Florinda: I laughed hard when I read that POS article. Here is what Robert Hsu wrote on the subject:
As for the company's financials, its CFO said company had not really paid much attention to SAIC before. They simply filled out a form and sent to SAIC. The companies registered at SAIC is usually not the same as the U.S.-listed company entity, because in China a company needs to register different entities to get various licenses. However, if you go to U.S. capital markets, you submit consolidated financial reports between the various entities for audit. Accounting rules are very different. So originally, China-Biotics thought the different numbers would not be a big issue. However, since Travis joined the firm, there has been an effort to reconcile the reports with SAIC and the SEC and I expect that this will continue. Overall, I am pleased with the report from Jay and remain positive on the long-term growth story in China-Biotics.
CMFO's CFO (and some other CFO's as well) told Zack Buckley pretty much the same thing when asked about the SAIC/SEC disparities. My general understanding of the issue based on these interviews and other investigations of the subject is: 1)there is a large difference in the function of SAIC, SAT vs. SEC, esp. wrt multi-entity companies like CHBT, 2) SAIC/SAT doesnt seem to reinforce much the accuracy of financials reported to them even if that those reports are audited for tax purposes in the case the company is a FIE. If it's a VIE, the SAIC report is not audited. If they are caught with underreporting revenues, the penalty is supposed to be very nominal, so many Chinese companies prefer to pay those fines vs. having competitors know their exact revenues and ad agencies or job seekers bombard them with solicitations.
Why should a company like CHBT that does business in different segments and geographies through diffrent subsidiaries report all its revenues to a provincial jurisdiction like the Shanghai AIC whose main function is consumer protection and issuance of business licenses for businesses in Shanghai? Even if we just consider CHBT's retail business, revenue comes from 27 distribution channels plus 111 retail outlets spread over many cities and provinces of China. I dont think it has to report all of that to the Shanghai AIC. Nor it has to report in the future revenues from its new bulk plant in Shanxi to Shanghai. On the other hand, CHBT as a NASDAQ company must report ALL revenues as a consolidated company to the SEC, no doubt about that. So to claim that revenues reported to the Shanghai AIC are more credible than revenues reported to SEC by the consolidated company is just pure bogus.
But there's something else which makes me trust SEC numbers more than anything reported to chinese local agencies: does any one seriously believe that they can fool their own auditor and all the institutional US investors for so many years with non-existing revenues and cash flow ? Can so many different US professional money managers not see a scam company from a real one? Many institutional investors have scrutinized their books and toured their facilities before investing in this company. Let's see : in 2007 Pope invested 25m as a convertible bond, in 2009 several PP investors invested 75m in a secondary, 26 mutual funds (including large funds like Fidelity and Wellington) currently own shares, not to mention smaller groups like Robert Hsu and Eric Jackson (Ironfire Capital) who all have done in-depth DD here and written various reports about this company. Whom do we trust, a short like CCA aka Waldo Mushman or these professional investors ? Frankly, I would be more inclined to believe in some form of tax evasion wrt Chinese authorities rather than fraud wrt the SEC.
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