Subaye (PINK:SBAY)

On August 25th 2011 Subaye Inc. (“the Company”) received and accepted the resignation of Independent Director L.G. Schafran, who resigned for personal reasons, effective immediately. Mr. Schafran had served as an Independent Director of the Company since 2009. Mr. Schafran’s resignation was not because of any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices. The Company would like to wish Mr. Schafran well in his future pursuits and would like to thank him for the support he has provided during this difficult time.

Really Mr. Scafran? No disagreements?!!!!!!!!!!!!!!!

On May 31, 2011, Subaye, Inc. (the “Company”) received a staff determination letter from The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that Nasdaq has determined to exercise its discretionary authority under Listing Rule 5101 and delist the Company’s securities based on public interest concerns raised by:
 
1.   the serious accounting and operational issues identified by PricewaterhouseCoopers (“PwC”), the Company’s former independent registered accounting firm;

2.   the failures of the Company to cooperate with PwC to address and/or resolve these issues and to initiate an independent investigation;

3.   the Company’s continued employment of James T. Crane, its former Chief Financial Officer (“CFO”), after he consented to imposition of a permanent bar by the Public Company Accounting Oversight Board (“PCAOB”) from association with any registered accounting firm; and

4.   violations of Listing Rule 5605(c)(3) and IM-5605-5 and the Company’s own Audit Committee charter due to the Audit Committee’s abdication of its responsibilities to oversee and participate in the search for a new audit firm after PwC’s resignation.

Nasdaq has also determined that the Company should be delisted for its failures to:
 
1.   file with the Securities and Exchange Commission (“SEC”) its Quarterly Reports on Form 10-Q for the periods ended December 31, 2010 (the “December Form 10-Q”) and March 31, 2010 (the “March Form 10-Q”)(together, the “Delinquent Reports”), as required by Listing Rule 5250(c)(1);

2.   provide Staff with requested information, in contravention of Listing Rule 5250(a); and

3.   comply with the majority independent board and audit committee composition requirements set forth in Listing Rules 5605(b)(1) and 5605(c)(2), respectively.

Unless the Company requests an appeal of this determination, trading of the Company’s common stock will be suspended at the opening of business on June 9, 2011, and a Form 25-NSE will be filed with the Securities and Exchange Commission (the “SEC”), which will remove the Company’s securities from listing and registration on The Nasdaq Stock Market.
 
The Company has not yet determined whether to appeal Nasdaq’s determination to a Hearings Panel, pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.

PricewaterhouseCoopers Confirms what the GeoTeam already knew (we sent PWC our findings a few weeks ago).

On April 1, 2011, PricewaterhouseCoopers Hong Kong (“PwC”), informed Subaye, Inc. (the “Company”) of its resignation as the Company’s independent registered public accounting firm, effective immediately.  PwC has served as the Company’s independent registered public accounting firm since December 23, 2010.  The Audit Committee of the Company’s Board of Directors accepted PwC’s resignation.  PwC has not issued any reports on the Company’s financial statements for any prior years or interim periods.
 
During the time PwC served as the Company's independent registered public accounting firm, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PwC, would have caused it to make reference to the subject matter of the disagreements in connection with its report.
 
PwC informed the Company that it considers the matters listed below may, in further investigated (i) materially impact the fairness or reliability of the financial information for the three months ended December 31, 2010, and (ii) cause PwC to be unwilling to rely on management’s representations. The Company's failure or inability, over an extended period of time, to adequately address:

• PwC’s inability to obtain information and/or supporting documentation to verify cash settlements from sales agents to the Company;
• PwC’s inability to obtain information and/or supporting documentation to verify the end customer subscriptions for the Company’s services or the services rendered by the Company to the end customers;
• Inadequate documentation to substantiate the marketing and promotion activities performed by sales agents in return for fees paid to such agents and recorded as expenses of the Company;
• Insufficient explanations by the Company regarding certain commonalities between certain customers and vendors; and
• No evidence of any business tax payments by the Company for services rendered in China.

I. On-the-ground Due Diligence Commences (See Entire Report)

What started out as a basic curiosity about the ownership structure of Subaye (NASDAQ:SBAY) led to an on-the-ground investigation into the fundamental operations of the company. Our initial red flags were born out of misrepresentations of ownership structure as well as questions into the effectiveness and potential of the company's website and "cloud business products" in garnering meaningful revenues. We eventually came to a startling realization that a major discrepancy exists between the purported size of SBAY's workforce versus what we determined to be physical limitations due to the lack of office space and/or non-existent offices and employees altogether.

Our investigator visited Subaye in Guangzhou on the morning of March 8, 2011 where he spoke to one maintenance individual who works at the facility and two employees of a car wash company adjacent to SBAY. Our investigator also visited SBAY's claimed facility in Beijing on March 22, 2011, where he was unable to verify the presence of a workforce at this facility. Our investigator took several pictures of the Guangzhou and Beijing facilities. We also conducted extensive internet research on SBAY and pulled the company's SAIC filings as well as those of an associated company, Guangzhou Aixi Software Co., Ltd.("Aixi").

Based on our investigation, we alerted our readers on March 7, 2011 to tread cautiously when considering an investment in SBAY. We also disclosed that we established an initial short position in the company's shares as a result of our findings. On March 15, 2011 we published more information regarding our findings.

To see the rest of the report, PLEASE GO HERE.

On March 10, 2011, James T. Crane, the Chief Financial Officer of Subaye, Inc. (the “Company”), announced that he will resign from the Company to pursue other professional interests. Mr. Crane has served in this role since October 2007.  Mr. Crane’s resignation is effective as of March 14, 2011.

On March 13, 2011, the Company’s board of directors (the “Board”) appointed Alan R. Lun to serve as the Company’s Chief Financial Officer, effective March 14, 2011.

Mr. Lun, age 46, has served as the Company’s President and a member of the Board since April 2007.  Mr. Lun also served as the Company’s Chief Executive Officer from April 2007 to September 2009.  Mr. Lun originally joined the Company in March, 2006. From March 2001 through February 2006, Mr. Lun was the division manager of Guangdong Country Garden Property Management Co. Ltd., one of the largest real estate management and development companies in China.

GeoTeam­® Note: We had recently conveyed our concerns to SBAY CFO and IR.

Just received Bob's initial 5 page report on SBAY which has confirmed our original negative bias.  Story  does not look good.  We had expressed our concerns to management a few days ago. We will also send information to auditor.

Initial findings:  

1. Misrepresentation of ownership structure

2. Illegal ownership structure

3. Employee head count looks significantly off.

4. We have issues with website

5. Reported Revenues do not appear achievable.

Conclusion:

We cannot find a reasonable way for SBAY to generate its claimed revenue, nor can we verify a reasonable cloud business product offering from its website and/or other online resource.  We will continue to gather more information.

GUANGZHOU, China, Feb. 22, 2011 /PRNewswire-Asia/ -- Subaye announced today it will require additional time to complete its quarterly financial results and file its Form 10-Q with the U.S. Securities and Exchange Commission (SEC). The quarterly results were due to be filed with the SEC by February 22, 2011.

James Crane, Subaye's Chief Financial Officer, stated "We have worked tirelessly alongside our new auditors to review Subaye's operations, financial reporting and accounting records for the current quarter and prior year periods. Subaye undertook this corporate initiative with our shareholders' best interest in mind, in order to ensure that Subaye's investors and potential investors could invest in Subaye knowing that Subaye had the most transparent and complete financial records available. We believe this initiative is consistent with our decision to work with a top tier auditor. Unfortunately, due to ongoing closing procedures, insufficient availability of accounting and administrative staff and the Chinese New Year holidays, which were earlier than normal this year, the timing and completion of certain meetings with third party vendors, significant shareholders and sales agents outside of Guangdong Province, have all been difficult to arrange thus far. We expect these meetings to take place over the coming weeks. Once the meetings are complete Subaye will work to finalize the financial reporting for the quarter ended December 31, 2010."

EX-99.1 2 v209005_ex991.htm

GUANGZHOU CITY, China, Jan. 18, 2011 /PRNewswire-Asia/ -- Subaye, Inc. today announced the launch of Subaye's Groupbuy. In February 2011, management expects to generate revenues from Groupbuy customers, many of which are already selling products as one of our three daily Groupbuys. Subaye is planning to charge a 3-5% transaction fee for all Groupbuy sales. Groupbuy is being launched as a standalone product and will not be offered as a component of Subaye's Bundled Cloud Product. Groupbuy can be viewed by at http://bjlshop.subaye.com.

2011 Guidance

Subaye reaffirms guidance for fiscal year 2011 of

• revenue of $71.3 million
• net income from continuing operations of $29.2 million. Net income guidance includes non-cash expenses totaling $12.9 million for depreciation and amortization and stock based compensation as well as $17.0 in marketing promotions costs for FY 2011.  
• FY 2011 Adjusted EBITDA is projected to be $58.1 million for FY 2011. The expected growth in 2011 will come continued growth in our existing markets as well as contributions from new markets that we have recently entered.  
• Using the 9.4 million shares outstanding as of December 22, 2010, earnings per share for fiscal year 2011 would be $3.12.
• We do not anticipate marketing promotion costs will be significant in the first half of fiscal year 2011.

Business Outlook

Subaye's goal for 2011 is to continue to expand aggressively into the new markets in China where we are already active and depending upon our success in those markets, we will enter into additional identified markets. We have committed significant resources and spent significant capital entering these new markets. We now have to deliver the growth that should result from our spending and the allocation of our resources to these particular markets in general. We believe the demand for cloud computing products potentially represents the single most significant market opportunity of all internet-based businesses in China in the next several years. We believe we can continue to grow at a significant pace as a result of maintaining a high quality product offering in a product space and geographic area that is exhibiting signs of significant growth in the years ahead.

GeeoTeam® Note:

• 2010 non-GAAP EPS after adding back non-cash was $0.87

• 2011 EPS guidance after adding back non-cash stock bases expense (which we estimate to be about $6.0 million) is $3.76.

• Pricewaterhouse coopers has been hired as the auditor for 2011 as part of SBAY's efforts to address concerns raised by U.S. investors

Adjusting for the sale of its trade services and entertainment media businesses as discontinued operations effective March 16, 2010, Subaye reaffirms guidance for fiscal year 2010 of revenue of $38.3 million and net income from continuing operations of $12.5 million, or $1.77 per share, for the fiscal year ending September 30, 2010.

 For fiscal year 2011 the Company expects growth in revenue and net income from continuing operations of 86.3% and 133.5% over fiscal year 2010 guidance, respectively, resulting in revenue of $71.3 million and net income from continuing operations of $29.2 million, or $3.69 per share.