China Expert Technology CFO's Sudden Resignation Raises Doubts

Shares of China Expert Technology (CXTI.OB) got slammed Friday on news
that CFO Simon Fu has resigned suddenly “for personal reasons and to pursue other interests.”

As recently as one month ago, Fu was the public face of China Expert Technology for U.S. investors. Yet, with no successor named and no legitimate reason given for the move, the company asks investors to believe that Fu decided he just had to do something new and different right before a quarterly earnings report. Anyone know the Mandarin word for “bullshit”?

The press release suggests that the problem isn’t in the numbers this quarter:

Management expects to report second quarter revenues of $16.3 million, an increase of approximately 16 percent from $14.1 million reported in the second quarter of 2006 and an increase of approximately 23 percent from the first quarter of 2007. Gross profit is expected to be $9.1 million, an increase of approximately 25 and 21 percent from the second quarter last year and first quarter of 2007 respectively. Gross margins for the second quarter of 2007 are expected to be approximately 55.8 percent, compared to margins of 51.6 percent in the year ago period, and 56.9 percent reported in the first quarter of this year. Net income is expected to be approximately $5.1 million which includes all related non cash items. A conference call to supplement the pending earnings release will take place prior to August 15 and specific details will be forthcoming.

Still, it's too early to know whether financial improprieties caused Fu’s resignation. The risks are very high, and I don’t see any upside to owning shares until the company reports and we find out more about this situation.

Disclosure: No position.

Comments

[marktabak]

Possibly true, but when speaking to the company's PR company the reasons for the CFO's departure appears legit. CFO resides in Hong Kong and the company wants to consolidate operations in PRC and the CFO doesn't want to move. Meanwhile the EPS projections indicate this stock is dirt cheap. I see no reason why not to take a prudent risk.