INNER MONGOLIA, China, May 16, 2013 (GLOBE NEWSWIRE) — China Carbon Graphite Group, Inc. (OTCBB:CHGI) (“China Carbon” or the “Company”), the largest wholesale supplier of fine-grain and high-purity graphite in China and one of the nation’s top manufacturers of carbon and graphite products, today announced its financial results for the first quarter ended March 31, 2013.
“The recession of China’s steel industry continues to impact our sales this quarter. We strongly believe the market demand will return very soon just as the last recession in 2008 ended the following year. I am glad our management decided to not only dedicate most of our resources to produce high-grade and high margin graphite products like fine grain and high purity graphite but also continue to explore more applications of our products in order to diversify our risks. I believe this effort will be reflected on our future financials,” said Donghai Yu, Chief Executive Officer of China Carbon Graphite Group Inc.
Sales
During the three months ended March 31, 2013, we had sales of $3,060,918, compared to sales of $10,061,210 for the three months ended March 31, 2012, a decrease of $7,000,292, or approximately 69.6%. The sales decrease was mainly attributable to a significant decline in the demand for our products during the three months ended March 31, 2013, which resulted from the struggle of steel companies.
The breakdown of revenues for each of graphite electrodes, fine grain graphite and high purity graphite, during the three months ended March 31, 2013 and 2012, respectively, is as follows:
|
 March 31, 2013
Sales |
% of Total
Sales |
 March 31, 2012
Sales |
% of Total
Sales |
| Graphite Electrodes |
 $ 80,960 |
2.6% |
 $ 456,647 |
4.5% |
| Fine Grain Graphite |
1,394,956 |
45.6% |
4,467,350 |
44.4% |
| High Purity Graphite |
1,491,521 |
48.7% |
5,051,089 |
50.2% |
| Others (1) |
93,481 |
3.1% |
86,124 |
0.9% |
| Total |
 $ 3,060,918 |
 100.0% |
 $ 10,061,210 |
 100.0% |
|
|
|
|
|
| (1) “Other” sales represent revenue generated by sales of semi-processed products and other types of products. |
Cost of goods sold; gross margin
Our cost of goods sold consists of the price of raw materials, utilities, labor, and depreciation expenses in our manufacturing facilities. During the three months ended March 31, 2013, our cost of goods sold was $3,320,320, compared to $7,143,606 for the three months ended March 31, 2012, a decrease of $3,823,286 or approximately 53.5%. The decrease in the cost of sales was due to the decline in sales volume.
Our gross margin decreased from 29.0% for the three months ended March 31, 2012 to (8.5)% for the three months ended March 31, 2013. This decline is mainly attributed to a reduction in sales price due to competition, less demand and an increase of cost of goods sold, which is due to increased depreciation allocated to the cost of goods sold resulting from the transfer of construction in progress to property and equipment since the end of 2012.
Operating expenses
Operating expenses totaled $470,411 for the three months ended March 31, 2013, compared to $955,201 for the three months ended March 31, 2012, a decrease of $484,790, or approximately 50.8%.
Selling, general and administrative expenses
Selling expenses decreased from $46,798 for the three months ended March 31, 2012 to $17,941 for the three months ended March 31, 2013, a decrease of $28,857, or 61.7%. The decline was mainly due to lower sales, decreased sales commission and lower shipping and handling expenses during the three months ended March 31, 2013 as compared to the three months ended March 31, 2012.
Our general and administrative expenses consist of salaries, office expenses, utilities, business travel, amortization expenses, public company expenses (including legal, accounting and investor relations) and stock compensation. General and administrative expenses were $384,582 for the three months ended March 31, 2013, compared to $851,399 for the three months ended March 31, 2012, a decrease of $466,817, or 54.8%. The decline in general and administrative expenses was mainly due to decreased consulting expenses and bad debt expenses offset by increased salary expenses for the three months ended March 31, 2013 compared to the three months ended March 31, 2012.
Depreciation and amortization expenses
Depreciation and amortization expenses totaled $655,449 for the three months ended March 31, 2013, compared to $567,584 for the three months ended March 31, 2012, an increase of $87,865, or approximately 15.48%. For the three months ended March 31, 2013, depreciation and amortization was allocated between costs of goods sold, selling and general administrative expenses in the amounts of $587,561 and $67,888, respectively.  For the three months ended March 31, 2012, depreciation and amortization was allocated between costs of goods sold, selling, and general administrative expenses in the amounts $510,580 and $57,004, respectively. The increase in depreciation and amortization expenses is due to additional fixed assets placed in service.
Income (Loss) from operations
As a result of the factors described above, operating loss was $729,813 for the three months ended March 31, 2013, compared to operating income of $1,962,403 for the three months ended March 31, 2012, a decrease of approximately $2,692,216, or 137.2%.
Other income and expenses
Our interest expense was $862,448 for the three months ended March 31, 2013, compared to $1,229,745 for the three months ended March 31, 2012, reflecting decreased interest expenses on loans from banks. Expenses from changes in the fair value of our warrants as a result of adopting ASC 820-10 was $44,368 for the three months ended March 31, 2013, compared to $(479,563) for the three months ended March 31, 2012.
Income tax
During the three months ended March 31, 2013 and 2012, we benefited from a 100% tax holiday from the PRC enterprise tax. As a result, we had no income tax due for these periods. The enterprise income tax at the statutory rates would have been approximately $0 and $165,203, respectively, for the three months ended March 31, 2013 and 2012 without consideration of adjustments on taxable income. The tax holiday is from 2008 through 2017.
Net income (loss)
As a result of the factors described above, our net loss for the three months ended March 31, 2013 was $1,502,268, compared to net income of $253,117 for the three months ended March 31, 2012, a decrease of $1,755,385, or 693.5%.
About China Carbon Graphite Group, Inc.
China Carbon Graphite Group, through its affiliate, Xingyong Carbon Co., Ltd., manufactures graphite and carbon based products in China. The company is the largest wholesale supplier of fine-grain and high-purity graphite in China and one of the nation’s top overall producers of carbon and graphite products. Fine grain graphite is widely used in smelting for colored metals and rare earth metal smelting as well as the manufacture of molds. High purity graphite is used in metallurgy, mechanical industry, aviation, electronic, atomic energy, chemical industry, food industry and a variety of other fields. In September 2007, the Company was approved and designated by the Ministry of Science & Technology as a “National Hi-tech Enterprise,” a distinction that the Company still holds. Of the more than 400 carbon graphite producers in China, China Carbon Group Inc. is the only non-state-owned company to receive this honor. For more information, please visit www.chinacarboninc.com.
Safe Harbor Statement
This release contains certain “forward-looking statements” relating to the business of the Company and its subsidiary companies. 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 the risk factors set forth in the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q.
| PART 1 – FINANCIAL INFORMATION |
|
|
|
| China Carbon Graphite Group, Inc. and Subsidiaries |
| Consolidated Balance Sheets |
|
|
|
|
March 31,
2013 |
December 31,
2012 |
|
(Unaudited ) |
(Audited) |
| ASSETS |
|
|
|
|
|
| Current Assets |
|
|
| Cash and cash equivalents |
 $ 1,680,254 |
 $ 129,746 |
| Restricted cash |
22,379,000 |
22,149,000 |
| Accounts receivable, Net |
7,142,892 |
11,239,002 |
| Notes receivable |
7,401,165 |
— |
| Advance to suppliers |
12,503,217 |
1,177,462 |
| Inventories |
48,181,039 |
48,417,875 |
| Prepaid expenses |
785,438 |
280,779 |
| Other receivables, net of allowance of $221,026 and $220,339, respectively |
104,639 |
35,655 |
| Total current assets |
100,177,644 |
83,429,519 |
|
|
|
| Property And Equipment, Net |
40,481,778 |
40,964,363 |
|
|
|
| Construction In Progress |
18,943,945 |
7,324,379 |
|
|
|
| Land Use Rights, Net |
9,643,328 |
9,657,419 |
| Total Assets |
 $ 169,246,695 |
 $ 141,375,680 |
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| Current Liabilities |
|
|
| Accounts payable and accrued expenses |
 $ 1,431,323 |
 $ 2,250,745 |
| Advance from customers |
1,740,402 |
1,368,525 |
| Short term bank loans |
45,241,000 |
38,680,500 |
| Notes payable |
40,733,000 |
40,606,500 |
| Other payables |
1,489,655 |
630,179 |
| Loan from unrelated parties |
11,351,604 |
338,002 |
| Dividends payable |
51,353 |
46,816 |
| Total current liabilities |
102,038,337 |
83,921,267 |
|
|
|
| Amounts Due To Related Parties |
4,637,132 |
4,795,593 |
|
|
|
| Long Term Bank Loans |
16,067,800 |
4,782,900 |
|
|
|
| Warrant Liabilities |
179,994 |
224,362 |
| Total Liabilities |
122,923,263 |
93,724,122 |
|
|
|
| Redeemable convertible series B preferred stock, $0.001 par value; 3,000,000 shares authorized; 300,000 and 300,000 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively. |
360,000 |
360,000 |
| Stockholders’ Equity |
|
|
| Common stock, $0.001 par value; 100,000,000 shares authorized 25,137,518 and 25,077,518 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively |
25,137 |
25,077 |
| Additional paid-in capital |
18,256,121 |
18,223,781 |
| Accumulated other comprehensive income |
9,129,202 |
8,982,925 |
| Retained earnings |
18,552,972 |
20,059,775 |
| Total stockholders’ equity |
45, 963,432 |
47,291,558 |
| Total Liabilities and Stockholders’ Equity |
 $ 169,246,695 |
 $ 141,375,680 |
|
|
|
| The accompanying notes are an integral part of these consolidated financial statements. |
|
|
| China Carbon Graphite Group, Inc. and Subsidiaries |
| Consolidated Statements of Operations and Comprehensive Income |
| For the Three Months Ended March 31, 2013 and 2012 |
| (Unaudited) |
|
|
|
|
Three months ended
March 31, |
|
2013 |
2012 |
|
|
|
| Sales |
 $3,060,918 |
 $10,061,210 |
|
|
|
| Cost of Goods Sold |
3,320,320 |
7,143,606 |
| Gross Profit (loss) |
(259,402) |
2,917,604 |
|
|
|
| Operating Expenses |
|
|
| Selling expenses |
17,941 |
46,798 |
| General and administrative |
384,582 |
851,399 |
| Depreciation and amortization |
67,888 |
57,004 |
| Total operating expenses |
470,411 |
955,201 |
|
|
|
| Operating Income (Loss) Before Other Income (Expense) |
(729,813) |
1,962,403 |
|
|
|
| Other Income (Expense) |
|
|
| Interest expense |
(862,448) |
(1,229,745) |
| Interest income |
45,304 |
22 |
| Other income, net |
321 |
— |
| Change in fair value of warrants |
44,368 |
(479,563) |
| Total other expense |
(772,455) |
(1,709,286) |
|
|
|
| Net Income (Loss) |
(1,502,268) |
253,117 |
|
|
|
| Preferred Stock Dividends |
(4,537) |
(5,018) |
|
|
|
| Net Income (Loss) Available To Common Shareholders |
(1,506,805) |
248,099 |
|
|
|
| Other Comprehensive Income |
|
|
| Foreign currency translation gain |
146,277 |
423,897 |
| Total Comprehensive Income |
$Â (1,355,991) |
 $ 677,014 |
|
|
|
| Share Data |
|
|
|
|
|
| Basic earnings (loss) per share |
$Â (0.06) |
 $ 0.01 |
|
|
|
| Diluted earnings (loss) per share |
$Â (0.06) |
 $ 0.01 |
|
|
|
| Weighted average common shares outstanding, |
|
|
| Basic |
25,103,518 |
23,315,645 |
|
|
|
| Weighted average common shares outstanding, |
|
|
| Diluted |
25,103,518 |
23,647,455 |
|
|
|
| The accompanying notes are an integral part of these consolidated financial statements. |
|
|
| China Carbon Graphite Group, Inc. and Subsidiaries |
| Consolidated Statements of Cash Flows |
| (Unaudited) |
|
|
|
|
Three months ended
March 31, |
|
2013 |
2012 |
| Cash Flows from Operating Activities |
|
|
| Net income (loss) |
$Â (1,502,268) |
 $ 253,117 |
| Adjustments to reconcile net cash provided by operating activities |
|
|
| Depreciation and Amortization |
655,449 |
567,584 |
| Stock compensation |
60,345 |
— |
| Change in fair value of warrants |
(44,368) |
479,563 |
| Recovery of bad debt expenses |
 (166,601) |
— |
| Changes in operating assets and liabilities |
|
|
| Accounts receivable |
4,290,026 |
(1,310,189) |
| Notes receivable |
(7,387,374) |
(142,124) |
| Other receivables |
(68,745) |
(44,531) |
| Advance to suppliers |
(11,300,990) |
(5,197,009) |
| Inventory |
386,948 |
(4,075,391) |
| Prepaid expenses |
(530,927) |
169,188 |
| Accounts payable and accrued liabilities |
 (824,186) |
594,274 |
| Advance from customers |
366,928 |
592,123 |
| Taxes payable |
99,446 |
(110,310) |
| Other payables |
755,723 |
133,762 |
| Net cash used in operating activities |
(15,210,594) |
(8,089,943) |
|
|
|
| Cash flows from investing activities |
|
|
| Acquisition of property, plant and equipment |
(2,292) |
(15,831) |
| Proceeds from land bureau against cost of land use rights |
|
237,749 |
| Addition of construction in progress |
(11,575,140) |
(651,528) |
| Net cash used in investing activities |
(11,577,432) |
(429,610) |
|
|
|
| Cash flows from financing activities |
|
|
| Proceeds from issuing common stock |
— |
50,000 |
| Proceeds from short term loans |
11,249,000 |
4,755,000 |
| Repayments for short term loans |
(4,821,000) |
(4,755,000) |
| Proceeds from long term loans |
11,249,000 |
— |
| Proceeds from loan from unrelated parties |
10,992,029 |
9,313,808 |
| Proceeds from loan from related parties |
448,994 |
79,727 |
| Repayments to related parties |
(622,072) |
— |
| Proceeds from stock not yet issued |
— |
77,500 |
| Restricted cash |
(160,700) |
4,945,200 |
| Proceeds from notes payable |
17,677,000 |
10,778,000 |
| Repayments to notes payable |
(17,677,000) |
(16,880,250) |
| Net cash provided by financing activities |
28,335,251 |
8,363,985 |
|
|
|
| Effect of exchange rate fluctuation |
3,283 |
3,819 |
|
|
|
| Net increase (decrease) in cash |
1,550,508 |
(151,749) |
|
|
|
| Cash and cash equivalents at beginning of period |
129,746 |
521,450 |
|
|
|
| Cash and cash equivalents at end of period |
 $1,680,254 |
 $ 369,701 |
|
|
|
| Supplemental disclosure of cash flow information |
|
|
|
|
|
| Interest paid |
 $1,040,625 |
 $ 984,830 |
| Income taxes paid |
$Â — |
$Â — |
|
|
|
| Non-cash activities: |
|
|
|
|
|
| Preferred stock conversion to common stock |
$Â — |
 $ 94 |
Investor Contact:
Ms. Renee Volaric
Director
RB Milestone Group, LLC
Tel: (212) 661-0075 ext. 113
Email:
Company Contact:
Mr. Donghai Yu
Chief Executive Officer
China Carbon Graphite Group Inc.
