Christopher Byron has written a critical piece on chinese companies. Amongst those, EFUT is mentioned:
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BUBBLE-ICIOUS
RISKY CHINESE STOCKS HAVE BALLOONED IN 2006
November 20, 2006 -- FOR the last seven months, we've been keeping you up to speed on the fortunes of a fishy Chinese outfit called Bodisen Biotech Inc., which is based somewhere in the vast outback of China yet trades on the American Stock Exchange as part of a Beijing campaign to raise capital on Wall Street for Chinese startups.
The wheels and fenders began popping off this penny stock jalopy in May when we first reported that Bodisen was being promo- ted around Wall Street by a smooth-talking ex-stockbroker from Oklahoma named Benjamin Wei, who came to New York to escape a past of disciplinary actions against him in the Midwest.
Last week brought more news on Bodisen, most of which involved a continuing - and so far largely unsuccessful - struggle by Amex officials to force the company to abide by the exchange's rules.
In particular, Amex officials wants to know what Bodisen's ties to Wei really are. They also want to know who owns the biggest blocks of Bodisen stock - something the company promised to clear up eight months ago.
Bodisen isn't the only penny stock with doubtful financials and murky antecedents that is being shopped around Wall Street this autumn. There is a dump truck full of Chinese stock trash, and it has ballooned into the biggest sector bubble of 2006.
A quick count turns up around 200 companies of these companies, and with only a handful of exceptions, they're all traded on either the ultra-risky and almost totally unmonitored OTC Bulletin Board or the OTC "Other" markets.
Some will be familiar to readers of this column from years ago, such as ChinamallUSA.com, which became the plaything of Salt Lake City penny stock swindlers in the late 1990s and was deregistered as a public company.
Similarly, there's China Food & Beverage Co., which was promoted to Wall Street in the late 1990s by an ex-con named Edward Williamson, who had served time in federal prison at El Reno, Okla., for killing an Okinawa taxi driver in 1967.
In a few cases, the companies in question are seasoned operations with legitimate businesses. Chindex International runs a chain of hospitals in China and has been in business since the 1980s. It, too, has been swept along in the investor euphoria that has engulfed the sector.
However, most of the China bubble stocks of 2006 are relative newcomers to Wall Street and thus haven't been around long enough to accumulate damage to their reputations like Chinamall and China Food and Beverage.
They all have something else in common that investors in penny stocks have learned to look for: limited amounts of shares that can be bought and sold on the public market - what the Wall Street cognoscenti call "low floats." This guarantees the maximum volatility in the stock price.
In recent weeks, these stocks have shot off the charts. Consider China Security and Surveillance Technology Inc., which was formed out of a reverse merger with Safetech Inc. in 2005. The company sells surveillance cameras and related equipment to schools, banks and commercial buildings in China.
How much gear the company has actually sold isn't clear because this is a foreign company, based in China and incorporated in the British Virgin Islands, which lowers a second veil of obscurity on its activities. Filtered thusly, the company reported $6 million of net income from sales of $22.6 million during the first half of 2006.
It sounds impressive, but when you look at the numbers more closely, that $6 million of reported net income turns out to be nothing but a paper profit that didn't put a dime into anyone's hands.
In reality, the company burned through a bit more than $80,000 in cash during the period, in part because its inventory of unsold surveillance gear was growing twice as fast as the business itself was growing.
In spite of this, with the company hemorrhaging cash, China Security has soared from $2 at the start of the year to $10 by the end of last week, with most of that gain coming in just the last 10 weeks. With a bit more than 29 million shares outstanding, the company boasts a market value of close to $300 million - this for a business that gives its shareholders none of the protections of U.S. law and that might actually be going broke.
But that's nothing when compared with an outfit called e-Future Information Technology Inc. Its shares managed the same run-up that took China Security the better part of a year in barely two weeks! And check out how much it seems to know about the business it's in.
e-Future is in the business of developing and marketing something known as "supply chain management software," a kind of prettified database system for keeping track of who you do business with, and who owes how much to whom.
But, if you read the company's stock registration statement that was filed with the SEC just before it went public at the end of last month, you'll see that it admits to having somehow made a big mistake. It seems to have counted cash advances from customers as both assets and income at the same time.
Well, no, I'm sorry, but you can't do that. You can't even say you're sorry but it was a mistake. It's like saying, "Jeez, I'm sorry I ran over that homeless guy on the Van Wyck, but how was I supposed to know my Hummer would kill him!"
Some things you're just supposed to know, period. One of them is that you're not allowed to increase income without an offsetting reduction in the asset that supplied the payment.
You'll find a lot of talk in the registration statement about how this "material deficiency" was just some big mistake, and how everyone was so busy growing the business that they missed it, and how . . .
But I say, hey, just tune out from all that and simply ask yourself this: If these folks can't manage their own books and records, how are they going to manage anyone else's?
Wall Street investors seem to think it's going to be a cakewalk. The company went public on Oct. 31 at $6 a share, and by last Wednesday, the stock was selling for $48. But this isn't investing, it's just out of control speculation, and by the 4 p.m. closing bell on Friday it was back to $33.80.
We'll just ignore the fact that three times as many shares changed hands as were actually available for trading and say only that with just 1.5 million shares outstanding, a $15 per share loss translates into a wipeout of nearly 33 percent for anyone foolish enough to think that at $48 e-Future would keep on rising.
This isn't smart investing. It's what Americans are becoming famous for around the world: the worst, most lame-brained investing ever seen anywhere. And after the Chinese get through pulling down our pants in public, who will be next? When will it stop?
cbyron@nypost.com |
