Sino Clean Energy, Inc. Announces Record Second Quarter 2010 Revenue of $24.1 million and Adjusted EPS of $0.32
XI'AN, China, Aug. 12 /PRNewswire-Asia-FirstCall/ -- Sino Clean Energy Inc. (Nasdaq: SCEI) ("Sino Clean Energy," or the "Company"), a leading producer and distributor of coal-water slurry fuel ("CWSF") in the People's Republic of China ("China"), today announced the Company's unaudited financial results for the second quarter of 2010.
-- Q2 2010 revenues increased 190.4% to $24.1 million; adjusted net income
increased 321% to $6.1 million, with adjusted EPS of $0.32
-- Six months 2010 revenue increased 202.4% to $48.7 million; adjusted net
income increased 233% to $11 million, with adjusted EPS of $0.64
-- Q2 2010 gross margins increased 540 bps year-over-year to 38.8%
-- Company generated $10.2 million operating cash flow for the first six
months of 2010
-- Management to host Earnings Conference Call on August 13, 2010 at
10:00 am ET
SUMMARY FINANCIALS
Second Quarter 2010 Results
Q2 2010 Q2 2009 CHANGE
Sales $24.1 million $8.3 million + 190.4%
Gross Profit $ 9.4 million $2.8 million + 237.1%
Adjusted Net Income $ 6.1 million(1) $1.45 million(2) + 321.0%
GAAP Net Income $ 8.9 million $0.5 million +1550.1%
Adjusted EPS $ 0.32 $0.15 + 113.3%
GAAP EPS (Diluted) $ 0.47 $0.05 + 840.0%
(1) Excludes non-cash gain of $2.9 million for the changes in fair value
of warrants.
(2) Excludes non-cash gain of $1.0 million related to extinguishment of
derivative liability, non-cash charges of $1.8 million for the changes
in fair value of warrants, and $0.1 million related to the shares of
common stock placed in escrow in connection with the Company's
September 2008 financing.
Six Months 2010 Results
2010 2009 CHANGE
Sales $48.7 million $16.1 million + 202.4%
Gross Profit $19.5 million $ 5.2 million + 273.9%
Adjusted Net Income $11.0 million(1) $ 3.3 million(2) + 233.3%
GAAP Net Income $29.4 million $ 2.1 million +1295.2%
Adjusted EPS $ 0.64 $ 0.34 + 88.2%
GAAP EPS (Diluted) $ 1.71 $ 0.21 + 714.3%
(1) Excludes non-cash gain of $28.4 million related to extinguishment of
derivative liability, non-cash charges of $1.4 million for the changes
in fair value of warrants, and $8.6 million for amortization of notes
discount.
(2) Excludes non-cash gain of $1.0 million related to extinguishment of
derivative liability, non-cash charges of $1.2 million for the changes
in fair value of warrants, $0.75 million for amortization of notes
discount, and $0.2 million related to the shares of common stock
placed in escrow in connection with the Company's September 2008
financing.
Second Quarter 2010 Financial Results
Revenue -- Revenue for the second quarter ended June 30, 2010 increased 190.4% to $24.1 million from $8.3 million in the second quarter of 2009, and was driven by increased production capacity from the addition of two new production lines in 2009. The Company's annual production capacity at June 30, 2010 was 850,000 metric tons, reflecting the contribution of the new CWSF production plant in Shengyang with annual output capacity of 300,000 tons, and the 200,000 ton production line added in Tongchuan, Shaanxi province. As of June 30, 2010, Sino Clean Energy had 43 customers under CWSF supply agreements totaling approximately 600,000 metric tons per year, compared to 27 customers totaling approximately 400,000 metric tons of CWSF per year at June 30, 2009.
"We are pleased with our strong growth and operating results for the second quarter of 2010, and expect robust growth to continue during the balance of 2010 due to our increased production capacity, growing demand for coal water slurry fuel in China, and improved market pricing," stated Baowen Ren, Chairman of Sino Clean Energy. "The CWSF market has continued to expand due to growing customer demand for clean and efficient sources of energy and the government's mandate for reduced emissions through improved utilization of coal. CWSF increases burning efficiency and reduces air pollution, coal consumption and coal material costs for end users while generating attractive gross profit margins for energy producers. As a result, we believe we are well-positioned to further drive incremental revenue and earnings growth and will continue to build upon being a leading producer of CWSF in China."
Cost of Goods Sold -- Cost of goods sold was $14.8 million for the second quarter of 2010, compared to $5.5 million for the second quarter of 2009, an increase of 167.0%.
Gross Profit and Gross Profit Margin -- Gross profit increased 237.1% to $9.4 million in the second quarter of 2010, from $2.8 million in the second quarter of 2009, as gross profit margin improved by 540 basis points, driven by better pricing for CWSF in Shenyang. As a result of the new production line added in 2009, depreciation of plant and machinery for the second quarter of 2010 was $0.53 million, as compared to $0.35 million in the second quarter of 2009.
Operating Expenses -- Operating expenses for the second quarter of 2010 were approximately $1.8 million, up 305.4% from $0.4 million for the second quarter of 2009. Selling expenses totaled $1.1 million for the second quarter of 2010, as compared to $2,261 for the second quarter of 2009. The increase was mainly due to transportation cost, which totaled $1.1 million, due to the growth of the Company's business in 2010. General and administrative expenses totaled $0.6 million for the second quarter of 2010, as compared to $0.4 million for the second quarter of 2009, an increase of 44.8% due primarily to the expansion of the Company's operations and the increased expenses related to being a public company.
Income from Operations -- Income from operations in the second quarter of 2010 increased 224.5% to $7.6 million, from $2.3 million in the same period in 2009, with operating margins of 31.5% compared to 28.2% in the respective periods.
Net Income -- For the second quarter of 2010, the Company reported GAAP net income of $8.9 million compared to net income of $0.5 million for the second quarter of 2009, with a corresponding net income per share of $0.47 compared to net income per share of $0.05 based on 19.2 million and 9.9 million diluted shares, respectively. Excluding non-cash items, adjusted net income for the second quarter of 2010 and 2009 was $6.1 million and $1.45 million, respectively, with corresponding adjusted net income per share of $0.32 and $0.15 based on 19.2 million and 9.9 million diluted shares, respectively. (See "Reconciliation of GAAP Net Income to Adjusted Net Income" table below.)
2010 Six Months Financial Results
For the first six months of 2010 sales increased 202.4% to $48.7 million from $16.1 million in the same period of the prior year. Cost of sales increased 168.1% to $29.2 million yielding gross profit of $19.5 million, an increase of 274.0% from $5.2 million reported in the prior year period. Gross margins were 40.0% compared to 32.4% during the first six months of 2010 and 2009, respectively. Selling, general, and administrative expenses increased 243.7% to $3.3 million during the first six months of 2010 from $1.0 million during the prior year period. Income from operations increased 281.0% to $16.1 million from $4.2 million with operating margins of 33.1% compared to 26.2% in the prior year period. GAAP net income for the first six months of 2010 was $29.4 million, an increase of 1295.2% from $2.1 million with corresponding diluted earnings per share of $1.71 compared to $0.21 based on 17.2 million and 9.8 million shares, respectively. Adjusting for non-cash charges during each respective period, net income was $11.0 million and $3.3 million, yielding $0.64 and $0.34 in diluted earnings per share.
Liquidity and Capital Resources
Cash and cash equivalents were $25.6 million at June 30, 2010 compared to $18.3 million at December 31, 2009. For the first six months of 2010, the Company generated $10.2 million in net cash flow from operations, compared to $5.8 million in the first six months of 2009. The Company had working capital of $16.1 million at June 30, 2010 and a current ratio of 1.6-to-1. Inventories were $0.8 million and the accounts receivable balance was $9.9 million at June 30, 2010, compared to approximately $3.7 million and $0.9 million at December 31, 2009, respectively. The annualized days sales outstanding for the second quarter of 2010 were 37 days.
Financial Outlook for 2010
For the year ending December 31, 2010, management reaffirmed guidance and expects revenues of at least $105 million and adjusted net income of at least $25 million, representing an increase of approximately 128.3% and 127.3% compared to 2009 revenues and adjusted net income, respectively. This guidance assumes total sales volume of 850,000 metric tons of CWSF in 2010. The Company expects to end 2010 with 1,150,000 metric tons of total CWSF production capacity.
Business Outlook for 2010
Having commenced operations in 2006, Sino Clean Energy has established a first mover advantage as one of the first commercial CWSF producers in China. As of September 30, 2009, Sino Clean Energy is the third largest CWSF producer in China as measured by sales volume with current production capacity of 850,000 metric tons.
"We plan to increase our CWSF production capacity through the construction of new facilities and the acquisition of existing CWSF production facilities in new geographic regions," stated Baowen Ren, Chairman of Sino Clean Energy. "Our geographic expansion plans will initially focus on Guangdong Province, and Nanning, Guangxi Province. In addition, we plan to expand the production capacity at our current locations in Shenyang, Liaoning Province and Tongchuan, Shaanxi Province and. We expect that such growth initiatives will increase our aggregate annual CWSF production capacity to 1,850,000 metric tons by the first half of 2011, which will drive revenues and earnings growth into the coming year."
Haizhong Boiler Agreement
Sino Clean Energy is the exclusive sales agent for Qingdao Haizhong Enterprise Co., Ltd. ("Haizhong Boiler"), which is an unrelated third-party manufacturer of CWSF boilers in China. Haizhong Boiler started producing boilers in 1999, and is one of the largest boiler manufacturers in China, with an estimated 80% market share in the Chinese CWSF boiler market. Following the success of the sales agency agreement in Shaanxi Province the Company entered into a nationwide strategic partnership agreement with Haizhong Boiler in July 2009. Haizhong Boiler focuses on selling CWSF boilers and also operates heat supply plants in select markets, for which Sino Clean Energy is the exclusive supplier of the requisite CWSF. To date, the Company has sold 51 boilers for Haizhong Boiler, all of which were sold to users that ultimately purchased CWSF from Sino Clean Energy.
Tongchuan Government
In May 2009, Sino Clean Energy entered into an agreement with Tongchuan City Investment and Development Co., Ltd. ("TCID") to develop and provide CWSF to a new heat supply company for the purpose of providing heating for the new district in Tongchuan. TCID expects that 15 new heat supply plants will need to be built to supply an area of approximately 16.4 million square meters. The first three plants are expected to be built and operational by the end of 2010, with the remaining plants expected to be completed over the following five to seven years. The newly formed heat supply company will require an investment of $12.5 million by TCID, for which it will receive an 85% stake in the new company, and $2.25 million by Suo'ang New Energy, a subsidiary of Sino Clean Energy Inc., for which it will receive a 15% stake in the new company.
Haizhong Heat Agreement
In October 2009, Sino Clean Energy entered into an exclusive CWSF supplier agreement with Shenyang Haizhong Heat Resource Co., Ltd. ("Haizhong Heat"), a municipal heat supplier in Shenyang. Haizhong Heat signed an exclusive agreement with the Shenyang municipal government to provide heat to local businesses, residential buildings and hospitals within an area of approximately 12 million square meters. The current area serviced by Haizhong Heat is approximately 4 million square meters, which requires approximately 300,000 metric tons of CWSF on an annual basis. Haizhong Heat has stated its intention that the service area will be increased to 10 million square meters, requiring approximately 850,000 metric tons of CWSF annually by the end of 2012. To date, Sino Clean Energy has sold approximately 164,000 metrics tons of CWSF to Haizhong Heat.
Nanning Production Facility
In November 2009, Sino Clean Energy entered into a memorandum of understanding with the local government of Nanning, Guangxi Province, which includes plans to establish a 500,000 metric ton per annum CWSF production facility in the city of Nanning. The Nanning government is aggressively promoting the usage of CWSF as an alternative fuel, and has publicly indicated its intention to establish local CWSF production capacity of 3 million metric tons. Presently, there are only two local CWSF producers in Nanning, each with a capacity of approximately 100,000 metric tons.
Sino Clean Energy also entered into an agreement with Guangxi New Heat Energy Company ("GNHEC") and is now the exclusive CWSF provider in the Jin Kai Industrial Park of Nanning Economic and Technological Development Area. Sino Clean Energy and GNHEC are in discussions with over 20 potential customers and have already signed letters of intent with eight customers totaling 300,000 metric tons of CWSF demand on an annual basis, and continue negotiations with prospective customers.
About Sino Clean Energy
Sino Clean Energy is a U.S. publicly traded company and a China-based producer and distributor of coal-water slurry fuel ("CWSF"). With locations in Shaanxi Province and Liaoning Province, Sino Clean Energy is one of the leading CWSF producers in China. For more information about Sino Clean Energy, please visit http://www.sinocei.net/ .
About Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. The Company believes that these non-GAAP financial measures are useful to investors because they exclude non-cash charges that our management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes these non-GAAP measures reflect the essential operating activities of Sino Clean Energy. Accordingly, management excludes the change in derivative liabilities, gains(losses) on extinguishment of derivative liabilities, expenses related to escrow shares and amortization of note discount when making operational decisions. The Company believes that providing the non-GAAP measures that management uses to its investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand the Company's financial performance in comparison to historical periods. In addition, it allows investors to evaluate the Company's performance using the same methodology and information as that used by our management. Non-GAAP 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 non-GAAP financial measure. However, our management compensates for these limitations by providing the relevant disclosure of the items excluded.
The following table provides the non-GAAP financial measure and the related GAAP measure and provides a reconciliation of the non-GAAP measure to the equivalent GAAP measure.
Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income (Unaudited)
Three Months ended Six Months ended
June 30 June 30
2010 2009 2010 2009
Adjusted Net Income
Net income $ 8,940,759 541,829 29,401,380 2,107,305
Expense related to escrow
shares -- 120,166 -- 240,333
Gain on extinguishment of
derivative liability -- (989,260) (28,404,181) (989,260)
Change in fair value of
derivative liabilities (2,862,263) 1,779,968 1,377,666 1,200,990
Amortization of CD discount 8,601,975 753,025
6,078,496 1,452,703 10,976,840 3,312,393
Weight average number of
shares
-Basic 16,557,000 9,532,061 14,714,742 9,376,630
-Diluted 19,216,041 9,910,926 17,161,540 9,806,755
Adjusted earnings per
common share
-Basic $ 0.37 0.15 0.75 0.35
-Diluted $ 0.32 0.15 0.64 0.34
Safe Harbor Statement
This press release contains certain "forward-looking statements," as defined in the United States Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate and the actual results and future events could differ materially from management's current expectations. Such factors include, but are not limited to uncertainties in product demand, the impact of competitive products and pricing, our ability to obtain regulatory approvals, changing economic conditions around the world and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission. 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.
Sino Clean Energy Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts expressed in U.S. Dollars)
June 30, December 31,
ASSETS 2010 2009
Current assets (Unaudited)
Cash and cash equivalent $25,575,339 $18,302,558
Accounts receivable, net 9,870,866 3,655,473
Inventories 744,717 892,609
Prepaid inventories 4,780,173 5,453,095
Prepaid expenses 8,716 259,627
Other receivables 29,389 65,584
Tax recoverable -- 138,495
Due to formerly related co., -
Hangson -- --
Prepaid land use right - current
portion 38,952 38,739
Total current assets 41,048,152 28,806,180
Property, plant and equipment, net 15,416,876 12,557,691
Land use right - non current portion 1,768,811 1,778,562
Goodwill 762,018 762,018
Intercompany accounts -- --
Prepayments and deposits 1,478,701 729,328
Total assets $60,474,558 $44,633,779
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses 2,267,772 2,672,211
Taxes payable 2,688,277 1,577,249
Amount due to directors 73,466 73,466
Other payables 1,814,045 --
Temporary payables 5,000
Due to formerly related co., -
Suo'ang BST -- --
Derivative liabilities 18,130,524 16,752,858
Total current liabilities 24,979,084 21,075,784
Convertible notes, net of discount $ -- $1,615,025
Derivative liabilities -- 28,404,181
Total liabilities 24,979,084 51,094,990
Commitments and Contingencies
Shareholders' Equity (Deficiency)
Preferred stock, $0.001 par value,
50,000,000 shares authorized,
none issued and outstanding
Common stock, $0.001 par value,
300,000,000 shares authorized,
16,557,000 and 10,849,863 issued and
outstanding as of June 30, 2010
and December 31, 2009 respectively 16,557 10,850
Additional paid-in capital 37,700,930 25,432,804
Accumulated deficit (6,401,607) (35,802,987)
Statutory reserves 1,758,553 1,758,553
Accumulated other comprehensive
income 2,421,041 2,139,569
Total Shareholders' equity
(deficiency) 35,495,474 (6,461,211)
Total liabilities and shareholders'
equity $60,474,558 $44,633,779
Sino Clean Energy Inc. and Subsidiaries
Consolidated Statements of Income and Other Comprehensive Income
(Amounts expressed in U.S. Dollars)
(Unaudited)
Three Months ended Six Months ended
June 30, June 30,
2010 2009 2010 2009
Revenue $24,149,761 $8,314,500 $48,658,765 $16,092,777
Cost of goods sold (14,779,016) (5,534,929) (29,179,193) (10,883,036)
Gross profit 9,370,745 2,779,571 19,479,572 5,209,741
Selling expenses 1,136,019 2,261 2,047,098 5,820
General and
administrative
expenses 626,053 432,412 1,345,235 981,311
Income from operations 7,608,673 2,344,898 16,087,239 4,222,610
Other income (expenses)
Interest expense and
finance costs (13,591) (596,098) (10,458,154) (1,081,845)
Expense related to
escrow shares -- (120,166) -- (240,333)
Exchange gain (775) -- (775) --
Commission income -- -- -- --
Rental income, net -- -- -- --
Interest income 19,353 7,285 32,224 11,271
Stock-based
compensation -- -- -- --
Gain on
extinguishment of
derivative liability -- 989,260 28,404,181 989,260
Change in fair value of
derivative liabilities 2,862,263 (1,779,968) (1,377,666) (1,200,990)
Cost of private
placement -- -- -- --
Sundry income
(expenses) 5,463 -- 5,463 --
Loss on disposal of
subsidiaries -- -- -- --
Government grant -- -- -- --
Total other income
(expenses) 2,872,713 (1,499,687) 16,605,273 (1,522,637)
Income before provision
for income taxes 10,481,386 845,211 32,692,512 2,699,973
Provision for income
taxes 1,540,627 303,382 3,291,132 592,668
Net income before non-
controlling interest 8,940,759 541,829 29,401,380 2,107,305
Less: Non-controlling
interest -- -- -- --
Net income 8,940,759 541,829 29,401,380 2,107,305
Other comprehensive
(loss) income
Foreign currency
translation
adjustment 269,266 12,010 281,472 8,694
Comprehensive (loss)
income $9,210,025 $553,839 $29,682,852 $2,115,999
Weight average number
of shares
-Basic 16,557,000 9,532,061 14,714,742 9,376,630
-Diluted 19,216,041 9,910,926 17,161,540 9,806,755
(Loss) Income per
common share
-Basic $0.54 $0.06 $2.00 $0.22
-Diluted $0.47 $0.05 $1.71 $0.21
Sino Clean Energy Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
2010 2009
Cash flow from operating activities:
Net income $29,401,380 $2,107,305
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and amortization 1,008,832 713,062
Amortization of deferred debt
issuance costs -- 217,102
Amortization of discount on
convertible notes 8,601,975 753,025
Interest expenses 1,864,701 --
Expense related to escrow
shares -- 240,333
Fair value of common stock
issued for services -- 454,935
Gain on extinguishment of
derivative liability (28,404,181) (989,260)
Change in fair value of
derivative liabilities 1,377,666 1,200,990
Inter-co current account -- --
Change in operating assets and
liabilities : -- --
Accounts receivable (6,215,393) (1,213,446)
Deferred expenses -- --
Other receivables 36,195 (6,444)
Prepaid expenses 250,911 60,994
Refundable advance -- 731,861
Fair value of vested
options 18,152 --
Inventories 147,892 (167,440)
Prepaid inventories 672,922 819,974
Tax recoverables 138,495 --
Accounts payable and
accrued expenses 236,559 429,654
Government grant receivable -- 146,314
Other payable -- --
Taxes payables 1,111,028 255,041
Net cash provided from operating
activities 10,247,134 5,754,000
Cash flows from investing
activities :
Deposits and prepayment (97,320) 47,880
Purchase of property, plant and
equipment (2,606,556) --
Net cash used in investing
activities (2,703,876) 47,880
Cash flows from financing
activities :
Deposits and prepayment (652,053) --
Payment of advances from director -- (395,066)
Cash received from exercise of
warrants and options 173,980 --
Net cash provided from (used in)
financing activities (478,073) (395,066)
Effect of foreign currency
translation 207,596 29,997
Net increase in cash and cash
equivalents 7,272,781 5,436,811
Cash and cash equivalents,
beginning of period 18,302,558 3,914,306
Cash and cash equivalents, end of
period $25,575,339 $9,351,117
For more information, please contact:
Company:
Ming Lee
Assistant to the Chairman
Tel: +86-29-8406-7376 (China)
Email: [email protected]
Investor Relations:
HC International, Inc.
Ted Haberfield, Executive VP
Tel: +1-760-755-2716
Email: [email protected]
Web: http://www.hcinternational.net
SOURCE Sino Clean Energy Inc.
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