Be warned. We are short-sellers. We are biased. We do our best to find and present facts, based on extensive primary research and using public sources. But we will profit if these stocks decline in value. We do not offer advice. We present our views.

J Capital is short STAAR Surgical

We think that STAAR Surgical has overstated sales in China by at least one-third, or $21.6 mln. That would mean that all of the company’s $14 mln in 2019 profit is fake.

A single Chinese distributor accounted for 43% of STAAR’s total sales and 71% of its growth in 2019 and over half in Q2 this year. In the 2019 10K, STAAR reports: “One customer, Shanghai Langsheng [sic], our China distributor who sells in to China and Hong Kong, accounted for more than 43% of our consolidated net sales during fiscal 2019.”
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Unfortunately, the Chinese numbers (which are not audited) are unreliable.

LATEST REPORTS

May 28, 2020

NG TSX

Pipe Dream

For the last 15 years, NovaGold’s management team has systematically misled investors with subjective presentation of information about a deposit so remote and technically challenging that the mine will never be built. Over those years, they’ve been treating this 12-person concept company like an ATM, awarding themselves base salaries that rival those of the CEOs at Newmont and Barrick and total compensation packages comparable with those at Rio and BHP. If the information from the company’s feasibility studies were presented in a more honest light, investors would understand that the Donlin deposit, of which they own 50%, is not feasible to put into production at any gold price.

Management deliberately misleads investors with custom metrics designed to deceive, offering presentations claiming that the deposit will require $6.7 bln in capital, while the feasibility study clearly shows this number is $8 bln (already, we believe, far too low). The proposed natural gas pipeline to power the project is dead on arrival. The terrain around the Donlin deposit is among the most inhospitable on the planet. Based on recent cost-per-inch/mile data we obtained from ICF,1 we show the costs of the pipeline (if someone were even to attempt to build it) are likely in excess of $3 bln, two to four times higher than management’s previous forecast. One engineer we spoke with who worked on costing the project told us he doesn’t know of any engineering company that has the experience to build such a complex pipeline.

Management has a long history of misrepresentation. The Galore Creek project, once promoted as the company’s key asset, was quietly sold at a loss in 2018. In short, this is a stock promote, not a mining plan.
June 25, 2020

IDEX NASDAQ

Champion of Stock Promotes

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Ideanomics (IDEX) (formerly Seven Stars Cloud Group, Inc. and before that WeCast and before that You on Demand Holdings and before that China Broadband) is a zero. The company changes its name and promotional story so frequently that it’s hard to keep up. One thing remains a constant, despite all the press releases, buzzwords and hype: shareholders get wiped out.

The latest promote involves a barrage of press releases around electric vehicle “group sales.” However, no one from any of the companies in IDEX’s most recent five press releases confirmed these sales. Representatives from three of those companies and a local government vehemently denied doing any deal with IDEX. We could not identify the fifth. We doubt the auditor, BF Borgers CPA, will be able to either, seeing as that company’s only office is in an industrial district of Lakewood, Colorado, 10,000 miles away from China, where all the "deals" take place.

The run-up in the share price is nothing more than a well-timed pump. The shelf registration announced June 23 is a desperate attempt to raise money, since the company has less than three months of cash in the bank.
February 12, 2020

LK NYSE

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​On January 31, Citron Research tweeted out a rapid response to a detailed short report alleging fraud in Luckin Coffee’s (LK) sales numbers. 
 
Citron cited data from “Biz Con China," referring to Business Connect China (BCC), a Shanghai-based expert-network company that also sells data on listed, Chinese-domiciled companies. We managed to see a copy of BCC’s report, and right there in the first paragraph is written: “Based on BCC’s tracking, we are skeptical about some of Luckin’s reported figures.” The next paragraph begins: “Luckin’s reported figure of 444 items sold per day in 3Q19 is likely to be higher than their actual sales.” Citron seems to have missed this.
March 26 and April 4, 2020

GDS NASDAQ

Debt Trap

GDS is a fraud. At least 25% of its revenue is fraudulent. Unlike most Chinese companies, GDS creates the fake revenue by round-tripping its own debt and capex. As GDS’s revenue line grows, so does the amount of debt it needs to raise to support the illusion. 

In addition to round-tripping, GDS aggressively recognizes future revenues, a portion of which we believe will never be realized. Faked revenue comes without costs, so the ploy also increases reported EBITDA and reduces optical leverage. Using this and other strategies, GDS has persuaded investors to accept its highly customized metrics and argues that it will be the winner in a take-all market. That is simply not true.
September 5 and 11, 2019

BGNE NASDAQ

No Cure

We think BeiGene has no future, and management knows it. We have clear evidence that the company is faking sales in order to persuade investors that it can develop a successful sales platform in China for pharmaceuticals; we suspect management may also be skimming R&D and capital budgets. At best, this is a poorly managed company pursuing commoditized drugs, with internal controls, even in the context of Chinese companies, that we find to be lax. At worst, BeiGene executives may be robbing shareholders.
​May 16 and 28, 2019

AOS NYSE

 In Hot Water

Despite never appearing in the financial filings or being mentioned on conference calls, Jiangsu UTP Supply Chain is involved in almost every aspect of A.O. Smith’s China business. UTP’s involvement spans the acquisition of raw materials, the hiring of labor, potentially co-owning factories, marketing, and most notably “accepting” inventory and financing AOS distributors. Responsible for as much as 75% of AOS China sales, UTP has allowed AOS to inflate gross margins and mask the actual China revenue slowdown through distributer-financed channel stuffing. 
​Cartoon by Johannes Leak
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