New Transformer Core Plant Is Running Well
XI'AN, China, Aug. 16 /PRNewswire-Asia-FirstCall/ -- China Power Equipment, Inc. ("China Power Equipment" or "the Company"; OTC Bulletin Board: CPQQ), the manufacturer of a new generation of energy saving electric transformers and transformer cores in the People's Republic of China, today reported higher revenues and net income for the three months ended June 30, 2010.
Second quarter 2010 highlights
-- Net revenues increased 27.3% to $7.49 million in the second quarter
2010 from $5.89 million in the second quarter 2009.
-- Gross profit increased 49.8% to $2.06 million in the second quarter
2010 from $1.38 million in the second quarter 2009.
-- Net income increased 31.5% to $1.72 million in the second quarter 2010
from $1.31 million in the second quarter 2009.
-- Basic earnings per share increased 11.1% to $0.10 per share in the
second quarter 2010 from $0.09 per share in the second quarter 2009.
Weighted average basic shares outstanding increased 17.3% to 17.48
million shares in the second quarter 2010 from 14.91 million shares in
the second quarter 2009.
-- Diluted earnings per share decreased 11.1% to $ 0.08 per share in the
second quarter 2010 from $ 0.09 per share in the second quarter 2009.
Weighted average diluted shares outstanding increased 47.4% to 21.97
million shares in the second quarter 2010 from 14.91 million shares in
the second quarter 2009.
Mr. Yong Xing Song, Chairman of the Board of China Power Equipment, said, "With both our sales and net income more than 25 percent higher this quarter than last year's second quarter, we are continuing to see the still emerging but strong growth trend for energy-efficient amorphous alloy electric transformers that are being demanded in China, based on the country's mandated policy and actions to increase energy efficiency and reduce emissions. That dramatic upward trend is expected to continue for the next several years.
"Our 27 percent increase in net revenues came from higher tonnage of amorphous alloy cores and transformers sold. With good control of costs of goods sold and expenses, the effect of that sales increase was reflected in our net income, which was up 32 percent."
China Power Equipment's amorphous alloy cores in the second quarter were up 28 percent in revenues and up 58 percent in gross profit from the second quarter last year. Amorphous alloy transformers in the quarter were up 26 percent in revenues and up 35 percent in gross profit from last year's second quarter. The Company had no revenues from silicon steel cores and transformers in the second quarter 2010 because it has exited that product line entirely to focus on its high-growth amorphous alloy products.
Mr. Song continued, "Our gross profit margin expanded on lower prices for our raw material, expenses remained in good control, our effective tax rate was a bit higher, so our net income increased 32 percent to $1.72 million in the second quarter from the prior second quarter.
"Two special events occurred recently that were welcome news.
"First, several of our customers finished their evaluation of our test transformer cores made using amorphous alloy strip produced by Beijing Advanced Technology & Science Materials Co., Ltd., ("AT&M"). The test results for several applications were quite good. In late July, we announced that we were now offering several models of our amorphous alloy transformer cores that can be made using the AT&M alloy strip. Given the increasing demand for our amorphous alloy cores, we expect that AT&M's entry into the alloy materials market is not likely to cause us to reduce our orders with Hitachi Metals Co., Ltd., our main supplier with whom we have a very good and long-standing relationship.
"We believe the cost for this domestic Chinese alloy will be quite competitive and for those selected applications, the price of those transformers may decline in parallel with the potentially lower material cost. Lower prices would make some amorphous alloy transformer models more competitively priced, compared with the traditional steel transformers. And given the government's push for energy and environmental improvements, a lower unit price could further accelerate the adoption of some models of our
energy-efficient amorphous alloy cores and transformers.
"Second, we began regular production in our new amorphous alloy core manufacturing plant in mid July. That new plant added an annual capacity of 5,000 metric tons for high quality transformer cores, bringing our total capacity to 6,500 tons per year.
"The new plant also gives us the added benefit of qualifying further as a reliable high-volume supplier of high-quality amorphous alloy cores, especially since China Power has now become the number 2 amorphous alloy core supplier in the market, measured by the annual production capacity for cores.
"All in, we have achieved a good first half year, are handling the growth well, and with the additional capacity now on line and the new source for alloy strip, our future looks even brighter."
China Power's new plant is a state-of-the-art facility that uses modular programmable logic controller technology, human-machine interface engineering, highly precise mechanical transmission systems, and other advanced technologies. The dipping phase in core production uses a new automated system that increases production efficiency. A new annealing process for cores that is computer-controlled dramatically reduces the energy consumed in the process and shortens the time required for the annealed cores to cool before they continue down the production line.
Revenues
Three Months Ended June 30,
2010 2009 %
Revenues % Revenues % Change
Amorphous Alloy Cores $4,725,030 63.1 % $3,694,811 62.7 % 27.9 %
Amorphous Alloy
Transformers 2,768,738 36.9 % 2,193,564 37.3 % 26.2 %
Traditional Steel
Silicon Cores
& Transformers -- 0.0 % -- 0.0 % n.a.
Total $7,493,768 100.0 % $5,888,375 100.0 % 27.3 %
Six Months Ended June 30,
2010 2009 %
Revenues % Revenues % Change
Amorphous Alloy Cores $8,473,656 64.0 % $5,289,540 61.6 % 60.2 %
Amorphous Alloy
Transformers 4,773,825 36.0 % 3,207,900 37.3 % 48.8 %
Traditional Steel
Silicon Cores
& Transformers -- 0.0 % 93,231 1.1 % -100.0 %
Total $13,247,481 100.0 % $8,590,671 100.0 % 54.2 %
Total net revenues increased $1,605,393 or 27.3% and $4,656,810 or 54.2% during the quarter and six months ended June 30, 2010, respectively, compared with the same periods of 2009. This was primarily due to higher tonnage of amorphous alloy cores and transformers sold, in response to more orders from existing customers and new customers. To help fill customers' orders, we subcontracted the manufacturing of some cores and transformers to other companies. The revenues from traditional silicon steel cores and transformers were zero in the quarter and six months ended June 30, 2010 because we have focused on amorphous alloy cores and transformers as our major products and have exited all manufacturing, marketing, and distribution of steel cores and transformers.
Cost of Goods Sold
Three Months Ended June 30,
2010 2009 %
COGS % COGS % Change
Amorphous Alloy Cores $3,327,293 60.3 % $2,812,333 62.3 % 18.3 %
Amorphous Alloy
Transformers 2,102,741 38.7 % 1,698,539 37.7 % 23.8 %
Traditional Steel Silicon
Cores & Transformers -- 0.0 % -- 0.0 % n.a.
Total $5,430,034 100.0 % $4,510,872 100.0 % 20.4 %
Six Months Ended June 30,
2010 2009 %
COGS % COGS % Change
Amorphous Alloy Cores $6,030,797 62.4 % $4,078,267 61.2 % 47.9 %
Amorphous Alloy
Transformers 3,626,905 37.6 % 2,497,713 37.5 % 45.2 %
Traditional Steel Silicon
Cores & Transformers -- 0.0 % 87,471 1.3 % -100.0 %
Total $9,657,702 100 % $6,663,451 100 % 44.9 %
Cost of goods sold increased $919,162 or 20.4% and $2,994,251 or 44.9% during the quarter and six months ended June 30, 2010, respectively, compared with the same periods of 2009. This was primarily due to higher tonnage of amorphous alloy cores and transformers sold. The increases in cost of goods sold were partly offset by lower prices for amorphous alloy strip, the primary raw material used to make amorphous alloy cores, in the quarter and six months ended June 30, 2010 compared with the same periods of 2009.
Gross Profit
Three Months Ended June 30,
2010 2009 %
Gross Gross Gross Gross Change
Profit Margin Profit Margin
Amorphous Alloy Cores $1,397,737 29.6 % $882,478 23.9 % 58.4 %
Amorphous Alloy
Transformers 665,997 24.1 % 495,025 22.6 % 34.5 %
Traditional Steel Silicon
Cores & Transformers -- n.a. -- n.a. n.a.
Total $2,063,734 27.5 % $1,377,503 23.4 % 49.8 %
Six Months Ended June 30,
2010 2009 %
Gross Gross Gross Gross Change
Profit Margin Profit Margin
Amorphous Alloy Cores $2,442,859 28.8 % $1,211,273 22.9 % 101.7 %
Amorphous Alloy
Transformers 1,146,920 24.0 % 710,187 22.1 % 61.5 %
Traditional Steel Silicon
Cores
& Transformers -- n.a. 5,760 6.2 % -100.0 %
Total $3,589,779 27.1 % $1,927,220 22.4 % 86.3 %
Gross profit increased $686,231 or 49.8% and $1,662,559 or 86.3% during the quarter and six months ended June 30, 2010, respectively, compared with the same periods of 2009. This was primarily due to higher sales revenues of amorphous alloy cores and transformers.
The gross profit margin (gross profit as a percent of total revenues) increased 4.1 percentage points to 27.5% in the second quarter 2010 from 23.4% in the second quarter 2009 and increased 4.7 percentage points to 27.1% in the six months ended June 30, 2010 from 22.4% in the six months ended June 30, 2009. This was primarily due to the lower prices for amorphous alloy strip, the primary raw material used to make amorphous alloy cores, in the quarter and six months ended June 30, 2010 compared with the same periods of 2009.
Selling, General, and Administration Expenses
Three Months Ended June 30, Six Months Ended June 30,
2010 2009 % Change 2010 2009 % Change
Selling, general,
and admini-
strative
expenses $237,834 $224,650 5.9 % $428,138 $425,217 0.7 %
% of Revenues 3.2 % 3.8 % 3.2 % 4.9 %
Selling, general, and administrative expenses increased by $13,184 or 5.9% and $2,921 or 0.7% during the quarter and six months ended June 30, 2010, respectively, compared with the same periods of 2009. It was mainly due to higher amortization on intangible assets, higher local taxes resulting from higher revenues, higher administrative personnel expenses, and provision for impairment of other receivables.
Selling, general, and administrative expenses as a percentage of revenue decreased because most of the general and administrative expenses are fixed and do not increase in proportion to the increase in revenues.
Stock-based Compensation
The company incurred $12,593 and $27,403 in stock-based compensation in the quarter and six months ended June 30, 2010 due to the stock options granted to an officer in the third quarter of 2009 and second quarter of 2010. The values of these options are expensed over the terms of the respective vesting periods.
Gain on Investment
Three Months Ended June 30, Six Months Ended June 30,
2010 2009 % Change 2010 2009 % Change
Gain on investment $21,613 $21,409 1.0 % $58,313 $51,373 13.5 %
Gain on investment for the quarter and six months ended June 30, 2010 increased $204 or 1.0% and $6,940 or 13.5%, respectively, compared with the same periods of 2009. The increase in the six months ended June 30, 2010 was primarily due to higher earnings from our 20% equity method investment in the first quarter of 2010.
Other Income
Other income consists of mainly consulting fees for providing technical support to potential customers. In the quarter and six months ended June 30, 2010, we received $175,606 in consulting fees. And in the quarter and six months ended June 30, 2009, we received $350,881 in consulting fees.
Income Taxes
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Income taxes $309,331 $220,222 $520,340 $275,572
Effective tax rate 15.3 % 14.4 % 15.3 % 14.4 %
The increases in the income taxes for the quarter and six months ended June 30, 2010 compared with the same periods of 2009 were mainly due to the higher net income before income taxes that resulted from higher revenues.
Net Income and Earnings Per Share
For the quarter ended June 30, 2010, net income was $1,717,443 compared with $1,306,362 for the corresponding period of 2009, an increase of $411,081 or 31.5%. For the six months ended June 30, 2010, net income was $2,876,359 compared with $1,634,383 for the corresponding period of 2009, an increase of $1,241,976 or 76.0%. The increases in net incomes for the quarter and six months ended June 30, 2010 were mainly due to the aforementioned higher revenues and good control of expenses that were partly offset by the increase in income taxes.
Basic earnings per share in the second quarter 2010 was $0.10, up 11.1% from $0.09 in the second quarter 2009. Basic earnings per share in the first half of 2010 was $0.18, up 63.6% from $0.11 in the first half 2009.
Diluted earnings per share in the second quarter 2010 was $0.08, down 11.1% from $0.09 in the second quarter 2009. Diluted earnings per share in the first half of 2010 was $0.14, up 27.3% from $0.11 in the first half of 2009.
Basic weighted average common shares outstanding in the first quarter 2010 increased 17.3% to 17.48 million shares from 14.91 million shares in the second quarter 2009. Basic weighted average common shares outstanding in the first half 2010 increased 8.7% to 16.20 million shares from 14.91 million shares in the first half of 2009.
Diluted weighted average common shares outstanding in the first quarter 2010 increased 47.4% to 21.97 million shares from 14.91 million shares in the second quarter 2009. Diluted weighted average common shares outstanding in the first half 2010 increased 38.8% to 20.69 million shares from 14.91 million shares in the first half of 2009.
Liquidity and Capital Resources
We have funded our operations and capital expenditures using cash generated from operations and funds raised from issuing convertible preferred stock. We will continue our investment in the development and enhancement of the production facilities for amorphous alloy cores and transformers. We believe our existing cash will be sufficient to maintain our operations at the present level for at least the next twelve months.
The following table summarizes our liquidity and capital resources for the periods presented:
As of As of
June 30, 2010 December 31, 2009
Cash $13,633,253 $8,883,188
Working capital $14,979,884 $9,793,699
Stockholders' equity $24,553,948 $17,141,382
Working capital is defined as current assets minus current liabilities.
The following table shows the movements of our cash for the periods presented.
Six Months Ended June 30,
2010 2009
Net cash provided by operating
activities $2,550,982 $1,225,360
Net cash (used in) investing
activities (2,264,693) (772,544)
Net cash provided by financing
activities 4,456,883 --
Effect of exchange rate changes
on cash 6,893 1,564
Net increase in cash $4,750,065 $454,380
Financial statements follow.
China Power Equipment, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2010 2009 2010 2009
Revenues, net $7,493,768 $5,888,375 $13,247,481 $8,590,671
Cost of goods sold (5,430,034) (4,510,872) (9,657,702) (6,663,451)
Gross profit 2,063,734 1,377,503 3,589,779 1,927,220
Operating expenses
Selling, general and
administrative
expenses 237,834 224,650 428,138 425,217
Stock-based
compensation 12,593 -- 27,403 --
Total operating
expenses 250,427 224,650 455,541 425,217
Net income from
operations 1,813,307 1,152,853 3,134,238 1,502,003
Other income
(expenses)
Gain on investment 21,613 21,409 58,313 51,373
Other income 175,606 350,881 176,338 350,881
Other expenses -- -- (146) --
Interest income 16,248 1,441 27,956 5,815
Interest expense -- -- -- (117)
Total other
income 213,467 373,731 262,461 407,952
Net income before
income taxes 2,026,774 1,526,584 3,396,699 1,909,955
Income taxes 309,331 220,222 520,340 275,572
Net income $1,717,443 $1,306,362 $2,876,359 $1,634,383
Earnings per
share - basic $0.10 $0.09 $0.18 $0.11
Earnings per share -
diluted $0.08 $0.09 $0.14 $0.11
Weighted average common
shares outstanding:
Basic 17,480,083 14,908,313 16,201,303 14,908,313
Diluted 21,973,471 14,90,313 20,694,691 14,908,313
China Power Equipment, Inc.
Consolidated Balance Sheets
June 30, December 31,
2010 2009
(Unaudited)
Assets
Current Assets
Cash $13,633,253 $8,883,188
Accounts receivable, net 2,171,490 1,949,818
Advance to suppliers 186,667 --
Inventory, net (Note 3) 545,935 363,312
Prepaid expenses and other receivables 309,808 221,670
Total Current Assets 16,847,153 11,417,988
Property, plant, and equipment, net
(Note 4) 5,660,455 4,593,068
Intangible assets, net (Note 5) 362,964 391,513
Long-term investment (Note 6) 283,877 282,897
Deposit on contract rights (Note 7) 1,321,858 1,316,328
Deposit for purchase of equipment 1,951,670 767,858
Prepaid capital lease (Note 9) 109,188 111,482
Total Assets $26,537,165 $18,881,134
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $741,536 $549,065
Accrued liabilities and other payables 347,537 396,656
Advance from customers 32,898 32,760
Lease payable - current portion (Note 9) 2,165 2,156
Short-term loan (Note 8) 58,749 58,503
Value-added tax payable 244,755 219,398
Income taxes payable (Note 13) 439,629 365,751
Total Current Liabilities 1,867,269 1,624,289
Long-term Liabilities
Lease payable - non-current portion (Note 9) 115,948 115,463
Total Long-term Liabilities 115,948 115,463
Stockholders' Equity
Series B convertible preferred stock,
$0.001 par value, 5,000,000 shares
authorized, 4,166,667 shares issued
and outstanding at June 30, 2010 and
December 31, 2009 4,167 4,167
Undesignated preferred stock, $.001 par
value, 5,000,000 shares authorized,
None issued and outstanding -- --
Common stock: par value $0.001 per share,
100,000,000 shares authorized; 19,365,013
and 14,908,313 shares issued and
outstanding at June 30, 2010 and
December 31, 2009 19,365 14,908
Additional paid-in capital 25,661,855 21,182,026
Statutory surplus reserve fund (Note 12) 642,819 642,819
Accumulated deficit (2,851,771) (5,728,130)
Accumulated other comprehensive income 1,077,513 1,025,592
Total stockholders' equity 24,553,948 17,141,382
Total Liabilities and Stockholders' Equity $26,537,165 $18,881,134
The accompanying notes are an integral part of these financial statements.
China Power Equipment, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
2010 2009
Cash Flows from Operating Activities
Net income $2,876,359 $1,634,383
Adjustments to reconcile net income to
net cash:
Depreciation and amortization expense 135,657 116,794
Stock-Based Compensation 27,403 --
Provision for impairment of other
receivables 23,956 --
Gain on investment (58,313) (51,373)
Changes in operating assets and
liabilities:
Accounts receivable (212,522) (407,393)
Advance to suppliers (185,987) 297,444
Inventory (180,171) (636,159)
Prepaid expenses and other receivables (110,823) (62,252)
Accounts payable 189,493 232,249
Accrued expenses and other payables (50,578) 89,743
Value added tax payable 24,420 7,908
Income taxes payable 72,088 113,096
Advance from customers -- (109,080)
Net cash provided by operating activities 2,550,982 1,225,360
Cash Flows from Investing Activities
Acquisitions of property, plant, and
equipment (173,540) (17,681)
Addition in construction in progress (973,398) (653,078)
Acquisitions of intangible assets -- (219,301)
Deposit for purchase of equipment (1,176,290) --
Repayment from related parties -- 73,656
Dividend from equity interest subsidiary 58,535 43,860
Net cash (used in) investing activities (2,264,693) (772,544)
Cash Flows from Financing Activities
Proceeds from warrant exercise 4,456,883 --
Net cash provided by financing activities 4,456,883 --
Effect of exchange rate changes on cash
and cash equivalents 6,893 1,564
Increase in cash and cash equivalents 4,750,065 454,380
Cash and cash equivalents, beginning of
period 8,883,188 1,071,038
Cash and cash equivalents, end of period $13,633,253 $1,525,418
Supplemental disclosure of cash flow
information
Interest paid in cash -- --
Income taxes paid in cash $211,088 $55,404
The accompanying notes are an integral part of these financial statements.
About China Power Equipment, Inc.
China Power Equipment, Inc., is a U.S. corporation, which through its wholly-owned subsidiary, An Sen (Xi'an) Power Science & Technology Co., Ltd. and its affiliated operating company, Xi'an Amorphous Zhongxi Co., Ltd., designs, manufactures, and distributes amorphous alloy transformer cores and amorphous alloy core electricity transformers in the People's Republic of China. The company currently manufactures 59 different products, primarily amorphous alloy cores and amorphous alloy core transformers.
Safe harbor statement
Certain statements in this release concerning our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements.
The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding the success of the Company's investments, risks and uncertainties regarding fluctuations in earnings, its ability to sustain its previous levels of profitability including on account of its ability to manage growth, intense competition, wage increases in China, its ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, its ability to successfully complete and integrate potential acquisitions, withdrawal of governmental fiscal incentives, political instability and regional conflicts and legal restrictions on raising capital or acquiring companies outside China.
Additional risks that could affect the Company's future operating results are more fully described in its filings with United States Securities and Exchange Commission. These filings are available at www.sec.gov.
The Company may, from time to time, make additional written and oral forward-looking statements, including statements contained in its filings with the Securities and Exchange Commission and its reports to shareholders. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on its behalf.
For more information about China Power Equipment please visit its website at http://www.chinapower-equipment.com .
For more information, please contact:
China Power Equipment, Inc.
Phone: +1-646-623-6999 in the USA
Email: xa-fj@xa-fj.com
or
Christensen
Mr. Yuanyuan Chen (English and Chinese)
Cell: +86-139-2337-7882 in Beijing
Email: ychen@christensenir.com
Mr. Tom Myers (English)
Cell: +86-139-1141-3520 in Beijing
Email: tmyers@christensenir.com
Ms. Kathy Li (English and Chinese)
Phone: +1-212-618-1978 in the USA
Email: kli@christensenir.com
Source: China Power Equipment, Inc.
