I'm still investigating the implications of Newmarket Technology's (NWMT.PK) majority ownership of CCTR. I gleaned this bit of information from a letter to NWMT shareholders written by CEO Philip Verges:
China Crescent Enterprises, Inc., a regional subsidiary in which NewMarket is the majority shareholder, recently filed a preliminary information statement. The purpose of the information statement was to inform China Crescent shareholders of a planned recapitalization. NewMarket plans to reverse split the common stock of China Crescent in addition to the possible conversion of a portion of NewMarket’s preferred China Crescent stock into China Crescent common stock.
One objective of the planned recapitalization is to support a dividend distribution of China Crescent stock to the shareholders of NewMarket. NewMarket management is currently working with China Crescent management to develop a plan that would include the conversion of a portion of NewMarket’s preferred ownership into common stock and the dividend of that common stock to the shareholders of NewMarket. Such a dividend distribution might require an increase of authorized China Crescent stock, and as such, the preliminary information statement included a plan to increase the authorized stock.
The rough translation of those two paragraphs is "we really want to give our shareholders a dividend in the form of CCTR stock. To this end, we're going to dilute the hell out of CCTR."
Given this, I would recommend that you keep your money on the sidelines for now. It's still unclear what the intentions of Newmarket Technology towards China Crescent.
5 comments:
Can you share the source of information.
The earnings announcement is from the CCTR website. The shareholder letter is from Newmarket Technology.
I think the company is a scam. I posted the following on the Google forums about it:
Since buying into this stock, I have done more research on CCTR. I have lost about $1700 on it in just a few days, and I'm getting out before I lose the rest. I recommend the same to others who have it.
Here is the fruit of my research:
1. The bait: According to the financial statements, the company is trading at a fraction of its net asset value, and a fraction of its earnings. Furthermore, its earnings have grown steadily and dramatically in the past three years. If this isn't a scam, then it's one of the greatest investments I've ever seen. So why am I getting out?
2. The number of shares outstanding rose over the past year from 1 million to 20 million shares. If this happened again, it would virtually wipe out the existing shareholders. It appears that it happened because NewMarket Technologies, which is the majority shareholder in China Crescent, converted its preferred stock to common.
3. I wrote to the investor relations departments at NewMarket and CCTR, asking whether further dilution could be expected in the future. I wrote on Thursday. Neither has responded. In the presentations on the CCTR web site, the dilution is mentioned, they just say "well, we have to raise capital to achieve our growth objectives," or something like that, and they make no attempt at all to assure investors that there won't be any more dilutions. If a company really believes its stock is undervalued by a factor of 6, it would be buying back its own shares, not issuing more shares and then trying to talk other people into buying them.
4. China Crescent has apparently changed its name at least three times. First it was called Intercell Corp (back in 1994), then Intercell International, then NewMarket China, and finally China Crescent. They have traded under at least three different ticker symbols. Why would they do this? To confuse people? To prevent investors from noticing the stock's overall performance over its lifetime?
5. CCTR has complicated and confusing relationships with other companies. In some documents, it seems that Intercell International *was* China Crescent, but other times it sounds like Intercell *owned* China Crescent. Similarly with NewMarket Technologies. In any case, China Crescent, itself now apparently owned by NewMarket Technologies, owns a company called Clipper Technologies, which in turn owns 75% of Clipper Huali. Why a $1 million microcap company needs to be owning companies that own other companies, I don't know. But I take Warren Buffett's advice: don't invest in anything you don't understand.
(to be continued)
6. Due to the company's change of its ticker symbols, it is hard to find a chart of the stock price since inception. But it can be found at MSN Money, where we see this:
http://moneycentral.msn.com/investor/charts/chartdl.aspx?showchartbt=Redraw+chart&D4=1&DD=1&D5=0&DCS=2&MA0=0&MA1=0&CF=0&symbol=CCTR&nocookie=1&SZ=2&CP=0&PT=11
This is almost impossible to believe, but the chart shows a high of $2500 in 1996. From there, it has plunged 99.998%. The 1-year chart is less dramatic, but still sobering: from 0.63 to 0.06. The stock is not cheap because it is a new, as-yet-undiscovered company. Rather, it is a company that investors were once extremely enthusiastic about, and that they have progressively and dramatically lost faith in.
7. In the presentations on the CCTR web site, the presenter, Philip Verges, tries to blame the low stock price on short sellers, possibly naked short sellers. But he has no evidence to back this up, other than the fact that someone has some short position in CCTR. There is a short position in virtually every stock, so this tells us nothing, and Verges had no data about the size of the short interest. At one point, Verges suggests that there could be a short squeeze coming, leading the stock to go up to 0.12. But he offers no evidence for that speculation. The last time Verges predicted a short squeeze was in Aug 2008; the stock promptly dropped.
8. CCTR has fired its accountant twice in the last several years. The first time, the SEC 8-K filing mentions that the accountant had said there was a question about the company's ability to continue as a going concern. Was this why he was fired? The second time, the filing says there were no disagreements with the accounting firm, and there is a letter from the accounting firm agreeing with this. The filings don't mention the reasons for firing the accountants. To read the SEC filings, go to: http://yahoo.brand.edgar-online.com/default.aspx?cik=745655
9. If the management and the board believe this stock is worth over 6 times its current price, as the web presentations claim, then they should be putting all their personal money into buying up shares, getting their friends and family to do so as well. The entire company is going for only $1 million, so they should easily be able to buy up most of the shares. If they did that, the price would be soaring. It isn't. So they're not doing that.
Almost all of the sentiment about this stock on the forums is overwhelmingly positive. So who is doing all the selling? Maybe the same managers and board members who are busy trying to convince us to buy?
10. Finally, I have viewed the web sites for NewMarket Tech and China Crescent. They have slick audio-visual presentations in their investor relations sections. They have nothing on either web site devoted to trying to sell products. The web sites are about selling *stock*, not *products*. At best, their priorities are backwards; at worst, they don't sell products at all.
All of this adds up to a feeling that this company is trying to scam me. I might be wrong--if this company is legit, then it is going to make a fortune for its shareholders. But if it is as I fear, the stock is going to zero.
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