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
Cost of sales was
Operating expenses were
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
Net loss from continuing operations was
In
Net loss attributable to common shareholders was
(*) 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
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
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
Use of Non-GAAP Financial Information
GAAP results for quarters ended
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
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: ericyu@cnegc.com Web: http://www.cnegc.com Investor Relations Contact: CCG Investor Relations Mr. Athan Dounis, Account Manager Phone: +1-646-213-1916 Email: athan.dounis@ccgir.com Mr. Crocker Coulson, President Phone: +1-646-213-1915 Email: crocker.coulson@ccgir.com Web: http://www.ccgirasia.com
SOURCE China New Energy Group Company