A-Power Energy (APWR) Let's CFO Go

• A-Power Energy Generation Systems, Ltd. (Nasdaq: APWR - News; "A-Power"), announced today that its Audit Committee has completed an internal review that confirmed assertions made by NASDAQ relating to the omission of certain biographical information of Edward Meng that had not been disclosed in various filings prior to July 2008, and which was corrected in the Company's 20-F filing on July 11, 2008. The assertions were prompted by a NASDAQ notification to the company of a letter written to NASDAQ from Mr. Meng's former employer. The letter stated that Mr. Meng had breached that company's Code of Conduct by being employed by that company on a full-time basis while at the same time being employed by A-Power as its part time CFO. After difficult deliberations and multiple consultations with NASDAQ, the Board of Directors of A-Power determined that terminating Mr. Meng's employment was the appropriate response and that it will take effect immediately.
• John Lin, A-Power's Corporate Secretary, Chief Strategy Officer and member of the Board of Directors has been appointed Interim CFO while the search for a successor is underway.ts part time CFO. After difficult deliberations and multiple consultations with NASDAQ, the Board of Directors of A-Power determined that terminating Mr. Meng's employment was the appropriate response and that it will take effect immediately.
• According to Jinxiang Lu, Chairman and Chief Executive Officer, "Our internal audit determined that while Mr. Meng's other position did not present a competitive concern nor did it have any effect on his performance as our CFO, his complete biographical information should have been disclosed. Although the omissions may have occurred inadvertently, we believe that our decision is the appropriate course of action."
• Mr. Jinxiang Lu further stated, "The Company reached the decision very reluctantly. Edward has been an important, capable and reliable member of our management team. He has played a critical role in the transition of A-Power to a US public company, in the growth of our core distributed generation business, and in the startup of our wind turbine production business. We certainly wish Edward well in his future endeavors. With this notable exception, we have been pleased with his performance, and he will be missed."

The press release is a bit confusing to me, because at the beginning it makes it sound like he was still working for both companies (I assume the other was Terex or Navstar Media), but later it sounds like when he took the APWR job full time he quit the other job, but did not disclose that in the early part of his service to APWR he was working at both companies; and the other company took issue with it. Either way it is a moot point and more importantly does not have much to do with the underlying business at A-Power. It does appear it was also disclosed on July 11th in the annual report, but with the other company raising a fuss, this decision was made. Just curious if it was Terex or Navstar that raised the issue....

From October 2007 to April 2008, he served as Vice President, Finance/Chief Financial Officer of Terex Corporation, Beijing Representative Office. Mr. Meng also previously served as part-time Chief Financial Officer and a director of Navstar Media Holdings, Inc., a public U.S. holding company with PRC operating subsidiaries specializing in media content production and distribution, in 2007

Ok so let's look at the pros and cons

CONS

1. After listening to the CFO from conference calls, I really liked all I heard. Frankly he seemed better than 95% of US CFOs in terms of breadth of knowledge, communication, and conservative streak. Reading his biography and career path, he appeared to be very much a go getter type.
2. Any time a CFO leaves it brings up a lot of uncertainty and angst from the investment community
3. Need to spend time & resources to find a new CFO
4. Potential of poor communication with Wall Street if new CFO does not have same communication skills as Meng
5. Bears will bring up "this is just a fall guy for some bad news coming down the pike"
6. The company will now have to put a few good quarters in to rebuild credibility, fairly or not

PROS

1. Coming from a financial background, the CFO does not effect operations - operations are the lifeblood of a company - companies in China and other parts of SE Asia have not been signing contracts with APWR due to whom the CFO is
2. Until May, Meng was in a part time position so really he has only been on the job "full time" for half a year
3. Opportunity to find a new CFO - this could be pro or con - depending on whom they hire
4. The stock has priced in just about every bad case scenario, and then some
5. One can view this step by management as "discplined" and seen as a pro in terms of not willing to take any missteps by any employee - whatever the level

So again, for those with short time frames, there is going to be another air of uncertainty around the company until they put out a few more quarters, get a full audit (to calm down bears who will say there was some fraud and that's the "real" reason the CFO left, etc), and the like. I don't like drama myself, so this is irritating.

I've gotten some emails from people over the past few days on the company and from multiple research reports - yes analysts have visited the company in their home country, it is not a fraud, a large European company has been working with them for a long time to source components for the new wind business - so obviously that company has done a ton of due diligence and is not doing business with a "vapor" company. I do get a kick out of "it's not safe to invest in Chinese company because how can you believe anything" when these same people have been investing in US financials or the Enron's and Worldcom's of the world for the past decade.

For the stock price, this will keep the stock depressed for a while in my opinion, but again it is now a $5 stock. It is more of a risk/reward question at this point - if you need the safety of Merck (MRK), this is not the stock for you. Based on the association with Fuhrlander, more than any comment by analysts, obviously it is a viable company and from all indications there is no accounting situation - simply a person who for a while was working 2 jobs and did not disclose it. I definitely could be wrong, but the situation at LDK Solar (LDK) when the part time CFO left, and claimed fraud at the company, was far worse. LDK, the company was not "fake", had contracts with viable European companies who obviously did their due diligence on the operations, and the stock eventually rebounded. But that did not mean the bears were not able to jump on the carcass for a few months and say "the company is a joke and why would a US investor buy a fraud like this?" Etc. The main difference is APWR is 95% lower than LDK when this came out, and there is no accounting issue - so I find it a lot more benign of a situation. We'll know better in 12-15 months.

I added a bit more here in the $5.20s - frankly I went home last night and thought, this was the best value in the entire stock market so I should buy more today - if I'm correct I am going to have a 200-400% winner within a year and a half... so given a nearly 10% cheaper price than the close yesterday I'll take it. (does not mean this stock can't go to $4 or $2) Frankly, one can make 2-3 years of gains if you are right on a situation such as this... Again, I find it safer when every bad scenario known to man is already priced into a stock in this type of market. We're up to a 3.9% stake.

Here is the bio of the interim CFO

John S. Lin Chief Strategy Officer, Mr Lin has been a member of our board of directors since January 2008 and has served as our Chief Strategy Officer since April 2008. As our Chief Strategy Officer, Mr. Lin’s responsibilities include our overall global business strategy, mergers and acquisitions strategy and channel development. Mr. Lin also currently serves as a director and as the President and CEO of CBC International Capital Corp. and CBC Investment Consulting (Shanghai) Co., Ltd., a position he has held since 2001. CBC advises Chinese companies in a variety of financial matters, including capital formation. He is experienced in raising capital in China and the U.S., structuring transactions and reorganizations of Chinese companies and public offerings of Chinese companies in exchanges worldwide. Mr. Lin has also served as a director and general manager of Chiway Investment (Anhui) Co., Ltd., which has been commissioned to manage 50 million dollars for Hefei city, China, to attract high technology businesses to the area, since September 2002, and as a director of Fair City Technology Co. Ltd., a privately held company, since October 2005. Mr. Lin is bilingual in English and Chinese and received a degree from Shanghai Traditional Medicine University and an Executive MBA from California State University Los Angeles.

Long A-Power Energy in fund and personal account