FAB Universal shares priced sharply lower

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FAB Universal investors left wondering what their shares were worth during a nine-month trading halt don’t like the answer they are getting since trading in the troubled stock resumed this week.

The stock closed at $1.28, up 18 cents, on Wednesday. That’s nearly a third of the price the shares were going for when questions about the Pittsburgh digital content provider’s financial statements led to a trading halt in November on the New York Stock Exchange.

On Nov. 21, FAB closed at $3.07 per share, off $1.10 for that day.

The company’s shares are now being traded over the counter, pending FAB’s appeal of the New York Stock Exchange’s intention to delist the stock.

In a statement issued Tuesday, FAB said the majority of the allegations that led to the halt “were without merit.”

Jon Carnes, an avowed short seller, alleged that the company exaggerated the number of kiosks it has in China where users can download movies, music and other digital content. He also charged that pirated movies were available on the kiosks. Mr. Carnes made the allegations in lengthy critiques posted on the SeekingAlpha website under the pseudonym Alfred Little.

In its statement, FAB said it had not overstated the number of kiosks. The company disclosed that the kiosks derive most of their revenue from advertising and that less than 1 percent of its revenue comes from fees for downloading material.

FAB reported first-quarter revenue of $14.7 million, down 35 percent from the previous year. The company reported a quarterly loss of $1.9 million, which included a foreign currency-related loss of $3.9 million.

The company said its investigation found credible evidence that a small number of the kiosks offered pirated material and said it is taking steps to prevent that from happening.

Critics also faulted FAB for failing to disclose a $16.3 million bond offering. The company initially denied that allegation but later acknowledged the debt and restated its quarterly results to reflect it.

The allegations sparked a number of shareholder lawsuits that have been consolidated into a single case being heard in federal court in New York City. Lawyers representing the shareholders filed an amended lawsuit Aug. 1, alleging the company issued false and misleading statements. In the complaint, lawyers said their investigation of the company’s kiosks in China corroborated Mr. Carnes’ claims that the company had exaggerated how many there were.

Len Boselovic: 412-263-1961 or lboselovic@post-gazette.com First Published August 13, 2014 12:00 AM

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