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China Clean Energy Announces Second Quarter 2010 Financial Results, Provides Guidance for Fiscal Year 2010

2010-08-16 18:02 994
    FUQING CITY, China, Aug. 16 /PRNewswire-Asia/ -- China Clean Energy Inc. (OTC Bulletin Board: CCGY) ("China Clean Energy", the "Company"), a producer of biodiesel fuel and environmentally-friendly specialty-chemical products made from renewable resources in China, today reported its financial results for the second quarter ended June 30, 2010.

    Second Quarter 2010 Highlights
    -- Revenue totaled $14.1 million, up 232% from the same period in 2009 and 
       up 31.7% from the first quarter 2010
    -- Gross profit totaled $2.7 million, up 199% from the same period in 2009 
       and up 84.3% from the first quarter 2010
    -- Gross margin was 19.4%, compared to 21.5% in the same period in 2009 
       and 13.8% in the first quarter 2010
    -- Operating income was $2.1 million, up 334% from the same period in 2009 
       and up 117% from the first quarter 2010
    -- Net income was $1.9 million, or $0,06 per fully-diluted share, compared 
       to a net loss of $0.1 million in the second quarter 2009 and net income 
       of $0.4 million, or $0.01 per fully-diluted share in the first quarter 
       2010
    -- Cash and cash equivalents totaled $7.3 million at the end of June 2010, 
       compared to $4.2 million at year-end 2009 and $5.3 million at the end 
       of March 2010

    Six Months 2010 Highlights
    -- Revenue totaled $24.9 million, up 252% from the same period in 2009
    -- Gross profit totaled $4.2 million, up 232% from the same period in 2009
    -- Gross margin was 17.0%, compared to 18.0% in the same period in 2009
    -- Operating income was $3.1 million, up 835% from the same period in 2009
    -- Net income was $2.3 million, or $0.07 per fully-diluted share, compared 
       to a net loss of $0.2 million, or $0.01 per fully-diluted share in the 
       six months 2009


    "Our results for the second quarter exceeded our expectations as we successfully ramped-up production at our Jiangyin plant, and benefited from the positive macroeconomic environment," said Mr. Tai-ming Ou, China Clean Energy's Chairman and CEO. "During the quarter we also took advantage of our larger scale and improved technology to expand our customer base and improve our margins. As we look to the future, we remain confident we can sustain our growth momentum to reach full capacity at our Jiangyin plant by the end of this year. In addition, we also expect to take steps and make the necessary changes to qualify for a listing on a senior exchange."

    Second Quarter 2010 Results

    China Clean Energy's net revenue in the second quarter was $14.1 million, up 232% from the second quarter 2009. The increase in revenue was driven by higher sales volume and higher average selling prices for both specialty chemicals and biodiesel product segments. Specialty chemicals sales volume was up 183% year-over-year to 7,503 tons, and average selling price was up 8.3% year-over-year to RMB 9,497 ($1,406) per ton. Biodiesel sales volume was up 265% to 5,446 tons in the second quarter 2010, and average selling price was up 19.0% in the same period to RMB 4,605 ($682) per ton. Specialty-chemicals and biodiesel represented 74% and 26% of net revenue in the quarter, respectively. Approximately 62% of revenue was contributed by the Jiangyin plant. Exports totaled $3.0 million, representing 21.3% of total revenue.

    Gross profit in the second quarter 2010 was $2.7 million, up 199% from the second quarter 2009. The increase in gross profit was mostly driven by the increase in revenue. Gross margin was 19.4% in the second quarter 2010, compared to 21.5% in the same period in 2009 and 13.8% in the first quarter 2010. The year-over-year decrease in gross margin is due to the significant increase in sales volume of biodiesel, which reduced the average gross margin. The sequential increase in gross margin is the result of optimized product mix and lower raw materials prices compared to the first quarter of 2010. 

    Operating expense in the second quarter 2010 was $0.6 million representing a 40.3% increase from the second quarter 2009. The increase in operating expense is the result of higher sales and marketing expense to support revenue growth as well as the increase in expenses related to the commercial operation of the Jiangyin plant. Operating income in the second quarter 2010 was $2.1 million, up 334% from the second quarter 2009. Operating margin for the second quarter 2010 was 15.2%, compare to 11.6% in the same period of 2009.

    Other income totaled $267,098, including $363,110 associated with change in fair value of warrant liabilities offset by $110,536 in net interest expense. Tax provision for the quarter totaled $462,927. 

    Net income for the second quarter 2010 was $1.9 million, or $0.06 per fully-diluted share, compared to a net loss of $0.1 million in the second quarter 2009. Net income for the second quarter includes $363,110 non-cash income to account for change in the value of warrant liabilities. 

    Adjusted net income excluding the change in the value of warrant liabilities totaled $1.7 million or $0.05 per fully-diluted share, an increase of 251% from $0.5 million in the second quarter 2009, or $0.02 per 
fully-diluted share. For a complete reconciliation of adjusted financial information to nearest GAAP equivalent, please see the table elsewhere in this press release.

    Six Months 2010

    Revenue for the first six months of 2010 was $24.9 million, up 252% from revenue of $7.1 million for the first six months of 2009. Gross profit was $4.2 million, up 232% from gross profit of $1.3 million for the six months of 2009. Gross margin was 17.0%, compared to 18.0% for the first six months of 2009. Net income was $2.3 million, or $0.07 per fully-diluted share, compared to a net loss of $0.2 million, or $0.01 per fully-diluted share in the six months 2009. After adjusting for the changes in fair value of warrant liabilities and stock-based compensation, non-GAAP net income for the first six months of 2010 was $2.5 million, or $0.08 per fully-diluted share, an increase of 518% from $0.4 million in the corresponding period of 2009, or $0.01 per fully-diluted share.

    Financial Condition

    As of June 30, 2010, China Clean Energy had $7.3 million in total cash, approximately $10.3 million in working capital, and $5.0 million in total debt. Stockholders' equity at June 30, 2010 stood at $34.2 million, or approximately $1.1 per share.

    Recent Developments

    In the second quarter 2010, the Company added three new clients for its biodiesel product, including Xingtai Dahai Dyestuffs & Chemicals Co., Ltd., Guangzhou Gaowang Gas Appliances Co., Ltd. and Hubei Xiangyu Chemicals Co., Ltd.. In addition, the Company cooperated with two trading companies to boost its biodiesel sales, including Wuxi Duolijia Trading Co., Ltd. and Shanghai Jinjin Trading Co., Ltd.

    Business Outlook

    China Clean Energy's Jiangyin plant produced 4,376 tons specialty chemicals and 4,961 tons biodiesel in the second quarter 2010, representing 58% and 50% of the estimated full capacity. Jiangyin plant's output in the quarter accounted for 72.1% in total volume and 61.7% in total revenue. Management continues to expect ramp-up of the new plant to full capacity by the end of the year 2010. 

    Mr. Ou added, "Looking ahead, we expect the macroeconomic environment to remain positive and demand for our products to remain strong in the second half of the year. Based on our existing order book and the positive feedback from our clients, we expect to deliver revenue of approximately $15.3 million in the third quarter 2010, representing an increase of approximately 283% over the third quarter 2009. The operating income is expected to reach $2.4 million, representing an increase of approximately 700% over the third quarter 2009. As for the full year 2010, our revenue is expected to reach $57 million, representing a year-over-year increase of 258%; our operating income is expected to reach $8.2 million, representing a year-over-year increase of 811%."

    Conference Call

    China Clean Energy will hold its second quarter 2010 conference call for all interested persons at 10:00 a.m. Eastern Time on Monday, August 16, 2010 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 (877) 411-1651. International callers should dial +1 (706) 679-8912. When prompted by the operator, mention conference pass code 90975120. If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Monday, August 16, 2010, at 11:00 a.m. eastern time. To access the replay, please dial +1 (800) 642-1687, international callers dial +1 (706) 645-9291, and enter the pass code 90975120.

    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 biodiesel and specialty chemical products made from renewable resources. For additional information please visit: http://www.chinacleanenergyinc.com

    Safe Harbor Statement

    This announcement contains forward-looking statements. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to, the effectiveness, profitability, and the marketability of the Company's products; the future trading of the common stock of the Company; the ability of the Company to capitalize on its expanded production capacity; 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 resulting from changes in raw material prices, international oil prices and price controls imposed by the Chinese government; 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, it cannot assure you that the Company's expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.

    For more information, please contact: 

    China Clean Energy Inc.
     William Chen, CFO
     Email: william.chen@chinacleanenergyinc.com
     Website: http://www.chinacleanenergyinc.com

    CCG Investor Relations Inc.
     Ed Job, CFA
     Phone: +86-138-1699-7314
     Email: ed.job@ccgir.com

     Raymond M. Campos, Sr. MI Executive
     Phone: +1-310-954-1354
     Email: raymond.campos@ccgir.com
     Website: http://www.ccgirasia.com


                            --FINANCIAL TABLES FOLLOW-



                     CHINA CLEAN ENERGY INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
                                      (LOSS)
                                   (UNAUDITED)
    
                                Three months ended       Six months ended
                                      June 30                 June 30
                                 2010        2009         2010        2009
    
    REVENUES                 $14,140,437  $4,259,747  $24,878,128  $7,066,009
    Less: cost of goods sold  11,400,938   3,341,962   20,652,433   5,791,892
    GROSS PROFIT               2,739,499     917,785    4,225,695   1,274,117
    
    OPERATING EXPENSES
      Selling and marketing      117,435      96,370      171,481     144,426
      General and           
       administrative            442,169     297,257      874,449     738,647
      Research and          
       development                34,476      29,688       44,378      55,612
          Total operating   
           expenses              594,080     423,315    1,090,308     938,685
    
    INCOME FROM OPERATIONS     2,145,419     494,470    3,135,387     335,432
    
    OTHER INCOME (EXPENSE)
       Interest income      
        (expense), net          (110,536)       (397)    (167,998)        556
      Other income (expense)      14,524      (4,821)      14,641      (5,922)
      Change in fair value  
       of warrants liability     363,110    (413,662)       5,753    (387,598)
          Total other income
           (expenses)            267,098    (418,880)    (147,604)   (392,964)
    
    INCOME (LOSS) BEFORE    
     PROVISION FOR INCOME   
     TAXES                     2,412,517      75,590    2,987,783     (57,532)
    
    PROVISION FOR INCOME    
     TAXES                       462,927     152,422      688,021     162,784
    
    NET INCOME (LOSS)          1,949,590     (76,832)   2,299,762    (220,316)
    
    COMPREHENSIVE INCOME    
     (LOSS)
       Foreign currency     
        translation         
        adjustment                29,400      (1,851)      28,417     (47,061)
    
    COMPREHENSIVE INCOME    
     (LOSS)                   $1,978,990    $(78,683)  $2,328,179   $(267,377)
    
    
    BASIC AND DILUTED       
     EARNINGS (LOSS) PER    
     SHARE
       Weighted average     
        number of shares      31,512,269  31,512,269   31,512,269  31,512,269
       Earnings per share         $0.063     $(0.002)      $0.074     $(0.007)



                  CHINA CLEAN ENERGY INC. AND SUBSIDIARIES
              RECONCILIATION OF ADJUSTED NET INCOME TO NET INCOME

    The management of China Clean Energy uses non-GAAP adjusted net earnings to measure the performance of the Company's business internally by excluding non-recurring items as well as non-cash charges related to the warrants issued in connection with the Company's 2008 Private Placement offering. The Company's management believes that these non-GAAP adjusted financial measures allow the management to focus on managing business operating performance because these measures reflect the essential operating activities of China Clean Energy and provide a consistent method of comparison to historical periods. The Company believes that providing the non-GAAP measures - which management uses internally - 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 without variation of non-recurring items and non-operating related charges. In addition, it allows investors to better evaluate the Company's performance using the same methodology and information as those used by the 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 measure. However, the management of China Clean Energy compensates for these limitations by providing the relevant disclosure of the items excluded.

    The following table provides the non-GAAP financial measure and a reconciliation of the non-GAAP measure to the GAAP net income.

                                                                      
                                                       
                                  Three months ended      Six months ended           
                                        June 30,               June 30,
                                    2010        2009       2010        2009 
                                                                         
 
    Net Income (Loss)            $1,949,590  $(76,832)  $2,299,762  $(220,316)
      Add back (Deduct):                                                            
        Change in fair                                                       
         value of warrant        $ (363,110) $413,662   $   (5,753) $ 387,598 
        Stock-based compensation $  106,315  $145,429   $  212,630  $ 238,523 
    Adjusted Net Income          $1,692,795  $482,259   $2,506,639  $ 405,805 
                     
    Diluted EPS                  $     0.06  $  (0.00)  $     0.07  $   (0.01)
      Add back (Deduct):                                                            
        Change in fair                                                       
         value of warrant        $    (0.01) $   0.01   $    (0.00) $    0.01 
        Stock-based compensation $     0.00  $   0.00   $     0.01  $    0.01 
    Adjusted EPS                 $     0.05  $   0.02   $     0.08  $    0.01 



                   CHINA CLEAN ENERGY INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS

                               ASSETS
                                                     June 30,     December 31,
                                                       2010          2009
                                                   (Unaudited)
    CURRENT ASSETS
      Cash and cash equivalents                     $7,297,885     $4,154,814
      Restricted cash                                  397,518             --
      Accounts receivable, net of allowance
       for doubtful accounts of $93,870 
       and $93,761                                   3,554,111      1,766,952
      Other current assets                              11,000         11,000
      Deferred tax assets                               69,547         69,466
      Tax Receivables                                  206,579             --
    
      Inventories                                    3,295,003        464,842
      Advances for inventory purchases                 145,686        188,659
        Total current assets                        14,977,329      6,655,733
    
    Plant and Equipment, net                        24,516,209     25,119,034
    Intangible assets, net                           4,768,487      4,860,645
    Total assets                                   $44,262,025    $36,635,412
    
                    LIABILITIES AND SHAREHOLDERS' EQUITY
    
    CURRENT LIABILITIES
      Accounts payable                              $1,654,486       $157,433
      Accrued liabilities                              266,603        279,516
      Customer deposits                                211,910         71,090
      Taxes payable                                    618,782        130,287
      Bankers acceptances                            1,060,695             --
      Bank loans payable - current portion             885,748      3,080,700
        Total current liabilities                    4,698,224      3,719,026
    
    Warrants liability                               1,254,021      1,259,774
    Bank loans payable- net of current   
     portion                                         4,112,360             --
    
        Total liabilities                           10,064,605      4,978,800
    
    COMMITMENTS AND CONTINGENCIES                           --             --
    
    SHAREHOLDERS' EQUITY
      Preferred stock, par value $0.001 per 
       share, authorized 10,000,000 
       shares, no shares issued and outstanding 
       as of June 30, 2010 and December 
       31, 2009, respectively                               --             --
      Common stock, par value $0.001 per   
       share, authorized 90,000,000 shares,
       31,512,269 shares issued and outstanding 
       as of June 30, 2010 and December 
       31, 2009, respectively                           31,512         31,512
      Additional paid-in capital                    12,633,153     12,420,523
      Statutory reserves                             1,630,882      1,630,882
      Retained earnings                             16,707,209     14,407,448
      Accumulated other comprehensive      
       income                                        3,194,664      3,166,247
         Total shareholders' equity                 34,197,420     31,656,612
    
        Total liabilities and shareholders'  
         equity                                    $44,262,025    $36,635,412



                    CHINA CLEAN ENERGY INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                                  For the six months ended
                                                          June 30,
                                                   2010               2009
    CASH FLOWS FROM OPERATING ACTIVITIES
      Net income (loss)                         $2,299,762         $(220,316)
      Adjusted to reconcile net income     
       (loss) to cash provided
       by (used in) operating activities:
          Depreciation                             869,485           354,796
          Allowance for doubtful accounts              109           (66,597)
          Amortization of intangible assets        135,019           108,339
          Stock-based compensation expense         212,630           238,523
          Writedown on inventory                         0            25,475
          Change in warrants liability              (5,753)          387,598
          Deferred tax provision                       (81)                0
      Changes in operating assets and      
       liabilities
        Accounts receivable                     (1,787,268)         (165,357)
        Inventories                             (2,830,161)         (103,928)
        Advances for inventory and other     
         current assets                             42,973          (605,385)
        Accounts payable                         1,497,053           151,967
        Accrued liabilities                        (12,913)         (169,614)
        Customer deposits                          140,820            88,859
        Taxes payables                             488,495           (90,124)
        Taxes receivable                          (206,579)                0
          Net cash provided by (used in)       
           operating activities                    843,591           (65,764)
    
    CASH FLOWS FROM INVESTING ACTIVITIES
      Addition to construction in progress               0        (1,335,147)
      Purchase of equipment                       (266,660)           (9,878)
      Addition to intangibles                      (42,861)                0
        Net cash used in investing activities     (309,521)       (1,345,025)
    
    CASH FLOWS FROM FINANCING ACTIVITIES
      Restricted cash                             (397,518)         (508,751)
      Proceeds from bank loans                   4,122,360         3,077,970
      Proceeds from banker acceptances           1,060,695                 0
      Short-term notes payable                           0           548,568
      Payments on bank loans                    (2,204,952)         (257,527)
        Net cash provided by financing       
         activities                              2,580,585         2,860,260
    
    EFFECT OF EXCHANGE RATE ON CASH                 28,416           168,145
    
    INCREASE IN CASH AND CASH EQUIVALENTS        3,143,071         1,617,616
    CASH AND CASH EQUIVALENTS, beginning 
     of period                                   4,154,814         2,913,711
    CASH AND CASH EQUIVALENTS, end of    
     period                                     $7,297,885        $4,531,327
    
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW 
     INFORMATION
    
      Interest expenses paid                      $148,833           $18,823
      Income taxes paid                           $301,749          $116,755
      Reclassification of advances of      
       equipment purchase to construction  
       in progress                                      $0         3,645,958
      Reclassification of advances for     
       inventory and other assets to       
       construction in progress                         $0           175,884
Source: China Clean Energy Inc.
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