Sino Clean Energy, Inc. Announces Unaudited Third Quarter 2011 Financial Results

XI'AN, China, Nov. 17, 2011 /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 China, today announced unaudited financial results for the third quarter of 2011.

Third Quarter 2011 Financial Highlights

• Revenues in the third quarter of 2011 were $17.2 million, a decrease of 31.2%from $24.9 million in the same quarter of 2010.
• Net income in the third quarter of 2011 was $3.3 million, a decrease of 41.7%from $5.6 million in the same quarter of 2010. Non-GAAP adjusted earnings, which excludes change in fair value of derivative liabilities of $2.7 million and gain on extinguishment of derivative liability of $3.1 million, was $2.8 million, a decrease of 56.7% from $6.6 million in the same quarter of 2010.
• Earnings per share were $0.14. Adjusted earnings per share were $0.11.
• Net cash generated from operations was $2.5 million in the nine months ended September 30, 2011, compared to $21.3 million in the nine months ended September 30, 2010.

Mr. Baowen Ren, chairman and chief executive officer of Sino Clean Energy, commented, "I'm pleased that the company managed to maintain acceptable sales volume during a very challenging third quarter when operations at our largest customer remained suspended. In Tongchuan, we further lost one customer to a low-price competitor and one customer suspended operations due to a reduced loan facility. On the positive side, the customer base and order volume of our Dongguan facility continued to increase during the period, partly offsetting revenue reduction from our Shenyang and Tongchuan facilities. With our largest customer resuming operations at the beginning of the fourth quarter, we are confident that our Shenyang facilities will ramp up quickly and begin contributing again to overall revenue in the future."

Mr. Ren continued, "I'm also pleased to announce that Thornhill Capital's review and reconciliation of financial information filed in tax returns with State Administration of Taxation (SAT) and its filings with State Administration of Industry and Commerce (SAIC) to the audited financial statements in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission, was recently completed. Thornhill concluded that with respect to Shaanxi Suo'ang, it is unlikely that the Company has filed incorrect SAT or SAIC reports, or provided false reports that do not agree to the audited financial information reports filed with US SEC under US GAAP. Thornhill was also able to reconcile the SAT filings of Shenyang Suo'ang and Dongguan Clean Energy, however, due to time constraints the information provided for such filings had not been independently verified, and a SAIC reconciliation has not been performed. The completion of this Thornhill study marks the successful conclusion of the first phase of a broader operations-wide internal investigation being supervised by the Company's Audit Committee, to address certain matters raised in the past concerning the veracity of the company's stated production facilities and activity, revenues, cash balances, and customers."

Third Quarter 2011 Financial Results

Revenue in the third quarter 2011 decreased 31.2% to $17.2 million from $24.9million in the same period of 2010, primarily due to a decrease in sales to our major customer, Haizhong Heating.  The customer suspended operations of its CWSF boilers due to the modification of a pipeline in certain areas of the Ming Fa real estate development project in the second quarter of 2011. The reduction in sales volume due to this business interruption is 81,251 metric tons compared with the same period of 2010.  In addition, the Company's subsidiary Shaanxi Suo'ang New Energy lost one customer to a new competitor and one customer suspended operations during the third quarter. The reduction in sales volume because of these customers was 71,910 metric tons as compared with sales in same period of 2010.

During the third quarter of 2011, the Company sold 125,235 metric tons of CWSF compared to 261,496 metric tons in the same period of 2010, representing a decrease of 52.1%. The Company's annual production capacity at September 30, 2011 was 1,150,000 metric tons, as compared to 850,000 metric tons at September 30, 2010. For the first nine months of 2011, revenue was $73.9 million, representing a slight increase over $73.6 million for the same period in 2010.

As of September 30, 2011 Sino Clean Energy had 37 active customers under CWSF supply agreements totaling approximately 1,200,000metric tons per year, compared to 43 customers totaling approximately 600,000 metric tons of CWSF per year at September 30, 2010.

Cost of Goods Sold was $11.4 million in the third quarter 2011, compared to $15.3 million in the same period of 2010, representing a decrease of 25.2%, in line with the decrease in selling volume.

Gross Profit in the third quarter of 2011 decreased 40.5% to $5.7 million from $9.6 million in the same period of 2010. Gross margin was 33.4%, compared to 38.7% in the third quarter of 2010.This primarily resulted as a combination of significantly higher purchase prices for coal in Dongguan and higher depreciation costs for plant and machinery at that facility.

Selling expenses were $0.9 million in the third quarter of 2011, as compared to $1.2 million in the same period of 2010, a decrease of 26.3%. This decrease is mainly attributable to decreased transportation costs and marketing costs due to decreased selling volume.

General and Administrative Expenses were $1.2 million in the third quarter of 2011, compared to $0.6 million in the same period of 2010, representing an increase of 100%.This was primarily due to the legal expense and professional fees of the Company's operations, and increased expenses related to Sino Clean Energy being a public company.

Income from Operations decreased 53.7% to $3.7 million in the third quarter of 2011 from $7.9 million in the same period of 2010, due to the above-mentioned factors.

Provision for income taxes was $0.9 million in the third quarter of 2011, compared to $1.3 million in the same quarter of 2010. The decrease in income taxes reflects the decrease in taxable income from our operations in China. For the three-month periods ended September 30, 2011 and 2010, our effective tax rate was 21% and 19%, respectively, on income before provision for income taxes.  

Net income in the third quarter of 2011 was $3.3 million and basic earnings per share were $0.14. Adjusting for non-cash charges during each respective period, adjusted earnings were $2.8 million and $6.6 million for the third quarters 2011 and 2010, yielding $0.11 and $0.39 in adjusted basic earnings per share, respectively.

As of September 30, 2011, the Company had cash and cash equivalents of $59.4 million, compared to $52.1 million as of December 31, 2010. Net cash generated from operations was $2.5 million in the nine months ended September 30, 2011, compared to $21.3 million in the nine months ended September 30, 2010. This decline was mainly due to the decrease in amortization of discount on convertible notes and the increase in accounts receivables. The Company had working capital of $83.0 million at September 30, 2011 and a current ratio of 16-to-1.

Net accounts receivable balance was $12.1 million at September 30, 2011, compared to $3.6 million and $3.9 million at September 30 and December 31, 2010, respectively. Allowance for doubtful accounts was $1.1 million at September 30, 2011, compared to nil at September 30, 2010 and December 31, 2010, respectively.

The annualized days sales outstanding for nine months ending on September 30, 2011 were 66 days compared to 24 days in the third quarter 2010. The lengthening of days sales outstanding reflects the tightening credit environment around Tongchuan and the trend of growing CSWF purchaser power in Dongguan.

Recent Development and Updates

Cooperation with Nathalin Welstar Energy Co Ltd

The management of the Company was invited to Thailand for a site visit in late October 2011, but the schedule has to be delayed because of the flood in Thailand. The management and Nathalin have rescheduled the visit date to December 1.

Due Diligence Report

As previously noted, the Company engaged an independent third-party evaluation agency, US-based Thornhill Capital LLC, to conduct a reconciliation of the Company's tax returns filed with the State Administration of Taxation(SAT) and its filings with the State Administration of Industry and Commerce (SAIC) against audited financial information filed with US Securities and Exchange Commission under US GAAP. The Company received the report from Thornhill on November 10, 2011. Thornhill concluded that it is unlikely the Company has filed incorrect SAT and SAIC reports or provided false reports that do not agree to the reports filed with the SEC. In addition, there is no significant variance in the reconciliation of the SAT and SAIC reports with US SEC reports filed.

Engagement of a Specialist Team in SOX Compliance

In October 2011, the Company engaged a specialist team comprised of former senior managers from "Big Four" CPA firms to help the Company implement recommendations from Ernst & Young (China) Advisory Services Ltd. on Sarbanes-Oxley ("SOX") compliance, timely setting up of an effective internal control system, and improving the SEC financial reporting process of the Company  The Company is working closely with these advisors and as a result hopes that it can attain significant improvements in above areasover the next two quarters.

Delay in SEC Filing of Form 10-Q

In August and September, 2011,in a routine review of certain of the Company's past Exchange Act filings, the U.S. Securities and Exchange Commission ("SEC"), issued comment letters to the Company covering various aspects of Sino Clean Energy's financial and legal disclosure in its previously filed 10-K, 10-Q and 8-K's. The Company was required, in response to such comments, to provide the SEC with examples of how it would enhance its disclosures in its future Exchange Act filings. The Company has replied to all of the SEC comments thus far, and will continue to work diligently to adequately address any additional inquiries should they arise.  To ensure that all enhanced disclosure that was prepared to address the SEC's comments is included in the Company's Form 10-Q filing for the third quarter, the Company has filed for an extension in the filing of its Form 10-Q.The Company expects to file its Form 10-Q no later than November 21, 2011, the end of the five calendar day extension period..

Financial Outlook

SCEI management reconfirms fiscal 2011 guidance and expects revenue of between $101.5 million and $110.7 million due to the Company's major customer, Shenyang Haizhong Heating, resuming its operations in October. The Company expects Non-GAAP adjusted earnings to be in the range of$23.02 million to $24.80 million and full year adjusted earnings per share of between $0.98and $1.06. This guidance assumes total sales volume of 850,000 – 920,000 metric tons of CWSF in 2011.

Exchange Rate

This announcement contains translations of certain Renminbi amounts into US dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to US dollars were made at the noon buying rate of RMB6.3830 to USD1.00 on September 30, 2011 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

Conference Call

The Company will host a conference call at 8:00 a.m. ET on Monday, November 21, 2011, which is 9:00 p.m. Beijing Time on Monday, November 21, 2011, to discuss third quarter results and answer questions from investors.

To access the conference call, please dial:

Please ask to be connected to the "Sino Clean Energy call" and provide the conference ID:  4489446.

Sino Clean Energy will also broadcast a live audio webcast of the conference call. The broadcast will be available by visiting the "Investor Relations" section of the Company's web site at http://www.sinocei.net.

An archive of the call will be available through November 28, 2011 by dialing:

About Sino Clean Energy

Sino Clean Energy is the third largest producer of coal-water slurry fuel ("CWSF") by sales in China, according to data provided in Frost & Sullivan's 2010 Chinese CWSF market report. A leader in developing CWSF as a cleaner alternative to burning coal aggregate in heating, industrial and power generation for residential and industrial applications, the Company has seven production lines located in Shaanxi, Liaoning, and Guangdong provinces. For more information about Sino Clean Energy, please visit http://www.sinocei.net.

Contact Information

Sino Clean Energy Inc.
Jing Li, Assistant to the CEO
Phone: +86-29-8844-7960 ext. 802
Email: [email protected]

ICR Inc.
Rob Koepp
Phone: +86-10-6583-7516 or +1-646-328-2526
E-mail: [email protected]

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, 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 measures. 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.

The adjusted number of shares used to determine adjusted earnings per share is calculated by adding the basic weighted number of shares to the number of shares that would be issued upon exercise of all warrants classified as derivative liabilities. For the three months ended September 30, 2011, basic weighted number of shares of 23,499,604 is increased by 2,476,647 warrant shares that would be issued upon exercise of all the Company's warrants, resulting in adjusted number of shares of 25,976,251. For the three months ended September 30, 2011, adjusted earnings of $2,847,439 divided by 25,976,251 adjusted number of shares results in adjusted earnings per share of $0.11. For the nine months ended September 30, 2011, basic weighted number of shares of 23,482,939 is increased by the 2,476,647 warrant shares that would be issued upon exercise of all the Company's warrants, resulting in adjusted number of shares of 25,959,586. For the nine months ended September 30, 2011, adjusted earnings of $14,171,123 divided by 25,959,586 adjusted number of shares results in adjusted earnings per share of $0.55.

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.

SOURCE Sino Clean Energy Inc.