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 year ended December 31, 2012.
Fiscal Year (FY) 2012 Highlights:
- Sales decreased 37%, from $49.8 million in FY 2011 to $31.5
million in FY 2012.
- Gross profit dropped by 41%, from $11.6 million in FY 2011 to
$6.8 million in FY 2012.
- Net income reduced by 220%, from a gain of $3.0 million in FY
2011 to a loss of $3.6 million in FY 2012.
"In 2012, one of our largest accomplishments was to successfully
expand our production capacity from 30,000 tons to 60,000 tons,
reflecting our stronger leadership in China's synthetic graphite
market," said Donghai Yu, Chief Executive Officer of China Carbon.
"The new production facilities are specializing in the manufacture
of high margin synthetic graphite products, including the
ultra-high graphite electrodes with a diameter ranging from 600 to
800 millimeters, along with existing fine grain and high-purity
graphite products. I am glad to see, in 2012, we had completed a
significant transition from a low grade carbon graphite producer to
be China's top highly sophisticated, high purity synthetic graphite
manufacturer.
"Our sales in 2012 decreased 37% from year 2011, severely
affected by the downturn of China's steel industry. To minimize the
negative effect caused by some of the depressed downstream
industries, our management has been relocating most of our
resources on producing high purity graphite products which are
heavily used by other fast growing markets such as automobile,
aviation and defense industry. I believe, in 2013, we will improve
our profits by adding more market share in these high end
industries."
Fiscal Year 2012 & Fourth Quarter 2012 Financial
Results
Sales.
During the year ended December 31, 2012, we had sales of
$31,482,852, compared to sales of $49,846,744 for the year ended
December 31, 2011, a decrease of $18,363,892, or approximately
36.8%. Sales decrease was mainly attributable to a significant
decrease in the demand for our products during the year ended
December 31, 2012, resulting from the struggle of steel
companies.
Cost of goods sold; gross
margin.
Our cost of goods sold consists of raw materials, utilities,
labor, and depreciation expenses in our manufacturing facilities.
During the year ended December 31, 2012, our cost of goods sold was
$24,707,625, compared to $38,261,812 for the year ended December
31, 2011, a decrease of $13,554,187, or approximately 35.4%. The
decrease in the cost of sales was directly associated with a
reduction in the average cost of raw. Our gross margin dropped from
23.2% for the year ended December 31, 2011 to 21.5% for the year
ended December 31, 2012. This decline was mainly due to the
decreased gross profit rate for graphite electrodes.
Operating expenses.
Operating expenses totaled $7,275,959 for the year ended
December 31, 2012, compared to $6,242,033 for the year ended
December 31, 2011, an increase of $1,033,926, or approximately
16.6%.
Selling, general and administrative
expenses.
Selling expenses declined from $597,802 for the year ended
December 31, 2011 to $253,604 for the year ended December 31, 2012,
a decrease of $344,198, or 57.6%. This was mainly due to decreased
sales commission and lower shipping and handling expenses during
the year ended December 31, 2012 as compared to the year ended
December 31, 2011, which was a result of lower sales.
Our general and administrative expenses consist of salaries,
office expenses, utilities, business travel, amortization expenses,
public company expenses (including legal expenses, accounting
expenses and investor relations expenses) and stock compensation.
General and administrative expenses were $6,785,273 for the year
ended December 31, 2012, compared to $5,420,157 for the year ended
December 31, 2011, an increase of $1,365,116, or 25.2%. The
increase in general and administrative expenses was mainly due to
increased bad debt expenses offset by decreased third party
consulting expenses and property tax expenses for the year ended
December 31, 2012 compared to the year ended December 31, 2011. The
company appropriately accrued property tax for the fiscal year
ended December 31, 2011 for all owned land regardless of the
purpose of the land. However, in 2012, at the completion of the
construction on the land, the government exempted property taxes
related to land that was used for planting green plants and not
used for business operations. Therefore, as of December 31, 2012,
the company reversed the property tax expenses that were previously
accrued and subsequently exempted. In addition, the company
incurred $258,500 and $1,338,150 for stock based compensation
during the years ended December 31, 2012 and 2011,
respectively.
Depreciation and amortization expenses.
Depreciation and amortization expenses totaled $3,298,709 for
the year ended December 31, 2012, compared to $1,803,770 for the
year ended December 31, 2011, an increase of $1,494,939, or
approximately 82.9%. For the year ended December 31, 2012,
depreciation and amortization was allocated between costs of goods
sold and selling, general and administrative expenses in the
amounts of $3,061,627 and $237,082, respectively. For the year
ended December 31, 2011, depreciation and amortization was
allocated between costs of goods sold and selling, general and
administrative expenses in the amounts $1,579,696 and $224,074,
respectively The slight increase in depreciation and amortization
expenses is a result of additional fixed assets placed in service
during 2011.
Income (Loss) from operations.
As a result of the factors described above, operating loss was
$(500,733) for the year ended December 31, 2012, compared to
operating income of $5,342,899 for the year ended December 31,
2011, a decrease of approximately $5,843,631, or 109.4%.
Other income and expenses.
Our interest expense was $4,305,796 for the year ended December
31, 2012, compared to $3,451,034 for the year ended December 31,
2011, reflecting increased interest payments on loans from banks.
We used the additional bank loans to secure additional inventory
due to the rise of raw material prices. Other income, which
consisted of government grants, was $1,651,640 for the year ended
December 31, 2012, compared to $1,167,077 for the year ended
December 31, 2011. Expenses from changes in the fair value of our
warrants as a result of adopting ASC 820-10 was $49,557 for the
year ended December 31, 2012, compared to $86,691 for the year
ended December 31, 2011.
Income tax.
During the years ended December 31, 2012 and 2011, 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
$833,119, respectively, for 2012 and 2011 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
year ended December 31, 2012 was $(3,561,515), compared to net
income of $2,972,251 for the year ended December 31, 2011, a
decrease of $6,533,766, or 219.8%.
Business Outlook
"In 2012, graphite remained as the highly demanded material for
the nation's developing iron, steel, automobile, aerospace and
defense industries. According to the recent graphite market report,
the demand will continue to grow in the next five years. We are
really proud of being the top high purity and fine grain
manufacture in China," said Donghai Yu, Chief Executive Officer of
China Carbon. "I am pleased to see the launch of our new plant in
2012 which enables us to produce rounded fine grain with a diameter
as large as 600 millimeters and ultra-high electrodes with a
diameter as large as 800 millimeters, the highest end products
available on the market in China. This created high entry batteries
on the market as it requires significant amount of funds and time
to develop the similar technology. Our focus of producing
high-tech, high end graphite products will help further strengthen
our leading position in these areas.
"In 2013, we plan to continue concentrating on manufacturing
high margin graphite products, such as high purity and fine grain
graphite, to meet the increasing demands from fast growing
industries. As we expect the isostatic graphite market will be
recovering in the first quarter of 2014, we will also put another
emphasis on developing isostatic graphite products this year,
including nuclear, solar and semiconductor products, to improve our
margins as well.
"In regards to nuclear graphite, only graphite rods with a
diameter of more than 840 millimeters and a purity of more than
99.99 percent may be used in nuclear power reactors. To date, we
know of only one graphite manufacturer in China that currently
produces nuclear graphite that meets the specifications of these
power plants and we have produced samples that meet these
standards. Recent statistics show that China's nuclear industry is
forging ahead with 29 reactor projects, 4 of which have been
approved since the nuclear power construction moratorium was lifted
in November. This represents 40% of the world's total number of
reactors under construction, significantly ahead of Russia, India,
and South-Korea. Early this year, China also started the
construction of the world's first 4th generation nuclear plant in
Shandong province with a $475 million budget. We see tremendous
demand in this market in the near future.
"Also, we believe graphene will be the dominant material used in
many industries in the near future. It is a revolutionary
technology just like the silicon that was discovered decades ago.
As one of our future growth strategies, a breakthrough in this area
would be decisive in distinguishing our company as the leader of
this industry in China. With the strong cooperation with Hunan
University, the top university in China in the area of graphite
technology, we are confident that we will make further progress in
2013, and hope to solidify our position as one of China's premier
graphite companies in the future," said Donghai Yu, Chief Executive
Officer of China Carbon.
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 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.
Financial Information
|
China Carbon Graphite
Group, Inc. and Subsidiaries |
Consolidated Balance
Sheets |
As Of December 31, 2012
and 2011 |
|
|
December 31,
2012 |
December 31,
2011 |
ASSETS |
|
|
|
|
|
Current Assets |
|
|
Cash and cash equivalents |
$ 129,746 |
$ 521,450 |
Restricted cash |
22,149,000 |
11,694,820 |
Accounts receivable, Net |
11,239,002 |
12,541,321 |
Notes receivable |
-- |
188,880 |
Advance to suppliers |
1,177,462 |
5,921,970 |
Inventories |
48,417,875 |
37,430,248 |
Prepaid expenses |
280,779 |
452,730 |
Other receivables, net of allowance of
$220,339 and $24,397, respectively |
35,655 |
513,000 |
Total current assets |
83,429,519 |
69,264,419 |
|
|
|
Property And Equipment,
Net |
40,964,363 |
36,719,595 |
|
|
|
Construction In
Progress |
7,324,379 |
6,414,847 |
|
|
|
Land Use Rights, Net |
9,657,419 |
10,699,059 |
Total Assets |
$ 141,375,680 |
$ 123,097,920 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
|
|
Current Liabilities |
|
|
Accounts payable and accrued expenses |
$ 2,250,745 |
$ 1,340,498 |
Advance from customers |
1,368,525 |
1,360,989 |
Short term bank loans |
38,680,500 |
45,488,600 |
Notes payable |
40,606,500 |
16,763,100 |
Other payables |
630,179 |
3,227,067 |
Loan from unrelated parties |
338,002 |
-- |
Dividends payable |
46,816 |
28,099 |
Total current
liabilities |
83,921,267 |
68,208,353 |
|
|
|
Amount Due To A Related
Party |
4,795,593 |
5,542,855 |
|
|
|
Long Term Bank Loan |
4,782,900 |
-- |
|
|
|
Warrant Liabilities |
224,362 |
174,805 |
Total Liabilities |
93,724,122 |
73,926,013 |
|
|
|
Redeemable convertible series B preferred
stock, $0.001 par value; |
|
|
3,000,000 shares authorized; 300,000 and
426,110 shares issued |
|
|
and outstanding at December 31, 2012 and
2011, respectively. |
360,000 |
511,332 |
Stockholders' Equity |
|
|
Common stock, $0.001 par value; 100,000,000
shares authorized |
|
|
25,077,518 and 22,981,408 shares issued and
outstanding at |
|
|
December 31, 2012 and 2011, respectively |
25,077 |
22,981 |
Additional paid-in capital |
18,223,781 |
17,054,045 |
Accumulated other comprehensive income |
8,982,925 |
7,943,542 |
Retained earnings |
20,059,775 |
23,640,007 |
Total stockholders'
equity |
47,291,558 |
48,660,575 |
Total Liabilities and Stockholders'
Equity |
$ 141,375,680 |
$ 123,097,920 |
|
|
China Carbon Graphite
Group, Inc. and Subsidiaries |
Consolidated Statements
of Operations and Comprehensive Income |
For the Years Ended
December 31, 2012 and 2011 |
|
|
Years ended
December 31, |
|
2012 |
2011 |
|
|
|
Sales |
$ 31,482,852 |
$ 49,846,744 |
|
|
|
Cost of Goods Sold |
24,707,625 |
38,261,812 |
Gross Profit |
6,775,227 |
11,584,932 |
|
|
|
Operating Expenses |
|
|
Selling expenses |
253,604 |
597,802 |
General and administrative |
6,785,273 |
5,420,157 |
Depreciation and
amortization |
237,082 |
224,074 |
Total operating expenses |
7,275,959 |
6,242,033 |
|
|
|
Operating Income (Loss) Before Other
Income (Expense) |
(500,732) |
5,342,899 |
|
|
|
Other Income (Expense) |
|
|
Interest expense |
(4,305,796) |
(3,451,034) |
Other expense |
(357,070) |
-- |
Other income, net |
1,651,640 |
1,167,077 |
Change in fair value of
warrants |
(49,557) |
(86,691) |
Total other expense |
(3,060,783) |
(2,370,648) |
|
|
|
Net Income (Loss) |
(3,561,515) |
2,972,251 |
|
|
|
Preferred Stock
Dividends |
(18,717) |
(28,099) |
|
|
|
Net Income (Loss) Available To Common
Shareholders |
(3,580,232) |
2,944,152 |
|
|
|
Other Comprehensive
Income |
|
|
Foreign currency translation
gain |
1,039,383 |
1,599,128 |
Total Comprehensive
Income |
$ (2,522,132) |
$ 4,571,379 |
|
|
|
Share Data |
|
|
|
|
|
Basic earnings (loss) per
share |
$ (0.15) |
$ 0.13 |
|
|
|
Diluted earnings (loss) per
share |
$ (0.15) |
$ 0.13 |
|
|
|
Weighted average common shares
outstanding, |
|
|
basic |
24,018,450 |
22,418,101 |
|
|
|
Weighted average common shares
outstanding, |
|
|
diluted |
24,018,450 |
22,844,211 |
|
|
China Carbon Graphite
Group, Inc. and Subsidiaries |
Consolidated Statements
of Cash Flows |
For the Years Ended
December 31, 2012 and 2011 |
|
|
Years ended
December 31, |
|
2012 |
2011 |
|
|
|
Cash flows from operating
activities |
|
|
Net Income (loss) |
$ (3,561,515) |
$ 2,972,251 |
Adjustments to reconcile net cash
provided by |
|
|
operating activities |
|
|
Depreciation and amortization |
3,298,709 |
1,803,770 |
Stock compensation |
258,500 |
1,891,600 |
Change in fair value of warrants |
49,557 |
86,691 |
Bad debt expense |
1,558,643 |
187,732 |
Change in operating assets and
liabilities |
|
|
Accounts receivable |
1,530,015 |
(6,180,362) |
Notes receivable |
(443,800) |
284,881 |
Other receivable |
481,374 |
(161,882) |
Advance to suppliers |
3,241,924 |
4,588,784 |
Inventories |
(10,122,706) |
(10,224,660) |
Prepaid expenses |
174,686 |
(219,098) |
Accounts payable and accrued liabilities |
1,036,477 |
(4,423,066) |
Loan from unrelated parties |
333,790 |
-- |
Advance from customers |
(19,028) |
257,028 |
Taxes payable |
(1,118,582) |
1,481,487 |
Other payables |
(1,632,950) |
(601,585) |
Net cash used in operating
activities |
(4,934,906) |
(8,256,429) |
|
|
|
Cash flows from investing
activities |
|
|
Acquisition of property and equipment |
(65,945) |
(5,789,966) |
Construction in progress |
(5,597,285) |
(2,772,094) |
Acquisition of land use right |
(15,850) |
-- |
Net cash used in investing
activities |
(5,679,080) |
(8,562,060) |
|
|
|
Cash flows from financing
activities |
|
|
Proceeds from issuing common stock |
762,000 |
160,000 |
Proceeds from warrants exercise |
-- |
371,714 |
Dividends paid for series B preferred
stock |
-- |
(32,997) |
Proceeds from short-term bank loans |
42,921,800 |
44,795,000 |
Payment to short-term bank loans |
(50,529,800) |
(34,022,500) |
Proceeds from long-term bank loans |
4,723,300 |
-- |
Proceeds from loans from unrelated
parties |
11,413,937 |
-- |
Payment of loans from unrelated parties |
(11,186,898) |
-- |
Payments to an related party |
(1,673,126) |
-- |
Proceeds from an related party |
827,370 |
610,492 |
Payment for common stock not issued |
(160,000) |
-- |
Common stock shares to be issued |
-- |
160,000 |
Restricted cash |
(10,096,450) |
(11,516,500) |
Proceeds from notes payable |
58,011,000 |
16,507,500 |
Repayment to notes payable |
(34,790,750) |
-- |
Net cash provided by financing
activities |
10,222,383 |
17,032,709 |
|
|
|
Effect of exchange rate
fluctuation |
(101) |
10,918 |
|
|
|
Net increase (decrease) in
cash |
(391,704) |
225,138 |
|
|
|
Cash and cash equivalents at
beginning of period |
521,450 |
296,312 |
|
|
|
Cash and cash equivalents at end of
period |
$ 129,746 |
$ 521,450 |
|
|
|
Supplemental disclosure of cash flow
information |
|
|
|
|
|
Interest paid |
$ 4,199,529 |
$ 3,451,037 |
Income tax paid |
$ -- |
$ -- |
|
|
|
Non-cash activities: |
|
|
|
|
|
Preferred stock conversion to common
stock |
$ 151 |
$ 959 |
|
|
|
Reclassification of warrant liability with
equity |
$ -- |
$ 14,993 |
|
|
|
Reclassification from construction in
progress to property and equipment |
$ 5,457,854 |
$ 7,332,116 |
|
|
|
Reclassification from accounts payable to
property and equipment |
$ -- |
$ (15,500) |
|
|
|
Reclassification from notes payable to
construction in progress |
$ 634,000 |
$ -- |
CONTACT: Investor Contact:
Renee A. Volaric, Director
RB Milestone Group LLC
(212) 661-0075 x 113
rvolaric@rbmilestone.com
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