Kun Peng International Ltd (KPEA)

[Potse]

Reply to private message...risk/reward,valuation, etc.......

A lot of things could still go very wrong here (for example: bad financings, financials, poor business execution, etc., etc.), but I think this reverse merger has some definite homerun potential.

To the person who sent me a private message regarding my thoughts on the potential risks for CXKJ.......

I think it is very important to be cognizant of the potential risks for this stock, and for that matter any new reverse merger. Everybody has to decide for themselves what their risk tolerances are on any particular investment.

In the case of CXKJ, you have all the usual risks that you might expect: country/foreign exposure, a young company with a very ambitious growth plan, language/business differences that can sometimes influence investor perceptions, etc, etc, etc.

As I mentioned in the above post, a lot of things could go very wrong here. For example, in my previous post I talked about the post-RM share structure. I have no way for certain to know if that structure will ultimately be accurate, because the agreement did not state exactly how those 15.5M cancelled shares would be re-issued to the Kunpeng shareholders (see agreement language below this paragraph). My assumption/guess was that CXKJ would increase its authorized share count to allow for the issuance of those shares. But there is always the possibility that the company could effect a reverse split prior to that issuance, which would decrease the percentage of legacy share ownership and potentially have a significant/negative impact on the attractiveness of CXKJ from an overall marketcap valuation.

Agreement language.....

Section 3.02 Capitalization of CXN. The authorized capital stock of CXN consists of 40,000,000 shares of common stock, par value $0.0001 per share. As of the date hereof, CXN has 21,376,918 shares of common stock issued and outstanding. All of the issued shares of capital stock of CXN have been duly authorized, and are validly issued, fully paid and non-assessable. Mr. Wenhai Xia is the owner of 16,683,334 shares of CXN common stock, and he has agreed to cancel 15,535,309 shares that he holds and contribute them back to the Company. The cancellation and contribution of those shares to the Company by Mr. Xia will facilitate the transaction and adjust the capitalization of the CXN so that an additional 15,535,309 shares may be issued to the KPI Shareholders.

Note: The more I look at that language, the more I wonder if I am interpreting/reading it correctly. I chose to take the conservative side and make the post-RM structure at 55M shares because it just seemed to me that the 40M number would mean the legacy shareholders would have retained an unusually high percentage of the post reverse merger company (I usually consider anything over 10% to be "high"). But I am beginning to think it is entirely possible there will only be 40M post-RM shares outstanding. An argument could be made for either number.

In a reverse merger situation, just about anything can happen (both negative and positive). Remaining very aware of all the risks here, from my perspective right now, I am probably about as bullish on this reverse merger as any RM I have been in for quite awhile. The current structure, valuation, and growth potential look extremely interesting to me. The more I look at this company, the more I like it.

I'm averaged in at under 21 cents per share and will be disappointed if I walk away from this investment with anything less than a 10/15-bagger on the bulk of my position. But all of my bullishness could change in a blink of an eye. It is a pretty rough/wild market out there at times and even the best-laid plans don't always go the way we want. Whether I made a good investment decision here is now all up to the company and investor reactions to future corporate developments.