BEIJING, Aug. 15 /PRNewswire-Asia/ -- Sinoenergy Corporation (Nasdaq: SNEN), (“Sinoenergy” or the “Company”), developer and operator of retail compressed natural gas (CNG) filling stations in the Peoples’ Republic of China, and a manufacturer of CNG transport truck trailer, CNG filling station equipment and CNG fuel conversion kits for automobiles, today announced losses of $2.5 million, or $0.15 per share (basic and diluted) for the three months ended June 30, 2009 and $3.6 million, or $0.22 per share (basic and diluted) for the nine months ended June 30, 2009.
The Company’s operations continue to face the problems arising out of the global economic downturn. Although the government of China has announced a stimulus program that continues to advocate the use of fuels other than gasoline, our sales declined significantly during the three and nine months ended June 30, 2009 compared with the comparable periods in 2008. As a result of our decline in sales and margins and our loss, we were not in compliance with the covenants relating to the $30 million convertible and fixed rate notes which were issued in September 2007. Although the noteholders granted as waiver, because of (i) the failure of the Company to be in compliance at June 30, 2009 with covenants that were amended in May 2009, (ii) the limited nature of the waiver, (iii) the likelihood that the Company will not be in compliance at September 30, 2009 and (iv) the uncertainty that the noteholders will grant a further waiver, notes in the aggregate principal amount of $25.2 million have been classified as current liabilities at June 30, 2009. As a result, at June 30, 2009, the Company had a working capital deficiency of $11.9 million.
Furthermore, the Company’s principal current asset is its accounts receivable, which were $29.1 million at September 30, 2009, and the accounts receivable, along with other receivables, totaled approximately $40.0 million. At September 30, 2008, the Company’s accounts receivable were outstanding for an average of 124 days, and at June 30, 2009, the Company’s accounts receivable were outstanding for an average of 229 days. A significant amount of receivables that were outstanding at September 30, 2008 remained outstanding on June 30, 2009. In addition, at June 30, 2009, the Company had a note receivable of $2.6 million resulting from the termination of a sublease for which no payments had been made by the tenant. No payments have been made on account of that note. The failure of the Company to restructure or refinance its obligations under its notes or obtain a long-term waiver or to collect its receivables in the normal course of business could impair its ability to continue in business.
As a result of these conditions, the June 30, 2009 financial statements include an explanatory paragraph stating the financial statements were prepared on the assumption that the Company will continue as a going concern based upon the factors described above.
Third Quarter Highlights：
-- Net sales were $7.7 million in the quarter ended June 30, 2009, a
decrease of 24% from $10.2 million from the comparable quarter of 2008.
-- Gross profit was $1.5 million, a decrease of 61.5% from $3.9 million
year-to-year.
-- Net loss was $2.5 million, or $0.15 per share (basic and diluted),
compared to net income of $4.0 million, or $0.26 per share (basic) and
$0.20 per share (diluted) in the three months ended June 30, 2008.
Nine Month Highlights
-- Net sales were $30.6 million in the nine months ended June 30, 2009, an
increase of 14.4% from $26.7 million from the nine months ended June 30,
2008.
-- Gross profit was $7.7 million, a decrease of 32.9% from $11.6 million
year-to-year.
-- Net loss was $3.6 million, or $0.22 per share (basic and diluted),
compared to net income of $9.1 million, or $0.58 per share (basic) and
$0.54 per share (diluted) in the nine months ended June 30, 2008.
Third Quarter Results
Net sales for the three months ended June 30, 2009 were approximately $7.7 million, a decrease of approximately $2.5 million, or 24%, from sales of approximately $10.2 million year to year. The decrease resulted from：
-- A decrease of approximately $1.3 million, or 76%, in sales from
customized pressure containers, reflecting the effects of the financial
crisis on the market of manufacturing enterprises.
-- A decrease of approximately $4.5 million, or 86%, in sales from the CNG
stations facilities and construction, reflecting a decrease in demand
resulting largely from the economic downturn.
-- An increase of approximately $4.3 million due to the ramping up of our
CNG station operations, which were in the start-up phase during the
quarter ended June 30, 2008.
Gross profit was $1.5 million in the quarter ended June 30, 2009, a 61.5% decrease from $3.9 million year-to-year. Cost of sales for the June 2009 quarter was approximately $6.2 million, a decrease of approximately 2% from approximately $6.3 million for the quarter ended June 30, 2008. The overall gross margin decreased from 38% to 19% from the June 2008 to the June 2009 quarter due to the following reasons:
-- The gross margin for the customized pressure containers decreased from
46% to 21% because of the price increases of raw materials which we
were not able to pass on the increases to our customers. In addition,
the Company made no sales of bio-diesel equipment which carry a higher
gross margin that the other pressure products.
-- The gross margin for the CNG station facilities and construction
slightly decreased from 39% to 35% because of the increases in the
price of raw materials. Again, the Company was not able to pass on the
cost to our customers and the sales volume had decline significantly
from the prior year.
-- The CNG station operation segment’s gross margin in the June 2009
quarter was 13%, which lowered the overall gross margin.
For the June 2009 quarter, the Company sustained an operating loss of $375,000, as compared with operating income of $2.7 million for the June 2008 quarter.
Interest expense increased to $1.5 million in the June 2009 quarter from $217,000 in the June 2008 quarter primarily as a result of increased bank borrowing.
As a result of foregoing, the Company sustained a net loss of $2.4 million, or $0.15 per share (basic and diluted) in the June 2009 quarter compared with net income of $5.4 million, or $0.26 per share (basic) and $0.20 per share (diluted) for the June 2008 quarter.
Nine Month Results
Net sales for the nine months ended June 30, 2009 were approximately $30.6 million, a decrease of approximately $3.9 million, or 14%, from sales of approximately $26.7 million year to year.
The decrease resulted from:
-- An increase of approximately $12.8 million was due to the expansion of
our CNG station operations. In the nine months ended June 30, 2008, we
had only one CNG station in operation, while in the nine months ended
June 30, 2009, we increased the number of stations from one station at
October 1, 2008 to 21 stations at June 30, 2009.
-- Decreases of approximately $5.4 million, or 40%, in sales from the CNG
stations facilities and construction, and $1.2 million, or 21%, in
sales of pressured containers, reflecting the effects of the economic
downturn.
-- A decrease of approximately $2.3 million, or 34%, in sales of vehicle
conversion kits, reflecting the effects of the economic downturn and a
reduction in the price of oil, which resulted in a reduced demand for
vehicle conversion kits.
Gross profit was $7.7 million in the nine months ended June 30, 2009, a 32.9% decrease from $11.6 million for the comparable period of 2008. Cost of sales for the 2009 period was approximately $22.9 million, an increase of approximately 50.5% from approximately $15.2 million for the 2008 period. The overall gross margin decreased from 43% to 25% from the nine month period ended June 30, 2008 to the nine month period ended June 2009 due to the following reasons:
-- The gross margin for the customized pressure containers decreased from
43% to 27% because of the price increases of raw materials which we
were not able to pass on the increases to our customers. In addition,
the Company made no sales of bio-diesel equipment which carry a higher
gross margin that the other pressure products.
-- The gross margin for the CNG station facilities and construction
decreased from 48% to 40% because of the increases in the price of raw
materials which the Company was not able to pass on to customers.
-- The CNG station operation segment’s gross margin in the June 2009
quarter decreased from 37% to 14%, which lowered the overall gross
margin. The significant decrease is due to the increase of freight
costs, together with the sales price control by the government.
For the nine months ended June 30, 2009, the Company had income from operations of $566,000, as compared with $8.1 million for the comparable period of 2008. During the 2008 period, general and administrative expenses included a $1.8 million bad debt charge resulting from the partial writeoff of a rental receivable, and increased selling and administrative expenses reflecting the significant expansion of the CNG station operation.
Interest expense increased to $3.8 million in the June 2009 period from $1.5 million for the comparable period in 2008 primarily as a result of increased bank borrowing.
As a result of foregoing, the Company sustained a net loss of $3.6 million, or $0.22 per share (basic and diluted) in the nine months ended June 30, 2009 compared with net income of $9.2 million, or $0.58 per share (basic) and $0.54 per share (diluted) for the comparable period in 2008.
Financial Condition
On June 30, 2009, we had working capital deficiency of approximately $11.9 million, as compared with positive working capital of approximately $35.0 million at September 30, 2008. The principal reason for our $11.9 million working capital deficiency at June 30, 2009, is the reclassification of $25.2 million in senior debt from long-term to short-term.
Our largest current assets are our accounts and notes receivable and other receivables. The accounts receivable at June 30, 2009 were $26.2 million. These accounts receivables are outstanding for an average of 229 days, as compared with 124 days at September 30, 2008. A significant portion of the accounts receivable that were outstanding at September 30, 2008 remained outstanding at June 30, 2009.
Management is addressing these issues by seeking alternative financing in the PRC in order to repay the principal, interest and premium on the senior notes and by seeking more aggressively to collect its receivables. Management recognizes that China, like the rest of the world, is suffering from an economic stagnation. The Company hopes that the effects of the Chinese government’s stimulus plan, together with its stated intention to promote fuel alternatives to gasoline, will enable it to operate profitably in the future. However, the Company cannot give any assurance that it will be successful or that it will be able to continue in operation.
About Sinoenergy
Sinoenergy is a developer and operator of retail CNG stations as well as a manufacturer of CNG transport truck trailers, CNG station equipment, and natural gas fuel conversion kits for automobiles, in China. In addition to its CNG related products and services, the Company designs and manufactures a wide variety of customized pressure containers for use in the petroleum and chemical industries.
Forward-Looking Statements
This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiaries. These forward looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company’s periodic reports that are filed with the Securities and Exchange Commission and available on its website (www.sec.gov). All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by these factors other than as required under the securities laws. The Company does not assume a duty to update these forward-looking statements.
Sinoenergy Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share information)
June 30, 2009 September 30,
(unaudited) 2008
ASSETS
CURRENT ASSETS
Cash $12,208 $8,871
Restricted cash 439 523
Accounts and notes receivable, net 29,144 22,008
Other receivables, net 10,422 16,983
Deposits and prepayments
-related parties 73 --
-third parties 8,049 7,918
Inventories 5,356 7,303
Deferred expenses 60 91
TOTAL CURRENT ASSETS 65,751 63,697
Long-term investments 4,447 1,568
Property, plant and equipment, net 44,747 30,298
Intangible assets 29,540 27,591
Due from related party 426 383
Other long term asset 7,582 6,891
Goodwill 1,906 1,906
Deferred tax asset 17 13
TOTAL NON-CURRENT ASSETS 88,665 68,650
TOTAL ASSETS $154,416 $132,347
CURRENT LIABILITIES
Short-term bank loan $38,496 $11,953
3% senior convertible notes 9,478 --
12% senior notes 15,754 --
Other notes payable 1,464 1,633
Accounts payable 4,987 5,894
Advances from customers 2,123 2,409
Additional interest payable under
convertible note indenture 420 420
Income taxes payable 855 633
Other payables 3,573 5,341
Accrued expenses 417 335
Deferred income 50 95
TOTAL CURRENT LIABILITIES 77,617 28,713
3% senior convertible notes -- 12,593
12% senior notes -- 16,658
Long-term loans 4,391 3,667
Deferred tax liabilities 588 1,095
TOTAL LIABILITIES 82,596 62,726
Minority interests 15,601 14,394
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Common stock- par value $0.001 per
share; Authorized - 50,000,000
shares; Issued and outstanding-
15,942,336 shares at June 30, 2009
and September 30, 2008 16 16
Additional paid-in capital 34,477 30,396
Retained earnings 16,366 19,953
Accumulated other comprehensive income 5,360 4,862
TOTAL SHAREHOLDERS’ EQUITY 56,219 55,227
TOTAL LIABILITIES AND SHAREHOLDERS’
EQUITY $154,416 $132,347
Sinoenergy Corporation and Subsidiaries
Consolidated Statements of Income and Comprehensive Income (Unaudited)
(In thousands, except per share information)
Three Months Ended June 30,
2009 2008
NET SALES $7,710 $10,204
COST OF SALES (6,240) (6,283)
GROSS PROFIT 1,470 3,921
OPERATING EXPENSES
Selling expenses 394 246
General and administrative expenses 1,461 988
TOTAL OPERATING EXPENSES 1,855 1,234
INCOME (LOSS) FROM OPERATIONS (385) 2,687
OTHER INCOME (EXPENSES)
Rental income, net of land use right
amortization -- 1,318
Gain on sale of investment -- 1,737
Loss from unconsolidated entity (11) (6)
Interest expense (1,518) (217)
Additional interest payable under
convertible note indenture (140) (513)
Other expenses, net 16 (297)
OTHER INCOME (EXPENSES), NET (1,653) 2,022
INCOME (LOSS) BEFORE INCOME TAX AND
MINORITY INTEREST (2,038) 4,709
Income tax provision (431) (677)
INCOME BEFORE MINORITY INTEREST (2,469) 4,032
Minority interest 19 (16)
NET INCOME (LOSS) (2,450) 4,016
Other comprehensive income:
Foreign currency translation adjustments 35 1,422
COMPREHENSIVE INCOME (LOSS) $(2,415) 5,438
Net Income Per Common Share
Basic $(0.15) 0.26
Diluted $(0.15) 0.20
Weighted Average Common Shares
Outstanding
Basic 15,942 15,709
Diluted 15,942 19,619
Sinoenergy Corporation and Subsidiaries
Consolidated Statements of Income and Comprehensive Income (Unaudited)
(In thousands, except per share information)
Nine Months Ended June 30,
2009 2008
NET SALES $30,609 26,745
COST OF SALES (22,861) (15,190)
GROSS PROFIT 7,748 11,555
OPERATING EXPENSES
Selling expenses 982 540
General and administrative expenses 6,200 2,963
TOTAL OPERATING EXPENSES 7,182 3,503
INCOME FROM OPERATIONS 566 8,052
OTHER INCOME (EXPENSES)
Rental income, net of land use right amortization 1,329 2,503
Loss from unconsolidated entity (44) 97
Gain on sale of investment -- 1,737
Interest expense (3,835) (1,497)
Additional interest payable under
convertible note indenture (280) (653)
Other income, net 229 (150)
OTHER INCOME (EXPENSES), NET (2,601) 2,037
INCOME BEFORE INCOME TAX AND MINORITY INTEREST (2,035) 10,089
Income tax provision (1,045) (722)
INCOME BEFORE MINORITY INTEREST (3,080) 9,367
Minority interest (507) (189)
NET INCOME (LOSS) (3,587) 9,178
Other comprehensive income:
Foreign currency translation adjustments 498 5,155
COMPREHENSIVE INCOME (LOSS) $(3,089) 14,333
Net Income Per Common Share
Basic $(0.22) 0.58
Diluted $(0.22) 0.54
Weighted Average Common Shares
Outstanding
Basic 15,942 15,709
Diluted 15,942 16,950
Sinoenergy Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(In thousands of United States dollars)
Nine Months Ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 2009 2008
Net income (loss) $(3,587) $9,178
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Gain on sale of investment -- (1,737)
Share-based compensation 219 374
Amortization of note discount 83 270
Deferred portion of interest expense 3,963 1,719
Earnings from non-consolidated affiliates -- (97)
Minority interest 1,207 189
Depreciation 693 492
Amortization of intangible assets 333 1,538
Provision for (recovery of) doubtful accounts 38 (1)
Changes in operating assets and liabilities:
Accounts and notes receivable (7,153) (13,954)
Other receivables, deposits and prepayments 6,324 (9,574)
Inventories 1,947 (2,535)
Deferred tax asset (4) --
Accounts payable (1,076) 1,882
Accrued expenses 82 28
Advances from customers (286) 1,687
Other payables (2,275) 4,915
Estimate additional interest payable
under convertible note indenture -- 653
Deferred income (45) --
Income taxes payable 222 571
Net cash provided by (used in)
operating activities 685 (4,402)
CASH FLOWS FROM INVESTING ACTIVITIES
Payable to investors in subsidiary -- 14,590
Purchase of property, plant and equipment (15,851) (15,255)
Purchase of land use right (533) (13,889)
Investment in unconsolidated entities (2,879) (1,595)
Changes in restricted cash 84 --
Net proceeds related to investment activities -- 1,210
Net cash used in investing activities (19,179) (14,939)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds received from note
subscription receivable -- 29,840
Proceeds from bank loan 45,083 --
Payment of bank borrowings (22,690) (3,180)
Net cash provided by financing activities 22,393 26,660
Effect on cash of changes in exchange rate (562) 5,155
Net increase in cash 3,337 12,474
Cash at beginning of period 8,871 4,547
Cash at end of period $12,208 $17,021
Supplemental disclosure of cash flow
information:
Interest paid $3,565 1,322
Income taxes paid $397 $172
