China Crescent Enterprises (CCTR) 10-Q 2009 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

OR

[  ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-14306

CHINA CRESCENT ENTERPRISES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	84-0928627
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification number)

14860 Montfort Drive, Suite 210, Dallas, TX    75254

(Address of principal executive offices)

 (214) 722-3040

Issuer’s telephone number, including area code

NEWMARKET CHINA, INC.

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of  “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [   ]	Accelerated Filer [   ]
Non-Accelerated Filer  [ü]	Smaller Reporting Company [   ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

The Registrant had 124,749,303 shares of Common Stock outstanding as of November 16, 2009.

PART I – FINANCIAL INFORMATION			Page No.
Item 1. Unaudited Financial Statements
	Consolidated Balance Sheets –
		September 30, 2009 and December 31, 2008	1
	Consolidated Statements of Operations –
		Three  and Nine Months Ended September 30, 2009 and 2008	2
	Consolidated Statement of Changes in Equity –
		December 31, 2008 through September 30, 2009	3
	Consolidated Statements of Cash Flows –
		Nine Months Ended September 30, 2009 and 2008	4
	Notes to Condensed Consolidated Financial Statements		5
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 3. Quantitative and Qualitative Disclosures About Market Risk			13
Item 4. Controls and Procedures			13
PART II – OTHER INFORMATION
Item 1.  Legal Proceedings – Not Applicable			14
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds			14
Item 3.  Defaults Upon Senior Securities – Not Applicable			14
Item 4.  Submission of Matters to a Vote of Security Holders			14
Item 5.  Other Information – Not Applicable			14
Item 6.  Exhibits			14
SIGNATURES			15

Item 1.  Unaudited Financial Statements

China Crescent Enterprises, Inc.
Consolidated Balance Sheet
ASSETS	September 30, 2009		December 31, 2008
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	2,347,018	$	2,600,498
Accounts receivable		6,768,180		4,238,294
Inventory		2,398,446		1,858,233
Supplier advances		1,779,766		787,149
Advances to affiliate		1,000,000		687,567
Assets of discontinued operations		9,337		9,377
Other current assets				68,840
Total current assets		14,302,747		10,249,958
PROPERTY AND EQUIPMENT, NET		78,565		93,185
INTANGIBLE ASSETS		2,993		2,993
Total assets	$	14,384,305	$	10,346,136
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,323,081	$	1,573,643
Short-term debt		672,142		1,798,542
Accrued expenses and other liabilities		709,953		445,258
Liabilities of discontinued operations		308,683		308,683
Total current liabilities		3,013,859		4,126,126
Long-term debt		720,555		151,041
Total liabilities		3,734,414		4,277,167
EQUITY
Common stock; $.001 par value; 1,000,000,000 shares authorized;
81,638,107 and 1,070,186 shares issued and outstanding
at September 30, 2009 and December 31, 2008, respectively		81,638		1,070
Preferred stock; $.001 par value; 20,000,000 shares authorized;
Series A 250,000 and 250,000; Series B 750 and 0 shares issued
and outstanding at September 30, 2009 and December 31, 2008, respectively		251		250
Additional paid-in capital		5,302,592		2,241,694
Accumulated comprehensive income		505,153		820,699
Retained earnings		3,451,802		1,392,493
Total China Crescent Enterprises, Inc. stockholders' equity		9,341,436		4,456,206
Noncontrolling interest		1,308,455		1,612,763
Total equity		10,649,891		6,068,969
Total liabilities and equity	$	14,384,305	$	10,346,136
See accompanying notes to consolidated financial statements.

China Crescent Enterprises, Inc.
Consolidated Statement of Operations
(Unaudited)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
REVENUE	$	13,344,273		$	11,144,564		$	30,330,147		$	30,335,303
COST OF SALES		12,072,141			10,511,971			27,005,003			28,465,539
Gross Margin		1,272,132			632,593			3,325,144			1,869,764
OPERATING EXPENSES
Selling, general and administrative expenses		285,020			267,216			814,344			816,219
Depreciation and amortization		5,270			5,183			11,662			10,986
Total expenses		290,290			272,399			826,006			827,205
Income (loss) from operations		981,842			360,194			2,499,138			1,042,559
OTHER INCOME (EXPENSE)
Interest income		-			11			902			479
Interest expense		(38,401	)		(77,645	)		(140,341	)		(133,174	)
Other income		73,525			31,542			163,107			133,076
Other expense		(1,424	)		(1,501	)		(4,775	)		(4,211	)
Total other income (expense)		33,700			(47,593	)		18,893			(3,830	)
Net income before income tax (credit) and
noncontrolling interest		1,015,542			312,601			2,518,031			1,038,729
Foreign income tax		(13,060	)		(8,917	)		(13,060	)		(25,005	)
Noncontrolling interest in consolidated subsidiary		(258,600	)		(148,805	)		(626,017	)		(496,725	)
Net income		743,882			154,879			1,878,954			516,999
Other comprehensive income (loss)
Gain (loss) on investment security		(139	)		(2,348	)		(1,162	)		(3,742	)
Foreign currency translation gain (loss)		148,213			42,333			(314,384	)		400,412
Comprehensive income		891,956			194,864			1,563,408			913,669
Income per weighted-average common share-basic	$	0.01		$	0.10		$	0.09		$	0.39
Income per weighted-average common share-diluted	$	0.01		$	0.04		$	0.04		$	0.15
Number of weighted average common shares o/s-basic		49,607,610			1,536,351			21,200,439			1,337,414
Number of weighted average common shares o/s-diluted		124,019,025			3,840,878			53,001,098			3,343,536
See accompanying notes to consolidated financial statements.

China Crescent Enterprises, Inc.
Consolidated Statement of Stockholder's Equity
(Unaudited)
									Additional		Accumulated
	Number of Shares				Par Value of Stock				Paid-In		Comprehensive			Retained		Total
	Preferred		Common		Preferred		Common		Capital		Income/(Loss)			Earnings		Equity
BEGINNING BALANCE, January 1, 2009		250,000		2,786,186	$	250	$	2,786	$	2,239,978	$	820,699		$	1,392,493	$	4,456,206
Issuance of shares for exchange of debt				78,851,921				78,852		2,312,615							2,391,467
Issuance of preferred shares for purchase of
additional interest in subsidiary		750				1				749,999					180,355		930,355
Other comprehensive income												(315,546	)				(315,546	)
Net income															1,878,954		1,878,954
ENDING BALANCE, September 30, 2009		250,750		81,638,107	$	251	$	81,638	$	5,302,592	$	505,153		$	3,451,802	$	9,341,436
See accompanying notes to consolidated financial statements.

China Crescent Enterprises, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
	Nine Months Ended
	September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	1,878,954		$	516,999
Adjustments to  reconcile net earnings to net cash
provided (used) by operating activities:
Noncontrolling interest in consolidated subsidiary		626,017			496,725
Depreciation		11,662			10,986
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(2,529,886	)		(1,665,245	)
(Increase) decrease in supplier advances and other assets		(981,122	)		(856,877	)
(Increase) decrease in inventory		(538,213	)		(312,478	)
Increase (decrease) in accounts payable		(243,675	)		(302,049	)
Increase (decrease) in accrued expenses and other payables		271,184			540,486
Net cash used by operating activities		(1,505,079	)		(1,571,453	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of property and equipment		10,116			-
Net cash provided by investing activities		10,116			-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt		262,897			688,176
Proceeds from long-term debt		585,122			148,101
Advances to affiliates		(272,433	)		-
Net cash provided by financing activities		575,586			836,277
Effect of exchange rates on cash		665,897			205,837
Net decrease in cash and equivalents		(253,480	)		(529,339	)
CASH, beginning of period		2,600,498			1,488,774
CASH, end of period	$	2,347,018		$	959,435
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-Cash Financing Activities:
Common stock issued to settle debt	$	1,398,328		$	621,500
See accompanying notes to consolidated financial statements.

CHINA CRESCENT ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2009

1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:

Unaudited Interim Financial Statements

The accompanying unaudited interim consolidated financial statements include the accounts of China Crescent Enterprises, Inc. (formerly known as NewMarket China, Inc. or “NewMarket China”) a Nevada corporation (“we”, “our” or the “Company”),  These statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable Securities and Exchange Commission (“SEC”) regulations for interim financial information.  These financial statements are unaudited and, in the opinion of management, include all adjustments necessary to present fairly the balance sheets, statements of operations and statements of cash flows for the periods presented in accordance with accounting principles generally accepted in the United States.  Certain information and footnote disclosures normally found in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations.  It is presumed that users of this interim financial information have read or have access to the audited financial statements and footnote disclosure for the preceding year contained in our Annual Report on Form 10-K.  Operating results for interim periods presented are not necessarily indicative or the results that may be expected for the year ending December 31, 2009.

In October 2004, we discontinued the operations of Brunetti and implemented steps to liquidate the assets of Brunetti.  On March 1, 2005, Brunetti filed a voluntary petition for relief in the United States Bankruptcy Court, District of Colorado under Chapter 7 of Title 7 of the U.S. Bankruptcy Code (Note 3).

On March 16, 2005, the Company (the Debtors) filed a voluntary petition for relief in the United States Bankruptcy Court, District of Colorado under Chapter 11 of Title 11 of the U.S. Bankruptcy Code.  Under Chapter 11, certain claims against the Debtor in existence prior to the filing of the petitions for relief under the U.S. Bankruptcy Code are stayed while the Debtor continues business operations as Debtor-in-possession.  On April 5, 2006, the United States Bankruptcy Court, District of Colorado dismissed the Chapter 11 proceedings.

Basis of Presentation

The Company prepares its financials statements using the accrual basis of accounting.  All significant intercompany accounts and transactions have been eliminated in consolidation.    Investments in subsidiaries are reported using the equity method.  The financial statements include the accounts of the  wholly-owned subsidiaries Brunetti DEC, LLC, (“Brunetti”) a Colorado limited liability company and Clipper Technology, Inc. (“ClpTec”), a Chinese wholly-owned foreign entity.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Principles of Consolidation

The Company accounts for investments in subsidiaries in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 94, “Consolidation of all Majority-owned Subsidiaries”, and Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements.”  The Company uses the consolidation method to report its investment in its subsidiaries and other companies when the Company owns a majority of the voting stock of the subsidiary.  All inter-company balances and transactions have been eliminated.

Fair Value Instruments

Statement of Financial Accounting Standards (“SFAS”) 157, “Fair Value Measurements”, defines fair value, establishes a framework for measuring fair value and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.  As a basis for considering assumptions, SFAS 157 established a three-tier hierarchy which prioritizes the inputs used in measuring fair value as follows:

·   Level 1 – Quoted prices for identical instruments in active markets

·   Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in non-active markets, or model-driven valuations in which all significant inputs are observable in active markets

·   Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions

SFAS 157 does not impose fair value measurements on items not already accounted for at fair value; it applies to other accounting pronouncements that either require or permit fair value measurements.

Certain assets and liabilities are measured at fair-value on a non-recurring basis.  These assets include goodwill and intangible assets and are the result of acquisitions.  Items valued using internally generated valuation techniques are classified according to the lowest level input.  Thus an item may be classified as Level 3 and such instruments are not measured at fair value on  n ongoing basis but are subject to fair value adjustments in certain circumstances, for example when there is evidence of impairment.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less and money market instruments to be cash equivalents.

Inventory

Inventory, which consists primarily of finished goods, is stated at the lower of cost or market.  Cost is determined using the weighted average method.

Property and Equipment

Property and equipment are stated at cost.  Depreciation is provided by use of the accelerated method over the estimated useful lives of the related assets, which range from five to seven years.

Revenue Recognition

The Company is engaged in the business of resale of computer hardware and software and IT consulting services in the People’s Republic of China (“China”).  Revenue from product sales, which accounts for the substantial majority of revenue, is recognized upon delivery.  IT Consulting services are invoiced under a time and materials contract.  Revenue is recognized as time is spent on hourly rates, which are negotiated with the customer, plus the cost of any allowable material costs and out-of-pocket expenses.

Foreign Currency Transaction and Translation Gains (Losses)

The Company’s principal operations are located in China. The Company invoices customers in RMB, the local currency, and if the payment received is denominated in a foreign currency, the payment is translated and the Company records a foreign currency transaction gain or loss in accordance with Statement of Financial Accounting Standards (“SFAS”) 52, “Foreign Currency Translation”.

Derivative Instruments

SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in fair value be recognized currently in earnings (loss) unless specific hedge accounting criteria are met.

Stock-Based Compensation

The Company has two  stock  option  plans which permit the granting of shares to attract,  retain  and  motivate  employees,  directors  and consultants.  Options are generally granted with an exercise price equal to the market price of the common stock of the Company on the date of the grant and with vesting rates, as determined by the Board of Directors.  The Company accounts for stock-based compensation in accordance with SFAS 123(R), “Share-Based Payment” which requires measurement of compensation cost for all stock-based awards at fair value on the date of grant.  Determining the fair value of share-based awards at the grant date requires the use of estimates.  Actual results, and future changes in estimates, may differ from the current estimates.

There were no options granted during the three months ended  June 30, 2009, and all options granted prior to the adoption  of  SFAS  123(R)  and  outstanding  during  the  periods  presented were fully vested.

Net Income Per Share

The Company has adopted SFAS 128, “Earnings Per Share”, specifying the computation, presentation and disclosure requirements of earnings per share information.  Basic earnings per share have been calculated based upon the weighted average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Income Taxes

Income taxes are accounted for by the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date.  A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

Comprehensive Income

SFAS 130, “Reporting Comprehensive Income”, requires the reporting and display of comprehensive income and its components.  SFAS 130 requires unrealized gains and losses on our available for sale securities to be included in comprehensive income as well as gains or losses due to foreign currency translation adjustments.

Recently Issued Accounting Standards

In April 2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (“APB”) Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP SFAS No. 107-1 and APB Opinion No. 28-1”).  FSP SFAS No. 107-1 and APB Opinion No. 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosures about fair value of financial instruments for interim reporting periods.  The adoption of FSP SFAS No. 107-1 and APB Opinion No. 28-1 for the period ended June 30, 2009 did not have a material impact on the Company’s consolidated financial statements.  

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”).  SFAS No. 165 requires an entity to disclose the date through which the entity has evaluated subsequent events and whether that evaluation date is the date financial statements are issued. SFAS 165 is effective for interim reporting periods after June 15, 2009.  The adoption of SFAS 165 did not have a material effect on the Company’s consolidated financial statements.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140” (“SFAS No. 166”).  SFAS No. 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures about transfers of financial assets.  SFAS No. 166 is effective for annual reporting periods after November 15 2009.  The adoption of the provisions of SFAS No. 166 is not anticipated to have a material impact on the Company’s consolidated financial statements.  

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”). SFAS No. 167, among other things, requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity (“VIE”), amends FIN 46(R)’s consideration of related party relationships in the determination of the primary beneficiary of a VIE, requires continuous assessment of whether an enterprise is the primary beneficiary of a VIE, and requires enhanced disclosures about an enterprise’s involvement with a VIE.  SFAS No. 167 is effective for annual reporting periods after November 15 2009.  The adoption of the provisions of SFAS No. 167 is not anticipated to have a material impact on the Company’s consolidated financial statements.  

In July 2009, the FASB issued SFAS No. 168, “FASB Accounting Standards Codification” (“SFAS No. 168”), as the single source of authoritative nongovernmental U.S. GAAP.  All existing accounting standards are superseded as described in SFAS No. 168. All other accounting literature not included in the codification is non-authoritative. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. The adoption of the provisions of SFAS No. 168 is not anticipated to have a material impact on the Company’s consolidated financial statements.  

2.  DESCRIPTION OF BUSINESS:

NewMarket China was formed in 2006 as a wholly-owned subsidiary of NewMarket Technology, Inc. (“NewMarket Technology”), a technology and systems integration company based in Dallas, Texas.   The Company’s headquarters is located in Dallas but the primary operations are currently in the People’s Republic of China (“China”).  To date, the majority of the Company’s sales have been information technology products and services sold within China.  These services are provided through the Company’s subsidiaries as detailed below:

·   Clipper Technology, Ltd. (“ClpTec”):  A Wholly Owned Foreign Entity (“WOFE”) registered in Shanghai, China, which provides consulting, development, implementation, and maintenance of technology systems which include both software and hardware peripherals for computing, communication, and data exchanges related to general business applications as well as the specialty fields of medical, security, military and homeland defense applications.

·   Clipper Huali Co., Ltd. (“Clipper-Huali”).  Clipper-Huali was originally formed as a collaborative business enterprise between ClpTec and a consortium of Chinese technology firms called The Huali Group, Ltd. (“Huali”). Clipper-Huali is registered in the City of Ningbo, China. Effective April 1, 2009, Clipper-Huali is owned 76% by ClpTec and 24% by Huali. Clipper-Huali is engaged in the sales, distribution and integration of IT products including notebook and desktop computers, printers, servers, network equipment, and peripheral devices from a number of global brand partners and is also an authorized reseller of operating systems, database, middleware and other software applications.

In October 2006, Intercell International Corporation (“Intercell”) executed an Agreement and Plan of Reorganization (the “Agreement”) with NewMarket China, Inc.  The Agreement, provided for Intercell to acquire from NewMarket Technology our subsidiary  through the exchange of  all of the issued and outstanding stock of NewMarket China, Inc., one thousand (1,000) shares held by NewMarket Technology for  two million (2,000,000) restricted common shares of Intercell. As a result of the Agreement, NewMarket China became a wholly-owned subsidiary of Intercell.

In a separate agreement, NewMarket Technology agreed to purchase 250,000 shares of a Series A Preferred Stock (“Series A Preferred”) from Intercell for $250,000. The shares have a par value of $0.001 per share and a purchase price of $1.00 per share and bear no dividend.  The shares are convertible into 60% of our issued and outstanding common stock any time after August 31, 2006. The shares have a voting right equal to 60% of our issued and outstanding common stock.

As a result of this reorganization, stockholders’ equity has been adjusted to reflect the effect of this transaction.

In June 2008, the Company changed its name to China Crescent Enterprises, Inc.

3. DISCONTINUED OPERATIONS:

Brunetti Acquisition

On October 20, 2003, the Company acquired a controlling 60% equity interest in Brunetti in exchange for a $700,000 cash contribution to Brunetti.  On January 30, 2004, the Company acquired the remaining 40% equity interest in Brunetti in exchange for a $300,000 cash contribution to Brunetti.

On October 11, 2004, the Company discontinued the operations of Brunetti and implemented steps to liquidate the assets of Brunetti.  On March 1, 2005, Brunetti filed a voluntary petition for relief in the United States Bankruptcy Court, District of Colorado under Chapter 7 of Title 7 of the U.S. Bankruptcy Code.

At September 30, 2009, the carrying values of Brunetti’s assets and liabilities (presented as assets and liabilities of discontinued operations) are as follows:

Cash	$	9,377
Total assets      (all current)	$	9,377
Accounts payable	$	179,473
Related party payable		25,035
Line of credit		10,735
Accrued payroll		93,440
Total liabilities       (all current)	$	308,683

Brunetti reported no revenues or income during the three months ended September 30, 2009.  Operations related to Brunetti resulted in a net loss during the year ended December 31, 2008 and 2007 of $0 and $0, respectively.  Brunetti did not incur any income taxes during these periods.

4. INVESTMENT IN VYTA CORP.:

At September 30, 2009, the Company owns 23,245 shares of the common stock of Vyta Corp.  Beginning October 21, 2003, based on factors which indicated that the Company did not have the ability to exercise significant influence, the Company changed the method of accounting for the Vyta Corp shares (except for those which are subject to underlying warrants, which are carried at cost) to the method of accounting prescribed by SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”.  The Company had previosuly classified its investment in these Vyta Corp shares as available-for-sale securities, in which unrealized gains (losses) are computed on the average cost basis, and are recorded in other comprehensive income (loss).  On May 15, 2009, the management of Vyta announced that the company had ceased operations.  As a result, the remaining value of the investment ($139 as of June 30, 2009) has been written off as of September 30, 2009.

5.  STOCKHOLDER’S EQUITY:

Common Stock

The Company has authorized 1,000,000,000 shares of $0.001 par value of common stock.  The Company had 81,638,107 shares of common stock issued and outstanding at September 30, 2009.

During the third quarter of 2009, the Company issued 61,607,867 shares of common stock as follows:

·   In July 2009, the Company issued 18,192,312 shares of common stock pursuant to an agreement to exchange  $363,847 in short-term debt for equity.

·   In August 2009, the Company issued 25,716,333 shares of common stock pursuant to an agreement to exchange $592,000 in short-term debt for equity.

·   In September 2009, the Company issued 17,699,222 shares of common stock pursuant to an agreement to exchange $442,481 in short-term debt for equity.

On May 12, 2009, the Company announced the effectiveness of a 25-for-1 reverse stock split.  The financial statements have been adjusted to reflect this change in stockholder’s equity.  Additionally, the Company’s new trading symbol for the common stock on the OTC Bulletin Board is CCTR.

Preferred Stock

The Company has authorized 20,000,000 shares of $0.001 par value preferred stock.  The rights and privileges of the preferred stock are determined by the Board of Directors prior to issuance.  The Company had 250,000 shares of Series A Preferred and 750 shares of Series B Preferred stock issued and outstanding at September 30, 2009.

On April 1, 2009, the Company issued 750 shares of Series B Convertible Preferred Stock, $.001 par value, $1,000 per share stated value, in conjunction with the previously announced acquisition by ClpTec of an additional 25% interest in Clipper-Huali from Huali, bringing its total ownership in Clipper-Huali to 76% and reducing Huali’s ownership interest to 24%.

6.  STOCK OPTIONS AND WARRANTS:

Stock Options

The Company established a Compensatory Stock Option Plan (the “1995 Plan” or the “Option Plan”) and had reserved 10,000,000 shares of common stock for issuance under the Option Plan.  Incentive stock options were granted under the Option Plan at prices not less than 110% of the fair market value of the stock at the date of grant, and nonqualified options were granted at not less than 50% of the stock’s fair market value at the date of grant or the date the exercise price of any such option is modified.  Vesting provisions were determined by the Board of Directors.  All stock options expire 10 years from the date of grant.

The following table summarizes information about stock options outstanding as of September 30, 2009:

Options Outstanding			Options Exercisable
Range of Exercise Prices	Number of Options	Remaining Contractual Life	Weighted Average Exercise Price	Number of Options	Exercise Price
$3.50-12.75	190,000	4-5  years	$ 10.75	190,000	$3.50-12.75

In August 2008, the Company established a Stock Option and Award Plan (the “2008 Plan”) and has reserved 10,000,000 shares of common stock for issuance under the 2008 Plan.  Under the 2008 Plan, incentive stock options are granted at prices not less than 100% of the fair market value of the stock at the date of grant, and nonqualified options are granted at prices determined by the Board of Directors.  Vesting provisions are determined by the Board of Directors.  There have been no grants made under the 2008 Plan as of September 30, 2009.

Warrants

At September 30, 2009, there were no warrants to purchase common stock outstanding.

7.  SUBSEQUENT EVENTS:

In March 2009, NewMarket Technology, the holder of the Company’s Series A Preferred, announced their intention to exchange their shares of Series A Preferred for two new classes of preferred stock.  The proposed Series C Preferred Shares will be a non-convertible preferred stock which will represent a controlling interest in the Company.  The proposed Series D Preferred Shares will be designated for conversion into common stock to be used as a stock dividend distribution to NewMarket Technology, Inc. shareholders. This share exchange will be completed in the fourth quarter of 2009.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Safe Harbor for Forward-Looking Statements

The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this report.

Information contained herein contains forward-looking statements,  You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control.  Forward-looking statements include information concerning our possible and assumed future results of operations, including descriptions of our business strategy.  The statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or other similar expressions.  These statements are based on assumptions that we have made in light of our experience and well as perceptions of historical trends, current conditions, expected future developments, and other factors we believe are appropriate under the circumstances.  Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financials results or results of operations and could cause actual results to differ materially from those on the forward-looking statements.  These factors include, but are not limited to, competition from existing and future competitors, failure to maintain and develop business, failure to increase or maintain the number of customers we have, downturns in the economies and/or industries that we serve, and the failure to attract or keep qualified professionals we employ.  These factors and others discussed in detail in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You should keep in mind that any forward-looking statements made by us herein, or elsewhere, speaks only as of the date on which we made it.  New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us.  We have no obligation to update any forward-looking statements after the date hereof, except as required by federal securities laws.

Links to all of our filings, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, information statements and other material information concerning us are available on the Investor Relations page of our website at www.ChinaCrescent.com ..

Critical accounting policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Our management evaluates these estimates on an on-going basis including those related to the collection of accounts receivable, inventory, sales returns, and non-monetary transactions such as stock-based compensation, impairment of intangible assets and derivative liabilities. Actual results may differ from these estimates. A discussion of critical accounting policies and the related judgments and estimates affecting the preparation of the consolidated financial statements is included in our Annual Report on our Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission.  There have been no material changes to these critical accounting policies as of September 30, 2009.

Results of Operations

On March 16, 2005, we filed a voluntary petition for relief in the United States Bankruptcy Court, District of Colorado under Chapter 11 of Title 11 of the U.S. Bankruptcy Code.  On April 5, 2006, the United States Bankruptcy Court, District of Colorado dismissed the Chapter 11 proceedings.

On October 20, 2003, we acquired a controlling 60% equity interest in Brunetti for a $700,000 cash contribution to Brunetti. On January 30, 2004, we acquired the remaining 40% equity interest in Brunetti for a $300,000 cash contribution to Brunetti. In October 2004, the operations of Brunetti were ceased and on March 1, 2005, Brunetti filed a voluntary petition for relief in the United States Bankruptcy Court, District of Colorado under Chapter 7 of Title 7 of the U.S. Bankruptcy Code.  At such time, we began to account for the operations of Brunetti as discontinued operations.

In October 2006, we executed an Agreement and Plan of Reorganization (“the Agreement”) with NewMarket China, Inc. (“NewMarket China” or “the Company”), a wholly-owned subsidiary of NewMarket Technology, Inc. (“NewMarket Technology”).  The Agreement, provided for Intercell to acquire from NewMarket Technology its subsidiary, NewMarket China through the exchange of  all of the issued and outstanding stock of NewMarket China, one thousand (1,000) shares held by NewMarket Technology for  two million (2,000,000) restricted common shares of Intercell. As a result of the Agreement, NewMarket China became a wholly-owned subsidiary of Intercell.

 In June 2008, we changed the Company name to China Crescent Enterprises, Inc.  In July 2008, Paul K. Danner was appointed President and Chief Executive Officer of the Company.

On April 1, 2009, we issued 750 shares of Series B Convertible Preferred Stock, $.001 par value, $1,000 per share stated value, in conjunction with the previously announced acquisition by ClpTec of an additional 25% interest in Clipper-Huali from Huali, bringing our total ownership in Clipper-Huali to 76% and reducing Huali’s ownership interest to 24%.

Three months ended September 30, 2009 compared to three months ended September 30, 2008:

Net sales increased 20% from $11,144,564 for the quarter ended September 30, 2008 to $13,344,273 for the quarter ended September 30, 2009.  A 13% decrease in sales of products through our Clipper-Huali subsidiary in the Ningbo region was offset by revenue generated through a new outsourcing services agreement executed last quarter in Shanghai.   Cost of sales also increased 15% from $10,511,971 for the quarter ended September 30, 2008 to $12,072,141 for the quarter ended September 30, 2009. This increase was due to of the corresponding increase in sales volume.   Cost of sales, as a percentage of revenue was approximately 90% and 94% for the three months ended September 30, 2009 and 2008, respectively. Our management will continue to pursue strategies to reduce the overall cost of sales as a percentage of sales as the company grows. Management will try to leverage the increased purchasing volume to improve purchasing contracts and reduce overall cost of sales.

General and administrative expenses during the three months ended September 30, 2009 were $285,020 compared to $267,216 for the three months ended September 30, 2008, an increase of 7%.  The increase is primarily attributable to increased headcount in the Shanghai region to accommodate the new outsourcing arrangement with Beijing Chuangzhitongda. General and administrative expenses as a percentage of revenue were 2% and 2% for the three months ended September 30, 2009 and 2008, respectively.

During the three months ended September 30, 2009, the Company recognized net income of $743,882 after accounting for the noncontrolling interest in our Clipper-Huali consolidated subsidiary, compared to net income of $154,879 during the three months ended September 30, 2008, a 380% increase.  The increase in net income is attributable to an increase in gross margin for the quarter and the purchase of an additional 25% interest in the Clipper-Huali subsidiary from our minority interest holder.  Comprehensive income for the three months ended September 30, 2009 was $891,956 compared to $194,864 for three months ended September 30, 2008.  Comprehensive income or loss includes gains or losses in foreign currency translation adjustments and unrealized gains or losses on investment securities held.

Nine months ended September 30, 2009 compared to nine months ended September 30, 2008:

Net sales decreased slightly from $30,335,303 for the nine months ended September 30, 2008 to $30,330,147 for the nine months ended September 30, 2009. A decrease in sales of products through our Clipper-Huali subsidiary in the Ningbo region was offset by revenue generated through the afore-mentioned outsourcing services agreement executed last quarter in Shanghai.   Cost of sales decreased 5% from $28,465,539 for the nine months ended September 30, 2008 to $27,005,003 for the nine months ended September 30, 2009. This decrease was primarily due to the effect of higher gross margin revenue from the Outsourcing Services Agreement.   Cost of sales, as a percentage of revenue was approximately 89% and 94% for the nine months ended September 30, 2009 and 2008, respectively. Management will continue to pursue strategies to reduce the overall cost of sales as a percentage of sales as the company grows. Management will try to leverage the increased purchasing volume to improve purchasing contracts and reduce overall cost of sales.

General and administrative expenses during the nine months ended September 30, 2009 were $814,344 compared to $816,219 for the nine months ended September 30, 2008, a decrease of .2%.  The decrease is primarily attributable to decreased headcount in the Ningbo region, which was offset by a small increase in headcount in Shanghai during the third quarter. General and administrative expenses as a percentage of revenue were 3% and 3% for the nine months ended September 30, 2009 and 2008, respectively.

During the nine months ended September 30, 2009, the Company recognized net income of $1,878,954 after accounting for the noncontrolling interest in a consolidated subsidiary, compared to net income of $516,999 during the nine months ended September 30, 2008, a 263% increase.  The increase in net income is attributable to an increase in gross margin during the third quarter and the purchase of an additional 25% interest in the Clipper-Huali subsidiary from our minority interest holder in the second quarter of 2009. Comprehensive income for the nine months ended September 30, 2009 was $1,563,408 compared to $913,669 for nine months ended September 30, 2008.  Comprehensive income or loss includes gains or losses in foreign currency translation adjustments and unrealized gains or losses on investment securities held.

Liquidity and Capital Resources

Our cash balance at September 30, 2009 decreased $253,480, from $2,600,498 as of December 31, 2008, to $2,347,018. The decrease was the result of cash used in operating activities of $1,505,079, offset by cash provided by investing activities of $10,226, cash provided by financing activities of $575,586  and the effect of exchange rates on cash of $665,897. Operating activities for the nine months ended September 30, 2009 exclusive of changes in operating assets and liabilities provided $2,516,633, as well as an increase in accrued expenses  and other payables of $271,184, offset by an increase in accounts receivable and inventory of $3,068,099, an increase in supplier advances of $981,122, and a decrease in accounts payable of $243,675.

To the extent our operations are not sufficient to fund our capital requirements, we may enter into a revolving loan agreement with a financial institution, attempt to raise additional capital through the sale of additional common or preferred stock or through the issuance of additional debt.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in foreign currency exchange rates, including fluctuations in the functional currency of foreign operations.  The functional currency of operations outside the United States is the respective local currency.  Foreign currency translation effects are included in accumulated comprehensive income in shareholder’s equity.   We do not utilize derivative financial instruments to manage foreign currency fluctuation risk.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 30, 2009, we conducted an evaluation, under the supervision and participation of management, including our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) to evaluate the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, as required by Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).  Based on that evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective at the reasonable assurance level to timely alert management of information required to be disclosed by the Company in reports filed under the Exchange Act.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Controls over Financial Reporting

There were no changes in internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to affect, internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

In the normal course of business, we become involved in various legal proceedings.  Although the final outcome of such proceedings cannot be predicted, we are not currently aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or results of operations.

Item 1A.  Risk Factors

As of September 30, 2009, there have been no material changes to the risk factors disclosed in Part I, Item 1 to our  annual report on Form 10-K for the year ended December 31, 2008.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Set forth below is information regarding the issuance and sale of our securities without registration during the three month period ended September 30, 2009:

·   In July 2009, the Company issued 18,192,312 shares of common stock pursuant to an agreement to exchange $363,847 in short-term debt for equity.

·   In August 2009, the Company issued 25,716,333 shares of common stock pursuant to an agreement to exchange $592,000 in short-term debt for equity.

·   In September 2009, the Company issued 17,699,222 shares of common stock pursuant to an agreement to exchange $442,481 in short-term debt for equity.

Each of the above issuances was deemed to be exempt under rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of our company or executive officers of our company, and transfer was restricted by our company in accordance with the requirements of the Securities Act of 1933. In addition to representations by the above-referenced persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, all of the above-referenced persons were provided with access to our Securities and Exchange Commission filings.

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Submission of Matters to a Vote of Security Holders

None

Item 5.  Other Information

None

Item 6.  Exhibits

(a)	Exhibits.  The following is a complete list of exhibits filed as part of this Form 10-Q:
	Exhibit 31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 32.1	Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as enacted by Section 906 of the Sarbanes-Oxley Act of 2002
(b)	Reports on Form 8-K.   During the three-month period ended September 30, 2009, we filed the following Current Reports on Form 8-K:

Current Report on Form 8-K filed on August 19, 2009 which included disclosure under Item 4.01  related to the acceptance by the Audit Committee of the Board of Directors of the Company of the resignation of the Pollard-Kelley Auditing Services, Inc., the Company’s independent auditors and the appointment effective August 3, 2009, of Hamilton, PC as the Company’s new independent registered auditor.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		CHINA CRESCENT ENTERPRISES, INC.
		(Registrant)
Date:	November 19, 2009	/s/ Paul K. Danner
		Paul K. Danner,
		Chief Executive Officer
		/s/  Philip J. Rauch
		Philip J. Rauch,
		Chief Financial Officer