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: China Crescent Enterprises, Inc. ir@chinacrescent.com
214-722-3065
Grafico Azioni China Crescent Enterprises (CE) (USOTC:CCTR)
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