China New Energy Announces First Quarter FY 2010 Results
TIANJIN, China, May 25 /PRNewswire-Asia-FirstCall/ -- China New Energy Group Company (OTC Bulletin Board: CNER) ("China New Energy" or the "Company"), a natural gas network developer and distributor of natural gas to residential, industrial, and commercial users in small- and medium-sized cities in China, today announced its first quarter financial results ended March 31, 2010.
First Quarter 2010 Highlights
-- Revenue reached $1.7 million, up from $0.1 million for the same period
last year
-- Gross profit increased to $1.3 million from $76,010 for the same period
last year
-- Gross margin increased to 73.1% from 47.7%
-- Operating loss improved to $128,899 from a loss of $0.7 million for the
same period last year
-- Net loss from continuing operations was $18,311, or approximately $0.00
per diluted share, compared to a net loss from continuing operations of
$12.4 million, or ($0.13) per diluted share, for the first quarter 2009
-- Adjusted net loss from continuing operations, which excludes the
non-cash impact of the change in fair value of derivative financial
instruments, was $0.4 million, compared with an adjusted net loss of
$0.7 million, for the first quarter of 2009 (*)
-- Entered into an Equity Transfer Agreement to acquire a 70% equity
interest in Beijing Century Dadi Gas Co., Ltd. and its affiliated
companies (collectively, "Dadi Gas")
"We continue to increase the number of households connected to our natural gas network," said Mr. Yangkan Chong, Chief Executive Officer. "The increase in connected households is the main contributor to the large year-over-year rise in revenue and gross profit. Our dramatic revenue growth helped improve our operating loss compared to the first quarter of 2009; however, we continued to operate at a loss for the quarter as we have made a strategic decision to invest the resources today that we believe will lead to improved results in future quarters. As reflected in the increase in our general and administrative expenses, we have added more resources in areas like business development, outside consultants, and have hired additional staff to help strengthen our internal controls as we are planning to grow the size of our company both organically and via the acquisitions we recently announced."
First Quarter 2010 Results
For the first quarter ended March 31, 2010, revenues were $1.7 million, an increase of 975% from $0.2 million in the same quarter last year. The increase was primarily due to an increase in the number households connected to the Company's natural gas network. The number of connected households increased 954.3% to 4,407 from 418 for the same period in 2009. Revenues from connection fees were $1.7 million, an increase of 1,052.5% from $146,752 last year. Revenues from natural gas sales were $18,450, an increase of 46.0% from $12,633 for the first quarter of last year.
Cost of sales was $460,438, an increase of 452.2% from $83,375 for the same period of 2009. The increase was primarily due to a corresponding increase in the number of households connected to the Company's distribution network as cost of sales consists primarily of connection costs and purchase of natural gas from the Company's suppliers. Gross profit was $1.3 million, an increase of 1,543.7% from the first quarter of 2009. Gross margin was 73.1%, compared to 47.7% in the same period last year. The increase in gross margin was primarily due to the increase in the number of connected households.
Operating expenses were $1.4 million, an increase of 77.8% from $0.8 million for the first quarter of last year. This increase was primarily due to the fact that the Company is preparing to expand. The Company is adding more resources in areas like business development, outside consultants, and the hiring of additional staff to help strengthen the Company's internal controls. Operating loss was $128,899, compared to an operating loss of $0.7 million for the same period last year.
The Company's first quarter 2010 and first quarter 2009 financial statements include a non-cash impact from the change in fair value of derivative financial instruments of $0.4 million and ($11.7 million), respectively.
Net loss from continuing operations was $18,311, or $0.00 per diluted share, compared to a net loss from continuing operations of $12.4 million, or ($0.13) per diluted share, last year. Excluding the non-cash impact from the change in fair value of derivative financial instruments, the Company's adjusted net loss from continuing operations was $0.4 million, compared to an adjusted net loss from continuing operations of $0.7 million for the first quarter of last year. (*)
In March 2010, the Company sold its subsidiary, Yingkou Zhongneng Gas Development Co., Ltd., for RMB 21.9 million (approximately $3.2 million). In December 2009, the Company sold its Acheng Division for RMB 40 million (approximately $6 million). The results of Yingkou Zhongneng and Acheng Division are classified as discontinued operations on the Company's financial statements.
Net loss attributable to common shareholders was $320,841, or $0.00 per diluted share, compared to a net loss attributable to common shareholders of $12.6 million, or ($0.13) per diluted share, last year. Adjusted net loss attributable to common shareholders, which excludes the non-cash impact of the change in fair value of derivative financial instruments, was $0.7 million, compared to an adjusted net loss of $0.9 million for the first quarter of last year (*)
(*) See table following this press release for a reconciliation of income from continuing operations to exclude the non-cash impact from the change in fair value of derivative financial instruments and for a reconciliation of net income attributable to common shareholders to exclude the non-cash impact from the change in fair value of derivative financial instruments.
Financial Condition
As of March 31, 2010, the Company had cash and cash equivalents of $0.5 million. The Company has no long-term debt. Shareholders' equity was $15.0 million as of March 31, 2010. Capital expenditures for the first quarter of 2010 were approximately $2.3 million, which was primarily for the construction of gas pipelines and stations.
Recent Developments
-- In March 2010, the Company entered into an agreement to acquire a 70%
equity interest in Beijing Century Dadi Gas Co., Ltd. and its
affiliated companies (collectively, "Dadi Gas"). Dadi Gas is primarily
engaged in the business of the supply of natural gas and construction
and development of a gas pipeline network in Northern China. The total
purchase price has not yet been determined, but will be based on a
multiple of Dadi Gas's net profits for the fiscal year ended December
31, 2009, and has been capped at RMB 392.2 million (approximately $57.5
million).
-- In January 2010, the Company entered into an agreement to acquire
Fuzhou Flying Dragon Zhongran Gas Inc. ("Fuzhou Zhongran") for RMB 26
million (approximately $3.8 million). Fuzhou Zhongran has the exclusive
operating license from the Dongxiang County government in Jiangxi
Province for the construction and development of a natural gas pipeline
network for 30 years.
-- In December 2009, the Company entered into an agreement to acquire
Fuzhou City Lean Zhongran Gas Inc. ("Lean Zhongran") for RMB 4.8
million (approximately $0.7 million). The purchase price is based on an
appraised value of Lean Zhongran as of September 30, 2009, and will be
adjusted to reflect the appraised value of the assets as of the closing
date.
Business Outlook
China New Energy primarily operates in the northeastern cities of China, around Bohai Bay, which is one of the seven key areas in the PRC government's general plan for natural gas development. The Company plans to continue to capitalize on the rise in natural gas consumption in China as the country shifts away from oil and coal to cleaner fuels like natural gas, and as the natural gas pipeline infrastructure in China continues to improve. Improved living standards and real estate development are driving demand for natural gas consumption in China and local governments now often require new residential buildings to incorporate natural gas connections in their designs.
The Company's growth strategy is to focus on under-penetrated, growing small- and medium-sized cities and enter into favorable franchise agreements with local governments for long-term exclusive rights to develop the local natural gas distribution network and supply natural gas in their area. China New Energy looks at the following criteria when identifying attractive areas for geographic expansion: size and density of population, concentration of industrial/commercial activities, environmental policies of the regional government, potential for further development, exclusivity of distribution, and required methods of delivery. The Company is also focused on diversifying its revenue stream towards a greater focus on industrial customers and natural gas sales. The Company's recently completed and announced acquisitions are in line with these selection criteria.
Mr. Chong concluded, "We have announced three acquisitions -- Dadi Gas, Fuzhou Zhongran, and Lean Zhongran -- that we expect to close later this year. We expect these acquisitions, combined with the continued growth in the existing markets we serve, to help further drive our ability to capitalize on the growing market for natural gas in China. We are excited about our business going forward and look forward to executing on our strategy through the balance of 2010 and beyond."
Use of Non-GAAP Financial Information
GAAP results for quarters ended March 31, 2010 and 2009 include the significant non-cash charges which do not relate to the operation of the business including non-cash expenses related to the change in fair value of derivative financial instruments. These are non-cash events which do not affect the Company's operations. To supplement the Company's consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release, which are adjusted net income from continuing operations, adjusted diluted earnings per share from continuing operations, adjusted net income attributable to common shareholders and adjusted earnings per share attributable to common shareholders. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company's historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies. Management believes that these adjusted financial measures are useful to investors because they exclude non-cash expenses that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions as these measures provide a consistent method of comparison to historical periods. As a result, the provision of these adjusted measures allows investors to evaluate the Company's performance using the same methodology and information as that used by the Company's management. Moreover, management believes that these adjusted measures reflect the essential operating activities of the Company. Adjusted measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the adjusted financial measure. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded. A reconciliation of each adjusted measure to the nearest GAAP measure appears in the table at the end of this release.
About China New Energy Group Company
China New Energy Group Company ("China New Energy" or the "Company") is a vertically integrated natural gas company engaged in the development of natural gas distribution networks, and the distribution of natural gas to residential, industrial, and commercial users in small and medium sized cities in China. The Company generates revenues primarily from the connection fees it charges its customers for interconnecting to pipelines in its natural gas distribution networks, and fees for natural gas usage. For more information, please visit http://www.cnegc.com .
Safe Harbor Statement
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors include, but are not limited to, the Company's ability to access natural gas for distribution, and ability to identify and develop operational locations under favorable terms, changes in natural gas pricing mechanism imposed by the Chinese government, changes in the regulatory environment and future national or regional economic and competitive conditions, and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
-FINANCIAL TABLES FOLLOW-
China New Energy Group Company
Consolidated Statement of Operations and Comprehensive Income (Loss)
For the three months ended
March 31,
2010 2009
Revenues:
Connection services $1,691,362 $146,752
Natural gas 18,450 12,633
1,709,811 159,385
Cost of Sales:
Connection services 431,576 60,094
Natural gas 28,862 23,281
460,438 83,375
Gross Profit 1,249,374 76,010
Operating Expenses:
General and administrative expenses 1,308,607 287,152
Selling expenses 69,667 38,061
Registration right liabilities 0 450,000
Total operating expenses 1,378,273 775,213
Operating Income (128,899) (699,203)
Other Income (Expenses):
Change in fair value of derivative
financial instruments - warrants 399,716 (11,712,514)
Gain on acquisition 0 0
Interest income 2,439 2,212
Interest expense (2,173) (612)
Other income 529 93
Total other income (expenses) 400,511 (11,710,821)
Income From Continuing
Operations, Before Income Tax 271,612 (12,410,024)
Income Tax 289,923 997
Income From Continuing
Operations, net of Income Tax (18,311) (12,411,021)
Discontinued Operations:
Income from discontinued
operations, net of income tax (85,630) (80,522)
Gain on disposal of discontinued
operations 0 0
0 0
Income (loss) from Discontinued
Operations, net of Income Tax (85,630) (80,522)
Net Income (Loss) (103,941) (12,491,543)
Net (Income) Loss Attributable to
Non-controlling Interest (1,725) 20,955
Net Income (Loss) Attributable to
China New Energy Group (105,666) (12,470,588)
Dividend on Preferred Stock (215,175) (135,000)
Net Income (Loss) Attributable to
Common Stockholders (320,841) (12,605,588)
Other Comprehensive Income
Net Income (Loss) (103,941) (12,491,543)
Foreign currency translation gain
(loss) (5,183) (10,679)
Comprehensive Loss Attributable
to Non-controlling interest 0 5,026
Comprehensive income $(109,124) $(12,497,196)
Income (Loss) per share - Basic
Income (loss) from continuing
operations $(0.00) $(0.13)
Income (loss) from discontinued
operations $(0.00) $(0.00)
Total income (loss) per share $(0.00) $(0.13)
Income per share - Diluted
Income (loss) from continuing
operations $(0.00) $(0.13)
Income (loss) from discontinued
operations $(0.00) $(0.00)
Total income (loss) per share $(0.00) $(0.13)
Weighted average common shares
outstanding
Basic 101,788,199 100,000,041
Diluted 227,007,131 176,709,543
China New Energy Group Company
Consolidated Balance Sheets
March 31, December 31,
2010 2009
ASSETS
CURRENT ASSETS
Cash and cash equivalents $514,127 $2,672,884
Restricted cash 180,352 180,352
Accounts receivable, net of allowance
for doubtful accounts of $117,274 5,679,253 4,619,232
Receivable from sale of subsidiary 3,437,633 5,119,055
Inventories, net 296,918 271,104
Disposal receivable 0 0
Prepaid expenses 228,209 179,011
Deemed receivable from former
shareholders of subsidiaries acquired
for settlement of certain liabilities 1,984,101 1,983,782
Other current assets 0 0
Net current assets of discontinued
operations 0 0
Current assets held for sales 1,402,501 1,768,278
NET CURRENT ASSETS 13,723,094 16,793,698
Property, plant and equipment, net 9,546,014 8,000,069
Other receivables 1,933,489 2,091,092
Deposits for acquisition 1,222,946 197,696
Intangible assets, net 1,181,467 1,186,272
Deposits paid for acquisition of
long-term assets 2,642,480 1,972,162
Goodwill 224,524 224,488
Non-current assets held for sales 9,922,116 9,760,345
TOTAL ASSETS $40,396,130 $40,225,822
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable $985,927 $614,642
Accruals and other payable 384,561 187,904
Acquisition consideration payable 1,652,052 1,651,888
Tax payable 1,544,065 1,323,815
Registration rights penalties payable 2,160,000 2,160,000
Related party payables
97,909 97,893
Dividends payable on preferred stock 724,555 509,381
Derivative financial instruments -
warrants 6,368,390 6,768,106
Liabilities to be settled by former
shareholders of subsidiaries acquired 1,984,101 1,983,782
Current liabilities held for sales 428,924 548,832
TOTAL CURRENT LIABILITIES 16,330,484 15,846,243
Commitments and contingencies
Preferred Stock: 10,000,000 shares
authorized, $0.001 par value
Series A Convertible Preferred
Stock: 2,098,918 and 1,857,373
shares issued and outstanding,
liquidation preference of
$10,137,774 and $8,971,112,
respectively 7,031,818 7,031,818
Series B Convertible Preferred
Stock: 1,116,388 and 0 shares
issued and outstanding, liquidation
preference of $5,399,969 and $0 2,153,307 2,153,307
CHINA NEW ENERGY'S STOCKHOLDERS' EQUITY
Common Stock: 500,000,000 shares
authorized, $0.001 par value,
101,788,199 and 100,000,041 shares
issued and outstanding,
respectively 101,788 101,788
Additional paid in capital 10,152,971 10,152,971
Retained earnings (Accumulated
deficit) 1,102,682 1,423,523
Statutory surplus reserve fund 1,746,890 1,746,890
Accumulated other comprehensive
income 1,606,124 1,600,941
TOTAL CHINA NEW ENERGY'S
STOCKHOLDERS' EQUITY 14,710,455 15,026,113
Non-controlling interest
170,066 168,341
TOTAL STOCKHOLDERS' EQUITY 14,880,521 15,194,454
TOTAL LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY $40,396,130 $40,225,822
China New Energy Group Company
Consolidated Statements of Cash Flows
For The Three Months Ended
March 31,
2010 2009
Cash flows from operating activities:
Net income (loss) (103,941) (12,411,020)
Net loss (income) from discontinued
operations (85,630) 80,522
Net income (loss) from continuing
operations $(18,311) $(12,491,542)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Change in fair value of derivative
financial instruments - warrants (399,716) 11,712,514
Allowance of bad debts 117,275 0
Gain on acquisition of Wuyuan 0 0
Registration rights penalties 0 450,000
Depreciation and amortization 79,125 45,182
Changes in operating assets and
liabilities: (1,176,564) 0
Accounts receivable 0 216,934
Other receivables 157,942 (7,786)
Inventories (25,771) (3,343)
Prepaid expenses (49,177) (57,077)
Other current assets 0 0
Accounts payable 371,191 86,657
Accruals and other payables 196,637 (6,064)
Tax payable 220,039 223,330
Cash provided by (used in) operating
activities - continuing operations (527,330) 168,805
Cash provided by (used in) operating
activities - discontinued operations 179,453 (541,533)
Net cash provided by (used in) operating
activities (347,877) (372,728)
Cash flows from investing activities
Proceeds from discontinued operations 0 0
Deposit paid and acquisition of
property, plant and equipment (2,288,812) (169,089)
Deposits for acquisitions (1,025,250) 0
Payment made to acquire subsidiary -
Chensheng 0 (1,838,946)
Payment made to acquire subsidiary -
Wuyuan 0 0
Payment made to acquire subsidiary -
Zhanhua Jiutai 0 0
Disposal receivable 1,682,263 0
Increase in short-term loan 0 0
Net cash received from exchange of
subsidiary 0 0
Cash out from disposal of subsidiary 0 0
Distribution from discontinued operation 0 0
Cash used in investing
activities-continuing operations (1,631,799) (2,008,035)
Cash used in investing
activities-discontinued operations (179,217) (32,050)
Net cash used in investing activities (1,811,016) (2,040,085)
Cash flows from financing activities
Repayment of cash advanced from director 0 0
Net proceeds from stock issuance 0 0
Payment of offering costs associated
with preferred stock 0 0
Contribution from former non-controlling
interest 0 0
Loan from related parties 0 0
Change from restricted cash 0 415
Cash used in financing
activities-continuing operations 0 415
Cash used in financing
activities-discontinued operations 0 438,852
Net cash flows provided by financing
activities 0 439,267
Effect of exchange rate changes in cash
and cash equivalents 134 (4,779)
Net increase (decrease) in cash and cash
equivalents (2,158,760) (1,978,325)
Cash and cash equivalents - beginning of
year 2,672,884 5,612,356
Cash and cash equivalents - end of year $514,124 $3,634,031
Supplemental disclosure of cash flow
information:
Cash paid for interest 0 0
Cash paid for income tax 1,302,664 371,384
Supplemental disclosure of non-cash
investing and financing activities:
Preferred stock dividends payable $215,175 $135,000
Preferred stock dividends paid in common
stock 456,953 0
Registration rights payable 2,160,000 900,000
Acquisition consideration payable
related to the acquisition of Chensheng 0 0
Acquisition consideration payable
related to the acquisition of Wuyuan 636,850 0
Acquisition consideration payable
related to the acquisition of Zhanhua
Jiutai 1,015,038 0
Receivable for disposal of discontinued
operations $5,119,055 $0
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Three Months Ended March 31,
Adjusted Net Income (Loss) and Diluted EPS
From Continuing Operations 2010 2009
GAAP Net Income (Loss) from
Continuing Operations ($18,311) ($12,411,021)
Change in fair value of derivative
financial instruments - warrants $399,716 ($11,712,514)
Adjusted Amount Net Income from
Continuing Operations ($418,027) ($698,507)
Weighted average number of shares
- Diluted 227,007,131 176,709,543
Adjusted Diluted EPS from Continuing
Operations ($0.00) ($0.01)
Three Months Ended March 31,
Adjusted Net Income (Loss) and Diluted EPS
Attributable to Common Shareholders 2010 2009
GAAP Net Income (Loss) and Attributable
to Common Shareholders ($320,841) ($12,605,588)
Change in fair value of derivative
financial instruments - warrants $399,716 ($11,712,514)
Adjusted Amount ($720,557) ($893,074)
Weighted average number of shares
- Diluted 227,007,131 176,709,543
Adjusted Diluted EPS Attributable to
Common Shareholders ($0.00) ($0.01)
For more information, please contact:
Company Contact:
Eric Yu, Chief Financial Officer
Email: [email protected]
Web: http://www.cnegc.com
Investor Relations Contact:
CCG Investor Relations
Mr. Athan Dounis, Account Manager
Phone: +1-646-213-1916
Email: [email protected]
Mr. Crocker Coulson, President
Phone: +1-646-213-1915
Email: [email protected]
Web: http://www.ccgirasia.com
SOURCE China New Energy Group Company
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