Puda Coal Announces Third Quarter Results
TAIYUAN, China, Nov. 16 /Xinhua-PRNewswire-FirstCall/ — Puda Coal, Inc. (BULLETIN BOARD: PUDC) (”Puda Coal” or the ”Company”), a leading supplier of China’s high grade metallurgical coking coal used to make coke for the purposes of steel manufacturing, today announced its financial results for the quarter ended September 30, 2007.
Third Quarter 2007 Highlights — Third quarter revenue was $40.5 million, down 5% from the third quarter of 2006 — Operating income totaled $5.5 million, down 23% from the third quarter of 2006 — Net income was $3.4 million, or $0.03 per fully diluted share, up 55% from the third quarter of 2006 — Sales of cleaned coal totaled 492,000 metric tons (MT), down 10% from the third quarter of 2006 — Average selling price of cleaned coal was $81 per ton, unchanged from the third quarter of 2006 — Streamlined corporate structure at recommendation of independent Audit committee — Enhanced corporate governance by establishing Compensation and Nominating and Corporate Governance committees — Signed letter of intent to acquire Jingle Muguashan coal mine in Jingle County — Engaged Deloitte & Touche to assist with Sarbanes-Oxley compliance
”We achieved modest growth in revenue and operating income from the second quarter of 2007. However, we faced significant competition during the quarter, which resulted in lower tonnage sales year-over-year. This, combined with higher raw coal prices negatively impacted our margins,” commented Mr. Zhao Ming, Chairman and Chief Executive Officer of Puda Coal.
Results for the Third Quarter 2007
For the quarter ended September 30, 2007, net revenue was $40.5 million, down 5.0% from $42.7 million in the third quarter of 2006. The revenue decline was mainly due to increased competition. Sales of cleaned coal were 492,000 MT in the third quarter of 2007, down from 546,000 MT in the same period last year. The average selling price was approximately $81 (after adjusting for exchange rate differences), unchanged from the same quarter of 2006.
Gross profit for the quarter was $6.7 million, down 25.4% from gross profit of $9.0 million in the third quarter of 2006. Gross margin was 16.4% in the quarter, down from 20.9% in the same period last year. The decrease was due to an increase in the average price of raw coal from $47 per ton in the third quarter of 2006 to approximately $50 per ton in the current quarter.
Operating expenses for the third quarter of 2007 were $1.1 million, down 35.7% from the same period last year, due to lower legal and professional fees. Selling expenses also declined, due to lower shipping charges from decreased tonnage sales to customers outside Shanxi Province in the third quarter of 2007. As a percentage of revenue, operating expenses were 2.8% in the third quarter of 2007, compared to 4.2% in the same quarter last year.
Operating income was $5.5 million, or 13.6% of revenue, down 22.9% from $7.1 million, or 16.8% of revenue, in the third quarter of 2006.
Net income was $3.4 million, or $0.03 per fully diluted share, compared to a net income of $2.2 million, or $0.02 per fully diluted share, in the third quarter of 2006. Adjusting net income to exclude non-cash debt financing and other expenses related to the Company’s convertible debt and warrants, adjusted net income was $3.0 million, or $0.03 per fully diluted share, in the third quarter of 2007, down from adjusted net income of $4.0 million, or $0.03 per diluted share, in the same period of 2006.
Results for the Nine Months ended Sep 30, 2007
Net revenue was $116.0 million in the first nine months of 2007, up 23.0% from $94.4 million in the same period last year. Gross profit was $20.8 million, or 17.9% of revenue, up 6.8% from $19.5 million, or 20.6% of revenue in the same period last year. Operating income was $17.1 million, or 14.7% of revenue, up 9.3% from $15.6 million, or 16.6% of revenue in the same period last year. Net income was $6.5 million, or $0.07 per fully diluted share, compared to a net loss $4.6 million, or $(0.06) per fully diluted share, in the same period last year. Adjusting net income to exclude non-cash debt financing and other expenses related to the Company’s convertible debt and warrants, adjusted net income was $9.2 million, or $0.10 per fully diluted share, in the first nine months of 2007, up 8.2% from $8.5 million, or $0.11 per fully diluted share, in the same period last year.
Financial Condition
As of September 30, 2007, Puda Coal had $1.8 million in cash and cash equivalents, $39.6 million in working capital and a current ratio 3.5:1. Puda Coal used $17.4 million in cash flow from operations in the first nine months of 2007, which includes a $20.0 million increase in raw coal inventory in an effort to mitigate rising raw materials prices. Long-term debt, excluding current portion, was $18.8 million and shareholders’ equity stood at $39.5 million.
Business Outlook
Management anticipates that China’s strong economic growth will continue in 2007 and believes that this will drive the demand for steel and high-grade metallurgical coking coal. Despite the strong demand, Puda Coal is experiencing higher raw coal prices and increased competition as the larger steel groups have begun sourcing a more of their coal washing needs from internal coke mills and many coal mining companies have begun to integrate downstream by establishing coal washing operations.
As a result, the company has modified its strategy and is seeking to acquire coal mines in an effort to vertically integrate its coal washing operations. In September 2007, the Company entered into an agreement to purchase the Jingle Muguashan coal mine in Jingle County, Shanxi Province. The Jingle Muguashan agreement is contingent on the Company’s receipt of a mining permit.
”While we expect the market to remain competitive over the next several quarters, we will actively seek to increase our sales while attempting to preserve our margins,” said Mr. Zhao. ”Given the current environment, we are seeking to acquire coal mines to take advantage of the strong demand for raw coal in China and improve profitability. We have already identified one potential acquisition and are carefully reviewing a number of other opportunities.”
For fiscal 2007 Puda Coal expects revenues of approximately $160 million and operating income of approximately $22 million.
Subsequent Events
In October 2007, Puda Coal announced the establishment of Compensation and Nominating and Corporate Governance committees as part of its ongoing effort to improve corporate governance. The Compensation and Nominating and Corporate Governance committees are comprised of Puda Coal’s three independent directors: Jianfei Ni, C. Mark Tang and Lawrence S. Wizel. Mr. Jianfei Ni will serve as the chair of the Compensation committee and Mr. C. Mark Tang will serve as chair of the Nominating and Corporate Governance committee. The Company’s Audit committee was established in August 2007, and is chaired by Mr. Wizel.
In November 2007, the Company announced it engaged Deloitte & Touch Tohmatsu CPA Ltd. (”Deloitte & Touche”) to assist the Company in reaching compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Under the consulting agreement, Deloitte & Touche will assist Puda Coal and its subsidiaries in reviewing and documenting its internal controls for financial reporting and disclosure, providing recommendations regarding remediation of any deficiencies and overseeing the implementation of these recommendations.
Conference Call
The Company will host a conference call at 9:00 am EST on Monday, November 19, 2007, to discuss results for the third quarter ended September 30, 2007. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (866) 800-8648. International callers should dial (617) 614-2702. The passcode for the call is 886 223 15. If you are unable to participate in the call at this time, a replay will be available on Monday, November 19 at 11:00 a.m. EST, through Monday, November 26, 2007 at 11:00 a.m. EST. To access the replay, dial (888) 286-8010. International callers should dial (617) 801-6888. The conference passcode is 497 690 37.
Use of Non-GAAP Financial Information
GAAP results for the three and nine month periods ended September 30, 2007 and September 30, 2006 include certain non-cash debt financing and other expenses related to the Company’s convertible notes and warrants. To supplement the Company’s condensed 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. 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. A reconciliation of adjustments to GAAP results appears below. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.
About Puda Coal, Inc.
Puda Coal, through its affiliates and controlled entities, supplies premium grade coking coal to the steel making industry for use in making coke. The Company currently possesses 3.5 million metric tons of annual coking coal cleaning capacity, and management believes it is the largest coking coal cleaning Company in terms of capacity in Shanxi Province, China. Shanxi Province provides 20 – 25% of China’s coal output and supplies nearly 50% of China’s coke.
FORWARD-LOOKING STATEMENTS
The information contained herein includes forward-looking statements. These statements relate to future events or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward- looking statements. You should not place undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. The safe harbor for forward-looking statements contained in the Securities Litigation Reform Act of 1995 protects companies from liability for their forward-looking statements if they comply with the requirements of the Act.
— FINANCIAL TABLES FOLLOW — PUDA COAL, INC. CONSOLIDATED BALANCE SHEETS September 30, 2007 and December 31, 2006 (In thousands of United States dollars) September 30, December 31, 2007 2006 ASSETS (unaudited) CURRENT ASSETS Cash and cash equivalents $1,817 $24,943 Restricted cash 233 233 Accounts receivable, net 7,754 7,186 Other receivables – Related parties 7 9 – Third parties 6 40 Advances to suppliers – Related parties 597 602 – Third parties 1,205 538 VAT recoverable 958 — Deferred charges — 171 Inventories 42,854 15,663 Total current assets 55,431 49,385 PROPERTY, PLANT AND EQUIPMENT, NET 15,264 9,870 INTANGIBLE ASSETS, NET 3,503 3,729 TOTAL ASSETS $74,198 $62,984 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Current portion of long-term debt – Related party $1,300 $1,300 Accounts payable – Related parties 205 221 – Third parties 2,714 2,531 Other payables – Related parties 3,626 901 – Third parties 2,672 2,113 Accrued expenses 1,021 951 Income taxes payable 1,901 2,485 VAT payable — 1,204 Distribution payable 1,069 1,026 Penalty payable 1,342 204 Total current liabilities 15,850 12,936 LONG-TERM LIABILITIES Long-term debt – Related party 9,425 10,400 Convertible notes 1,798 3,108 Derivative conversion feature 1,149 2,406 Derivative warrants 6,453 8,380 Total long-term liabilities 18,825 24,294 COMMITMENTS AND CONTINGENCIES TEMPORARY EQUITY Option to buy-out Shanxi Coal — 2,717 STOCKHOLDERS’ EQUITY Preferred stock, authorized 5,000,000 shares, par value $0.01, issued and outstanding None — — Common stock, authorized 150,000,000 shares, par value $0.001, issued and outstanding 100,902,176 101 93 Paid-in capital 24,613 16,506 Statutory surplus reserve fund 1,366 1,366 Retained earnings 10,475 3,933 Accumulated other comprehensive income 2,968 1,139 Total stockholders’ equity 39,523 23,037 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $74,198 $62,984 PUDA COAL, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS For the three and nine months ended September 30, 2007 and 2006 (In thousands of United States dollars, except for per share data) Three months Three months Nine months Nine months ended ended ended ended 30-Sep-07 30-Sep-06 30-Sep-07 30-Sep-06 NET REVENUE 40,536 42,650 116,048 94,364 COST OF REVENUE (33,881) (33,725) (95,260) (74,899) GROSS PROFIT 6,655 8,925 20,788 19,465 OPERATING EXPENSES Selling expenses 694 1,145 2,240 2,192 General and administrative expenses 452 636 1,444 1,627 TOTAL OPERATING EXPENSES 1,146 1,781 3,684 3,819 INCOME FROM OPERATIONS 5,509 7,144 17,104 15,646 INTEREST INCOME 18 26 58 38 INTEREST EXPENSE (345) (577) (1,346) (2,356) DEBT FINANCING COSTS (515) (1,672) (1,921) (9,513) DERIVATIVE UNREALIZED FAIR VALUE GAIN/(LOSS) 588 (314) (1,260) (3,327) INCOME BEFORE INCOME TAXES 5,255 4,607 12,635 488 INCOME TAXES (1,890) (2,441) (6,093) (5,130) NET INCOME/(LOSS) 3,365 2,166 6,542 (4,642) OTHER COMPREHENSIVE INCOME Foreign currency translation adjustment 654 321 1,804 548 COMPREHENSIVE INCOME/(LOSS) 4,019 2,487 8,346 (4,094) NET INCOME/(LOSS) 3,365 2,166 6,542 (4,642) LESS: DIVIDENDS Option holder preference dividend — (2,717) — (2,717) Common dividend — — — — UNDISTRIBUTED EARNINGS 3,365 (551) 6,542 (7,359) BASIC EARNINGS/(LOSS) PER SHARE – Option holder preference — 0.04 — 0.04 – Other common holders 0.03 (0.01) 0.07 (0.10) 0.03 0.03 0.07 (0.06) DILUTED EARNINGS/(LOSS) PER SHARE – Option holder preference — 0.04 — 0.04 – Other common holders 0.03 (0.02) 0.07 (0.10) 0.03 0.02 0.07 (0.06) WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING – BASIC 100,188,544 80,654,578 97,017,522 77,920,661 – DILUTED 116,548,514 118,452,056 97,023,280 77,920,661 PUDA COAL, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2007 and 2006 (In thousands of United States dollars) Nine months ended September 30, 2,007 2,006 CASH FLOWS FROM OPERATING ACTIVITIES: Net income/(loss) 6,542 (4,642) Adjustments to reconcile net income/(loss) to net cash provided by operating activities Amortization of land-use rights 59 58 Depreciation 872 711 Provision for doubtful debts 1 12 Amortization of debt issue costs 6 821 Amortization of discount on convertible notes and warrants 777 7,871 Derivative unrealized fair value loss 1,260 3,327 Discount on converted shares and exercised warrants 638 1,146 Issue of common stock for services — 21 Changes in operating assets and liabilities: Increase in accounts receivable (265) (3,760) Decrease/(increase) in other receivables 38 (1) (Increase)/decrease in advances to suppliers (602) 1,760 Increase in VAT recoverable (938) — Increase in inventories (26,007) (6,041) Increase in accounts payable 51 1,184 Increase in accrued expenses 34 236 Increase in other payables 877 902 (Decrease)/increase in income tax payable (673) 1,056 (Decrease)/increase in VAT payable (1,228) 218 Increase in penalty payable 1,138 821 Decrease in restricted cash — 382 Net cash (used in)/provided by operating activities (17,420) 6,082 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (5,977) — Net cash used in investing activities (5,977) — CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of warrants 1,110 1,800 Repayment of long-term debt (975) (975) Net cash provided by financing activities 135 825 Effect of exchange rate changes on cash 136 569 Net (decrease)/increase in cash and cash equivalents (23,126) 7,476 Cash and cash equivalents at beginning of period 24,943 12,067 Cash and cash equivalents at end of period 1,817 19,543 PUDA COAL, INC. RECONCILIATION OF NON-GAAP FINANCIAL DATA Adjusted Net income Q3 2007 Q3 2006 ($ in thousands except per share data) Net Diluted Net Diluted Net Income (Loss) Diluted EPS Income EPS Income EPS Adjusted Amount 3,039 0.03 3,966 0.03 Adjustments Non cash debt financing costs (1) 132 0.00 1,288 0.01 Unrealized derivative fair value gain/Loss (2) (588) (0.01) 314 0.00 Discount on converted shares and exercised warrants(3) 130 0.00 198 0.00 Amount per consolidated statement of operations 3,365 0.03 2,166 0.02 (1) Non cash debt financing costs for Q3 2007 includes amortization of debt issue costs of $0, amortization of discount on convertible notes and warrants of $132,000; Non cash debt financing costs for Q3 2006 includes amortization of debt issue costs of $53,000, amortization of discount on convertible notes and warrants of $1,235,000. (2) Derivative unrealized fair value gain for Q3 2007 was 588,000; derivative unrealized fair value loss for Q3 2006 was $314,000. (3) Discount on converted shares and exercised warrants for Q3 2007 was $130,000; Discount on converted shares and exercised warrants for Q3 2006 was $198,000. Nine months Nine months ended ended Adjusted Net income Sep 30, 2007 Sep 30, 2006 ($ in thousands except per share data) Net Diluted Net Diluted Net Income (Loss) Diluted EPS Income EPS Income EPS Adjusted Amount 9,224 0.10 8,522 0.11 Adjustments Non cash debt financing costs (1) 784 0.01 8,692 0.11 Unrealized derivative fair value gain/Loss (2) 1,260 0.01 3,327 0.04 Discount on converted shares and exercised warrants(3) 638 0.01 1,145 0.01 Amount per consolidated statement of operations 6,542 0.07 (4,642) (0.06) (1) Non cash debt financing costs for the nine months ended Sep 30, 2007 includes amortization of debt issue costs of $6,000, amortization of discount on convertible notes and warrants of $778,000; Non cash debt financing costs for the nine months ended Sep 30, 2006 includes amortization of debt issue costs of $821,000, amortization of discount on convertible notes and warrants of $7,871,000. (2) Derivative unrealized fair value loss for the nine months ended Sep 30, 2007 was $1,260,000; Derivative unrealized fair value loss for the nine months ended Sep 30, 2006 was $3,327,000. (3) Discount on converted shares and exercised warrants for the nine months ended Sep 30, 2007 was $638,000; Discount on converted shares and exercised warrants for the nine months ended Sep 30, 2006 was $1,145,000. For more information, please contact: Investor Relations Contact: Crocker Coulson, President CCG Elite Tel: +1-646-213-1915 Email: crocker.coulson@ccgir.com Company Contact: Wenwei Tian, Director of Investor Relations Puda Coal, Inc. Tel: +86-351-228-1302 Email: awtian@yahoo.com
Puda Coal, Inc.
CONTACT: Investor Relations Contact, Crocker Coulson, President of CCGElite, +1-646-213-1915, or crocker.coulson@ccgir.com; or Company Contact,Wenwei Tian, Director of Investor Relations of Puda Coal, Inc., +86-351-228-1302, or awtian@yahoo.com