012: -96.59%)
2012-04-16 -- Last SEC Filing
2011-04-13 -- Delisting from NYSE
2010-09-08 -- CEO/CFO Appointment
2010-09-08 -- CEO Resignation
2010-09-06 -- CFO Resignation
2010-09-06 -- Auditor Dismissal
2010-05-11 -- Last Quarterly/Annual Report: Q2/FY2010 ended March 31, 2010

FEED -- Agfeed Industries
(Performance Dec 31, 2010 to Sep 30, 2012: -86.06%)
2012-09-24 -- Last SEC Filing
2012-07-27 -- CFO Resignation
2012-04-18 -- CEO Appointment
2012-02-10 -- Delisting from NASDAQ
2011-12-19 -- Trading halted by NASDAQ
2011-12-16 -- CEO Resignation
2011-08-09 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

FUQI -- Fuqi International
(Performance Dec 31, 2010 to Sep 30, 2012: -86.68%)
2012-07-26 -- Last SEC Filing
2011-07-30 -- CFO Resignation
2011-03-29 -- Delisting from NASDAQ
2009-11-09 -- Last Quarterly/Annual Report: Q3/FY2009 ended September 30, 2009

HEAT -- SmartHeat
(Performance Dec 31, 2010 to Sep 30, 2012: -23.49% | currently halted)
2012-08-28 -- Last SEC Filing
2012-08-20 -- Last Quarterly/Annual Report: Q2/FY2012 ended June 30, 2012
2012-07-10 -- CFO Appointment
2012-05-30 -- Trading halted by NASDAQ
2012-05-25 -- CEO Resignation
2012-05-25 -- CFO Resignation

HQSM -- HQ Sustainable Maritime
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-04-10 -- SEC Registration REVOKED
2011-08-10 -- Last SEC Filing
2011-07-12 -- Delisting from NYSE Amex
2011-05-26 -- Auditor Resignation
2011-04-01 -- Trading halted by NYSE Amex
2010-11-09 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

JGBO -- Jiangbo Pharmaceuticals
(Performance Dec 31, 2010 to Sep 30, 2012: -98.78%)
2011-08-16 -- Last SEC Filing
2011-08-04 -- Delisting from NASDAQ
2011-05-31 -- Trading halted by NASDAQ
2011-05-23 -- Last Quarterly/Annual Report: Q3/FY2011 ended March 31, 2011

NIVS -- NIVS IntelliMedia Technology
(Performance Dec 31, 2010 to Sep 30, 2012: -99.08%)
2011-08-26 -- Last SEC Filing
2011-06-24 -- Delisting from NYSE Amex
2011-06-09 -- Auditor Engagement
2011-05-14 -- Auditor Resignation
2011-04-10 -- Auditor Engagement
2011-03-24 -- Trading halted by NYSE Amex
2011-03-23 -- Auditor Resignation
2010-11-04 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

ORSX -- Orsus Xelent Technologies
(Performance Dec 31, 2010 to Sep 30, 2012: -93.63%)
2011-11-15 -- Last SEC Filing
2011-10-21 -- Delisting from NYSE Amex
2011-08-22 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

PUDA -- Puda Coal
(Performance Dec 31, 2010 to Sep 30, 2012: -99.51%)
2011-09-02 -- Delisting from NYSE Amex
2011-09-01 -- Last SEC Filing
2011-08-19 -- Auditor Engagement
2011-07-07 -- Auditor Resignation
2011-04-11 -- Trading halted by NYSE Amex
2011-03-16 -- Last Quarterly/Annual Report: FY2010 ended December 31, 2010

QXMCF -- Qiao Xing Mobile Communication
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-08-23 -- SEC Registration REVOKED
2012-06-15 -- Delisting from NASDAQ
2012-05-02 -- CFO Resignation
2012-04-16 -- Trading halted by NASDAQ
2011-11-30 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

SBAY -- Subaye
(Performance Dec 31, 2010 to Sep 30, 2012: -99.97%)
2011-11-04 -- Last SEC Filing
2011-11-01 -- CFO Resignation
2011-06-24 -- Delisting from NASDAQ
2011-06-01 -- CFO Appointment
2011-05-20 -- CFO Resignation
2011-05-12 -- CEO Appointment
2011-05-12 -- CEO Resignation
2011-04-08 -- Trading halted by NASDAQ
2011-04-01 -- Auditor Resignation
2011-03-13 -- CFO Appointment
2011-03-10 -- CFO Resignation
2010-12-23 -- Auditor Change
2010-12-23 -- Last Quarterly/Annual Report: FY2010 ended September 30, 2010

SCEI -- Sino Clean Energy
(Performance Dec 31, 2010 to Sep 30, 2012: -95.01%)
2012-09-28 -- Last SEC Filing
2012-09-25 -- Delisting from NASDAQ
2012-08-10 -- CFO Resignation
2012-05-21 -- Trading halted by NASDAQ
2012-05-15 -- Last Quarterly/Annual Report: Q1/FY2012 ended March 31, 2012

SIHI -- SinoHub
(Performance Dec 31, 2010 to Sep 30, 2012: -94.26% | currently halted)
2012-09-24 -- Last SEC Filing
2012-09-07 -- Trading halted by NYSE Amex
2012-08-31 -- Auditor Resignation
2012-05-15 -- Last Quarterly/Annual Report: Q1/FY2012 ended March 31, 2012

UTRA -- Universal Travel Group
(Performance Dec 31, 2010 to Sep 30, 2012: -88.73%)
2012-08-15 -- Last SEC Filing
2012-05-08 -- Delisting from NYSE
2011-11-14 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011
2011-04-12 -- Trading halted by NYSE

WATG -- Wonder Auto Technology
(Performance Dec 31, 2010 to Sep 30, 2012: -96.03%)
2012-09-19 -- Last SEC Filing
2011-12-13 -- Auditor Engagement
2011-12-06 -- Auditor Resignation
2011-09-12 -- Delisting from NASDAQ
2011-07-25 -- CFO Appointment
2011-07-12 -- CFO Resignation
2011-07-12 -- CEO Resignation
2011-05-09 -- Trading halted by NASDAQ
2010-12-06 -- Auditor Change
2010-11-09 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

WEMU -- Worldwide Energy and Manufacturing USA
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-05-16 -- SEC Registration REVOKED
2011-05-30 -- CFO Appointment
2011-04-26 -- CFO Resignation
2011-04-25 -- CEO Appointment
2011-04-25 -- CEO Fired
2011-02-19 -- CFO Appointment
2011-02-19 -- CFO Resignation
2010-11-22 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

XINGF -- Qiao Xing Universal Resources
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-08-23 -- SEC Registration REVOKED
2012-06-15 -- Delisting from NASDAQ
2012-04-16 -- Trading halted by NASDAQ
2012-01-19 -- Auditor Change
2011-12-01 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

YUII -- Yuhe International
(Performance Dec 31, 2010 to Sep 30, 2012: -98.55%)
2012-07-26 -- Last SEC Filing
2012-07-20 -- CFO Resignation
2011-08-10 -- Auditor Engagement
2011-07-21 -- Delisting from NASDAQ
2011-06-17 -- Trading halted by NASDAQ
2011-06-17 -- Auditor Resignation
2011-05-16 -- Last Quarterly/Annual Report: Q1/FY2011 ended March 31, 2011

Chinese Solar Companies - Analysis

Now that we have the third quarter results for all the Chinese solar companies, let's have a closer look at the performance, numbers and developments in the industry.

Third Quarter 2011 Results:

Revenue

For our group of ten companies, third quarter revenue declined both sequentially and year-over-year. Revenue for the traditionally much stronger third quarter declined on average by 9.6% from the second quarter of 2011. Only four companies - Canadian Solar (CSIQ), China Sunergy (CSUN), Suntech Power Holdings (STP) and Yingli Green Energy (YGE) could keep the same level from last quarter, while three companies posted hefty declines of 20% or more: Hanwha Solarone (HSOL), JinkoSolar (JKS), and ReneSola (SOL).

Those are disastrous numbers, especially if compared to what happened just one year ago. For the third quarter of 2010, ReneSola posted sequential revenue growth of 41.3%, compared to a revenue decline of 24.2% this year. For Trina Solar (TSL) those numbers are 37.1% growth versus 16.8% decline, but we can pick any name in the group to illustrate the unusual downtown in the traditionally very busy third quarter this year.

If we compare the Q3 revenue numbers with those of 2010, the picture looks slightly better with a year-over-year decline of "just" 3.8%. Most of this decline comes from the primarily upstream (solar wafers and cells) companies in the group: LDK Solar (LDK), ReneSola, and JA Solar (JASO), which on average lost 36.4% of their 2010 revenue. If we take those three out of the group, the rest - primarily module producers - managed to post year-over-year revenue growth of 10.2%.

The big exception among the downstream Chinese solars is Hanwha Solarone (HSOL) with year-over-year revenue decline of 34.4%. This might be a huge warning sign, as five out of seven of HSOL's direct peers managed to grow their revenue over the same period. Please review the numbers for all ten companies in the table above.

POSITIVE: CSIQ, CSUN, STP, YGE
NEGATIVE: HSOL, JASO, JKS, LDK, SOL, TSL

Gross Profit and Margins

In the third quarter of 2010 all ten of our Chinese solar companies posted double digit gross margins, ranging from the high teens to well into the 30 percent area. Just twelve months later those margins have collapsed for 90% of the group, with five companies reporting negative gross margins. As to be expected, the smallest module vendors, China Sunergy and Hanwha Solarone, suffered the most, as the solar industry is - and will always be - an industry of scale.

Only three of the ten companies still posted worthwhile gross margins last quarter, the market and cost leaders among the Chinese module producers: Trina Solar, Yingli Green, and Suntech Power. Especially STP is standing out here. The company moved from last to first place in the group, as its margins only moderately declined, from 17.9% in 2010 to 13.3% this year.

Those numbers stand in stark contrast to two other downstream companies. JinkoSolar's margins collapsed from 25.4% in Q2/2011 - the highest of the group at that time - to 3.7% in just three months, the direct effect of a 21.4% sequential decline in revenue. And while Canadian Solar managed to actually grow revenue sequentially, its gross margins (2.4%) are no longer acceptable which suggests that the company's strategy was to generate revenue at all cost.

POSITIVE: STP, TSL, YGE
NEGATIVE: CSIQ, CSUN, HSOL, JASO, JKS, LDK, SOL

Net Income and EPS

One year ago, all ten companies in our group were nicely profitable with operating margins ranging from 8.4% (STP) to 26.4% (JKS) and positive earnings per share. In Q2/2011, half of the group was already posting losses, and for the third quarter only Yingli Green Energy managed to break even on an operating level. These are disastrous results for the industry, especially if we consider that half of the group posted significant year-over-year revenue growth.

All ten companies were forced to write off some inventory which impacted the bottom line. However, if we adjust reported net income for these inventory write-downs, nine out of ten companies have still reported negative EPS. Only Yingli Green Energy reported positive numbers on an adjusted basis with $0.08 per share excluding write-downs and $0.14 per share as reported by the company on a non-GAAP basis. Yingli's business development trends look far better than those reported by its direct peers.

POSITIVE: YGE
NEGATIVE: CSIQ, CSUN, HSOL, JASO, JKS, LDK, SOL, STP, TSL

Company Guidance Revisions: (since June 30, 2011)

Official company guidance and what the company says about its business prospects can be very telling about how well management understands its market. Assumed management actually intends to tell the truth and give a realistic business outlook. If they have been utterly wrong several times in the past, why should we put too much weight on their current outlook?

We have evaluated the officially published FY2011 guidance for all ten Chinese solar companies, and the only one that actually raised its guidance at some point this year was LDK Solar. In January, LDK raised its full year revenue outlook by an astonishing $600 million and guided for gross margins in the 23.0% to 28.0% range. In mid-March Chairman Peng addressed the investment world with "we have made great strides in positioning LDK Solar to take advantage of the growth in the global PV industry. We remain excited about the multiple growth drivers we see for our business and believe we are well positioned for success." LDK reiterated its revenue guidance and raised the low end for gross margins by another percentage point.

Management kept this guidance until well into the third quarter when it was already very obvious that nothing of this will materialize. And for the third quarter the company reported a 30% decline in revenue with negative gross margins. Consequently, LDK's current FY 2011 guidance has been lowered by almost 40% from levels that were still official company outlook in August.

While the industry downturn forced nine of our ten companies to lower FY2011 guidance in the second half of this year, it is important to note that several names have not lost their credibility and have given a more or less realistic outlook at the beginning of the year. The only one that kept its original shipment guidance unchanged is Canadian Solar (CSIQ), while both Suntech Power and Yingli have lowered it only moderately. Those three are also the largest module vendors, based on Q3 revenue, while the small players in the group, CSUN and JASO, were forced to slash their guidance by at least 25%.

POSITIVE: CSIQ, STP, YGE
NEGATIVE: CSUN, HSOL, JASO, LDK, SOL

Debt Situation:
Net Debt (Debt): Total Liabilities - Total Current Assets (ex Inventories)
Debt to Equity (D/E): Total Liabilities - Total Shareholders' Equity

The debt situation is rapidly deteriorating for all 10 companies, and as the outlook for the industry is very negative for at least another 2-3 quarters, this is not going to become even worse. Further EPS losses are very likely for Q4/2011 to Q2/2012, probably even into the third quarter next year. While Trina Solar (low net debt) and Yingli Green Energy (large cash position) both look safe at this point, its huge debt burden could turn out to be a bigger problem for Suntech Power.

For LDK Solar the picture looks very bleak. With negative gross profit, a low cash position and rapidly deteriorating revenue, LDK is already running low on working capital, and if we consider the interest expense on its gigantic debt load something will have to happen next year to resolve this situation. If the company wants to survive this downturn, a debt to equity swap seems unavoidable, which means there is very little value in LDK's stock.

POSITIVE: JASO, TSL
NEGATIVE: CSUN, CSIQ, JKS, LDK, STP

Summary:

Third quarter earnings results for our group of 10 Chinese solar companies were generally weak, with only YGE (and to a lesser degree STP) providing some positive headlines. End markets are supposed to remain challenging for at least another 2-3 quarters with an unresolved debt crisis in Europe, massive overcapacity issues in the industry, high inventory levels, and ASP's rapidly declining. Despite collapsing end prices there was no meaningful demand uptick in the traditionally strong third quarter, and the near future brings us unfavourable weather conditions for all of the industry's strongest markets.

All signs point to a period of painful consolidation in the industry that is coming much earlier than anticipated. The weak players will be shaken out and eventually the industry will turn into oligopoly where only a handful of players will dominate the market. Third quarter results are a good indication of who will make it and who might eventually vanish over the next few years. With no positive catalysts to be expected over the next few months, it is probably to early to jump back into the sector, but the survivors will most likely come out stronger than before, in an industry that is here to stay.

Based on this analysis of business metrics and third quarter results, here is my take on the survival chances for all ten Chinese solar companies:

GOOD: YGE
NEUTRAL: CSIQ, STP, TSL
BAD: CSUN, HSOL, JASO, JKS, SOL
VERY BAD: LDK

A Close Look at Gulf Resources

Gulf Resources (GURE) is currently trading at $3.80, down 64.46% for the year. The Trading China Tracker Score is 19 (Strong Buy), the Trading China Safety Score is 36% (High Risk).

Let's have a detailed look at Gulf Resources, a producer of bromine, crude salt, and specialty chemicals in China. The company has two operating subsidiaries, one for the chemicals, and another for salt and bromine. The stock has lost two thirds of its value since the beginning of the year, despite record results for FY2010 and positive pricing developments for its core products. Is it worth putting some money at risk here? Let's start with a detailed timeline of the past 18 months to see what exactly has been going on with this stock.

Gulf Resources Timeline

2010, February 10: Gulf Resources dismisses Morison Cogen and engages BDO Limited as its new auditor.

2010, April 14: The company raises guidance for fiscal year 2010 to revenue between $146 million and $150 million and net income between $44 million and $46 million. It says that "in addition to strong demand, a shortage of bromine supply is supporting prices."

2010, May 11: Gulf Resources reiterates revenue and net income guidance for 2010 with the release of First Quarter earnings.

2010, June 8: GURE announces the acquisition of bromine and crude salt manufacturing assets for $13.9 million, paid in cash (95%) and stock.

2010, August 6: The company files a mixed securities shelf for $120 million with the SEC.

2010, August 16: Gulf Resources reiterates revenue and net income guidance for 2010 with the release of Second Quarter earnings.

2010, September 10: Deloitte Touche Tohmatsu is engaged to perform an independent assessment over the Company's internal controls.

2010, September 14: The company defends the shelf registration in a press release, but clarifies that while it plans to use its common stock as currency for acquisitions, it will only happen at levels that are accretive to existing shareholders."

2010, September 15: Due to its depressed stock price, management announces that it has decided not to raise capital during 2010. The shelf registration remains effective.

2010, September 15: The company raises guidance for fiscal year 2010 to revenue between $151 million and $155 million and net income between $48 million and $50 million, as a result of a further increase in bromine prices.

2010, September 27: A $10 million Share Repurchase Program is announced. "We are confident that this is an optimal opportunity to leverage our strong balance sheet and invest in Gulf Resources."

2010, November 6: Independent director Biagio Vignolo resigns without stating a reason. He is replaced with Mr. Nan Li who works as financial controller at Global Pharm Holdings Group (GPHG.OB).

2010, November 16: Gulf Resources reiterates revenue and net income guidance for 2010 with the release of Third Quarter earnings.

2010, December: The company is anonymously accused of falsifying its financial statements filed with the SEC. Allegedly, there are discrepancies between data filed with Chinese authorities (SAT) and the Securities and Exchange Commission.

2010, December 8: Xiaobin Liu, CEO of Gulf Resources, responds to those allegations, says they were completely without merit and that all financial statements are accurate.

2010, December 14: The company follows up with a detailed response, confirms that its 2009 Annual Report is consistent with its 2009 SAT filings, and provides proof in form of an official letter from the local SAT bureau, which is confirming that there are serious discrepancies between GURE's subsidiaries' actual tax filings and the figures provided in the anonymous report. CEO Liu reassures investors that "our financial statements are accurate and we do not expect any adjustments to them. Our business has maintained its momentum and we do not expect any changes in business conditions in the foreseeable future."

2011, January 4: Gulf Resources announces the acquisition of a crude salt field from a state-owned company for $10.6 million in cash.

2011, March 2: Independent director Richard Khaleel resigns from GURE's Board, as the company he recently joined has requested that he resigns as a director of any public company. Khaleel's replacement is Mr. Yang Zou, a senior accountant with a Beijing-based CPA firm.

2011, March 4: Deloitte has issued a final report regarding the internal control assessment performed. Management believes that the Company's internal control is improved after implementing the recommendations made by Deloitte.

2011, March 16: GURE files its Annual Report for 2010. Reported revenue of $158.3 million and net income of $51.3 million both exceed the high end of the company's official financial guidance, which had been raised twice in 2010. Gulf Resources provides a favourable outlook for 2011, without giving specific guidance at this time. Internal control over financial reporting, as audited by BDO Limited in the 10-K filing, is still ineffective due to a "material weakness regarding management's failure to maintain effective controls over the identification of related parties and the disclosure of related party transactions in the company's consolidated financial statements."

2011, March 28: The company provides financial guidance for 2011. It expects revenue to range from $195 million to $198 million and net income to range from $64 million and $66 million. CEO Liu says he expects "the price of bromine to stabilize at a high level and possibly reach a new historical high price during 2011."

2011, April 26: Short-selling outfit Glaucus Research Group releases an extensive 29-page report on Gulf Resources. The group "initiates coverage" with a $0.00 price target, based on its belief that investors "are likely holding worthless paper in a shell company." Glaucus claims that "the two Chinese subsidiaries that own and operate the business are privately owned by a company controlled by the chairman."

2011, April 27: John Hempton of Bronte Capital, who is also short the stock, comes out in support of the Glaucus report. He argues that an inventory turnover of 169.5 times per year is not believable in the bromine industry.

2011, April 28: The company issues a detailed response to the Glaucus Report. Explains that it produces most of its bromine and chemical products on demand, therefore does not accumulate inventory. Provides 2009 SAIC filings for both its subsidiaries and concludes that reported SAIC financials are in line with SEC filings. Provides documents that should prove ownership of subsidiaries. Explains low shipping costs with customers directly picking up their products from facilities. Reiterates that Deloitte's internal control assessment did not find major issues in the Company's corporate governance and internal control system.

2011, May 2: Gulf Resources issues a second press release in response to the allegation in the Glaucus Report.

2011, May 11: Gulf Resources issues a third press release in response to the allegation in the Glaucus Report.

2011, May 16: The company reiterates revenue and net income guidance for 2011 with the release of First Quarter earnings. Says it expects bromine prices to remain at current levels for the remainder of the year.

2011, May 19: Another short-seller, Kerrisdale Capital publishes a hit piece, supporting the April 26 Glaucus report and adding its own claims, particularly that GURE's reported profit margins "are too good to be true." Kerrisdale concludes that Gulf Resources' "business claims are not within the realm of reason."

2011, June 7: GURE announces that it intends to register a subsidiary in Daying county, Sichuan province, in order to research possible resources for bromine and crude salt in Sichuan province.

2011, June 22: BDO Limited is reappointed as the company's auditor for the 2011 fiscal year.

2011, June 23: Gulf Resources announces that the share repurchase program, announced in September 2010, has been initiated, and the company has acquired 100,500 shares of its common stock through open market transactions.

2011, June 29: Independent director Yafei Ji resigns for "personal reasons." He is replaced by Mr. Tengfei Zhang, a CPA and Chairman of the Board of Supervisors of Shenzhen Kaili Industrial Co., a manufacturer of computer cables.

2011, June 30: Gulf Resources' ticker symbol changes from 'GFRE' to 'GURE'.

2011, July 13: Chairman Ming Yang, the company's largest shareholder (38.7%), declares that he will not pledge or sell any of his shares in the next three years. The company reiterates that it maintains 100% ownership in its subsidiaries, that its corporate structure remains linear and unchanged since February 2007, and that Gulf Resources maintains full control over its operating subsidiaries. Documentation for subsidiary ownership is attached to the 8-K Filing.

2011, July 20: The company withdraws its shelf registration that was originally filed on August 6, 2010. "We decided to withdraw our registration statement because we think our share price remains undervalued and do not intend to sell any securities under the registration statement."

Evaluation

Extremely Cheap Valuation - GURE has posted Earnings per Share of $1.48 for the fiscal year ended December 31, 2010. Official 2011 guidance calls for 24.8% to 28.7% net income growth, not taking into account any impact from potential acquisitions. During 2010, the company raised its guidance twice and managed to exceed the high end of its guidance range when it posted final numbers in March. At Friday's close ($3.80) the stock is trading at a forward P/E of 2.05, based on 2011e EPS of $1.85. That is about as cheap as it gets for a Nasdaq-listed growth stock.

No Shareholder Dilution - the company did not sell any stock in the past 18 months. The shelf registration that became effective in August of 2010 has been withdrawn earlier this month. GURE paid for all its recent acquisitions almost entirely in cash. Total dilution for existing shareholders over the past year was just 2.38%, which is among the lowest with U.S.-listed Chinese stocks. If GURE were a fraud then it is certainly not very clever with monetizing its stock.

Management Continuity - Unlike most other Chinese names, Gulf Resources has not been hit with a slew of management resignations. The Chairman of the Board, CFO and CEO are all with the company for a long time. There have been three director resignations in the past 18 months, but I believe it is credible that none of them were in disagreement. I also believe that it is part of good corporate governance if a company changes its independent directors every once in a while.

Strong Responses to Short Seller Attacks - Gulf Resources has been a short seller target for more than a year, the depressed stock price clearly reflects that now. Yet, the company has always been very quick, detailed and elaborate in its response to such attacks, unlike most other names in the China space. GURE does reliably provide documents to support its position and publicly files those with the SEC so all interested parties can review them easily.

Corporate History - This is the strongest negative aspect, and it is one that will never go away. Gulf Resources' public company life began with a China Finance (CHFI.PK) shell, in connection with reverse merger specialists like China US Bridge Capital, a subsidiary of CHFI. China Finance went dark in 2009, stopped filing anything with the SEC, and is now a 2-cent zombie stock. All of the other CHFI RTO's are either complete frauds or extremely questionable at least, including CNOA, JADA, BFAR and CHCG. It is a bit of a stretch to argue that Gulf Resources is the one exception in an otherwise smelly pit of dirt.

However, and here it comes, proclaiming guilt by association has never been a good or wise strategy. Gulf does surely wish - fraud or not - they would have never been associated with China Finance, but we should judge them by their actions after all. Maybe they have cut all the ties with CHFI, as they say they have, a long time ago already? The company's communication with investors in the past 18 months certainly doesn't bear any resemblance with other former CHFI clients.

Prime Short Seller Target - GURE has been attacked several times by multiple individuals and entities. Short interest in the stock sits at about 20% of the float and has been at a very high level for most of 2011. While the company has managed to stabilize the stock price since May, none of the recent announcements led to a meaningful recovery and investors are still sitting on a loss of 64% for the year.

Half-hearted Stock Buyback - There is no better investment for a company like Gulf Resources than investing in its own stock at just 2x forward earnings. But it took the company almost nine months to initiate its buyback program that was announced in September of last year. And the number of shares (~ 100k) that has been repurchased so far is very small for a company that supposedly has more than $80 million cash on the bank.

Ineffective Internal Controls - BDO attested that the company's internal controls are ineffective due to a "material weakness regarding management's failure to maintain effective controls over the identification of related parties and the disclosure of related party transactions." Gulf management hired Deloitte Touche Tohmatsu for an internal control assessment, and announced that DTT did not find major issues in the Company's corporate governance and internal control system. We don't know what issues Deloitte found, but we know that related party issues are one of the short sellers' most prominent claims.

Conclusion

Bottom line is, I don't have any conclusion - you have the choice between a "Yes, but..." and a "No, but..." approach. It is my belief that GURE's stock price will more likely appreciate from here than deteriorate, as the main reason for its low level is the general investing public's reluctance to put money in any name with a strong "but...", especially Chinese reverse mergers. We are now probably beyond the peak of "weeding out China frauds" and there are signs that investor appetite for the remaining Chinese names is slowly but steadily increasing from here.

There are compelling arguments for taking a position in GURE at the current level, however the arguments for staying away completely are also quite convincing. This is the prototype of a "high risk" stock which could easily double or even triple from here if/when market sentiment improves. But those risks are real and they are obvious to most market participants, so cautious investors should act accordingly.

China Stock Obituary 2011

China Agritech (CAGC.PK) is currently trading at $1.65, down 86.56% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 8% (Extreme Risk).

Fertilizer company China Agritech has been accused of many things, among them drastically overstating the scope of its business. Things turned fatal when CAGC did not file its annual report for 2010, and subsequently dismissed its Big Four auditor Ernst & Young with very questionable reasoning. CAGC has since engaged a new auditor, California-based Simon & Edward, and a new chairman for both the audit committee and the special committee that was formed in March to look into the matters that led to the initial Nasdaq trading halt. In late May the Chief Operating Officer of CAGC resigned. We haven't heard any details from the ongoing investigation for the past three months, and the company's stock is trading on the pink sheets since May 20, 2011.

China-Biotics (CHBT.PK) is currently trading at $1.73, down 88.27% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 7% (Extreme Risk).

Probiotics company CHBT has been under attack for more than a year until on June 22, BDO Limited, the company's auditor for more than five years, resigned. The firm found several "irregularities" that "likely constitute illegal acts", including fake documentation and being directed by the Company to access a suspected fake website for the company's bank account. One day later, the company's CFO and the Chairman of the Audit Committee resigned as well. The stock was delisted from Nasdaq on July 1 and finds itself now on the pink sheets.

China Century Dragon Media (CCDM.PK) is currently trading at $0.30, down 94.29% from it's IPO price of $5.25 (February 8, 2011). The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 7% (Extreme Risk).

On March 22, just six weeks after CCDM's IPO on NYSE Amex, its auditor found "an indication that the accounting records have been falsified, which would constitute an illegal act." The company was unwilling to let its auditor obtain official bank records directly from the bank, and MaloneBailey resigned its engagement with the company. Similar to all the other cases, the stock was halted by the exchange, delisted, and is now quoted on the pink sheets since June 21, where it is now a "zombie stock" with not a single share having changed owners in the past four weeks.

China Electric Motors (CELM.PK) is currently trading at $0.33, down 92.73% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 0% (Extreme Risk).

CELM was destined to share the fate of the other WestPark deals NIVS, CILE and CCDM (for details please see: "WestPark Capital's RTO Deals"). The auditor (MaloneBailey) found discrepancies in the bank statements, a Special Committee was formed on March 31 to investigate those issues, and an SEC investigation was launched on April 7. On May 24, all of the members of the Special Committee resigned, the company terminated the forensic audit by PricewaterhouseCoopers, and at least one independent director resigned as well. MaloneBailey finally resigned as the company's auditor on May 31, stating "management’s unwillingness to take appropriate actions" and "an unwillingness to cooperate with the Securities & Exchange Commission and Nasdaq." The Chief Financial Officer left the company on the same day, and the Chairman of the Audit Committee followed on June 3. CELM was subsequently delisted from NYSE Amex and is trading on the pink sheets since June 14, 2011.

China Integrated Energy (CBEH.PK) is currently trading at $0.69, down 90.59% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 6% (Extreme Risk).

Biodiesel maker China Integrated has been accused of significantly overstating its revenue and profits. The company's auditor, KMPG, first signed off on CBEH's annual report for 2010, then shortly after withdrew its opinion and resigned on April 26, stating that it is no longer able to "rely on management’s representations in connection with its 2010 audits of the consolidated financial statements and the effectiveness of internal control over financial reporting of the company." China Integrated launched an investigation into these matters, but on April 28 its CFO resigned and shortly after, on May 3, a member of the audit committee left the company, saying that "recent events, including but not limited to the inconsistencies between representations made by CBEH’s management to the Board of Directors, have eroded my confidence." The company has since hired a new director and CFO and says it "remains committed to identifying and engaging a new auditor as soon as possible." The stock has been delisted from Nasdaq on June 15 and is now quoted on the pink sheets.

China Intelligent Lighting (CILE.PK) is currently trading at $0.11, down 95.85% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 6% (Extreme Risk).

When CILE's auditor (MaloneBailey) resigned on March 24, it gave to protocol that it found "accounting fraud involving forging of the Company's accounting records and forging bank statements, in addition to other discrepancies identified during its testing of the Company’s accounts receivable." The Chairman of the Audit Committee resigned on the same day. China Lighting's stock was delisted from NYSE Amex on June 20 and is currently quoted on the pink sheets. It should be noted that the company hired Friedman LLP as its new auditor shortly after MaloneBailey's resignation (see also NIVS).

China MediaExpress (CCME.PK) is currently trading at $1.60, down 89.90% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 0% (Extreme Risk).

The CCME story is well-documented and I don't have to go into details again. The company lost its auditor, CFO, Chairman of the Audit Committee and independent directors through resignations in March and April, and has not hired any replacements since. It is unclear if the special committee that was formed on March 17 is still working on the internal investigation into the accounting matters, as the company has not updated the investment community in the past four months. CCME has been delisted from Nasdaq on May 19, 2011.

HQ Sustainable Maritime Industries (HQSM.PK) is currently trading at $0.24, down 94.97% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 9% (Extreme Risk).

HQSM's auditor could not confirm the cash balances in the company's bank accounts nor verify the existence of customers in China. In its resignation letter dated May 26, the auditor claimed HQSM's management resisted its efforts to address these issues and became "increasingly non-responsive, uncooperative and non-communicative." The company's account of what happened paints a different picture. As of July 1 the company has only one independent director left, all the others resigned, including the Chairman of the Audit Committee. The SEC has initiated a formal investigation into HQSM. On July 11 the stock was delisted from NYSE Amex to the pink sheets after having been halted since April.

NIVS IntelliMedia Technology (NIVS.PK) is currently trading at $0.35, down 84.52% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 0% (Extreme Risk).

In its resignation letter on March 24, the company's auditor, MaloneBailey, said it found "illegal acts involving the Company’s accounting records and bank statements and discrepancies in accounts receivable." NIVS managed to engage BDO China as its new auditor shortly after, but on May 14 they resigned as well, stating the company's inability to provide "certain critical financial related documents and records." Since May 19, Friedman is the company's independent auditor, we will see how long that lasts... The special committee that was formed to look into the accounting issues broke apart on July 11 when two directors, incl. the committee's chairman, the legal counsel, and the accounting advisors (Deloitte) all resigned or terminated their engagements. The company has since hired new directors and said it "intends to engage new counsel and forensic auditors to continue its work." The stock has been delisted from NYSE Amex on June 24 and is since trading on the pinks.

Puda Coal (PUDA) is halted since April 11. Last reported trade was at $6.00, but the stock will likely open significantly lower when trading resumes. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 6% (Extreme Risk).

Apparently, the chairman of Puda Coal stole almost the entire company from U.S. shareholders, sold half of it to Chinese investors, and pledged the other half as security for a loan at 14.5%(!). The company has basically admitted fraud by stating that "although the investigation is in its preliminary stages, evidence supports the allegation that there were transfers by Mr. Zhao in subsidiary ownership that were inconsistent with disclosure made by the Company in its public securities filings." The stock has been halted since April 11 and the company completely ignored the due date for its first quarterly report of 2011. PUDA's independent auditor for six years, Moore Stephens Hong Kong, resigned on July 7, which makes it very unlikely that the stock will reopen again on NYSE Amex.

ShengdaTech (SDTH.PK) is currently trading at $0.53, down 89.19% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 13% (Extreme Risk).

When ShengdaTech failed to timely file its annual report for 2010 the stock was halted by Nasdaq. Shortly after it came to light that SDTH's auditor, KPMG, found "serious accounting and operational issues," and informed the exchange of "deliberate and ongoing efforts of the company’s Chief Executive Officer and Acting Chief Financial Officer to obstruct an internal investigation into these matters." The Acting CFO resigned on April 21, followed by the auditor on April 29. KMPG was replaced by Marcum Bernstein & Pinchuk on June 9, however a final engagement is still pending satisfactory completion of Marcum's new client acceptance procedures. For the past six weeks no new developments regarding the status of investigation and auditor have been filed, and the stock has been delisted and is trading on the pink sheets since June 10, 2011.

Subaye (SBAY.PK) is currently trading at $0.49, down 95.02% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 0% (Extreme Risk).

In my opinion this is the most outrageous of all the Chinese frauds, it is almost comical. If you are interested in a bit of cheerful entertainment you really should dig into the Subaye story - it claimed to be an entertainment company after all. Subaye is currently at its third CFO since March, its CEO resigned in May, its auditor in April and hasn't been replaced since. The stock has been delisted on June 24, and is now trading on the pink sheets.

Just one snippet to illustrate all this craziness: Subaye's last official guidance, presented in December 2010, called for earnings per share of exactly $3.12 in FY2011. If the company were not blatantly lying, a P/E of 5 were justified and the stock would be worth at least $15, a level it reached briefly in January of the current year. Now the employment agreement with SBAY's newest CFO, Jacqueline Ng, dated June 1, guarantees her the following compensation: an annual salary of $60,000, a sign-on bonus of 150,000 shares, and a minimum annual bonus of 100,000 shares of common stock. That means CFO No.3 Miss Ng would receive stock worth at least $3.75 million additionally to her annual salary as compensation for her CFO duties, if the company's representation of its net profits and prospects would have any credibility. Even at the current stock price her compensation is outrageously high. She's not alone, though. In the same filing it was revealed that SBAY's new CEO, a German national who seems to be in the IR business and doing side-jobs like serving as honorary consul for the Republic of Belize in Germany, will receive the same 250,000 shares plus $80,000 annual salary.

Wonder Auto Technology (WATG) is halted since May 9. Last reported trade was at $5.42, but the stock will likely open significantly lower when trading resumes. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 26% (Extreme Risk).

When WATG failed to file its 2010 annual report, the company announced an internal investigation into reported accounting matters, incl. that it had engaged in several transactions without properly disclosing their related-party nature. Intermediate results led to announced restatements for fiscal years 2008, 2009 and 2010, and for the quarters ended March 31, June 30 and September 30, 2009 and 2010. This investigation was originally expected to conclude by the end of July, but that is now a very unlikely outcome. On July 12, both the CEO and CFO resigned from their positions without giving a reason. Wonder Auto's auditor, Big Four firm PricewaterhouseCoopers, is apparently still with the company. Trading in the Nasdaq-listed stock has been halted for ten weeks now, and at this point it is very unlikely that it will reopen on the big boards again.

Yuhe International (YUII.PK) is currently trading at $0.97, down 89.17% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 0% (Extreme Risk).

Chicken breeder Yuhe International claimed to have acquired 13 breeder farms from a competing business in 2009, but an investigatory report from Geoinvesting proved those claims wrong and the company was lying to investors. YUII's auditor resigned on June 17 due to "management’s misrepresentation and failure to disclose material facts surrounding certain acquisition transactions and off-balance sheet related party transactions." The stock was delisted from Nasdaq on July 21, and is since trading on the pink sheets.

Jiangbo Pharmaceuticals (JGBO) is halted since May 31. Last reported trade was at $3.08, but the stock will likely open significantly lower when trading resumes. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 14% (Extreme Risk).

The Securities and Exchange Commission subpoenaed the company on March 26 and Jiangbo's audit committee started an internal investigation of the issues raised by the SEC. Elsa Sung, Jiangbo's CFO, resigned on March 31. On June 6, the independent members of the Audit Committee jointly resigned, stating that JGBO's "chairman and members of his management team have exhibited repeatedly their unwillingness to cooperate in even the most basic requests," and - among other things - the investigation "raised serious concerns regarding the veracity or correctness of banking information provided by the company."

Michael Marks, former independent director and Chairman of JGBO's Audit Committee filed a very long (22 pages) and detailed account of the internal investigation with the SEC. If you are interested in the troubles of U.S.-listed Chinese companies, you should take the time to read the full letter. You will find real gems in there, such as the manager of Jiangbo's materials department refused to leave the employee wash room in order to avoid answering Ernst & Young's questions. Or that the law firm's fee was paid from a personal account of an individual who turned out to be Jiangbo's cashier - via internet banking - when Jiangbo previously told Ernst & Young that the company did not use and did not have access to internet banking.

The stock remains halted on Nasdaq and will likely get delisted soon. Anyone out there who still believes this company has almost $150 million cash on the bank?

This was a very long account of (likely) fraudulent Chinese stocks which blew up in the first half of 2011. But it is far from complete! I did not mention several other cases, including Longtop Financial (LFT), Duoyuan Global Water (DGW), or A-Power Energy (APWR), and there are many stocks with similar problems that never made it to the big boards and are still quoted on the bulletin boards or pink sheets.