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Monday, September 10, 2007

China Expert Technology (CXTIE) bought some more


I had decided against buying China Expert (sec) at $1.50, but when it fell below $1.20, I bought some more shares. Not a whole lot. I'll probably buy more when it drops below a dollar unless something terrible emerges, which is always possible.

High risk / high reward. The decisions I'm making with CXTI(E) require a lot of balancing of these two. I figure disasters can kill you if you're too cautious or too aggressive. The first case is less obvious, but it's due to chopping off the good long tails while not being able to sufficiently chop off the bad long tails.

UPDATE after the close:
Well, I didn't expect it to go under a dollar on the same day. The thing is that I won't have much additional cash to invest for perhaps another month. This is definitely getting interesting. Probably the worst thing to do now is try to predict what's going on inside the company. I have some ideas, but I try to avoid fixating too much on any one thing. Perhaps the new CFO is not sufficiently competent at GAAP accounting and they're finding out the hard way. Perhaps the prior CFO screwed up the books: inadvertantly or perhaps even intentionally. Perhaps the auditors have all sorts of issues that came up during the review. Perhaps there are ominous legal issues with the commission fees. And then you can never rule out a true smoke-and-mirrors wholesale ACLN-style fraud. Although I consider that unlikely, there are plenty of other unpleasant outcomes just the same. The key is which ones would result in the stock not going back up to some reasonable price. I find that I'm less worried than I was with ETLT. Ok, so that's the risk side of the equation.

On the reward side, the stock could easily be a ten-bagger from here. The current stock price is uniquely low due to two major independent factors (but perhaps more). The first is the CFO/COO loss combined with the late filing, the lack of communication, the resignation of the IR company, the perhaps poorly timed move to Shenzhen, and any other fumbling I might have left out. The second factor is the hedge fund meltdown. Watching JLF selling batches of shares on an almost daily basis, I have to wonder how many other hedge funds are puking up shares to fill redemptions. Along with the hedge fund problem is a general overall flight away from risky things. Both of these things just happened to strike at the same time. There may be something in addition to these, I don't know.

Mr. Market is playing one hell of a poker hand with this stock.

UPDATE a few minutes later:
I just noticed that there were 2 million shares that traded right at the end of the day. Someone had to search for a buyer for that many shares. At 4.77 million shares, this might have been the highest volume day ever for the stock (or close to it).

UPDATE again same day:
JLF continued selling small amounts of stock last Thursday at $1.81 and Friday at $1.52 (which I interpret to be essentially a forced selling). I wonder if that was him today dumping the rest of his 4 million shares. If so, then buying a modest amount today was definitely the correct move, regardless of what happens to the stock going forward.

UPDATE 9:55 AM, Wed Sept 12, 2007:
I'm out. I sold all my stock this morning at a big loss. CXTI is MIA. No one can find them. Weighing everything, I decided to bail. I could be wrong, just as I could have been wrong holding the stock. Time will tell.

UPDATE 5:30 PM, Wed Sept 12, 2007:
Looks like that was JLF selling millions of shares on Monday: 2.66 million. I suspect he's probably sold the rest of the shares by now (1.6 million). But I bailed out today. When I said "no one can find them", I mean that I have yet to hear of anyone who has tried to CXTI management that was able to locate them. If you've had contact with them in the past week, then feel free to email me with the results.

UPDATE Mon Sept 17, 2007:
The CXTI Chairman resigned from the YTEC board. Let's see: the CFO left, the COO left, the auditors left, the big players (JLF and Pike) sold their stock, the offices are reportedly closed, the phones are being staffed by people who don't seem to know anything, the Chairman resigned from his sole board role outside of CXTI. I'd say my decision to sell was correct. The decision to buy is another story.

UPDATE Tue Sept 18, 2007:
Well, it looks like Simon Fu won't be on the board at CNCA after all.

Simon Fu, who was slated to assume the role of Chief Financial Officer of HLS following its acquisition of HollySys, has notified the company that he has decided not to accept the position, citing personal reasons.
The reality of these things is that you never really know which side made the decision, Simon or the company. If I were a betting person, I'd bet on "the company."

So the CXTI Chairman unexpectedly left the board of YTEC and now Simon Fu unexpectedly doesn't take the position at CNCA. CXTI now has more red flags than a May Day parade in Tianamen Square.

UPDATE Sept 19, 2007:
Here's a very interesting interview with Simon Fu over at Fair Investing.

...and the New York Post publishes a story.

but I'm a superstitious man, and if something should happen to any of these executives, then I'm going to blame karma.

In other news, I'm trying to learn Telugu before travelling eventually to Visakhapatnam

brue check out awrcf.pk - research this company--michael dell recently bought 20%--rev for 06 $460 million gross profit $60 million --see press release sept 7th 07
Whoops... The I.R. firm just resigned.

Recommend others wait to buy until news is flushed out of the company. On 9/20, if they don't file, it is off to the pink sheets for CXTI...
The IR firm wasn't getting any news from CXTI while investors were in a severe panic. I guess it makes sense that they'd resign.

I'm wondering how low the stock price can go? 50 cents? 10 cents? A penny? I bought shares today for a bit under $1.20.
Did anyone notice that Simon Fu has resurfaced at Chardan North China Acquisition Corp. (CNCA.OB)? Jeff Feinberg happens to own 20% of CNCA. Certainly very interesting. Any thoughts on what this could mean for the various CXTI theories that are out there? Here is the link: http://biz.yahoo.com/bw/070831/20070831005250.html?.v=1
Yes, I had seen that. It's in Beijing. I had read on the Raging Bull board that his reason for leaving was rumored to be not wanting to relocate away from HK. When I read the news about Chardan (which was on the RB message board as well as in the E*Trade news for CXTI), I figured there were a few ways of viewing this. The guy didn't run away. Someone mentioned that Chardan is somewhat associated with CXTI (I haven't checked that out myself), which if true is probably not a bad thing. If someone said he didn't want to relocate, then that was BS, unless he simply didn't like Shenzhen (which would make some sense).
Can you please explain your comment, "No one can find them." Who has been trying to find them, and how?
Not wanting to live in ShenZhen? It's supposedly one of the more developed areas in China. At least that's what PRC has been saying. ShenZhen has been modernized with improved standards of living, and Shenzhen also has nice technology districts for companies to operate out of. Perfect match for CXTI's area of expertise. Should have been a great place for Simon. So what's the real reason for Sim Fu not likee likee CXTI ?
I hear Shenzhen is sort of a dump with a lot of crime and not a lot of finer culture. While Beijing (Simon's new location) is polluted, it's probably a more desirable place to live [that's my guess].

However, none of that matters. People can say whatever they want to explain events.
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