BEIJING, Dec. 31 /Xinhua-PRNewswire-FirstCall/ -- Sinoenergy Corporation (OTC Bulletin Board: SNEN) ("Sinoenergy" or the "Company"), a manufacturer of compressed natural gas (CNG) vehicle and gas station equipment, and a designer, developer and operator of CNG filling stations in the People's Republic of China, today announced its financial results for the three month and nine month periods ending September 30, 2007. The Company changed its fiscal year to a year ending September 30, and has filed with the SEC a Form 10-KSB for the transitional period ending September 30, 2007. This filing includes the audited financial statements for the nine months ending September 30, 2007 and the unaudited results for the comparable period in 2006.
Transition Period Highlights
* Nine months net revenue increased 63.0% period to period to a record
$15.9 million
* Nine months gross profit increased 63.6% period to period to $7.8
million
* Nine months net income increased 56.1% to $3.6 million, or 0.14 per
share
September Quarter Highlights
* Third quarter net revenue increased 83.4% from the third quarter of
2006 to a record $7.1 million
* Third quarter gross profit increased 44.6% from the third quarter of
2006 to $3.6 million
* Third quarter net income was $1.3 million, or $0.04 per share
Significant Issues Highlights
* Updates guidance for the fiscal year ending September 30, 2008 for
revenues in the range of $53 to $56 million, and operating income in
the range of $14 to $15 million
* Provides initial guidance for fiscal year ending September 30, 2009 for
revenues in the range of $83 to $85 million and operating income in the
range of $24 to $26 million
* Completed a $30 million private placement financing in September 2007
* Opened three retail CNG filling stations
* Received orders for 90 natural gas transport trailers
"We had another successful quarter in which we implemented our strategic plan for growth and diversification while generating positive financial results. Our vehicle conversion kit business, which we began late in the first quarter of 2007, saw another quarter of strong growth, accounting for more than 41% of net revenue in the nine months ending September 30, 2007. We incurred higher operating expenses associated with our CNG filling station businesses and have not generated revenue from this business segment as of September 30, 2007. Despite its current expenses, we view development of our CNG vehicle filling station business as an investment in our future as we seek to become a leader in owning and operating CNG vehicle filling stations in central and east China," said Mr. Bo Huang, CEO of Sinoenergy Corporation. "We plan to use the proceeds from our recent financing to further our retail CNG vehicle filling station strategy."
September Quarter 2007 Results
For the quarter ending September 30, 2007, net revenue increased by 83.4% to $7.1 million, from $3.9 million in the comparable quarter in 2006. The increase in net revenue was mainly from the recently started vehicle conversion kit business, which generated $4.0 million, or about 56% of net sales, for the quarter.
Gross profit for the third quarter of 2007 increased 44.6% from the third quarter of 2006 to $3.6 million.
Gross margin in the vehicle conversion kit business was 41.0% in the third quarter of 2007, up from 35.0% in the second quarter of 2007. Overall gross margin declined year-over-year to 50.0% from 64.0% in the third quarter of 2006, mostly because of the effect of the gross margin of the vehicle conversion kit business.
Operating expenses in the third quarter of 2007 were $2.0 million, an increase of 241.6% from $582,000 in the third quarter of 2006. Operating expenses increased in the third quarter because of the increased costs of entering new businesses. Operating expenses included a $689,000 increase in general and administration expenses because of the additional management efforts needed to construct CNG filling stations, and $555,000 of expenses associated with developing the vehicle conversion kit business, and a non-cash charge of $191,000 related to the granting of stock options.
Operating income for the third quarter was $1.6 million, a decrease of 15.7% from $1.9 million in the third quarter of 2006.
Net income was $1.3 million in the quarter ending September 30, 2007, or $ 0.04 per share (basic and diluted), down from net income of $3.3 million, or $0.22 per share (basic and diluted) in the same period in 2006. In the quarter ending September 2006, net income reflected the effect of a 100% enterprise income tax holiday granted to one of the Company's subsidiaries in that quarter, effective January 1, 2006. As a result, a $1.56 million tax accrual was reversed that was recognized in the quarters prior to the quarter in which the tax holiday was granted.
Results for the Nine Month Period Ending September 30, 2007
Net revenue for the nine months ending September 30, 2007 was approximately $15.9 million, a 64% increase from net revenue of approximately $6.2 million for the nine months ending September 30, 2006. This increase resulted primarily from the sale of vehicle conversion kits, which generated revenue of $6.6 million, or 41.5% of sales in the nine months ending September 30, 2007.
Gross profit for this period was $7.8 million, an increase of 63.7% from $4.8 million in the nine months ending September 30, 2006.
The overall gross margin of 49% for this period was virtually the same as in the same period in 2006. The lack of change in gross margin in the nine months ending September 30, 2007 was the result of lower gross margin for the newly developed CNG conversion kit business being offset by higher gross margin for the pressure containers business, which received two high gross margin specialized orders.
Operating expenses were approximately $3.6 million for the nine month period ending September 2007, an increase of $2.0 million, or 127%, from the nine month period ending September 2006. The increase in operating expenses was mainly the result of about $1.2 million in expenses incurred by the CNG filling station business and $ 0.8 million expenses in newly developed vehicle conversion kits business.
Operating income was $4.2 million, which was up 33.4% from $3.2 million in the nine months ending September 30, 2006.
Net income was $3.6 million, or $0.14 per share (basic and diluted), for the first nine months of 2007 compared to net income of $2.3 million, or $ 0.16 per share (basic and diluted) for the same period in 2006.
Private Placement Financing
On September 28, 2007, Sinoenergy closed on a private placement of 12% Guaranteed Senior Notes in the amount of $16 million and 3.0% Guaranteed Senior Convertible Notes in the amount of $14 million both due in 2012. The Company intends to use the net proceeds of $29.9 million exclusively for the expansion of its CNG wholesale and retail business as well as for potential CNG related acquisitions.
Financial Condition
As of September 30, 2007, cash totaled $4.5million, up from $0.6 million at December 31, 2006. Cash as of September 30, 2007 included $1.2 million of restricted cash, representing a deposit for a bill of exchange in the same amount issued in connection with a purchase of materials by the Company. Working capital as of September 30, 2007 was $24.7 million. Short term liabilities were $25.5 million, and long term liabilities, consisting of the recent financing, were $29.4 million. Stockholders' equity totaled $32.7, up from $16.0 million as of December 31, 2006. The Company generated $5.2 million in cash flow from operating activities during the nine months ended September 30, 2007.
Outlook
In October 2007, Sinoenergy's first two retail CNG filling stations were opened in Wuhan, Hubei province. A third retail CNG filling station was opened in Xuancheng, Anhui province in November 2007. As of December 31, 2007, additional ten CNG filling stations were substantially completed which are in the process of obtaining government approvals, and another 20 CNG stations are either under construction or in the construction planning stage. The stations to be opened consist of four stations in Pingdingshan, three stations in Xuancheng and 23 stations in Wuhan. A total of 30 stations are expected to be opened by the end of June 2008.
"We are moving forward with our expansion plans to own and operate wholesale and retail filling stations in eastern and central China. We expect our retail stations to generate meaningful revenue and operating income in fiscal years 2008 and 2009," said Mr. Tianzhou Deng, Chairman of Sinoenergy. "We also anticipate strong demand for CNG infrastructure products, particularly trailers, and expect continuing demand for our vehicle conversion kits. Our focus in fiscal year 2008 is on continuing growth and improving our mix of higher margin products to improve profitability."
Given the change in fiscal year end, some delays in municipal government approval for each filling station's construction and the changes in operating circumstance, the Company has updated its guidance for the fiscal year ended September 30, 2008 for revenue in the range of $53 to $56 million, and operating income in the range of $14 to $15 million. (Previous guidance was for the 2008 calendar year was for revenue in the range of $45 to $47 million and operating income in the range of $13 to 15 million.) For fiscal year 2009, the Company expects revenue in the range of $83 to $85 million and operating income in the range of $24 to $26 million.
Recent Events
On July 2007, Sinoenergy paid $400,000 to increase its ownership from 60% to 70% in Jiaxing Lixun, which designs and sells customized electronic fuel switching conversion kits. Electronic switching conversion kits enable vehicles to use both CNG and alternative fuels such as liquefied petroleum gas.
On August 28, 2007, the Company agreed to acquire the entire equity of Qingdao Jingrun General Machinery Company ("Jingrun") for approximately $8 million. Jingrun has a workshop and a 644,668 square feet plot of land located in the new development zone of Qingdao City, Shandong province, China. As of September 30, 2007, the Company spent $4,087,175 on this purchase before the actual close of the deal.
On November 6, 2007, Sinogas, a wholly-owned subsidiary of Sinoenergy, received two significant orders from two natural gas transport companies for 90 natural gas transport trailers. Trailer sales usually average 20 to 25 trailers a quarter. There currently are outstanding orders for 150 trailers. 40 trailers will be delivered in the quarter ending December 31, 2007.
On November 9, 2007, Sinoenergy announced that, through its subsidiaries, it completed the previously announced acquisition of remaining shares of Xuancheng Sinoenergy Vehicle Gas Ltd. Co., ("Xuancheng Sinoenergy"), in which it had held a 30% interest.
Conference Call
Sinoenergy management will host a conference call at 10:00 am Eastern Time on Wednesday, January 2, 2008 to discuss financial results for the first nine months of 2007. The conference call will include Mr. Tianzhou Deng, Chairman; Mr. Bo Huang, CEO; and Ms. Laby Wu, CFO. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (888) 481-7939. International callers should call (617) 847-8707. The Conference Pass Code is 604 626 76. If you are unable to participate in the call at that time, replay of the conference call will be available from Wednesday, January 2 at 11:00 pm EST to Wednesday, January 9 at 11:00 p.m. EST. To access the replay, call (888) 481-7939. International callers should call (617) 847-8707. The Conference Pass Code is 35037374.
Restatement of Financial Results
The financial statements for the three and nine month periods ending September 30, 2006, have been restated to properly account for an accrual for the amortization of the land use rights, which is included in general and administrative expenses, and a know-how fee to an affiliated party, which is included in the cost of revenue.
About Sinoenergy
Sinoenergy is a manufacturer of compressed natural gas (CNG) vehicle and gas station equipment, and a designer, developer and operator of CNG filling stations in the People's Republic of China. In addition to its CNG related products, the Company also designs and manufactures a wide variety of pressure containers for use by the petroleum and chemical industries, the metallurgy and electricity generation industries, and the food and brewery industries.
Forward-Looking Statements
Statements in this press release include "forward-looking statements." Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Undue reliance should not be placed 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. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this press release, including the risks described under "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our report on Form 10-KSB for the period ended September 30, 2007 and in other filings we make with the SEC. In addition, such statements could be affected by risks and uncertainties related to the ability to conduct business in the PRC, product demand, including the both the supply and demand for CNG, the ability of our CNG suppliers to provide us with natural gas in the quantities that we may require, our ability to develop, construct and operate a CNG station business, our ability to raise any financing which we may require for our operations, competition, government regulations and requirements, pricing and development difficulties, including the effect of price controls on our business, our ability to make acquisitions and successfully integrate those acquisitions with our business, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release. 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.
Contact:
Sinoenergy Corporation CCG Elite Investor Relations Inc.
Ms. Laby Wu, CFO Mr. Crocker Coulson, President
Phone: +86-10-8492-8149 Phone: +1-646-213-1915 (New York)
Email: labywu@sinoenergycorporation.com Email: crocker.coulson@ccgir.com
--FINANCIAL TABLES FOLLOW--
Sinoenergy Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands of United States dollars)
September 30, 2007 December 31, 2006
Audited Audited
CURRENT ASSETS
Cash 3,322 588
Restricted cash 1,225 -
Accounts receivable (net)
- Related party 169 594
- Third party 5,827 3,777
Other receivables
- Related party 332 1,220
- Third party 33,594 1,176
Deposits and prepayments-third party 2,795 -
Deferred expenses 58 4
Inventories 2,901 937
TOTAL CURRENT ASSETS 50,223 8,296
LONG TERM ASSETS
Long term investments 1,592
Property, plant and equipment (net) 8,388 3,556
Intangible assets 18,531 12,114
Other long-term asset 9,599 3,187
Goodwill 729 676
Long term deferred tax asset 4 4
TOTAL ASSETS 89,066 27,833
CURRENT LIABILITIES
Short term bank loan 14,843 3,160
Accounts payable
- Related party - 452
- Third party 3,166 211
Notes payable 799 -
Other payables
- Related party 3,679 4,073
- Third party 1,502 2,359
Accrued expenses 319 176
Warranty accrual 76 40
Advances from customers 1,035 701
Income taxes payable 119 7
TOTAL CURRENT LIABILITIES 25,538 11,179
LONGTERM LIABILITIES
12% guaranteed senior notes 15,622 -
3% guaranteed senior convertible notes 13,823 -
TOTAL LONG TERM LIABILITIES 29,445 -
Minority interests 1,363 614
Commitments
STOCKHOLDERS' EQUITY
Common stock - par value $.001 per share;
Issued and Outstanding - 31,418,065
shares at September 30, 2007,
14,636,472 shares at December 31, 2006 31 15
Series A convertible preferred
stock - $0.001 Par Value - none at
September 30, 2007, 5,692,307 shares at
December 31, 2006 - 6
Additional paid-in capital 22,000 9,935
Capital surplus 20 20
Statutory surplus reserve fund 1,140 1,140
Retained earnings 8,217 4,576
Accumulated other comprehensive income 1,312 348
Total stockholders' equity 32,720 16,040
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 89,066 27,833
Sinoenergy Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands of United States dollars except per share information)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006(restated) 2007 2006(restated)
Audited Unaudited Audited Unaudited
NET REVENUE 7,116 3,881 15,923 9,764
COST OF REVENUE (3,527) (1,399) (8,090) (4,978)
GROSS PROFIT 3,589 2,482 7,833 4,786
OPERATING EXPENSES
Selling expenses 129 68 234 190
General and
administrative
expenses 1,819 514 3,329 1,396
TOTAL OPERATING
EXPENSES 1,948 582 3,563 1,586
INCOME FROM OPERATIONS 1,641 1,900 4,270 3,200
OTHER (EXPENSES)
Other non-operating income 5 22 10 31
Interest expense (117) (45) (295) (1,725)
Other expenses (6) (143) (14) (146)
OTHER EXPENSES, NET (118) (166) (299) (1,840)
`
INCOME BEFORE INCOME
TAXES 1,523 1,738 3,971 1,360
Income tax (144) 1,564 (188) 1,011
INCOME BEFORE MINORITY
INTEREST 1,379 3,298 3,783 2,371
Minority interest (34) (7) (142) (39)
NET INCOME 1,345 3,291 $3,641 $2,332
Other comprehensive income
Foreign currency
translation adjustments 767 65 964 257
COMPREHENSIVE INCOME 2,112 3,356 4,605 2,588
Earnings Per Share
- Basic 0.04 0.22 $0.14 $0.16
Weighted Average
Shares Outstanding
- Basic 32,219,089 14,636,471 25,551,566 14,417,851
Earnings Per Share
- Diluted 0.04 0.22 $0.14 $0.16
Weighted Average
Shares Outstanding
- Diluted 32,699,923 14,760,217 26,727,828 14,459,553
Sinoenergy Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(In thousands of United States dollars)
Nine Months ended Nine Months Ended
September 30, September 30, 2006
2007 (restated unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 3,641 2,332
Contribution from minority
shareholders 607 -
Issuance warrants for service 65 1,594
Discount of convertible notes issued 176 -
Grant of options 508 -
Minority interest 142 39
Depreciation 417 231
Amortization of intangible assets 367 233
Provision for doubtful accounts 220 4
Deferred tax debit - (15)
Changes in operating assets and
liabilities:
(Increase) in accounts receivable (1,805) (941)
Decrease /(Increase)/ in other 164 (4,098)
receivables, deposits and
prepayments
(Increase)/decrease in inventories (1,964) 532
Increase in accounts payable 3,302 143
Increase/ in accrued expenses 179 139
Increase/(decrease) in advances
from customers 334 (1,348)
(Decrease)/increase in other
payables (1,251) 335
Increase /(decrease)in income tax
payable 112 (1,054)
Net cash (used in) operating
activities 5,214 (1,874)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of property,
plant and equipment (5,249) (231)
Prepayment for long term assets (4,780)
Payment for purchase of land use
right (6,784) -
Payment for minority interest in
subsidiaries (8,414)
Net cash used in investing activities (25,227) (231)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from bank loan 11,682 312
Cash received from capital
contribution 3,301
Cash received from warrants exercise 11,326 -
Cash paid for other financing
activities - (427)
Net cash provided in financing
activities 23,008 3,186
Effect of changes in exchange rate 964 217
Net increase in cash 3,959 1,298
Cash at beginning of the year 588 334
Cash at end of the year 4,547 1,632
Supplementary Cash flow disclosure:
Tax paid - 924
Interest Paid 295 131
