Most China-Biotics’ retail outlets

never existed ‒ an introduction to the

problem and a verification.

Matt Berry
Disclosure: I have a short
position in CHBT
SEC 10-Q June 30, 2010

“…. we are operating

103 retail outlets in
China … ” ~ China-Biotics
 SEC Filing March 2010, 10-K • Although the business plan
had clearly shifted toward
bulk sales and distributors,
• “We continue to survey cities in China to assess the retail outlet program was
and select suitable locations for new outlets. As
part of our strategy, we will also consider very much ongoing.
licensing franchisees to operate retail outlets in
due course.
• The June 30, 2010 10-Q was
• We intend to expand our operations by opening filed on August 9, 2010. That’s
additional new retail outlets to facilitate direct just 21 days before the
sales of our products to customers.
challenge by short-sellers.
• In preparation for the opening of additional retail
outlets, we have also been actively recruiting and (below)
training retail sales staff. We have already
successfully recruited a number of very “We have been hiring consultants who
experienced sales professionals and have trained have many years of experience in the
a pool of sales staff.
direct selling industry to facilitate the
• We continue to survey cities in China to assess
and select suitable locations for new outlets.
development of the Shining brand
• We intend to expand our operations by opening outlets.”
additional new retail outlets to facilitate direct
sales of our products to customers. “
Short sellers cannot find a list of store addresses and
challenge the company to publish one. here
 The company quickly puts together a list of 79
retail outlets.

Short sellers take this

and several other
screen shots of the
Official Web Site

CHBT declares that the

list is for retail outlets.
Same web page, scrolled
down. There are eighty
addresses on this list; one
is a duplicate.
Short sellers immediately dispatch
photographers to visit the locations.
here
For example, where a “dedicated retail outlet” was supposed to be,
photographers found a residential building.
In this case, photographers said that the address published by
CHBT had no destination.
A business building
Office Building
Parking Lot
1. Next, the company changed the
message on its web page. Where
2. This web page was also deleted. I pulled it
before it had declared a list of retail out of Google cache and took a screen shot
outlets, now it claims that the address before expiration.
list was only for places where you
could “find” the product.

But the challenge had been to prove

that the retail outlets existed. In
response, why provide locations of
shelves of other stores?

Interestingly, investigations of these

locations revealed that many of them
did not even carry CHBT products .
But it was too late to change the story. CHBT
had already informed investors. (Some
appear to have had earlier access to
information than others. See below.) The
following is a comment on Seeking Alpha
from an individual promoting the stock.
(Click here to see actual comment.) Note the
date. This was one day after the Citron
Research challenge.
Same individual again. Note the link to the
official CHBT web site. You can see the actual
comment here.
Another blogger
who announced
the address list.
He later deleted
this
announcement. I
pulled it out of
Google Cache
before expiration
and took several
screen shots. The
address list was
“dumped” into
the post, but it’s
the same list.
Note the date,
title, and link to
the CHBT official
web site. (Here)
CHBT then “closed” 95 outlets, eliminating the need to
prove their existence.

To this day we have no standing list of addresses for the

claimed outlets.

If you counted from the 10-Q immediately preceding the

closure, you would say that they closed the 95 outlets in 3
months.

If you counted from the date that they posted their list of
addresses, the time period would be 1 month.
Our blogger again, the one who suggested that he got the list of
addresses before they were posted on the CHBT website.

Attending “Investor Day “‒ September 20th ‒ he said he looked at the

leases. Certainly they were in Chinese, was he able to authenticate
them?

Only one sentence in explanation?

See source page here. This testimony and that of another blogger are
often used on web forums as proof that the outlets existed.
The other blogger widely thought to have examined the
leases … said that he did not.

Were the lease documents actually examined by

someone capable of authenticating them? … or as with
this gentleman below, did he or she merely see a stack of
papers brought in? (here)

He later claims in a web comment to an article of mine that he

saw the leases. (here) This would be consistent with the
declaration below , perhaps, if he only meant that he “saw” the
stack brought in but he did not examine the documents within
that stack. If not, the statements are difficult to reconcile.
One day after attending
CHBT Investor Day, Roth
Capital downgrades
CHBT to sell.
Testing the short
sellers photos of a
CHBT address.
Here is the list of photos provided by
investigators.

Note that short sellers claim that it leads to

a Carrefour Supermarket.
Here is the same address,
1208 Gongjiang Road,
Baoshan District, taken from a
screen shot of the CHBT web
page. China-Biotics claims
that this is a retail outlet.
(Later, we’ll need to
remember that this address is
located in Baoshan District.)

What would happen if I

plugged this address into
Google … in English?
Search hits point to
a Carrefour
supermarket, not a
China-Biotics’ retail
outlet.

Also, note that the

top hit is a Chinese
Government web
site. Other hits also
point to a
supermarket.
What would happen if I tried to access Carrefour directly? For example,
if I wanted to go to Target’s web site, I would use the URL, target.com; if
Best Buy, bestbuy.com. In China, we would add the extension “.cn” …. so

www.carrefour.com.cn
The URL, as expected, takes me to their
home page. Let’s zoom out.
The site has a button to convert the
page into English.
The English page has a drop down
box.
CHBT said that the Gongjiang
address was in Baohsan District.
We’ll click on that one.
 The English page of the official Carrefour web site
proves that their supermarket is located at 1208
Gongjiang Road, Shanghai. This address does not
Note that this is shop belong to a China-Biotics’ retail outlet.
63. We’ll refer to this in
the next slide.

Carrefour has provided

its own photo. We don’t
have to rely on the short
sellers’ photos or this
presentation.

Many of the addresses

CHBT provided lead to
other businesses, who
have their own official
web sites. This can be
confirmed independently
by anyone with basic
internet skills.
 Here is the same photo. The address
is in Chinese this time. I dragged
the mouse over the last half of the
Chinese address (the first three
Shop 63 again, characters mean “Shanghai”). Then
but this web page I copied them into the clipboard.
is in Chinese.
I pasted the address into the
Google translator.

As is our custom, we usually do

not make literal translations of
cities, but carry them into other
languages phonetically. For
example, when using the city
“Los Angeles” in a sentence we
don’t say, “The Angels” ‒ even
though that is what it means in
its original language.

Here is the phonetic spelling of

the address in question vs. the
literal meaning.
I took four web pages ‒

•One from therealchbt.com (short sellers) which

included a photo of a bilingual street sign in front of
the Carrefour Supermarket
•The official Carrefour web site, store 63
•The official China-Biotics’ web site, the retail address
list
•The Google Translator

‒ then I took screen shots, cropped and overlapped

them into a single image for comparison and
verification.
 Here is one of the
investigators’ photos,
bilingual ‒ a kind of “Rosetta-
sign” in front of Carrefour. See
this and another Carrefour
photo here.

As you can see, the address

claimed by CHBT was
clearly not its own
dedicated retail outlet.
With basic internet skills, we can
demonstrate that most of the
addresses on CHBT’s list do not and
did not belong to CHBT.
 China-Biotics, Inc. (CHBT) • CHBT Store Verification Results Start Rolling In
• The China-Biotics Store Verification Website
CIK#: 0001271057 (see all company • Chinese Company Analyst
filings)
• Citron Research
Mailing Address NO 999 NINGQIAO
ROAD, JINQIAO EXPORT PRO PUDONG
SHANGHAI F4 201206

Business Address NO 999 NINGQIAO

ROAD, JINQIAO EXPORT PRO PUDONG Other links:
SHANGHAI F4 201206 86 21 5834 9748 • China-Biotics' 2009 Revenue is 70 Million Dollars Off
http://www.tinyurl.com/chbt70million
Formerly: OTISH RESOURCES INC • SHAIC 2008 and 2007 official documents, with analysis
(filings through 2006-01-05) and English translation, made available by Chinese
Company Analyst
SIC: 1400 - MINING, QUARRYING OF
• Independent translation of the 2009 SHAIC Income
NONMETALLIC MINERALS (NO FUELS)
Statement:
fState location: F4 | State of Inc.: DE |
Fiscal Year End: 0305 http://tinyurl.com/chbtIncomeStatement
(Assistant Director Office No 4) • Informal Youtube Video Presentation:
http://tinyurl.com/CHBTvideo