China Carbon Graphite Group Reports Third Quarter 2013 Financial Results

INNER MONGOLIA, China, Dec. 2, 2013 /PRNewswire/ -- China Carbon Graphite Group, Inc. (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 third quarter ended September 30, 2013.

Mr. Donghai Yu, Chief Executive Officer of China Carbon, commented, "Plagued by the stubborn crisis of China's steel industry from which our major profits are generated, we experienced continuous challenges in the third quarter resulting in a 58% decrease in our revenues over the same period of last year. To tackle these challenges, our management has been making necessary initiatives including adjusting our product portfolio and positioning strategies. We hope these efforts can help us better mitigate the risks and the negative impacts from the downturn of overall economy."

Third Quarter 2013 Financial Results


Three Months Ended September 30


2013


2012


Sales


% of Total


Sales


% of Total

Graphite Electrodes

$361,069


13.3%


$788,769


12.1%

Fine Grain Graphite

935,145


34.4%


2,666,957


41.1%

High Purity Graphite

1,188,145


43.6%


2,763,836


42.6%

Others

237,364


8.7%


271,571


4.2%

Total

$2,721,723


100.0%


$6,491,133


100.0%

Sales: For the three months ended 30, 2013, sales decreased by $3.77 million, or 58.1%, to $2.72 million from $6.49 million for the third quarter of 2012. The decrease in sales was mainly due to industry-wide demand weakness for our products as a result of continued struggles of steel manufacturers. In particular, demand for our fine grain graphite and high purity graphite products remained extremely low during the third quarter with sales decreasing 64.9% and 57.0% to $0.94 million and $1.19 million, respectively. Sales of graphite electrodes decreased 54.2% to $0.36 million while sales of semi-processed and other types of products declined 12.6% to $0.24 million.

Gross Income (Loss): Gross profit for the third quarter of 2013 was $0.45 million, compared to $1.77 million for the same period of last year. Gross margin decreased to 16.6% for the third quarter of 2013 from 27.3% for the same period of last year. The decrease in gross margin was mainly due to increased percentage of low margin product sales, increased depreciation allocated to the cost of goods sold due to the transfer of construction in progress to property and equipment since the end of 2012, and increased fixed cost allocation as a result of decreased production volume.

Operating Income (Loss):

Selling, General and Administrative Expenses:

Selling expenses decreased by 87.2% to $0.01 million for the third quarter of 2013 from $0.06 million for the same period of last year. The decrease was mainly due to decreased sales commission and lower shipping and handling expenses during the three months ended September 30, 2013 as compared to the three months ended September 30, 2012.

General and administrative expenses increased by $1.66 million, or 157.1%, to $2.72 million for the third quarter of 2013 from $1.06 million for the same period of last year. The increase in general and administrative expenses was mainly attributable o increase in bad debt expenses and partially offset by decrease in stock-based compensation expenses for consulting services.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses increased $0.13 million, or 234.2%, to $0.19 million for the third quarter of 2013 from $0.06 million for the same period of last year. The increase in depreciation and amortization expenses was due to additional fixed assets placed in service.

Impairment of Property and Equipment:

The Company also recorded impairment of property and equipment of $3.54 million for the third quarter of 2013.

Overall, operating expenses totaled $6.45 million for the third quarter of 2013, compared to $1.18 million for the same period of 2012, an increase of $5.28 million, or 448.4%. As a result of the factors described above, operating loss was ($6.00) million for the third quarter of 2013, compared to operating income of $0.59 million for the same period of last year. Operating loss margin was (220.5%) for the third quarter of 3013, compared to operating profit margin of 9.1% for the same period of last year.

Net Income (Loss): Net loss available to common stockholders was ($6.89) million, or ($0.26) per diluted share, for the third quarter of 2013, compared to ($0.80) million, or ($0.03) per diluted share, for same period of last year.

Nine Months Ended September 30, 2013 Financial Results


Nine Months Ended September 30


2013


2012


Sales


% of Total


Sales


% of Total

Graphite Electrodes

$2,021,971


23.8%


$3,434,285


12.1%

Fine Grain Graphite

3,247,054


38.2%


12,443,155


43.8%

High Purity Graphite

2,693,240


31.7%


12,024,784


42.3%

Others

534,628


6.3%


527,662


1.8%

Total

$8,496,893


100.0%


$28,429,886


100.0%

Sales: For the nine months ended September 30, 2013, sales decreased by $19.93 million, or 70.1%, to $8.50 million from $28.43 million for same period of last year. The decrease in sales was mainly due to industry-wide demand weakness for our products as a result of continued struggles of steel manufacturers. Demand for our fine grain graphite and high purity graphite products was particularly weak for the nine months ended September 30, 2013 with sales decreasing 73.9% and 77.6% to $3.25 million and $2.69 million, respectively. Sales of graphite electrodes also decreased by 41.1% to $2.02 million.  Sales of semi-processed and other types of products grew 1.3% to $0.53 million.

Gross Income (Loss): Gross loss for the nine months ended September 30, 2013 was ($4.71) million, compared to gross profit of $7.58 million for the same period of last year. Gross loss margin was (55.4%) for the nine months ended September 30, 2013, compared to 26.7% for the same period of last year. The decrease in gross margin was mainly due to inventory impairment cost of $3.27 million for the third quarter of 2013, increased percentage of low margin product sales, increased depreciation allocated to the cost of goods sold due to the transfer of construction in progress to property and equipment since the end of 2012, and increased fixed cost allocation as a result of decreased production volume.

Operating Income (Loss):

Selling, General and Administrative Expenses:

Selling expenses decreased by $0.09 million, or 67.2%, to $0.05 million for the nine months ended September 30, 2013 from $0.14 million for the same period of last year. The decrease was mainly due to decreased sales commission and lower shipping and handling expenses during the nine months ended September 30, 2013 as compared to the same period of last year.

General and administrative expenses increased by $3.56 million, or 115.6%, to $6.64 million for the nine months ended September 30, 2013 from $3.08 million for the same period of last year. The increase in general and administrative expenses was mainly due to increased bad debt expenses of $2.19 million, increased stock based compensation expense for directors and officers of $0.27 million, and increased accrued expenses for potential lawsuit loss of $0.32 million for the nine months ended September 30, 2013 compared to the same period of last year.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses increased by $0.15 million, or 92.2%, to $0.31 million for the nine months ended September 30, 2013 from $0.16 million for the same period of last year. The increase in depreciation and amortization expenses was due to additional fixed assets placed in service.

Impairment of Property and Equipment:

The Company also recorded impairment of property and equipment of $3.54 million for the nine months ended September 30, 2013.

Operating expenses totaled $10.53 million for the nine months ended September 30, 2013, compared to $3.38 million for the same period of last year, an increase of $7.16 million, or 221.8%. As a result of the factors described above, operating loss totaled ($15.24) million for the nine months ended September 30, 2013, compared to operating income of $4.20 million for the same period of last year. Operating loss margin was (179.4%) for the nine months ended September 30, 2013 versus operating profit margin of 14.8% for the same period of last year.

Net Income (Loss): Net loss available to common stockholders was ($17.84) million, or ($0.69) per diluted share, for the nine months ended September 30, 2013, compared to net income available to common stockholders of $0.31 million, or $0.01 per diluted share, for the nine months ended September 30, 2012.

Financial Position  

As of September 30, 2013, the Company had cash and cash equivalents of $0.20 million, restricted cash of $30.72 million, and short-term bank loans of  $45.92 million. The Company had working capital deficit of ($15.57) million as of September 30, 2013, compared to a deficit of ($0.49) million at the end of 2012.

Net cash used in operating activities was ($11.57) million for the nine months ended September 30, 2013, compared to net cash provided by operating activities of $0.54 million for the same period of last year.

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 http://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.

Company Contact: 
Donghai Yu, CEO
China Carbon Graphite Group Inc.
Email: ir@chinacarboninc.com 
Website: http://www.chinacarboninc.com

Investor Relations Contact:
Tina Xiao
Weitian Group LLC
Tel: +1-917-609-0333
Email: tina.xiao@weitian-ir.com
Website: http://www.weitian-ir.com  

China Carbon Graphite Group, Inc. and subsidiaries

Consolidated Balance Sheets



















September 30, 2013


December 31, 2012





(Unaudited)


(Audited)

ASSETS








Current Assets





Cash and cash equivalents

$                      197,636


$                  129,746


Restricted cash

30,718,954


22,149,000


Accounts receivable, Net

6,232,675


11,239,002


Advance to suppliers

11,912,484


1,177,462


Inventories

45,645,068


48,417,875


Prepaid expenses

721,491


280,779


Other receivables, net of allowance of $224,319 and $220,339, respectively 

452,695


35,655

            Total current assets

95,881,003


83,429,519








Property And Equipment, Net

36,334,180


40,964,363








Construction In Progress

27,543,023


7,324,379








Land Use Rights, Net 

9,654,207


9,657,419

Total Assets

$               169,412,413


$           141,375,680








LIABILITIES AND STOCKHOLDERS' EQUITY








Current Liabilities





Accounts payable and accrued expenses

$                   3,492,996


$                2,250,745


Advance from customers

1,697,436


1,368,525


Short term bank loans

45,915,033


38,680,500


Notes payable

57,679,739


40,606,500


Other payables

2,345,935


630,179


Loan from unrelated parties

265,826


338,002


Dividends payable

55,015


46,816

Total current liabilities

111,451,980


83,921,267









Amount due to related parties

4,761,875


4,795,593


Long Term Bank Loan

22,352,941


4,782,900


Accounts Payable - Long Term

-




Warrant Liabilities

25,657


224,362

Total Liabilities

138,592,453


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 September 30, 2013 and December 31, 2012, respectively.

310,000


360,000

Stockholders' Equity





Common stock, $0.001 par value;100,000,000 shares authorized 





26,342,518 and 25,077,518 shares issued and outstanding at 





September 30, 2013 and December 31, 2012, respectively

26,342


25,077


Additional paid-in capital

18,551,966


18,223,781


Accumulated other comprehensive income

9,714,447


8,982,925


Retained earnings

2,217,206


20,059,775

            Total stockholders' equity

30,509,960


47,291,558

Total Liabilities and Stockholders' Equity

$               169,412,413


$           141,375,680








 

China Carbon Graphite Group, Inc and subsidiaries





Consolidated Statements of Operations and Comprehensive Income 





For the Three and Nine Months Ended September 30, 2013 and 2012 





(Unaudited)



























Three months ended September 30,


Nine months ended September 30,


Six months ended June 30,




2013


2012


2013


2012


2013


2012















Sales



$                  2,721,723


$        6,491,133


$        8,496,893


$    28,429,886


$    5,775,170


$ 21,938,753















Cost of Goods Sold


2,269,493


4,722,151


13,202,146


20,850,882


10,932,653


16,128,731















Gross Profit (Loss)


452,230


1,768,982


(4,705,253)


7,579,004


(5,157,483)


5,810,022

Operating Expenses 













               Selling expenses


8,252


64,487


46,088


140,437


37,836


75,950

               General and administrative


2,688,323


1,056,283


6,610,689


3,078,144


3,922,367


2,021,861

               Impairment of property and equipment


3,569,646


-


3,569,646


-





               Depreciation and amortization


187,803


56,198


307,505


160,028


119,702


103,830

         Total operating expenses


6,454,023


1,176,968


10,533,928


3,378,609


4,079,905


2,201,641















Operating (Loss) Income Before Other Income (Expense)

(6,001,793)


592,014


(15,239,181)


4,200,395


(9,237,388)


3,608,381















Other Income (Expense)













               Interest expense


(1,501,867)


(1,208,970)


(3,418,517)


(3,658,888)


(1,916,650)


(2,449,918)

               Interest income


562,916


-


624,722


44


61,806


43

               Other expense 


-


272


-


(215,196)


-


(215,468)

               Other income (expense), net


(352)


6,080


(99)


221,270


253


215,190

               Change in fair value of warrants


52,997


(188,046)


198,705


(221,846)


145,708


(33,800)

          Total other expense (income), net


886,306


(1,390,664)


2,595,189


(3,874,616)


1,708,883


(2,483,953)















(Loss) Income Before Income Tax Expense


(6,888,099)


(798,650)


(17,834,370)


325,779


(10,946,271)


1,124,428















Income Tax Expense


-


-


-


-


-


-















Net Income (Loss)


(6,888,099)


(798,650)


(17,834,370)


325,779


(10,946,271)


1,124,428















Preferred Stock Dividends


826


(4,537)


(8,199)


(14,180)


(9,025)


(9,643)















Net Income (Loss) Available To Common Shareholders


(6,887,273)


(803,187)


(17,842,569)


311,599


(10,955,296)


1,114,785















Other Comprehensive Income













                Foreign currency translation gain


92,843


528,509


731,522


518,452


638,679


(10,057)

Total Comprehensive Income (Loss)


$                 (6,795,256)


$           (270,141)


$     (17,102,848)


$          844,231


$ (10,307,592)


$     1,114,371















Share Data













                Basic earnings (loss) per share


$                           (0.26)


$                 (0.03)


$                 (0.69)


$                 0.01


$            (0.43)


$              0.05















                Diluted earnings (loss) per share


$                           (0.26)


$                 (0.03)


$                 (0.69)


$                 0.01


$            (0.43)


$              0.05















                Weighted average common shares outstanding,













                   basic


26,336,648


24,260,834


25,754,899


23,843,306


25,459,203


23,632,248















                Weighted average common shares outstanding,













                   diluted


26,336,648


24,560,834


25,754,899


24,143,306


25,459,203


23,938,058















China Carbon Graphite Group, Inc and subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)













Nine months ended September 30,





2013


2012

Cash Flows from Operating Activities




     Net income (loss)

$                (17,834,370)


$                   325,779

     Adjustments to reconcile net cash provided by (used in)


-

     operating activities



-

           Depreciation and Amortization

2,144,180


1,925,159

           Related party interest expenses contribution

-


344,401

           Stock compensation

262,650


512,158

           Change in fair value of warrants

(198,705)


221,846

           Bad debt expenses

2,187,134


-

           Impairment of property and equipment

3,542,153


-

           Inventory impairment

3,266,648


-

     Changes in operating assets and liabilities




          Accounts receivable

2,982,054


858,426

          Notes receivable

-


156,266

          Other receivables

(413,189)


(46,790)

          Advance to suppliers

(10,631,243)


3,405,974

          Inventory

352,515


(9,963,519)

          Prepaid expenses

(416,248)


1,906

          Accounts payable and accrued liabilities

1,193,573


3,460,160

          Advance from customers

301,852


(44,443)

          Taxes payable

289,304


(760,615)

          Other payables

1,400,248


141,370

Net cash (used in) provided by operating activities

(11,571,444)


538,078








Cash flows from investing activities




           Acquisition of property, plant and equipment

(64,803)


(65,156)

           Increase of land use rights

(116,611)


-

           Addition of construction in progress

(19,931,665)


(1,479,435)

Net cash used in investing activities

(20,113,079)


(1,544,591)








Cash flows from financing activities




           Proceeds from issuing common stock

-


472,000

           Proceeds from short term loans

39,886,502


37,256,400

           Repayments for short term loans

(33,400,892)


(50,370,400)

           Proceeds from long term loans

17,835,428


4,708,400

           Repayments of long term loans

(486,421)


-

           Proceeds from loan from unrelated parties

11,090,543


11,351,261

           Repayment of loans to unrelated parties 

(11,168,221)


(9,151,360)

           Proceeds from loan from related parties

122,254


821,600

           Repayments to related parties 

(236,625)


(158,000)

           Proceeds from stock not yet issued

-


(137,000)

           Restrict cash

(8,107,013)


(1,532,600)

           Proceeds from notes payable

57,235,509


35,234,000

           Repayments to notes payable

(41,021,484)


(27,887,000)

Net cash provided by financing activities 

31,749,580


607,301








Effect of exchange rate fluctuation

2,833


(2,353)








Net increase (decrease) in cash

67,890


(401,565)








Cash and cash equivalents at beginning of period

129,746


521,450








Cash and cash equivalents at ending of period

$                        197,636


$                    119,885








Supplemental disclosure of cash flow information











      Interest paid 

$                     3,866,767


$                3,358,169

      Income taxes paid 

$                                    -


$                               -








Non-cash activities:











      Preferred stock conversion to common stock 

$                                    -


$                           151








      Issuance of common stock for compensation  

$                        262,650


$                    135,350








SOURCE China Carbon Graphite Group Inc.



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