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Wednesday, August 01, 2007

China Expert Technologies (CXTI) Q1

CXTI combined links

10-Q for Q1

Period ending March 31, 2007
32 million shares on April 30, 2007

Balance Sheet

Cash is up to $21 million from $10 million
AR is down to $31 million from $34 million
Cost and est earnings in excess of billings is way up to $3.9 million from $782K
Prepayments are down to $12 million from $19 million

AP increased to $1.2 million from $253K
Amount due a former officer increased to $2.2 million from $1.8 million

Additional paid-in capital actually dropped by a million. That's odd.

Income Statement

Revenue is down to $13.2 million from $15.1 million yoy.

Let's check out the quarterly revenue variation (page 28):
Q1 2005: $8.7 million
Q2 2005: $8.3 million
Q3 2005: $9.0 million
Q4 2005: $9.5 million
Q1 2006: $15 million (wow, why the big just here?)
Q2 2006: $14 million
Q3 2006: $19 million
Q4 2006: $17 million
Q1 2007: $13 million
The decrease in revenue is mainly because several projects were substantially completed last year, namely Jinjiang (3rd and 4th Phases), Dehua (4th Phase) and Nan’an (1st Phase). Although the Company commenced two new projects during the period, namely Licheng and Shishi, the contributions to revenue were limited during the start off period.

3 months ended
March 31







Cost of Revenue



Gross Profit



Advertising and marketing expenses



General and administrative expenses



Change in fair value and amortization of stock based prepaid expenses



Interest expenses and finance costs



Change in fair value of derivatives



Income before income tax



Income tax expenses



Net Income



Ok, so the things that jump out here are:
1) The big jump in advertising and marketing expense. It went up in absolute amount as revenue went down. Not surprising in the sense that the two are very independent of each other. They spell out the various commission payments.
2) The big drop in G&A expense. This was due to a lack of stock issued to employees and a lack of liquidated damages to investors.
3) The increase in gross margin (due to less subcontracted work).

Cash Flow Statement

The drop in AR was offset by the increase in costs and est earnings in excess of billings.
The $6.7 million drop in prepayments dominated the operating cash flow.
The rest was net income.
Operations generated $10.7 million, largely because of the pipeline effect of contracts and work... finally.

Capex was $128K vs $2.2 million depreciation.
No other investment.

Finance was entirely the advance and repayment from/to a former officer.

$7.9 million contract costs
$4.2 million consultant fees

1.5 million convertible debentures
4.1 million dilutive warrants
2.2 million anti-dilutive warrants
6.5 million total warrants

Subsequent to Q1, all the debentures have converted: 1.4 million shares. Not sure if these are counted as part of the 32 million (probably yes). I'm still OK with assuming 45 million totally diluted shares.

CXTI won a major contract outside of Fujian: $42.4 million in Xi'an City in Shaanxi, the same city I covered when I looked at CHLN. This is a major western city. Work starts in Sept 07 and should end in Mar 2010.

There's $257 million in outstanding contracts, up from $228 million at year end 2006.

any thoughts on the recent decline? Looks like the large holders are indiscriminately selling. With prices at $1.75, this is trading at a P/E of about three. If we assume a a binary outcome (stock is a scam and worth nothing, or stock is legit at deserves a 10 P/E), market seems to saying that there is about a 66% chance this stock is a scam. What are your thoughts? Curious what you think given your involvement in many of these kinds of companies before.
Stock is also trading below book. On an EV basis this is even more absurdly cheap.
I happened to catch the stock at $1.60 and carefully considered buying more, but decided against it. It was a close call, but I already have a lot of money into CXTI and my uncertaintly level is just high enough to keep me from buying more.

I continue to hold the shares I've bought.

I don't try to buy at the bottom or sell at the top. It can seem like a bad idea when the stock continues dropping, but [almost] all that matters at this point is what I sell it for and when, not the prices it falls to in the meantime.
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