SupChina Have Apparently Raised US$1 Million From Crowd Funding. Is It A Good Investment?

Op-Ed Commentary by Chris Devonshire-Ellis – December 20th, 2021 SupChina is a China-content news website blacklisted in China Owners value SupChina at US$45 million based on revenues of US$500,000 Company made losses of US$1,595,498 in 2020 Prospectus states SupChina has ”Serious Financial Problems” and has accrued losses in excess of $7 million SupChina failed to state their website is blocked in China in their investor prospectus Investors may have SEC recourse to recover funds SupChina, yes the guys who ‘borrowed’ the China Briefing title for a while last year until legal action took place, have apparently raised just slightly over US$1 million in an appeal to raise five times that. Having obtained revenues of US$515,335 in 2020, they value the company at a jaw-dropping US$45 million. Yes, you read that correctly – a multiple of ninety times their actual revenues from their last accounts. Their 2019 figures showed revenues of just US$503,288, meaning their sales shot up by an underwhelming US$12,047 over the year. Nearly half of SupChina’s revenues came from Events promotion, with titles such as “Beyond Shang-Chi” (about Chinese superheroes), “Reading The Red New Deal” (about entertainment in what they term “Xi Jinping’s Nanny State), “Landing A Job At A Think Tank” (making the most of your China skills), and “Is The China Career Dead?” and so on. It’s not really groundbreaking stuff, and geared more to the low end grad school type of content, although a handful have touched on standard content business issues. None of it is particularly original or essential, nor anything that isn’t covered elsewhere on other – free access – blogs. The nature of SupChina’s primary content is the same, with current headlines reading: “A Star Workers Suicide At Tencent”, “Another Trial For The DOJ’s Troubled China Initiative” and  “China’s Cultural Crackdowns” indicating that SupChina hasn’t really progressed much from being an opinionated outlet for sub-standard writing. So, what does an investment in SupChina – and remember they have raised US$1 million from over 100 investors – buy them? The Sup China prospectus, issued in late October this year, can be viewed here. I make the following points based upon the contents shown in their prospectus: Risk FactorsSupChina say “ We are a ‘China-focused news, information, and businesses services platform, we provide nuanced, authentic, and context-based reporting on China without bias. We believe SupChina provides superior information, perspective and analysis about China that is necessary for the time period we are entering— one in which China’s rise will steadily increase its relevance for all of us.” Investors then may be surprised to note the fact that SupChina is blacklisted as a website in China and that they failed to mention this in their investor prospectus. I discuss other highly problematic issues within their prospectus as follows: Property”The company rented property until August, 2020. Due to COVID limitations, the company decided not to renew the lease and currently conducts its operations virtually.” Read: SupChina has no material assets. We all work from home.  Current Trading Situation“We may not have enough funds to sustain the business until it becomes profitable.” ”If the company cannot raise sufficient funds, it may not succeed” Read: We may shortly become insolvent. ”We are in a reputation-based business” Note: Their earlier 2021 legal dispute with Asia Briefing over their unauthorized use of the trademarked “China Briefing” brand. ”The company is focused on being a China content as well as services provider.” Note: This is hard to almost impossible to accomplish when the SupChina website is China blacklisted. ”Our websites and internal networks may be vulnerable to unauthorized persons accessing our systems, which could disrupt our operations.” Read: We do not possess and have not invested in sufficient internal website or security systems. ”Our founder has control over all stockholder decisions because she controls a substantial majority of our voting stock. We are selling non-voting shares.” Read: Investors have no say in their investment. ”No guarantee of return on investment” Exactly what it says. ”You can’t easily resell the securities.” Read: No-one is likely to be interested in buying this stock from you. ”The company’s management has discretion as to use of proceeds. Future fundraising may affect the rights of investors.” Read: You have no say in how we use your money. If we call on you as a shareholder to invest more money into SupChina, should you not do so, we may dilute your equity. ”Investors in this Offering may not be entitled to a jury trial with respect to claims” Read: As part of your investment with us you have signed away the easiest opportunity of litigating against us for any reason. Use Of ProceedsSupChina provide a breakdown of where investors money will be spent, without acknowledging any debt. Interestingly, they state they in

SupChina Have Apparently Raised US$1 Million From Crowd Funding. Is It A Good Investment?

Op-Ed Commentary by Chris Devonshire-Ellis – December 20th, 2021

  • SupChina is a China-content news website blacklisted in China
  • Owners value SupChina at US$45 million based on revenues of US$500,000
  • Company made losses of US$1,595,498 in 2020
  • Prospectus states SupChina has ”Serious Financial Problems” and has accrued losses in excess of $7 million
  • SupChina failed to state their website is blocked in China in their investor prospectus
  • Investors may have SEC recourse to recover funds

SupChina, yes the guys who ‘borrowed’ the China Briefing title for a while last year until legal action took place, have apparently raised just slightly over US$1 million in an appeal to raise five times that.

Having obtained revenues of US$515,335 in 2020, they value the company at a jaw-dropping US$45 million. Yes, you read that correctly – a multiple of ninety times their actual revenues from their last accounts. Their 2019 figures showed revenues of just US$503,288, meaning their sales shot up by an underwhelming US$12,047 over the year.

Nearly half of SupChina’s revenues came from Events promotion, with titles such as “Beyond Shang-Chi” (about Chinese superheroes), “Reading The Red New Deal” (about entertainment in what they term “Xi Jinping’s Nanny State), “Landing A Job At A Think Tank” (making the most of your China skills), and “Is The China Career Dead?” and so on. It’s not really groundbreaking stuff, and geared more to the low end grad school type of content, although a handful have touched on standard content business issues. None of it is particularly original or essential, nor anything that isn’t covered elsewhere on other – free access – blogs.

The nature of SupChina’s primary content is the same, with current headlines reading: “A Star Workers Suicide At Tencent”, “Another Trial For The DOJ’s Troubled China Initiative” and  “China’s Cultural Crackdowns” indicating that SupChina hasn’t really progressed much from being an opinionated outlet for sub-standard writing. So, what does an investment in SupChina – and remember they have raised US$1 million from over 100 investors – buy them?

The Sup China prospectus, issued in late October this year, can be viewed here.

I make the following points based upon the contents shown in their prospectus:

Risk Factors
SupChina say “ We are a ‘China-focused news, information, and businesses services platform, we provide nuanced, authentic, and context-based reporting on China without bias. We believe SupChina provides superior information, perspective and analysis about China that is necessary for the time period we are entering— one in which China’s rise will steadily increase its relevance for all of us.”

Investors then may be surprised to note the fact that SupChina is blacklisted as a website in China and that they failed to mention this in their investor prospectus.

I discuss other highly problematic issues within their prospectus as follows:

Property
”The company rented property until August, 2020. Due to COVID limitations, the company decided not to renew the lease and currently conducts its operations virtually.”

Read: SupChina has no material assets. We all work from home. 

Current Trading Situation
“We may not have enough funds to sustain the business until it becomes profitable.”

”If the company cannot raise sufficient funds, it may not succeed”

Read: We may shortly become insolvent.

”We are in a reputation-based business”

Note: Their earlier 2021 legal dispute with Asia Briefing over their unauthorized use of the trademarked “China Briefing” brand.

”The company is focused on being a China content as well as services provider.”

Note: This is hard to almost impossible to accomplish when the SupChina website is China blacklisted.

”Our websites and internal networks may be vulnerable to unauthorized persons accessing our systems, which could disrupt our operations.”

Read: We do not possess and have not invested in sufficient internal website or security systems.

”Our founder has control over all stockholder decisions because she controls a substantial majority of our voting stock. We are selling non-voting shares.”

Read: Investors have no say in their investment.

”No guarantee of return on investment”

Exactly what it says.

”You can’t easily resell the securities.”

Read: No-one is likely to be interested in buying this stock from you.

”The company’s management has discretion as to use of proceeds. Future fundraising may affect the rights of investors.”

Read: You have no say in how we use your money. If we call on you as a shareholder to invest more money into SupChina, should you not do so, we may dilute your equity.

”Investors in this Offering may not be entitled to a jury trial with respect to claims”

Read: As part of your investment with us you have signed away the easiest opportunity of litigating against us for any reason.

Use Of Proceeds
SupChina provide a breakdown of where investors money will be spent, without acknowledging any debt. Interestingly, they state they intend to allocate just 10% of proceeds into their highest revenue earning sector, their Events program, which is responsible for nearly 50% of their total revenues.

Otherwise, 30% of the total investment is allocated to ‘future content’, which basically means meeting salary overheads. Over half the proceeds are allocated to future marketing, unspecified ‘product development’ and administration.

Financial statements
“The company’s net revenue for the year ended December 31, 2020 was $515,335. Operating expenses in 2020 amounted to $2,134,761, an 11.7% increase from $1,910,446 in 2019. The company’s net loss from operations was $1,595,498 in 2020.”

“The Company has incurred significant operating losses since inception. As of December 31, 2020, the company had a working capital deficit of $7,206,611 and negative shareholders’ equity of $7,200,611.”

“The company had approximately $303,707 cash on hand as of December 31, 2020. Currently, we estimate our burn rate (net cash out) to be on average $120,000 per month.”

Meaning: SupChina is operating at a substantial loss. Currently, there was a shortfall of $1,595,498 in 2020, against declared assets of $303,707. Based on the 2020 declared figures, just for that year alone the company was in the red to the tune of $1,291,791.

Interestingly, Anla Cheng, the majority shareholder, issued a “thank you” email all the 100+ investors SupChina attracted so far last week – for a very similar investment sum to the entire 2020 loss. Way to go Anla!

It appears fairly obvious where investors money will go and that is not consistent with the Use of Proceeds statement, which contains no provision for meeting existing debt. That is significant because nowhere in the Prospectus does it state that SupChina’s existing shareholders plan to invest. So, who is covering up the losses? SupChina shareholders or their new investors? And if it is the new investors, how will any of the “Use of Proceeds” allocations be met? These points remain unclear and are not unreasonable questions for any investor to ask.

Employee Costs
“A 14.5% increase in employee expenses to $963,706”

Note SupChina states it employs ten full-time staff, meaning the average employee overheads are about $96,370. That is at a level comparable with journalists employed at the Wall Street Journal and is roughly double that of the average journalist’s salary in the United States.

Investor Perks
”SupChina Swag – T-shirt or Mug”

We kid you not. But there are invitations to future events – should there actually be any. So far, they have listed just three for 2022.

Dividends
“We have never declared or paid cash dividends on any of our capital stock and currently do not anticipate paying any cash dividends after this offering or in the foreseeable future.”

As it says on the box. Investors are highly unlikely to ever receive anything back.

Annual reports
”The company has not filed annual reports to date”

There are no company reports publicly available to verify anything.

Current Status
“In June 2021 the company has run into serious financial problems”

This is admitted to in a non-finance related clause named “Dilution”, buried on page 22.

To be fair to SupChina, they have listed – with the fairly significant exception of their being China blacklisted, which they must be well aware of – all the problems with their business. These can be seen above and are many. However, it is obvious the business model is not working, and it is hard to see how without any significant changes to this that it has any chance of succeeding. Of especial concern are the very high salary overheads and the fact they only expect to reinvest 10% of their prospectus income into their core business – their events, which as I noted represented half their 2020 revenues. With just three events scheduled between now and April 2022 the prognosis does not look good.

Is There A Case For SupChina Misrepresentation?
What is more problematic however for those people who have already parted with their investments, is SupChina’s non-disclosure in their investor prospectus of their true China status.

The SupChina investment round is taking place within the terms of the US ‘Regulation Crowdfunding‘ program, governed ultimately by the US Securities and Exchange Commission (SEC). Within the rules for this are the following caveats for ‘Disqualifying Events’:

”Disqualifying events include:

  • Certain criminal convictions;
  • Certain court injunctions and restraining orders;
  • Certain final orders of certain state and federal regulators;
  • Certain SEC disciplinary orders;
  • Certain SEC cease-and-desist orders;
  • Suspension or expulsion from membership in a self-regulatory organization (SRO), such as FINRA, or being barred from association with an SRO member;
  • SEC stop orders and orders suspending the Regulation A exemption; and
  • U.S. Postal Service false representation orders.

Many disqualifying events include a look-back period (for example, a court injunction that was issued within the last five years or a regulatory order that was issued within the last ten years). The look-back period is measured from the date of the disqualifying event – for example, the issuance of the injunction or regulatory order and not the date of the underlying conduct that led to the disqualifying event – to the date of the filing of an offering statement.”

The SEC does not appear to make any distinction as to applicable jurisdictions under the phrase “regulatory order” or “injunction”, suggesting that Chinese injunctions against SupChina and the fact it is blocked in the country could apply. It would be an interesting point to debate should SupChina crowd funding investors feel this information was withheld, and had it not been, they may not have been persuaded to invest.

Within the SupChina prospectus, the name of the company, the term “China”, “Chinese” or “SupChina” appears 122 times. In reference to participation in China itself, the prospectus mentions numerous terms, amongst them:

”China-focused news, information, and businesses services platform dedicated to helping the world understand China better by covering all news about the country—business, society, culture, politics, and more.”

“A China-specific perspective”

”Featuring local Chinese sources and perspectives”

“A source of China-related information and insight”

“Around-the-clock content with contextual analysis”

Again, these points can be argued. SupChina has no staff legitimately employed in China and is blacklisted there. If investors feel they should have been made aware of this prior to investing, complaints may be made directly to the SEC.

If I were given such a prospectus under these types of terms, I would view it as a desperate attempt to shore up the red losses and to try and persuade people to invest in an already problematic business model, that in SupChina’s own words has “serious financial problems.”

Additionally, there is nothing in the prospectus that has any remedy for change. If a car is totally broken, there’s no reason to keep filling it with gas. Unless you especially want a souvenir Mug or T-Shirt for doing so.

Readers can make up their own minds and view the prospectus themselves. The SupChina investor link is here.

Personally, it has to be one of the most outrageous investment offers I’ve ever seen. SupChina, I strongly suspect on their prospectus and offering terms will not be around much longer. As for Jeremy Goldkorn, Kaiser Kuo, and the execrable Anthony Tao, good luck with pacifying those 100 small investors. You’re going to need it. Anla Cheng meanwhile appears set for a serious session with the scissors at her local hairdressers.

As a footnote, China Briefing turned down an offer from Singapore investors just a few weeks ago. We’re not looking for investors.

Disclaimer

Any views or opinions represented in this blog are personal commentary, belong solely to the contributor and do not necessarily represent the views of Asia Briefing Limited or Dezan Shira & Associates.

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