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1 : GS(14)@2012-03-07 23:06:22

http://webb-site.com/articles/muck2012p4.asp

今次講下8202 的爛刁

Inno-Tech and United Premier Medical Group

Great China Media wasn't the first time that YY Wong, Chairman and co-founder of Inno-Tech, had sold a business to Inno-Tech. On 5-Mar-2007, Inno-Tech agreed to buy 56% of Autoscale Resources Ltd (Autoscale) from YY Wong and Robert Wong Yao Wing, then Deputy Chairman of Inno-Tech, for HK$58.97m, satisfied with 351m shares (39.84%) of Inno-Tech @$0.168. They sold 28% of Autoscale each.

Autoscale owned 37.71% of the ordinary shares of United Premier Medical Group Ltd (UPMG), established in 2002 and operating in mainland China and Macau, which had a net loss of $29.5m in the year to 30-Sep-2006 and lost HK$31.4m in the prior year (under HK accounting standards). It had contracts to fit out and manage various "VIP Centres" providing maternity-related services (obstetrics, gynaecology and paediatrics) in hospitals in mainland China and Macau. It also had 4,565 convertible preference shares outstanding, redeemable on 26-Jul-2008 at US$2,500 each plus 2% premium and 8% p.a. fixed dividend.

UPMG had a net asset value of HK$42.20m at 30-Sep-2006, but keep in mind that this would include the preference shares, with par value of US$11.4m (HK$89.0m), so ordinary shareholders' funds were negative. Autoscale had net liabilities of $0.159m. The circular dated 26-Mar-2007 contained a fairness opinion from Veda Capital (there they are again) and the deal completed on 19-Apr-2007. Inno-Tech booked HK$60.64m of goodwill on the acquisition of Autoscale.

On 21-Jan-2008, Autoscale (along with the other shareholders of UPMG) agreed to exchange its by-then 28.13% stake in UPMG (after conversion of preference shares) for 12m shares (23.93%) of a US shell called The Cavalier Group, incorporated in Wyoming and quoted on the OTC Bulletin Board, which had no prior business. A circular was dated 15-Feb-2008. On 13-May-2008, the shell was renamed China Health Care Corporation (CHCC), and the deal completed in Jul-2008. HK regulators do not require the filing of such agreements, but the US SEC does, so with that transparency, you can read the agreement here, including the list of 118 registered shareholders of UPMG.

Finally, on 16-Feb-2009, Inno-Tech agreed to sell its 56% stake in Autoscale to Certain Success Holdings Ltd (BVI), the owner of which was not disclosed, for just HK$3.145m in cash, with an expected loss on the disposal of about $57.2m.

This part of the story isn't quite over though: on 15-May-2009, there was a ruling in the HK Court of First Instance between China Medical Ltd as plaintiff (we don't know its owner or place of domicile) and Autoscale as defendant. A judgment in default of defence had been entered on 20-Mar-2009, ordering Autoscale to honour a guarantee of an alleged liability of UPMG (or its BVI subsidiary) under a subscription agreement dated 1-Aug-2005. Autoscale wanted the judgment set aside. UPMG had allegedly failed to redeem the plaintiff's convertible preference shares or pay dividends, or use its best efforts to procure an IPO. The defence claimed that the reverse takeover by CHCC counted as an IPO. The judge disagreed, saying that the defendant had not made an arguable defence. The judgment refers to 914 preference shares - that would be US$2.285m (HK$17.82m) of par value. We can't find "China Medical Ltd" or the corresponding 914 ordinary shares (after conversion) in the exchange agreement with CHCC.

Interestingly, this contingent liability of Autoscale in the form of the guarantee was not disclosed in Inno-Tech's accounts at 30-Jun-2008, when Autoscale was still a subsidiary. Why not?
Kaiping Hotel deals

One of the UPMG shareholders listed in the agreement with CHCC was Smart Boom Investment Ltd (Smart Boom, BVI), which would receive 794,000 shares (about 1.6%) of CHCC for 397 shares of UPMG. We don't know how owns it, but on 4-Feb-2008, two weeks after the agreement to roll UPMG into CHCC, Inno-Tech agreed to buy Homesmart Properties Ltd (Homesmart) which ultimately owned a hotel in Kaiping City, Guangdong, for RMB20m (then HK$20.86m) from, you guessed it, Smart Boom, declared to be an independent third party. The price was based on an independent valuation of the property at 29-Jan-2008 of RMB20m by an unnamed valuer. The property was said to be "in good condition".

This deal followed an earlier pair of hotel acquisitions on 5-Nov-2007 from the same beneficial owner as Smart Boom's, again unnamed. One of those deals was to buy Sunny Team Corp Ltd (Sunny Team) for RMB13.5m (then HK$14.07m). The vendor had contracted for Sunny Team to acquire a hotel at 106, Guangming Road, Kaiping, Guangdong Province. That would be the Xingdu Hotel. Inno-Tech said the hotel was in "good condition" and it "did not intend to make further capital investment" on the property. The other was China Earn Ltd (China Earn), for RMB14m. The vendor had contracted for China Earn to acquire a hotel at 216 Tianjin Street, Jilin City. That would be the Jinjiang Inn Jilin Train Station Branch.

Strangely, the annual report of Inno-Tech at 30-Jun-2008 records Homesmart and Sunny Team as subsidiaries, but note 38, on the acquisition of subsidiaries, only includes one acquired subsidiary, Autoscale. So how were Homesmart and Sunny Team acquired? Meanwhile, China Earn is nowhere to be seen in these accounts. It was dissolved by deregistration on 18-Feb-2011. Inno-Tech has never explained what happened. A circular dated 11-Sep-2009 on another transaction, mentions the deal at the bottom of page 262 (IX-8) of the PDF, stating that the company acquired China Earn for RMB14m.

On 26-Jun-2009, seventeen months after buying Homesmart, Inno-Tech sold it for just RMB2m, 90% less than it paid, to Main Move Ltd (Main Move, BVI), said to be an independent third party. The owner of that was not disclosed. Even at this low price, 95% of it was deferred as a promissory note, so only RMB100,000 was payable on signing. The hotel was now said by BMI Appraisals Ltd (BMI Appraisals) to be worth RMB13m, but on 31-Jul-2008, Homesmart had borrowed RMB11m against it. What Homesmart had done with this money we do not know. Inno-Tech said it would book a loss of HK$20.41m on the sale. Homesmart had losses of only $800k from incorporation to 31-Mar-2009.

On the same day, Inno-Tech sold Sunny Team to Timewon Ltd (Timewon, BVI), the owner of which was not disclosed, for the same price as Homesmart, RMB2m, with 95% deferred as a promissory note. BMI Appraisals, which has featured many times on Webb-site, valued the Xingdu Hotel, Kaiping at RMB10.5m, and Sunny Team had a bank loan of RMB8.5m. Sunny Team had losses of only HK$993k from incorporation to 31-Mar-2009. Inno-Tech said it would book a loss of HK$0.52m on the sale.

Both these agreements came just 4 days (and 2 working days) before the year-end of Inno-Tech, and completion took place by on the year-end of 30-Jun-2009. Were they in a hurry? We call on the SFC to investigate the following issues:

  Was China Earn ever purchased, as the circular claimed? If not, why didn't Inno-Tech announce that the deal had failed?
  Who was the person that sold the 3 (or 2) companies to Inno-Tech?
  Why wasn't the acquisition of Sunny Team and Homesmart shown in the note on acquisition of subsidiaries in the 15 months to 30-Jun-2008? Did Inno-Tech jump the gun and acquire the HK shells before they had completed the hotel purchases?
  What were the due dates of the promissory notes on the sales?
  Who owned Main Move and Timewon, the buyers of Homesmart and Sunny Team, respectively?
  In both sales, the net asset values of the companies, Homesmart and Sunny Team, was not disclosed. What were they?
  What had Homesmart and Sunny Team done with the money from the bank loans? It's possible that they sunk it into renovating the buildings, but that seems like a lot to spend, given that both hotels were said to be in "good condition" when acquired, and in the case of Sunny Team, no capital investment in the property was needed.
  So if not in fixed assets, then where did the cash go? The original acquisition prices of Sunny Team and Homesmart were priced based on assets without borrowings. So the net assets, even after hotel devaluation, should have been about RMB13m and RMB10.5m respectively, less their modest operating losses since incorporation.

Note 39 of the Inno-Tech accounts for the year ended 30-Jun-2009 shows the combined disposals of 3 subsidiaries: Autoscale, Homesmart and Sunny Team. Look at the "satisfied by" part of the table:

We know that Autoscale was sold for HK$3.145m, so that is the cash line. So the table shows that even the RMB200k (HK$225k) of cash which was payable on 26-Jun-2009 had not been paid, and the promissory notes were the other RMB3.900m (HK$4.256m).
Trade debtors

The accounts for the year to 30-Jun-2009 were spectacular and remarkable for their lack of explanation of the following items, which we call on the SFC to investigate:

  Inno-Tech had trade debtors of $65.4m at the previous year-end, but managed to book an impairment loss of $122.2m against trade debtors, so at least $56.8m of that had been racked up in the year, on turnover of $78.1m. Of this turnover, $74.4m was from its original business of "design of residential intranet, provision of home-automation services and trading of related products", or what it calls the "intelligent system" segment. The segment booked a loss of $179.17m, compared with $0.29m a year earlier. There was no explanation for the impairment in the "management discussion and analysis" section.
  Meanwhile, the "hotel management" segment booked a loss of $113.3m on turnover of just $3.7m, compared with a loss of $67.5m on turnover of $1.3m a year earlier, the first year of the segment. So that's a total segment loss of $180.8m on turnover of $5.0m in 2 years. The mind boggles (and it must, because there was no explanation) on how they spent so much money for so little revenue, and that is before the losses on the sales of Homesmart and Sunny Team. Where did all the money go?
  The loss on disposal of subsidiaries in 2009, which also included the loss on the sale of Autoscale, amounted to $84.4m, which is significantly higher than the aggregate $78.13m Inno-Tech had estimated at the times of the sales. Overall, Inno-Tech booked a loss of $391m for the year.

Inno-Tech's auditor from 2005 to 2009 was PCP CPA Ltd (PCP), the incorporated version of Paul Chan & Partners. It gave a "true and fair" opinion on the 2009 accounts. In 2009, the firm merged with CCIF CPA Ltd to form Crowe Horwath (HK) CPA Ltd (CHCPA), so Inno-Tech changed auditor to the new firm at an SGM on 14-Jul-2010. Incidentally, the Managing Director of PCP CPA Ltd and a director of CHCPA is accounting legislator Paul Chan Mo Po.

3 : GS(14)@2012-03-07 23:18:35

http://www.redgatemedia.com/index.php?body=home&lang=sc
On 8-Jul-2011, Inno-Tech conditionally agreed to buy Redgate Ventures Ltd (Redgate Ventures) for about HK$1,941m, of which $290m would be in cash, $160m in 0% promissory notes and $1,491m in 3-year 0% notes convertible into up to 5,404m shares (98.27%) of Inno-Tech @$0.38. Cash would be raised by placing $200m of 2-year 0% convertible bonds, conditional on the acquisition. A refundable deposit of HK$80m has already been paid. The agreement was amended on 30-Dec-2011 and amended again on 21-Feb-2012 to knock $190m off the purchase price. The deal is still in progress and the circular has yet to see the light of day.

Redgate Ventures is "a diversified media company in China primarily providing advertising and advertising agency services through an integrated cross-media platform". The group "commenced operations in 2003". It appears that Redgate Ventures is a reworked version of Redgate Media Group, a loss-making Cayman company which aborted its US IPO in Apr-2010. You can read the latest version of their F-1 filing here. The group structures are somewhat different, but several of the mainland subsidiaries are the same. Redgate Ventures had net assets at 31-Dec-2010 of HK$16.5m. It claims to have swung from a $34.2m loss in 2009 to an unaudited $61.1m net profit in 2010 on turnover of $247.6m. The accountant's report in the circular should eventually reveal how they achieved this.

同全城熱戀相似的東東

4 : GS(14)@2012-03-07 23:19:49

http://www.hkexnews.hk/listedco/ ... LN20110722002_C.pdf
新爛deal

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