DALLAS, TX--(Marketwire - June 12, 2009) - China Crescent Enterprises, Inc. (
OTCBB:
CCTR)
today released a letter to shareholders from Founder and Board Member
Philip M. Verges. The letter, included in its entirety below, addresses the
Company's year-to-date progress to increase sales, profits and price per
share performance. The letter reviews the Company's recent $30 million
outsourcing services contract, and includes a discussion on micro-cap
investing strategy based on lessons learned and shareholder feedback.
Dear Shareholders --
As a founder and board member of China Crescent, I am passionate about the
global small and entrepreneurial business market our Company operates in.
We are working on building China Crescent from what is today a small, and
still arguably an entrepreneurial business, into a brand name recognized
systems integration company that also produces a return on investment (ROI)
for its shareholders.
Is China Crescent a "Small Business"?
The majority of the world's gross domestic product comes from small and
entrepreneurial businesses. Even in the United States, the majority of the
gross domestic product comes from small businesses. Most of you reading
this letter are likely employed by a company with less than 500 employees.
The majority of jobs in the United States are with firms with less than 500
employees.
Many may imagine a mom and pop corner shop when considering the concept of
a "small business." On the other hand, if business size were measured by
comparing companies to the $10 billion average market capitalization of
NYSE listed companies, then what would be considered "small"? Dell,
Costco, Kroger, State Farm Insurance, and Berkshire Hathaway all have
revenue of over $50 billion. Today, China Crescent's revenue is less than
1% of the revenue of those companies. I believe most of you here are
reading about China Crescent in part because it is small enough to have
plenty of room for growth, but with $40 million in annual revenue, it
doesn't sound small in comparison to the frequent "small business" vision
of the mom and pop corner shop.
A China Crescent Update
The purpose of this letter is to provide an update and summary of recent
Company events and to communicate the latest in what we have learned about
the micro-cap public markets through our experiences managing micro-cap
public companies. Those experiences also include what we learn from you as
investors. We receive emails and phone calls regularly with your
observations, concerns, accolades and grievances. Please keep calling and
emailing. We will keep publishing Webcasts and shareholder letters using
your feedback. In this way we want to sustain a dialogue that improves the
brand name and ROI opportunity for China Crescent and in turn, improves the
Company's position in the micro-cap public market.
Global Economy and Operational Performance
Our first job is to build operational success defined by sustainability and
growth. Today we have to face the challenges presented by a difficult
global economy in addition to the ordinary challenges faced by early stage
development companies. The good news is that most of China Crescent's
sales come from China and China's economy has continued to grow while most
of the world's economic regions have fallen into recession. Nevertheless,
China Crescent did see an impact to sales in Q4 2008 and Q1 2009. However,
I think the Company has done a good job containing expenses and managing
through a dip in sales, shown by an increase in net income (
See
Financial Performance Webcast).
While the economy remains relatively strong in China, which is good for
China Crescent, China's business culture does not generally support strong
gross margins for the service business industry. Accordingly, China
Crescent needs to make more progress in establishing sales outside of
China. In the meantime, the Company has made capital structure
improvements and reorganizational enhancements to improve the Company's
earnings per share potential (
See a recent letter from the
Company's CFO for more details on the improvements to increase the earnings
per share potential).
Outsourcing Services Strategy and the First $30 Million Client Agreement
As outlined in the CFO's recent letter to shareholders, the Company is
making good progress in maturing its operational processes and
correspondingly reducing expenses as a percentage of revenue. In addition
to the initiative to improve operational process, the Company has launched
its outsourcing strategy to increase the rate of organic revenue growth and
improve long-term gross margins.
(
Outsourcing Services Strategy Webcast).
Outsourcing services' target customers are generally larger revenue
opportunities and longer term agreements than the Company has historically
pursued. Outsourcing contract success will increase the Company's rate of
revenue growth and percentage of revenue derived from recurring revenue.
An increase in the total number of outsourcing contracts can also improve
the Company's resource utilization, and in turn increase gross margins.
China Crescent recently launched its outsourcing services and signed its
first client agreement. The agreement is anticipated to generate $30
million in revenue over a three year term. (
Corresponding 8-K
filing of agreement).
Suggested Fair Value Target PPS of $0.30
The Company was recently recapitalized as part of a comprehensive
initiative intended to align the Company's fundamental financial value with
the Company's market capitalization. Comparable publicly listed systems
integration companies enjoy substantially higher market capitalizations
relative to fundamental financial performance (
Fair
Value Webcast). The recapitalization reduced the number of common
shares issued and outstanding at a ratio of 25:1 (
see 14C). The recapitalization also
reduced the potential issue of additional commons stock from preferred
stock through the exchange of a convertible preferred stock for a
non-convertible preferred stock.
Regulation SHO Security Threshold List
Regulation SHO is intended to provide a regulatory framework governing
short selling of securities. Regulation SHO is designed, in part, to
fulfill several objectives, to include establishing uniform locate and
delivery requirements in order to address problems associated with failures
to deliver and potentially abusive "naked" short selling (
for
more details on Regulation SHO and the impact to China Crescent see
Webcast).
Following the recent recapitalization, China Crescent was listed on the
Regulation SHO Threshold Security List because a number of stock sales had
been transacted, but the actual shares had not been delivered. The Company
remained on the Regulation SHO Threshold Security list until this week.
Following China Crescent's listing on the Regulation SHO Threshold security
list, the PPS increased nearly 70% between May 14th and May 28th on higher
than average trading volume. Management believes that a buy-in to cover
naked short sales may have contributed to this increase. Since May 28th,
the share price has come back down to the range where it traded prior to
the Regulation SHO Threshold Security listing. Management is not entirely
surprised by the PPS volatility and remains optimistic that the suggested
Fair Value Target PPS $0.30 objective can be realized.
OTC, OTCBB and Share Price Volatility
OTC and OTCBB listed companies are primarily early stage small and
entrepreneurial companies. Some have no revenue. Some have revenue and no
profit. Some have inconsistent revenues and profits. Most have listed
publicly for the specific purpose of raising capital to execute a business
plan. Because of the periodic share price increase potential such as the
recent 70% increase demonstrated by China Crescent, micro-cap public
companies can produce a dramatic ROI. On the other hand, early stage
companies also have a high degree of risk.
I mentioned above that management was not entirely surprised by the
decrease in share price that followed the steep increase in share price.
From our experience as managers of OTC and OTCBB companies, and most likely
from your experience as an investor in micro-cap public companies, we
historically have seen share price volatility in OTC and OTCBB share
prices. (For more information on this volatility and what I refer to as
the milestone investment strategy see the
Investor Overview Webcast). While not all micro-cap public companies
will succeed in reaching operational sustainability, most will at least
achieve some milestone successes along the way. Those milestone successes
can generate buying that in turn drives a sudden increased share price.
However, sudden increased share prices can attract short selling that in
turn drives share prices back down.
Milestone Investing -- Short Term and Long Term ROI
China Crescent has recently announced a milestone success -- the Company's
first outsourcing contract. The PPS has increased dramatically and
subsequently decreased. While OTC and OTCBB companies experience price per
share volatility, the longer term trend can be either up or down. For
instance, if China Crescent's share price reaches the Suggested Value
Target of $0.30, the share price course will likely be two steps forward,
one step back. Investors can profit on the short term milestone ups and
downs regardless of the longer term trend. A longer term upward trend
provides investors with the opportunity to profit from both the short term
milestone ups and downs, as well as the longer term upward trend.
Likewise, a longer term downward trend provides a short seller the
opportunity to profit from both the short term milestone ups and downs as
well as the longer term downward trend.
If a Company has a limited number of issued and outstanding shares,
supporting an upward long term trend is more likely to be possible. A
limited number of issued and outstanding shares limits the overall supply
of shares and reduces the required demand necessary to overcome the
available supply and drive a share price increase. With the 100 most
actively traded companies on the OTCBB having on average of over one
billion shares issued and outstanding, any OTCBB company with less than 100
million shares issued and outstanding can be considered to have a limited
issued and outstanding.
China Crescent and the Milestone Investment Opportunity
The China Crescent issued and outstanding is only a fraction of what would
be considered limited by OTCBB standards. Furthermore, with the recent
exchange of a convertible preferred stock to non-convertible, the potential
issue of more common stock from that preferred stock has been further
limited. Management is optimistic that the current issued and outstanding
can support a long-term upward trend. However, management expects the
recent share price volatility to continue.
Research and Stock Message Boards
Investors looking to profit from milestone increases and long term upward
trends are likely to encounter nerve testing short selling strategies from
time to time. Investors that are optimistic about the future prospects of
a company may encourage optimism with others in an effort to influence more
demand for the stock of a company. Such an investor might disseminate his
version of the future prospects of a company on a stock message board.
Likewise, a short seller that wants to profit on a declining share price
might similarly disseminate his version of a future demise. Don't do your
investment research on stock message boards. The good news is biased and
so is the bad news, and in most cases the news is provided by anonymous
posters. China Crescent reports are available free of charge on the SEC
website at
www.sec.gov and the Company issues frequent updates.
In Conclusion
I am committed to the brand name and ROI objective for China Crescent, as
is the rest of our board and management team. We are all optimistic about
the future prospects of China Crescent and thank you for sharing our vision
for the future of China Crescent.
Best Regards,
Philip M. Verges
Founder and Board Member
China Crescent Enterprises, Inc.
Corporate E-mail Updates
To be added to China Crescent's e-mail database to receive company updates
or to obtain more information on the Company, please send an e-mail to
ir@chinacrescent.com or call 214-722-3065.
About China Crescent Enterprises, Inc. (
http://www.chinacrescent.com/)
China Crescent Enterprises, Inc. reported over $40 million in profitable
Revenue in 2008. The Company is a technology leader in the rapidly
developing Chinese market specializing today in software engineering, high
quality software development and digital multimedia outsourcing services
delivered to customers globally. At the same time, the firm is a systems
integrator and value added reseller of major global hardware brands in the
Chinese domestic market.
Headquartered in Dallas with operations in Shanghai and Beijing, China
Crescent bridges the gap between Western and Eastern business cultures to
assist Western clients in realizing the advantages of the high quality, low
cost technology products and services available from China. China Crescent
also assists Western clients in localizing products and services to realize
the tremendous growth potential available by expanding into the Chinese
Market.
"SAFE HARBOR STATEMENT" UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
This press release contains forward-looking statements that involve risks
and uncertainties. The statements in this release are forward-looking
statements that are made pursuant to safe harbor provision of the Private
Securities Litigation Reform Act of 1995. Actual results, events and
performance could vary materially from those contemplated by these
forward-looking statements. These statements involve known and unknown
risks and uncertainties, which may cause China Crescent's actual results in
future periods to differ materially from results expressed or implied by
forward-looking statements. These risks and uncertainties include, among
other things, product demand and market competition. You should
independently investigate and fully understand all risks before making
investment decisions.
Contact Information: Contact:
China Crescent Enterprises, Inc.
ir@chinacrescent.com
214-722-3065