INNER MONGOLIA, China, April 17, 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 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 | $ -- |