Sep
21
On page nine of Harbin Electric’s 2010 annual report is a real snoozer of a paragraph, a combination of mandatory disclosure and corporate boilerplate drearily familiar to investors the world over:
No customer accounted for more than 10% of the total revenues for the fiscal year ended December 31, 2010. Two major customers accounted for approximately 22% of the net revenue for the fiscal year ended December 31, 2009, individually accounting for 12% (Daqing Xinchengtai Technology Co., Ltd.) and 10% (Jiangsu Liyang Car Seat Adjuster Factory), respectively. At December 31, 2009, the total receivable balance due from these two customers was $22,835,846, representing 24% of total accounts receivable. Three major customers accounted for 43% of the net revenue for the fiscal year ended December 31, 2008, with each customer individually accounting for 16% (Jiangsu Liyang Car Seat Adjuster Factory), 15% (Daqing Xinchengtai Technology Co., Ltd.) and 12% (Guiyang Putian Logistic Co., Ltd.), respectively. At December 31, 2008, the total receivable balance due from these customers was $26,253,907, representing 87% of total accounts receivable.
Not quite riveting to be sure, but it’s the sort of textual sludge that the Financial Investigator wades through religiously, seeking insights about revenue concentration and potential threats to corporate balance sheets and cash-flow statements from problematic receivables.
There is an important caveat, however. Most corporations actually have the customers they disclose in these filings; Harbin does not.
Harbin has made up tens of millions of dollars of annual revenue and receivables for several years running, according to assertions made in a pair of interviews with the senior management of Jiangsu Liyang, a company that Harbin has asserted in its 10-Ks is one of its best customers.
An American investigator living in Beijing conducted the interviews last week posing as a buyer for a fictional American auto parts wholesaler. The interviews, with Wei Shen, Liyang’s sales director, and Ms. Ma, its general manager and head of quality control (a position broader than just quality assurance, involving oversight of manufacturing and delivery processes) are here and here. The tapes are unedited, save for the removal of the investigators name.
[Here is a picture of Mr. Shen’s business card and here is a photo of the investigator and Mr. Shen at Jiangsu Liyang’s offices.]
The interviews have both executives stating that Jiangsu Liyang barely does any manufacturing of electric car-seat adjusters, a fact contradicting Harbin’s filings. While there remains some chance that Harbin does some small amount of business with the company, both executives remarked that what little electric business they do is primarily supplied by a China-based unit of Johnson Controls.
Moreover, with approximately $27 million and $30 million in annual sales for 2009 and 2010, respectively, the Jiangsu Liyang portrayed by its executives is in no way big enough to do the business volumes Harbin’s filings claim. For example, with roughly $27 million in 2009 revenues–which, according to the executives, is 98% manual car-seat adjusters–the $19.3 million or so in motors Harbin asserts it is selling the company represents a big disconnection.
The interviews put matters into stark relief for investors: If Harbin’s SEC filings are to be believed, both Jiangsu Liyang executives would have to be profoundly incompetent, having no knowledge of their products and key suppliers. Or, alternately, they both simultaneously lied to a prospective client when it would be to their benefit to represent their company as larger and higher tech than it is.
If the Jiangsu Liyang’s executives are credible, however, then Harbin is perpetrating a financial fraud sharply larger than the many red flags already suggested in its filings. As such, the rank nature of the fraud alleged makes it difficult to imagine that this is the only customer where revenues are problematic.
Regardless, on-the-record evidence from a key customer that casts doubt on 10% or more of a company’s revenues should absolutely serve to put its auditors and regulators on notice. [Harbin’s auditors, the truly beleaguered outfit of Moore Stephens--the former Frazer Frost--has been the auditor of record for a host of frauds so spectacular they literally call out for cinematic treatment. Here is their resignation letter for Puda Coal, a company that did to its investors what the Germans did for Russian real estate values during the Second World War.]
The interviews also broadly jibe with Jiangsu Liyang’s credit report referenced in an August 3 story on short-seller Andrew Left’s Citron Research site estimating that the car-seat company was doing about $24 million in revenue.
Mostly, however, the interviews raise a much more fundamental question about market integrity: Exactly what does it take to get market surveillance officials at NASDAQ to start requesting documents and asking some uncomfortable questions of companies like Harbin that pay the for-profit exchange handsome fees to list there?
Based on recent history, it takes an auditor’s resignation for them to act, which is troubling since the stock regularly trades hands more than a million times daily and, as noted above, those investors have been making decisions without the faintest outline of Harbin’s actual financial condition.
Though frauds–and that is a word now fairly applied to Harbin in light of the Jiangsu Liyang executive interviews–are often shocking, there is little about Harbin that wasn’t fully foreshadowed in many, many places.
Nor should investors be faulted for taking some risk and playing what looks like the easiest arbitrage in recent memory.
Where the problems arise is the American regulatory apparatus that has blown through a host of warning signs and allowed Harbin to stage its drama for going on a full year now. These tapes, if the vows made after the sub-prime and Madoff scandals are to be taken seriously, should be the script for the much overdo final act.
Outstanding analysis! Hardly makes HRBN sound worth the $20 it is trading at.
Actually 21$, I think Boyd you should spend more time talking about track record than these random account analysis your fine team does with Citron/AL, but one as clever as you should note track record speaks volume louder than random bloggers who are publicly short the stock & the price performance. Since your team have been writing these articles the stock has rallied 30%, so it is clearly obvious the market does not favor your thesis, and that anyone who has actually followed your advice has lost a significant amount of money.
Please go short, loser!
LOL
I am curious as to whether posters like HRBNshortsDEAD are actually convinced that Harbin is a legit company, or if they are just being a nuisance for the heck of it. I find it difficult to imagine that any intelligent person could cast aside all of the damning evidence against the company, but these knuckleheads show up all over the internet…
A short term bump in the stock price doesn’t necessarily mean much. Enron also had a good run for a while:
http://blogs.ubc.ca/nadiag/files/2011/09/Enron-Graph4.gif
It looks to me that we’re experiencing a short squeeze induced by repeated, loud proclamations from Tianfu Yang (including demands that borrows be pulled by the longs), plus some individual traders’ attempts at M&A arb. Note that few big players are involved here – see:
http://tradersanger.com/2/post/2011/06/hrbn-buyers-beware.html
Although I wouldn’t do it, if you’d like to wager your money that HRBN will be bought out for $24/share in Q4, i.e., starting next week, be my guest: that’s why we have markets.
I used to think that the SEC was just outgunned by all of the hucksters out there, but now I know that they are simply more concerned about protecting the brokers and underwriters. Over the last decade I’ve hand delivered over a dozen high quality reports alleging all kinds of frauds and to the best of my knowledge they haven’t followed up on a single one of them. One company is still selling bogus mortgages on Craigslist, two blocks from where I live. When professional promoters are ignored and spammers can operate without fear of reprisal, it creates a toxic environment for everyone. Too often these firms know about the frauds (or at least should know), but ignore it because of the fees that they can earn. Why the SEC doesn’t protect the public better is beyond me, but I don’t see how they can continue to let this fraud go on, when there has been clear and convincing evidence that something is rotten in Denmark. I wish that Harbin was the exception to the rule, but it’s clear that not only is the house rigged, but the regulators are in their pockets.
Is it just me, or is it strange that HRBN filed an 8K (today) for something that occurred on June 10, 2011? Am I overblowing things or is this yet again, spitting at the face of the SEC and the investing public?
Don’t trust me, look for yourself.
Daniel, you just can not read English, I will spit on your face.
Today’s 8k is about what happened on 9/15 after the first land purchase agreement in June.
Looks like all hrbn shorts are just as stupid as Daniel Y.
LOL
LongHRBN,
I’m not a legal expert, nor SEC compliance expert, but contrary to your claim above, today’s 8K includes at least 2 transactions, the first on June 10, and another (it seems a modification of the original June 10) on 9/15. I’ve pasted the June 10 event below for your convenience:
On June 10, 2011, Xi’an Tech Full Simo Motor Co., Ltd. (“Xi’an Tech Full”), an indirect wholly owned PRC subsidiary of Harbin Electric, Inc. (the “Company”) entered into a Project Investment Contract, dated June 10, 2011 (“Investment Contract”), with Xi’an Lintong Tourism and Business Development Management Commission (“Xi’an Lintong”). Pursuant to the Investment Contract, Xi’an Lintong agreed to transfer to Xi’an Tech Full, the right to use a certain parcel of land consisting of 500 Chinese Mu (approximately 82.4 acres or 333,500 square meters) and located at Daixin Industrial Development Zone in Xi’an Lintong Tourism and Business Development Zone for the purpose of constructing a new manufacturing facility that will produce electric equipment and machinery and related products as part of a capacity expansion project at Xi’an Tech Full.
So now you spit on yourself?
HRBN filed 8k on 6/20 to disclose the original deal. Then today filed another 8k to disclose the new development followed the original deal.
Tell me what’s wrong with that? Or what’s wrong with you? Loser!
I invite the SEC to examine the series of exchanges on the exchange of comments here…it is a microcosm of the longs vs. the shorts/critics.
[...] first development was the surfacing of audio tapes on The Financial Investigator which indicate that HRBN has completely fabricated its relationship with a reported major customer, [...]
The filing on Wednesday is really interesting! I invite you to read this two articles:
http://seekingalpha.com/article/295518-the-harbin-land-shuffle-a-classic-bait-and-switch
http://www.littlebear.us/harbin-electric-to-the-sec-%E2%80%9Cthe-dog-ate-my-homework%E2%80%9D/
if the investigator pretends to be a fake customer, Mr.Shen could provide him with false information too.
it is a real pain to listen to the audio. Mr. Shen yelled at phone. constant chewing sounds…
Long HRBN stated the info was filled 6/20
I looked there’s no filings.
You said.
“HRBN filed 8k on 6/20 to disclose the original deal. Then today filed another 8k to disclose the new development followed the original deal.”
On the stock being at $21. Seems crazy. I sold large numbers of calls on CHBT when the stock was trading at $10+. I thight that was incredible. There was a mountain of evidence they were a total fraud.
Stock is now trading for a buck or something. I dont know who was buying chbt. Same folks buying HRBN?
HRBN could be out. They ARE a fraud. 99%, but maybe CDB will do the deal.
To Mr.Realistic
If you are too blind to find a sec filing or just lying, then you deserve to lose money
HRBN to vote on 10/29
The days for the shorts are counted.
Please give us more hit pieces
I will all in Nov. calls
@longhrbn
Try reading the 10K/A filed this afternoon instead of the silly press release meant to draw attention AWAY from it. Revealing stuff in there.
Buyersstrike
I will be very happy if you could short more tomorrow, especially if you can sell me some Nov calls at today’s price.
Cheers
Death sentence of short sellers:
HARBIN, China, Oct. 29, 2011 /PRNewswire-FirstCall/ — Harbin Electric, Inc. (“Harbin Electric” or the “Company”; NASDAQ: HRBN), a leading developer and manufacturer of a wide array of electric motors in the People’s Republic of China, announced today that Harbin Electric shareholders voted at a special meeting of shareholders to approve, among other things, the Company’s Agreement and Plan of Merger dated as of June 19, 2011, as amended (the “Merger Agreement”), with Tech Full Electric Company Limited (“Tech Full Electric”) and Tech Full Electric Acquisition, Inc. (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company and the Company will continue as the surviving corporation and will be a wholly-owned subsidiary of Tech Full Electric.
Nail Roddy Boyd’s coffin:
HARBIN, China, Nov. 1, 2011 /PRNewswire/ — Harbin Electric, Inc. (“Harbin Electric” or the “Company”; NASDAQ: HRBN), a leading developer and manufacturer of a wide array of electric motors in the People’s Republic of China, today announced it has commenced the closing process of the merger contemplated by the Agreement and Plan of Merger, dated June 19, 2011, as amended, pursuant to which the Company will become a wholly-owned subsidiary of Tech Full Electric Company Limited (“Tech Full Electric”), which is controlled by Mr. Tianfu Yang, the Company’s Chairman and Chief Executive Officer.