China Carbon Graphite Group Reports Third Quarter 2013 Financial Results

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Dec 02, 2013, 02:15 ET

INNER MONGOLIA, China, Dec. 2, 2013 /PRNewswire/ -- China Carbon Graphite Group, Inc. (CHGI) ("China Carbon" or the "Company"), the largest wholesale supplier of fine-grain and high-purity graphite in China and one of the nation's top manufacturers of carbon and graphite products, today announced its financial results for the third quarter ended September 30, 2013.

Mr. Donghai Yu, Chief Executive Officer of China Carbon, commented, "Plagued by the stubborn crisis of China's steel industry from which our major profits are generated, we experienced continuous challenges in the third quarter resulting in a 58% decrease in our revenues over the same period of last year. To tackle these challenges, our management has been making necessary initiatives including adjusting our product portfolio and positioning strategies. We hope these efforts can help us better mitigate the risks and the negative impacts from the downturn of overall economy."

Third Quarter 2013 Financial Results

	Three Months Ended September 30
	2013		2012
	Sales	% of Total	Sales	% of Total
Graphite Electrodes	$361,069	13.3%	$788,769	12.1%
Fine Grain Graphite	935,145	34.4%	2,666,957	41.1%
High Purity Graphite	1,188,145	43.6%	2,763,836	42.6%
Others	237,364	8.7%	271,571	4.2%
Total	$2,721,723	100.0%	$6,491,133	100.0%

Sales: For the three months ended 30, 2013, sales decreased by $3.77 million, or 58.1%, to $2.72 million from $6.49 million for the third quarter of 2012. The decrease in sales was mainly due to industry-wide demand weakness for our products as a result of continued struggles of steel manufacturers. In particular, demand for our fine grain graphite and high purity graphite products remained extremely low during the third quarter with sales decreasing 64.9% and 57.0% to $0.94 million and $1.19 million, respectively. Sales of graphite electrodes decreased 54.2% to $0.36 million while sales of semi-processed and other types of products declined 12.6% to $0.24 million.

Gross Income (Loss): Gross profit for the third quarter of 2013 was $0.45 million, compared to $1.77 million for the same period of last year. Gross margin decreased to 16.6% for the third quarter of 2013 from 27.3% for the same period of last year. The decrease in gross margin was mainly due to increased percentage of low margin product sales, increased depreciation allocated to the cost of goods sold due to the transfer of construction in progress to property and equipment since the end of 2012, and increased fixed cost allocation as a result of decreased production volume.

Operating Income (Loss):

Selling, General and Administrative Expenses:

Selling expenses decreased by 87.2% to $0.01 million for the third quarter of 2013 from $0.06 million for the same period of last year. The decrease was mainly due to decreased sales commission and lower shipping and handling expenses during the three months ended September 30, 2013 as compared to the three months ended September 30, 2012.

General and administrative expenses increased by $1.66 million, or 157.1%, to $2.72 million for the third quarter of 2013 from $1.06 million for the same period of last year. The increase in general and administrative expenses was mainly attributable o increase in bad debt expenses and partially offset by decrease in stock-based compensation expenses for consulting services.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses increased $0.13 million, or 234.2%, to $0.19 million for the third quarter of 2013 from $0.06 million for the same period of last year. The increase in depreciation and amortization expenses was due to additional fixed assets placed in service.

Impairment of Property and Equipment:

The Company also recorded impairment of property and equipment of $3.54 million for the third quarter of 2013.

Overall, operating expenses totaled $6.45 million for the third quarter of 2013, compared to $1.18 million for the same period of 2012, an increase of $5.28 million, or 448.4%. As a result of the factors described above, operating loss was ($6.00) million for the third quarter of 2013, compared to operating income of $0.59 million for the same period of last year. Operating loss margin was (220.5%) for the third quarter of 3013, compared to operating profit margin of 9.1% for the same period of last year.

Net Income (Loss): Net loss available to common stockholders was ($6.89) million, or ($0.26) per diluted share, for the third quarter of 2013, compared to ($0.80) million, or ($0.03) per diluted share, for same period of last year.

Nine Months Ended September 30, 2013 Financial Results

	Nine Months Ended September 30
	2013		2012
	Sales	% of Total	Sales	% of Total
Graphite Electrodes	$2,021,971	23.8%	$3,434,285	12.1%
Fine Grain Graphite	3,247,054	38.2%	12,443,155	43.8%
High Purity Graphite	2,693,240	31.7%	12,024,784	42.3%
Others	534,628	6.3%	527,662	1.8%
Total	$8,496,893	100.0%	$28,429,886	100.0%

Sales: For the nine months ended September 30, 2013, sales decreased by $19.93 million, or 70.1%, to $8.50 million from $28.43 million for same period of last year. The decrease in sales was mainly due to industry-wide demand weakness for our products as a result of continued struggles of steel manufacturers. Demand for our fine grain graphite and high purity graphite products was particularly weak for the nine months ended September 30, 2013 with sales decreasing 73.9% and 77.6% to $3.25 million and $2.69 million, respectively. Sales of graphite electrodes also decreased by 41.1% to $2.02 million. Sales of semi-processed and other types of products grew 1.3% to $0.53 million.

Gross Income (Loss): Gross loss for the nine months ended September 30, 2013 was ($4.71) million, compared to gross profit of $7.58 million for the same period of last year. Gross loss margin was (55.4%) for the nine months ended September 30, 2013, compared to 26.7% for the same period of last year. The decrease in gross margin was mainly due to inventory impairment cost of $3.27 million for the third quarter of 2013, increased percentage of low margin product sales, increased depreciation allocated to the cost of goods sold due to the transfer of construction in progress to property and equipment since the end of 2012, and increased fixed cost allocation as a result of decreased production volume.

Operating Income (Loss):

Selling, General and Administrative Expenses:

Selling expenses decreased by $0.09 million, or 67.2%, to $0.05 million for the nine months ended September 30, 2013 from $0.14 million for the same period of last year. The decrease was mainly due to decreased sales commission and lower shipping and handling expenses during the nine months ended September 30, 2013 as compared to the same period of last year.

General and administrative expenses increased by $3.56 million, or 115.6%, to $6.64 million for the nine months ended September 30, 2013 from $3.08 million for the same period of last year. The increase in general and administrative expenses was mainly due to increased bad debt expenses of $2.19 million, increased stock based compensation expense for directors and officers of $0.27 million, and increased accrued expenses for potential lawsuit loss of $0.32 million for the nine months ended September 30, 2013 compared to the same period of last year.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses increased by $0.15 million, or 92.2%, to $0.31 million for the nine months ended September 30, 2013 from $0.16 million for the same period of last year. The increase in depreciation and amortization expenses was due to additional fixed assets placed in service.

Impairment of Property and Equipment:

The Company also recorded impairment of property and equipment of $3.54 million for the nine months ended September 30, 2013.

Operating expenses totaled $10.53 million for the nine months ended September 30, 2013, compared to $3.38 million for the same period of last year, an increase of $7.16 million, or 221.8%. As a result of the factors described above, operating loss totaled ($15.24) million for the nine months ended September 30, 2013, compared to operating income of $4.20 million for the same period of last year. Operating loss margin was (179.4%) for the nine months ended September 30, 2013 versus operating profit margin of 14.8% for the same period of last year.

Net Income (Loss): Net loss available to common stockholders was ($17.84) million, or ($0.69) per diluted share, for the nine months ended September 30, 2013, compared to net income available to common stockholders of $0.31 million, or $0.01 per diluted share, for the nine months ended September 30, 2012.

Financial Position

As of September 30, 2013, the Company had cash and cash equivalents of $0.20 million, restricted cash of $30.72 million, and short-term bank loans of $45.92 million. The Company had working capital deficit of ($15.57) million as of September 30, 2013, compared to a deficit of ($0.49) million at the end of 2012.

Net cash used in operating activities was ($11.57) million for the nine months ended September 30, 2013, compared to net cash provided by operating activities of $0.54 million for the same period of last year.

About China Carbon Graphite Group, Inc.

China Carbon Graphite Group, through its affiliate, Xingyong Carbon Co., Ltd., manufactures graphite and carbon based products in China. The company is the largest wholesale supplier of fine-grain and high-purity graphite in China and one of the nation's top overall producers of carbon and graphite products. Fine grain graphite is widely used in smelting for colored metals and rare earth metal smelting as well as the manufacture of molds. High purity graphite is used in metallurgy, mechanical industry, aviation, electronic, atomic energy, chemical industry, food industry and a variety of other fields. In September 2007, the Company was approved and designated by the Ministry of Science & Technology as a "National Hi-tech Enterprise," a distinction that the Company still holds. Of the more than 400 carbon graphite producers in China, China Carbon Group Inc. is the only non-state-owned company to receive this honor. For more information, please visit http://www.chinacarboninc.com.

Safe Harbor Statement

This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary companies. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including the risk factors set forth in the Company's annual report on Form 10-K and quarterly reports on Form 10-Q.

Company Contact:
Donghai Yu, CEO
China Carbon Graphite Group Inc.
Email: [email protected]
Website: http://www.chinacarboninc.com

Investor Relations Contact:
Tina Xiao
Weitian Group LLC
Tel: +1-917-609-0333
Email: [email protected]
Website: http://www.weitian-ir.com

China Carbon Graphite Group, Inc. and subsidiaries
Consolidated Balance Sheets


		September 30, 2013	December 31, 2012
		(Unaudited)	(Audited)
ASSETS

Current Assets
	Cash and cash equivalents	$ 197,636	$ 129,746
	Restricted cash	30,718,954	22,149,000
	Accounts receivable, Net	6,232,675	11,239,002
	Advance to suppliers	11,912,484	1,177,462
	Inventories	45,645,068	48,417,875
	Prepaid expenses	721,491	280,779
	Other receivables, net of allowance of $224,319 and $220,339, respectively	452,695	35,655
Total current assets		95,881,003	83,429,519

Property And Equipment, Net		36,334,180	40,964,363

Construction In Progress		27,543,023	7,324,379

Land Use Rights, Net		9,654,207	9,657,419
Total Assets		$ 169,412,413	$ 141,375,680

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
	Accounts payable and accrued expenses	$ 3,492,996	$ 2,250,745
	Advance from customers	1,697,436	1,368,525
	Short term bank loans	45,915,033	38,680,500
	Notes payable	57,679,739	40,606,500
	Other payables	2,345,935	630,179
	Loan from unrelated parties	265,826	338,002
	Dividends payable	55,015	46,816
Total current liabilities		111,451,980	83,921,267

	Amount due to related parties	4,761,875	4,795,593
	Long Term Bank Loan	22,352,941	4,782,900
	Accounts Payable - Long Term	-
	Warrant Liabilities	25,657	224,362
Total Liabilities		138,592,453	93,724,122

	Redeemable convertible series B preferred stock, $0.001 par value;
	3,000,000 shares authorized; 300,000 and 300,000 shares issued
	and outstanding at September 30, 2013 and December 31, 2012, respectively.	310,000	360,000
Stockholders' Equity
	Common stock, $0.001 par value;100,000,000 shares authorized
	26,342,518 and 25,077,518 shares issued and outstanding at
	September 30, 2013 and December 31, 2012, respectively	26,342	25,077
	Additional paid-in capital	18,551,966	18,223,781
	Accumulated other comprehensive income	9,714,447	8,982,925
	Retained earnings	2,217,206	20,059,775
Total stockholders' equity		30,509,960	47,291,558
Total Liabilities and Stockholders' Equity		$ 169,412,413	$ 141,375,680

China Carbon Graphite Group, Inc and subsidiaries
Consolidated Statements of Operations and Comprehensive Income
For the Three and Nine Months Ended September 30, 2013 and 2012
(Unaudited)


	Three months ended September 30,		Nine months ended September 30,		Six months ended June 30,
	2013	2012	2013	2012	2013	2012

Sales	$ 2,721,723	$ 6,491,133	$ 8,496,893	$ 28,429,886	$ 5,775,170	$ 21,938,753

Cost of Goods Sold	2,269,493	4,722,151	13,202,146	20,850,882	10,932,653	16,128,731

Gross Profit (Loss)	452,230	1,768,982	(4,705,253)	7,579,004	(5,157,483)	5,810,022
Operating Expenses
Selling expenses	8,252	64,487	46,088	140,437	37,836	75,950
General and administrative	2,688,323	1,056,283	6,610,689	3,078,144	3,922,367	2,021,861
Impairment of property and equipment	3,569,646	-	3,569,646	-
Depreciation and amortization	187,803	56,198	307,505	160,028	119,702	103,830
Total operating expenses	6,454,023	1,176,968	10,533,928	3,378,609	4,079,905	2,201,641

Operating (Loss) Income Before Other Income (Expense)	(6,001,793)	592,014	(15,239,181)	4,200,395	(9,237,388)	3,608,381

Other Income (Expense)
Interest expense	(1,501,867)	(1,208,970)	(3,418,517)	(3,658,888)	(1,916,650)	(2,449,918)
Interest income	562,916	-	624,722	44	61,806	43
Other expense	-	272	-	(215,196)	-	(215,468)
Other income (expense), net	(352)	6,080	(99)	221,270	253	215,190
Change in fair value of warrants	52,997	(188,046)	198,705	(221,846)	145,708	(33,800)
Total other expense (income), net	886,306	(1,390,664)	2,595,189	(3,874,616)	1,708,883	(2,483,953)

(Loss) Income Before Income Tax Expense	(6,888,099)	(798,650)	(17,834,370)	325,779	(10,946,271)	1,124,428

Income Tax Expense	-	-	-	-	-	-

Net Income (Loss)	(6,888,099)	(798,650)	(17,834,370)	325,779	(10,946,271)	1,124,428

Preferred Stock Dividends	826	(4,537)	(8,199)	(14,180)	(9,025)	(9,643)

Net Income (Loss) Available To Common Shareholders	(6,887,273)	(803,187)	(17,842,569)	311,599	(10,955,296)	1,114,785

Other Comprehensive Income
Foreign currency translation gain	92,843	528,509	731,522	518,452	638,679	(10,057)
Total Comprehensive Income (Loss)	$ (6,795,256)	$ (270,141)	$ (17,102,848)	$ 844,231	$ (10,307,592)	$ 1,114,371

Share Data
Basic earnings (loss) per share	$ (0.26)	$ (0.03)	$ (0.69)	$ 0.01	$ (0.43)	$ 0.05

Diluted earnings (loss) per share	$ (0.26)	$ (0.03)	$ (0.69)	$ 0.01	$ (0.43)	$ 0.05

Weighted average common shares outstanding,
basic	26,336,648	24,260,834	25,754,899	23,843,306	25,459,203	23,632,248

Weighted average common shares outstanding,
diluted	26,336,648	24,560,834	25,754,899	24,143,306	25,459,203	23,938,058

China Carbon Graphite Group, Inc and subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)


	Nine months ended September 30,
	2013	2012
Cash Flows from Operating Activities
Net income (loss)	$ (17,834,370)	$ 325,779
Adjustments to reconcile net cash provided by (used in)		-
operating activities		-
Depreciation and Amortization	2,144,180	1,925,159
Related party interest expenses contribution	-	344,401
Stock compensation	262,650	512,158
Change in fair value of warrants	(198,705)	221,846
Bad debt expenses	2,187,134	-
Impairment of property and equipment	3,542,153	-
Inventory impairment	3,266,648	-
Changes in operating assets and liabilities
Accounts receivable	2,982,054	858,426
Notes receivable	-	156,266
Other receivables	(413,189)	(46,790)
Advance to suppliers	(10,631,243)	3,405,974
Inventory	352,515	(9,963,519)
Prepaid expenses	(416,248)	1,906
Accounts payable and accrued liabilities	1,193,573	3,460,160
Advance from customers	301,852	(44,443)
Taxes payable	289,304	(760,615)
Other payables	1,400,248	141,370
Net cash (used in) provided by operating activities	(11,571,444)	538,078

Cash flows from investing activities
Acquisition of property, plant and equipment	(64,803)	(65,156)
Increase of land use rights	(116,611)	-
Addition of construction in progress	(19,931,665)	(1,479,435)
Net cash used in investing activities	(20,113,079)	(1,544,591)

Cash flows from financing activities
Proceeds from issuing common stock	-	472,000
Proceeds from short term loans	39,886,502	37,256,400
Repayments for short term loans	(33,400,892)	(50,370,400)
Proceeds from long term loans	17,835,428	4,708,400
Repayments of long term loans	(486,421)	-
Proceeds from loan from unrelated parties	11,090,543	11,351,261
Repayment of loans to unrelated parties	(11,168,221)	(9,151,360)
Proceeds from loan from related parties	122,254	821,600
Repayments to related parties	(236,625)	(158,000)
Proceeds from stock not yet issued	-	(137,000)
Restrict cash	(8,107,013)	(1,532,600)
Proceeds from notes payable	57,235,509	35,234,000
Repayments to notes payable	(41,021,484)	(27,887,000)
Net cash provided by financing activities	31,749,580	607,301

Effect of exchange rate fluctuation	2,833	(2,353)

Net increase (decrease) in cash	67,890	(401,565)

Cash and cash equivalents at beginning of period	129,746	521,450

Cash and cash equivalents at ending of period	$ 197,636	$ 119,885

Supplemental disclosure of cash flow information

Interest paid	$ 3,866,767	$ 3,358,169
Income taxes paid	$ -	$ -

Non-cash activities:

Preferred stock conversion to common stock	$ -	$ 151

Issuance of common stock for compensation	$ 262,650	$ 135,350