China New Energy Announces Second Quarter FY 2010 Results
TIANJIN, China, Aug. 17 /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 second quarter financial results ended June 30, 2010.
Second Quarter 2010 Highlights
-- Revenue reached $0.7 million, up 29.3% from $0.5 million for the same
period last year
-- Gross profit increased 49.9% to $0.5 million from $0.3 million for the
same period last year
-- Gross margin increased to 73.3% from 63.2%
-- Operating loss was $0.8 million, compared to a loss of $0.2 million for
the same period last year
-- Net loss from continuing operations was $0.9 million, or approximately
($0.01) per diluted share, compared to a net income from continuing
operations of $13.5 million, or $0.10 per diluted share, for the second
quarter 2009. Excluding the non-cash impact of the change in fair value
of derivative financial instruments, adjusted net loss from continuing
operations was $0.8 million, compared with an adjusted net loss of
$0.2 million, for the second quarter of 2009 (*)
"During the second quarter, we saw a year over year increase in revenue and gross margin due to higher connection fees from a new industrial customer," said Mr. Yangkan Chong, Chief Executive Officer. "We continued to prepare for future growth by enhancing our business development activities and working with outside consultants and new staff to help strengthen our internal controls. We are optimistic that we will be well prepared to manage the larger scale of our business following the completion of our pending acquisitions."
Second Quarter 2010 Results
For the second quarter ended June 30, 2010, revenues were $0.7 million, an increase of 29.3% from $0.5 million in the same quarter last year. The increase was primarily due to revenues generated from connection fees contributed by a significant new industrial client. Revenues from connection fees were $0.7 million, an increase of 31.3% from $0.5 million last year. Revenues from natural gas sales were $28,452, a decrease of 3.9% from $29,610 for the second quarter of last year. The decrease was due to the drop in sales from residential customers.
Gross profit was $0.5 million, an increase of 49.9% from the second quarter of 2009. Gross margin was 73.3%, compared to 63.2% in the same period last year. The increase in gross margin was largely driven by a rise in industrial connection services, which enjoy a gross margin of 99%.
Operating expenses were $1.3 million, an increase of 135.7% from $0.5 million for the second quarter of last year. This increase was primarily due to the fact that the Company is expanding by 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 $0.8 million, compared to an operating loss of $195,596 for the same period last year.
The Company's second quarter 2010 and second quarter 2009 financial statements include the non-cash impact from the change in fair value of derivative financial instruments of ($107,680) and $13.7 million, respectively.
Net loss from continuing operations was $0.9 million, or $(0.01) per diluted share, compared to net income from continuing operations of $13.5 million, or $0.10 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 $0.8 million, compared to an adjusted net loss from continuing operations of $0.2 million for the second 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 $1.2 million, or ($0.01) per diluted share, compared to net income attributable to common shareholders of $12.3 million, or $0.10 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 $1.1 million, compared to an adjusted net loss of $1.4 million for the second quarter of last year (*)
(*) See table at the end of 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.
First Half 2010 Results
For the six months ended June 30, 2010, revenues were $2.4 million compared to $0.7 million in the same period last year, an increase of 246.0%. Revenues from connection services fees were $2.35 million compared to $0.65 million in the same period last year, an increase of 261.2%. Sales of natural gas were $46,902 compared to $42,423 in the same period last year, representing an increase of 11%.
Gross profit was $1.8 million compared to $0.4 million in the same period last year, an increase of 324.1%. Gross margin was 73.1% compared to 59.7% last year. Operating loss was relatively unchanged at $0.9 million.
Net loss from continuing operations was $1.0 million compared to net income from continuing operations of $1.1 million for the six months ended June 30, 2009. Adjusted net loss from continuing operations, which excludes the non-cash impact of the change in fair value of derivative financial instruments, was $1.3 million compared with an adjusted net loss from continuing operations of $0.9 million, for the first six months of 2009.
Net loss attributable to common shareholders was $1.5 million, or ($0.00) per diluted share, compared to net loss attributable to common shareholders of $0.3 million, or $0.00 per diluted share, in the first half of 2009. Adjusted net loss attributable to common shareholders, which excludes the non-cash impact of the change in fair value of derivative financial instruments, was $1.8 million, compared to an adjusted net loss of $2.3 million for the first half of 2009.
Financial Condition
As of June 30, 2010, the Company had cash and cash equivalents of $0.3 million. The Company has no long-term debt. Shareholders' equity was $14.1 million as of June 30, 2010. During the first half of 2010, operating cash flow was $0.1 million versus negative cash from operations of $2.4 million in the prior year period. Capital expenditures for the six months ended June 30, 2010 were approximately $3.1 million, which was primarily for the construction of gas pipelines and stations.
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.
Mr. Chong concluded, "We continue to work on completing three pending acquisitions -- Dadi Gas, Fuzhou Zhongran, and Lean Zhongran -- and are confident they will close by year end. All of these acquisition targets are located in under-penetrated, growing small- and medium-sized cities and provide opportunities for us to enter into favorable franchise agreements with local governments for long-term exclusive rights to develop the local natural gas distribution network and to provide natural gas to the area. We are excited about our business going forward and expect to capitalize on the growing market for natural gas in China."
Use of Non-GAAP Financial Information
GAAP results for three and six month periods ended June 30, 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
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2010 2009
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents
$262,728 $2,672,884
Restricted cash 131,930 180,352
Accounts receivable, net of allowance for
doubtful accounts of $231,550 and $- 4,555,133 4,619,232
Receivable from sale of a subsidiary 3,260,582 5,119,055
Inventories, net 286,595 271,104
Prepaid expenses 205,024 179,011
Deemed receivable from former shareholders
of subsidiaries acquired for settlement of
certain liabilities 1,384,073 1,983,782
Current assets held for sale 1,407,538 1,768,278
NET CURRENT ASSETS 11,493,603 16,793,698
Property, plant and equipment, net 10,039,454 8,000,069
Other receivables 1,940,197 2,091,092
Deposits for acquisitions of subsidiaries 1,222,946 197,696
Intangible assets, net 1,181,224 1,186,272
Deposits paid for acquisition of long-term
assets 2,960,522 1,972,162
Goodwill 225,430 224,488
Non-current assets held for sale 9,970,525 9,760,345
TOTAL ASSETS $39,033,901 $40,225,822
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable $908,076 $614,642
Deposits receipt for disposal 734,365 --
Accruals and other payable 683,732 187,904
Acquisition consideration payable 1,538,654 1,651,888
Tax payable 621,980 1,323,815
Registration rights penalties payable 2,160,000 2,160,000
Related party payables 98,305 97,893
Dividends payable on preferred stock 503,515 509,381
Derivative financial instruments -
warrants 6,476,070 6,768,106
Liabilities to be settled by former
shareholders of subsidiaries acquired 1,384,073 1,983,782
Current liabilities held for sale 430,656 548,832
TOTAL CURRENT LIABILITIES 15,539,426 15,846,243
Commitments and contingencies (Note 23)
Preferred Stock: 10,000,000 shares
authorized, $0.001 par value Series A
Convertible Preferred Stock: 2,098,918
and 2,098,918 shares issued and outstanding,
liquidation preference of $10,137,774 and
$10,137,774 as of June 30, 2010 and
December 31, 2009 7,031,818 7,031,818
Series B Convertible Preferred Stock:
1,116,388 and 1,116,388 shares issued and
outstanding, liquidation preference of
$5,399,969 and $5,399,969 as of June 30,
2010 and December 31, 2009 2,153,307 2,153,307
CHINA NEW ENERGY'S STOCKHOLDERS' EQUITY
Common Stock: 500,000,000 shares
authorized, $0.001 par value, 105,395,032
and 101,788,199 shares issued and
outstanding, respectively 105,395 101,788
Additional paid in capital 10,629,380 10,152,971
(Accumulated deficit)/ Retained earnings (98,061) 1,423,523
Statutory surplus reserve fund 1,746,890 1,746,890
Accumulated other comprehensive income 1,754,684 1,600,941
TOTAL CHINA NEW ENERGY'S STOCKHOLDERS'
EQUITY 14,138,288 15,026,113
Non-controlling interest 171,062 168,341
TOTAL EQUITY 14,309,350 15,194,454
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND EQUITY $39,033,901 $40,225,822
CHINA NEW ENERGY GROUP COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS) - (UNAUDITED)
For the three months ended For the six months ended
June 30, June 30,
2010 2009 2010 2009
Revenues:
Connection services $663,179 $505,106 $2,354,541 $651,858
Natural gas 28,452 29,610 46,902 42,243
691,631 534,716 2,401,443 694,101
Cost of Sales:
Connection services 140,102 161,489 571,678 221,583
Natural gas 44,723 35,136 73,585 58,417
184,825 196,625 645,263 280,000
Gross Profit 506,806 338,091 1,756,180 414,101
Operating Expenses:
General and
administrative
expenses 1,175,719 485,146 2,484,325 772,298
Selling expenses 81,969 48,541 151,636 86,602
Registration right
liabilities -- -- -- 450,000
Total operating
expenses 1,257,688 533,687 2,635,961 1,308,900
Operating (Loss) (750,882) (195,596) (879,781) (894,799)
Other Income
(Expenses):
Change in fair value
of derivative
financial
instruments -
warrants (107,680) 13,688,558 292,036 1,976,044
Interest income 111 25 2,550 2,234
Interest expense (2,192) (2,401) (4,365) (3,010)
Other income 12,561 -- 13,090 93
Total other income
(expenses) (97,200) 13,686,182 303,311 1,975,361
(Loss) Income From
continuing
operations, Before
Income Tax (848,082) 13,490,586 (576,470) 1,080,562
Income Tax 92,674 5,111 382,597 6,108
(Loss) Income From
continuing
operations, net of
Income Tax (940,756) 13,485,475 (959,067) 1,074,454
Discontinued
Operations:
(Loss) Income from
discontinued
operations, net of
income tax (16) 1,165,559 (85,646) 1,085,037
(Loss) Income from
discontinued
operations, net of
Income Tax (16) 1,165,559 (85,646) 1,085,037
Net (Loss) Income (940,772) 14,651,034 (1,044,713) 2,159,491
Net Loss (Income)
attributable to
Non-controlling
Interest (996) (14,052) (2,721) 6,903
Net (Loss) Income
attributable to
China New
Energy Group (941,768) 14,636,982 (1,047,434) 2,166,394
Dividend on
Preferred Stock (258,975) (2,342,807) (474,150) (2,477,807)
Net (Loss) Income
attributable to
China New Energy
Group Common
Stockholders (1,200,743) 12,294,175 (1,521,584) (311,413)
Other Comprehensive
Income:
Net (Loss) Income (940,772) 14,651,034 (1,044,713) 2,159,491
Foreign currency
translation loss (147,358) (10,679) (152,539) (10,679)
Comprehensive Income
attributable to
Non-controlling
interest -- 5,026 -- 5,026
Comprehensive (loss)
income $(1,088,130) $14,645,381 $(1,197,252) $2,153,838
(Loss) Income per
share - Basic
(Loss) Income from
continuing
operations $(0.01) $0.10 $(0.01) $(0.03)
(Loss) Income from
discontinued
operations $(0.00) $0.01 $(0.00) $0.01
Total (loss) income
per share $(0.01) $0.11 $(0.01) $(0.02)
(Loss) Income per
share - Diluted
(Loss) Income from
continuing $(0.01) $0.10 $(0.01) $(0.03)
operations
(Loss) Income from
discontinued
operations $(0.00) $0.01 $(0.00) $0.01
Total (loss) income
per share $(0.01) $0.11 $(0.01) $(0.02)
Weighted average
common shares
outstanding
Basic 102,580,909 100,000,041 102,186,744 100,000,041
Diluted 227,672,021 144,433,653 227,340,954 142,264,680
CHINA NEW ENERGY GROUP COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
For The Six Months Ended
June 30,
2010 2009
Cash flows from operating activities:
Net (loss) income $(1,044,713) $2,159,491
Net (income) loss from discontinued
operations (85,646) 1,085,037
Net (loss) income from continuing
operations $(959,067) $1,074,454
Adjustments to reconcile net (loss)
income to net cash used
in operating activities:
Change in fair value of derivative
financial instruments - warrants (292,036) (1,976,044)
Registration rights penalties 450,000
--
Depreciation and amortization 169,590 88,702
Changes in operating assets and
liabilities:
Accounts receivable 83,183 (1,502,292)
Other receivables 160,267 385,321
Inventories (14,297) 21,316
Prepayment (25,180) 211,701
Other current assets -- (72,372)
Accounts payable 289,740 (446,848)
Accruals and other payables 1,225,507 (21,764)
Tax payable (704,689) (241,029)
Cash used in operating activities -
continuing operations (66,982) (2,028,855)
Cash provided by operating activities
- discontinued operations 171,811 (410,215)
Net cash provided by (used in)
operating activities 104,829 (2,439,070)
Cash flows from investing activities
Acquisition of property, plant and
equipment (2,157,702) (664,429)
Deposit paid for property, plant and
equipment (976,326) (395,017)
Deposits paid for acquisitions of (1,025,250)
subsidiaries --
Payment made to acquire subsidiary -
Chensheng -- (1,838,946)
Proceeds from sale of subsidiary 1,872,782 --
Acquisition consideration payable (117,049) --
Distribution from discontinued
operation 1,994 --
Cash used in investing
activities-continuing operations (2,401,551) (2,898,392)
Cash used in investing
activities-discontinued operations (179,250) (1,849,891)
Net cash used in investing activities (2,580,801) (4,748,283)
Cash flows from financing activities
Change from restricted cash 48,422 16,437
Issued preferred stock -- 4,752,140
Cash provided by financing
activities-continuing operations 48,422 4,768,577
Cash provided by financing
activities-discontinued operations -- 439,060
Net cash flows provided by financing
activities 48,422 5,207,637
Effect of exchange rate changes in
cash and cash equivalents 17,394 1,392
Net decrease in cash and cash
equivalents (2,410,156) (1,978,324)
Cash and cash equivalents - beginning
of period 2,672,884 5,612,356
Cash and cash equivalents - end of
period $262,728 $3,634,032
Supplemental disclosure of cash flow
information:
Cash paid for interest $4,365 $3,010
Cash paid for income tax $1,036,534 $372,556
Supplemental disclosure of non-cash
investing and financing activities:
Preferred stock dividends payable $474,150 $324,000
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Three Months Ended Six Months Ended
June 30, June 30,
Adjusted Net Income
(Loss) and Diluted
EPS From Continuing
Operations 2010 2009 2010 2009
GAAP Net Income
(Loss) from
Continuing
Operations (940,754) 13,485,475 (959,065) 1,074,454
Less: Change in fair
value of derivative
financial instruments (107,680) 13,688,558 292,036 1,976,044
- warrants
Adjusted Amount Net
Income from Continuing
Operations ($833,074) ($203,083) ($1,251,101) ($901,590)
Weighted average number
of shares - Diluted 227,672,021 144,433,653 227,340,954 142,264,680
Adjusted Diluted EPS
from Continuing
Operations ($0.00) ($0.00) ($0.01) ($0.01)
Three Months Ended Six Months Ended
March 31, March 31,
Adjusted Net Income
(Loss) and Diluted EPS
Attributable to Common
Shareholders 2010 2009 2010 2009
GAAP Net Income (Loss)
and Attributable to
Common Shareholders (1,200,742) 12,294,175 ($1,521,583) ($311,413)
Less: Change in fair
value of derivative
financial instruments -
warrants (107,680) 13,688,558 292,036 1,976,044
Adjusted Amount ($1,093,062) ($1,394,383) ($1,813,619)($2,287,457)
Weighted average number
of shares - Diluted 227,672,021 144,433,653 227,340,954 142,264,680
Adjusted Diluted EPS
Attributable to
Common Shareholders ($0.00) ($0.01) ($0.01) ($0.02)
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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