China Clean Energy Announces Second Quarter 2008 Results
— Revenue up 22.5% from first quarter 2008 — Net Income up 240.5% from first quarter 2008
FUQING CITY, China, Aug. 14 /Xinhua-PRNewswire-FirstCall/ — China Clean Energy Inc. (BULLETIN BOARD: CCGY) (”China Clean Energy”, the ”Company”), a leading producer of environmentally friendly specialty chemical products made from renewable resources in The People’s Republic of China (”PRC”), today reported financial results for the second quarter ended on June 30, 2008.
Second Quarter 2008 Highlights — Revenue was $ 5.48 million, up 22.3% sequentially, and 4.3% from the second quarter of 2007 — Gross profits was $ 1.36 million, up 30.2% sequentially, and down 5.0% from the second quarter of 2007 — Operating income totaled $744,802, up 139.0% sequentially, and down 9.0% from the second quarter of 2007 — Net income was $557,690 up 240.5% sequentially, and down 29.7% from the second quarter of 2007 — Earnings per share was $0.02 in the second quarter 2008, down from $0.04 in the second quarter of 2007
”We are very pleased with our results this quarter as we shifted our focus to our specialty chemicals business segment, increased revenue and improved our profitability significantly on a sequential basis to mitigate the loss of our biodiesel revenue following our decision to temporarily halt our biodiesel production in the first quarter of 2008,” said Mr. Tai-ming Ou, Chairman and CEO of China Clean Energy. ”We are also very excited with the recent expansion of our high-purity dimer-acid capacity which we believe will allow us to produce higher value added high-performance hot-melt adhesive positioning us well to continue to grow our revenue and expand our margins as we enter the second half of 2008.”
Second Quarter 2008 Results
Revenue for the second quarter was $5.48 million, an increase of 22.3% from the first quarter of 2008 and 4.3% compared to the same period of last year. Revenue from the specialty chemicals segment represented 100% of total revenue, up from 88% in the first quarter of 2008 and from approximately 76% in the second quarter of 2007. The Company shipped 3,000 tons of specialty chemicals (including dimer acid, printing inks, polyamide resins, hot melt adhesives, plant asphalt). Exports accounted for 20.8% of the Company’s specialty chemical shipments and 26% revenues.
Gross profit for the second quarter 2008 was $1.36 million, up 30.2% from the first quarter of 2008 and down 5% from $1.43 million recorded in the second quarter of 2007. Gross margin for the second quarter of 2008 was 24.8%, up from 23.3% in the first quarter of 2008 and down from 27.2% in the second quarter of 2007. The decrease in gross profit and gross margin from the comparable last year was mainly due to the increase in cost of raw materials, and the sequential improvement resulted from the Company’s shift in focus to higher value unregulated specialty chemical products.
Operating expenses came in at $613,651 for the second quarter of 2008, a 0.3% increase from $611,802 recorded in the second quarter of 2007. The Company’s operating income was $744,802 with operating margin coming in at 13.6% for the second quarter of 2008 compared with approximately $311,686 and 7.0% in the first quarter of 2008 and $818,516 and 15.6% in second quarter of 2007, respectively.
Net income for the second quarter ended 2008 was $557,690 or $0.02 per basic and diluted earnings per share, versus net income of $163,783, or $0.01 per basic and diluted earnings per share in the first quarter of 2008 and $793,110, or $0.04 per share on both basic and diluted basis for the second quarter of 2007.
Six Months 2008 Results
For the six months ended June 30, 2008, net revenue was $9.95 million, up 5.9% from $9.4 million in the comparable period of 2007. Gross profit for the six months ended June 30, 2008 was $2.4 million, a decrease of 7.5% from $2.6 million in the comparable period of 2007. The decrease was attributed to a significant increase in feedstock prices and a decrease in Chinese government export tax rebates from 13% to 5% effective on July 1, 2007. Gross margin decreased to 24.1% in the six months ended June 30, 2008 from 27.5% in the six months ended June 30, 2007. Operating income for the six months ended June 30, 2008 was $1.1 million, down 15.0% from $1.2 million in the comparable period in 2007. Operating margin was 10.6% for the six months ended June 30, 2008 compared to 13.2% in the comparable period in 2007. Net Income for the six months ended June 30, 2008 was $749,227, a decrease of 37.2% from $1.2 million in the comparable period in 2007. Basic and diluted earnings per share were $0.03 for the six months ended in June 30, 2008 compared to $0.06 for six months ended in June 30, 2007.
Financial Condition
At June 30, 2008, China Clean Energy had $7.4 million in total cash and approximately $12.7 million in working capital, and $0.14 million in debt. Cash flow from operations for the six months ended June 30, 2008 totaled $165,964, down from $0.5 million in the comparable period in 2007. Capital expenditures totaled $6.8 million in the six months ended June 30, 2008. Shareholders’ equity was $31.5 million, compared to $14.8 million at the end of 2007.
Business Outlook
The Company continues to evaluate the biodiesel market opportunity and hopes in the future to be able to re-start its biodiesel production. At this time, waste vegetable oil feedstock prices remain high at RMB 5,000 while diesel prices which are set by the Chinese government remain at RMB 7,300 making biodiesel production unattractive. In the near term however, the Company believes the recent expansion of its high-purity dimer-acid capacity to 3,000 tons per year will allow it to expand its sales of high-performance hot-melt adhesives. The company expects to reach 100% capacity in its high-purity dimer-acid facility by first half of 2009, allowing it to increase shipments of high-performance hot-melt adhesives significantly from current levels. The Company estimates that the high performance hot melt adhesives market opportunity in China is in excess of 30,000 tons per year, with most of it currently source by imports at prices close to $7,000 per ton.
”We are very pleased with the speed with which we have re-directed our focus and efforts to grow our specialty chemical segment and restore our margins and we have renewed confidence in our ability to execute our business plan to maintain strong financial performance in the quarters ahead. We also expect to grow revenues by 5-10% in 2008 compared to 2007,” said Mr. Tai-Ming Ou.
As was previously disclosed, China Clean Energy’s new plant in Jiangyin industrial park will be able to produce either 100,000 tons of biodiesel or 100,000 tons of specialty chemicals or a combination of both. The Company believes that its ability to switch between biodiesel and specialty chemical production to take advantage of prevailing market conditions is a key strength of its business model, and an important tool for reducing risk and creating value for our shareholders.
Conference Call
China Clean Energy will hold its second quarter conference call for all interested persons at 10:30 a.m. Eastern Time on August 14, 2008 to discuss its results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 1-888-481-7939. International callers should dial +1-617-847-8707. When prompted by the operator, mention Conference Passcode 11556070. If you are unable to participate in the call at this time, a replay will be available for fourteen days starting on Thursday, August 14 at 1:00 p.m. Eastern Time. To access the replay, dial 888-286-8010 and International callers should dial 617-801-6888 and enter the passcode 69525203.
This conference call will be broadcast live over the Internet and can be accessed by all interested parties on China Clean Energy’s website at http://www.chinacleanenergyinc.com/ . To listen to the live webcast, please go to China Clean Energy’s website at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available shortly after the call on China Clean Energy’s website for 90 days.
About China Clean Energy:
China Clean Energy, through its wholly-owned subsidiaries, Fujian Zhongde Technology Co., Ltd. and Fujian Zhongde Energy Co., Ltd, is engaged in the development, manufacturing, and distribution of specialty chemical products made from renewable resources.
Safe Harbor Statement
This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to, the Company’s ability to raise additional capital to finance the Company’s activities; the effectiveness, profitability, and the marketability of its products; legal and regulatory risks; the future trading of the common stock of the Company; the period of time for which its current liquidity will enable the Company to fund its operations; the Company’s ability to protect its proprietary information; general economic and business conditions; the volatility of the Company’s operating results and financial condition; the Company’s ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed in the Company’s filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the Company and the industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, they cannot assure you that their expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.
–FINANCIAL TABLES FOLLOW– CHINA CLEAN ENERGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (Unaudited) Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 REVENUES $5,478,785 $5,255,040 $9,951,794 $9,393,406 Less: cost of goods sold 4,120,332 3,824,722 7,550,105 6,814,671 GROSS PROFIT 1,358,453 1,430,318 2,401,689 2,578,735 OPERATING EXPENSE Selling and marketing 49,040 224,048 136,921 437,291 General and administrative 444,288 284,432 968,078 674,492 Depreciation and amortization 69,101 71,941 149,198 133,402 Research and development 51,222 31,381 91,004 90,885 Total operating expense 613,651 611,802 1,345,201 1,336,070 INCOME FROM OPERATIONS 744,802 818,516 1,056,488 1,242,665 OTHER INCOME (EXPENSE) Interest income 10,411 1,429 17,433 3,931 Interest expense — (26,835) – (52,780) Bank fees (7,625) — (7,625) — Foreign currency transaction loss (47,615) — (77,712) — Loss on disposal of fixed assets — — (490) — Total other expense (44,829) (25,406) (68,394) (48,849) INCOME BEFORE INCOME TAXES 699,973 793,110 988,094 1,193,816 PROVISION FOR INCOME TAXES 142,283 — 238,866 — NET INCOME 557,690 793,110 749,228 1,193,816 OTHER COMPREHENSIVE INCOME Foreign currency translation adjustment 708,840 150,233 1,872,058 257,197 COMPREHENSIVE INCOME $1,266,530 $943,343 $2,621,286 $1,451,013 BASIC AND DILUTED EARNINGS PER SHARE Weighted average number of shares 31,512,269 21,512,269 31,017,764 21,512,269 Earnings per share $0.02 $0.04 $0.02 $0.06 CHINA CLEAN ENERGY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2008 AND DECEMBER 31, 2007 A S S E T S June 30, December 31, 2008 2007 (Unaudited) CURRENT ASSETS Cash and cash equivalents $7,387,647 $1,133,555 Accounts receivable, net of allowance for doubtful accounts of $238,759 and $407,593, as of June 30, 2008 and December 31, 2007, respectively 1,629,377 2,795,363 Inventories 1,278,681 1,361,478 Advances for inventory purchase 2,985,454 — Prepaid expenses and other receivables 1,142 179,815 Total current assets 13,282,301 5,470,211 PROPERTY, PLANT AND EQUIPMENT, NET 10,453,655 5,820,045 INTANGIBLE ASSETS, NET 5,163,158 4,879,635 ADVANCES ON EQUIPMENT PURCHASES 3,406,694 872,974 TOTAL ASSETS $32,305,808 $17,042,865 L I A B I L I T I E S A N D S H A R E H O L D E R S’ E Q U I T Y CURRENT LIABILITIES Accounts payable $188,133 $150,557 Customer deposits 150 181,825 Accrued liabilities 129,860 83,824 Salaries payable 35,740 31,425 Value added tax payables 22,638 320,397 Other taxes payable 17,307 13,652 Short-term bank loans — 1,028,228 Long-term bank loans – current portion 225,413 202,792 Total current liabilities 619,241 2,012,700 NONCURRENT LIABILITIES Long-term bank loans 141,572 241,097 TOTAL LIABILITIES 760,813 2,253,797 SHAREHOLDERS’ EQUITY Preferred stock, par value $0.001 per share, authorized 10,000,000 shares, no shares issued and outstanding as of June 30, 2008 and December 31, 2007 — — Common stock, par value $0.001 per share, authorized 90,000,000 shares, 31,512,269 and 21,512,269 shares issued and outstanding as of June 30, 2008 and December 31, 2007, respectively 31,512 21,512 Additional paid-in capital 21,159,114 7,034,473 Statutory reserves 1,195,746 785,536 Retained earnings 6,075,123 5,736,105 Accumulated other comprehensive income 3,083,500 1,211,442 31,544,995 14,789,068 Total liabilities and shareholders’ equity $32,305,808 $17,042,865 CHINA CLEAN ENERGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (Unaudited) 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES Net income $749,228 $1,193,816 Adjusted to reconcile net income to cash provided by operating activities: Depreciation 313,931 264,231 Recovery of bad debt expense (189,579) Amortization of intangible assets 107,207 98,387 Stock-based compensation expense 507,238 — Writedown on inventory 29,043 — Loss on disposal of assets 490 — Changes in operating assets and liabilities Accounts receivable 1,497,611 (300,992) Inventories 136,437 (82,357) Advances for inventory purchase (2,902,377) (364,289) Prepaid expenses and other receivables 183,807 (270,251) Accounts payable 30,537 107,239 Customer deposit (187,969) — Other payables and accrued liabilities 45,657 — Value added tax payables (309,474) — Income tax and other tax payables 154,177 (117,964) Net cash provided by operating activities 165,964 527,820 CASH FLOWS FROM INVESTING ACTIVITIES Addition to construction in progress (2,484,544) — Purchase of property and equipment (1,950,320) (89,805) Proceeds from sale of equipment 1,747 — Advances equipment purchases (2,408,720) (1,856,322) Net cash used in investing activities (6,841,837) (1,946,127) CASH FLOWS FROM FINANCING ACTIVITIES Decrease due to related parties — (6,419) Net proceeds from issuance of common stock 13,627,403 — Decrease on short-term bank loan (1,054,467) (108,053) (Decrease) increase on long- term bank loans (111,805) 328,971 Net cash provided by financing activities 12,461,131 214,499 EFFECT OF EXCHANGE RATE ON CASH 468,834 80,431 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,254,092 (1,123,377) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,133,555 2,241,712 CASH AND CASH EQUIVALENTS AT END OF PERIOD $7,387,647 $1,118,335 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest expense $36,861 $52,780 Income taxes $86,113 $– For more information, please contact: China Clean Energy Inc. Mr. Shannon Yan, CFO Email: shannon.yan@chinacleanenergyinc.com CCG Elite Investor Relations Inc. Mr. Crocker Coulson, President Tel: +1-646-213-1915 (New York) Mr. Ed Job, CFA Tel: +1-646-213-1914 (New York)
China Clean Energy Inc.
CONTACT: Mr. Shannon Yan, CFO of China Clean Energy Inc.,shannon.yan@chinacleanenergyinc.com; or at CCG Elite Investor Relations Inc.,Mr. Crocker Coulson, President, +1-646-213-1915 (New York), or Mr. Ed Job, CFA,+1-646-213-1914 (New York), both for CCGY
Web Site: http://www.chinacleanenergyinc.com/