China New Energy Reports Third Quarter 2009 Financial Results

TIANJIN, China, Nov. 17 /PRNewswire-Asia-FirstCall/ -- China New Energy Group Company (OTC Bulletin Board: CNER) ("China New Energy" or the "Company"), an energy project developer specializing in development of natural gas distribution networks, and distribution of natural gas in China, announced its financial results for the third quarter ended September 30, 2009.

    Third Quarter 2009 Highlights
    -- Revenue increased 25% year-over-year to $2.8 million
    -- Gross profit increased 5% year-over-year to $1.8 million
    -- Net income totaled $0.5 million
    -- Appointed new Chief Financial Officer

"China New Energy continues to achieve strong sales growth as natural gas consumption increases in our target markets," said Mr. Yangkan Chong, Chief Executive Officer. "We have exclusive natural gas distribution rights for three cities in Northern China and our sales have benefited as more and more households in these areas become connected to our distribution network."

Third Quarter Results

For the third quarter of 2009, revenue increased 25% to $2.8 million from $2.3 million in the same quarter a year ago. The growth was primarily attributable to an increase in the number of connected households in the cities where the Company supplies natural gas and operates its gas distribution network.

Gross profit increased 5% to $1.8 million from $1.7 million a year ago. Gross margin was 63%, compared to 74% in the same quarter in 2008. The decrease in gross margin was mainly due to cost reallocation of the depreciation.

Selling, general and administrative ("SG&A") expenses increased 132%, to $0.8 million from $0.4 million during the same period in 2008. As a percentage of revenues, SG&A expenses increased to 28% compared to 15% for the same period in 2008.

Mr. Chong commented, "The increase in our SG&A expense was mainly attributable to the fact that we are preparing to expand our business. We are spending more in areas like business development, outside consultants, and the hiring of additional staff to help strengthen the Company's internal controls. We view this increased expenditure as an investment in ensuring the long-term growth of China New Energy and believe that it will ultimately help the Company achieve increased revenue growth and profitability."

Net income was $0.5 million for the third quarter, down 45% from $0.9 million for the same period of 2008, as a result of the factors described above.

Nine Month Results

Revenue for the first nine months of 2009 was $6.0 million, up 40% from $4.2 million a year ago, which was mainly attributable to an increase in the number of connected households and an increase in natural gas consumption. Gross profit was $3.9 million, or 66% of revenue, up 26% from $3.1 million, or 73% of revenue, in the same period of 2008. The decrease in the gross margin was mainly due to cost reallocation of the depreciation. SG&A expenses increased to $2.0 million, or 33% of revenue, up from $0.8 million, or 19% of revenue during the same period of 2008. As a result, operating income for the nine months was $2.0 million or 33% of revenues, compared to $2.3 million or 54% of revenues in the same period of 2008. Net income for the nine months was $1.1 million compared to $1.8 million for the same period of 2008.

Financial Condition

As of September 30, 2009, the Company had cash and cash equivalents of $4.9 million and working capital of $9.9 million. For the nine months ended September 30, 2009, the company had $5.8 million of capital expenditures, which was mainly for the construction of gas pipelines, gas stations and acquisitions. Shareholders' equity was $27.8 million as of September 30, 2009.

Recent Developments

The Company appointed Mr. Eric Yu as Chief Financial Officer, effective on September 28, 2009. Mr. Yu replaces Mr. Peng Mun Foo, who left the Company for personal reasons. Mr. Yu most recently served as the CFO of an OTC Bulletin Board U.S.-listed Chinese company and has worked as a CFO or Financial Controller for almost ten years of which two were in the gas business.

Business Outlook

Mr. Chong concluded, "As China continues to undergo rapid urbanization and increasingly moves towards more environmentally friendly fuels, it is anticipated that the use of natural gas will continue to grow. Our strategy for capitalizing on this opportunity is to continue to focus on under- penetrated, growing small- and medium-sized cities where we can enter into favorable franchise agreements with local governments that grant us long-term exclusive rights to develop the local natural gas distribution network and supply natural gas in their area. We already have such agreements in Acheng, Dashiqiao, and Nandaihe. By focusing on these types of markets, we can help avoid competition as currently very few of these small- and medium-size cities have access to natural gas. Our business development team is actively exploring and evaluating potential areas for development of new distribution networks and opportunities for expansion of our existing distribution networks."

About China New Energy Group Company

China New Energy Group Company ("China New Energy" or the "Company") is a vertically integrated natural gas company engaged in the development of natural gas distribution networks, and the distribution of natural gas to residential, industrial, and commercial users in small and medium sized cities in China. The Company generates revenues primarily from the connection fees it charges its customers for interconnecting to pipelines in its natural gas distribution networks, and fees for natural gas usage. The Company currently has exclusive natural gas distribution rights for Acheng, Dashiqiao, and Nandaihe, three cities located in Northern China. For more information, please visit http://www.cnegc.com/ .

Safe Harbor Statement

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors include, but are not limited to, the Company's ability to access natural gas for distribution, and ability to identify and develop operational locations under favorable terms, changes in natural gas pricing mechanism imposed by the Chinese government, changes in the regulatory environment and future national or regional economic and competitive conditions, and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

                          -FINANCIAL TABLES FOLLOW-


                        CHINA NEW ENERGY GROUP COMPANY
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Stated in US Dollars)

                                                 September 30,    December 31,
                                                      2009           2008
                                                  (Unaudited)
                     ASSETS
    CURRENT ASSETS
        Cash and cash equivalents                  $4,878,751     $5,612,356
        Restricted cash                               196,873        221,152
        Accounts receivable                         3,925,491      2,183,087
        Other receivables                           2,159,614      2,254,997
        Inventories, net                              285,787        254,585
        Prepayment                                    784,953      1,558,361
        Other current assets                           94,017          3,340
    Total current assets                           12,325,486     12,087,878

    Property, plant and equipment, net              7,676,229      6,844,262
    Construction in progress                        8,447,645      5,589,551
    Related party receivable                               --         84,120
    Intangible assets                               1,804,658      1,814,316
    TOTAL ASSETS                                  $30,254,018    $26,420,127

             LIABILITIES AND EQUITY
    CURRENT LIABILITIES
        Accounts payable                             $276,117       $111,660
        Accrued expenses                              277,271        256,071
        Accruals and other payable-Third
         Party                                        526,837      3,144,043
        Tax payable                                   523,770        693,116
        Related party payable                          97,888             --
        Dividend payable on preferred stock           744,946        194,000
            TOTAL CURRENT LIABILITIES               2,446,829      4,398,890

    China New Energy's Stockholders' equity:
    Preferred Stock: 10,000,000 shares
     authorized, $0.001 par value, 2,973,761
     and 1,857,373 shares issued and
     outstanding as of September 30, 2009
     and December 31, 2008, respectively                2,973          1,857
    Common Stock: 500,000,000 shares
     authorized, $0.001 par value,
     100,000,041 shares issued and
     outstanding as of September 30,
     2009 and December 31, 2008, respectively         100,000        100,000
        Additional paid in capital                 27,269,163     19,725,482
        Accumulated (deficit)                      (2,382,613)      (619,357)
        Statutory surplus reserve fund              1,903,034      1,903,034
        Accumulated other comprehensive
         income                                       693,939        730,168
    Total China New Energy's Stockholders'
     equity                                        27,586,496     21,841,184

        Non-controlling interest                      220,693        180,053
            TOTAL EQUITY                           27,807,189     22,021,237

    TOTAL LIABILITIES AND EQUITY                  $30,254,018    $26,420,127



                        CHINA NEW ENERGY GROUP COMPANY
  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME -
                                 (UNAUDITED)
                            (Stated in US Dollars)

                        For the Three months ended  For the nine months ended
                               September 30,               September 30,
                             2009         2008            2009        2008
    Revenues:
       Connection
        services          $2,659,930   $2,092,445     $5,433,912  $3,846,773
       Natural gas           157,344      161,413        518,970     390,214
                           2,817,274    2,253,858      5,952,882   4,236,987
    Cost of Sales:
       Connection
        services             683,068      454,061      1,376,630     833,644
       Natural gas           367,411      121,565        649,622     295,257
                           1,050,479      575,626      2,026,252   1,128,901
    Gross Profit           1,766,795    1,678,232      3,926,630   3,108,086

    Operating Expenses:
    Selling, general
     and administrative
     expenses                802,011      346,094      1,962,698     813,975

     Total operating
      expenses               802,011      346,094      1,962,698     813,975

    Operating income         964,784    1,332,138      1,963,932   2,294,111

    Other Income
     (Expenses):
        Interest Income       10,680           --         20,307          --
        Interest
         (expense)            (3,699)          --         (4,370)         --
        Other Income           5,558        3,702          5,651       9,974
     Total other income       12,539        3,702         21,588       9,974

    Income from continuing
     operations, before
     tax                     977,323    1,335,840      1,985,520   2,304,085

    Income Taxes             461,013      391,358        828,800     705,244

    Income from continuing
     operations, net of
     tax                     516,310      944,482      1,156,720   1,598,841

    Income (loss) from
     discontinued
     operations, net of
     tax                          --       (7,116)            --     223,410
    Net Income               516,310      937,366      1,156,720   1,822,251

    Net (Income)
     attributable to
     non controlling
     interest                (25,104)     (37,009)       (18,200)    (46,277)

    Net Income
     attributable to
     China New Energy
     Group                  $491,206     $900,357     $1,138,520  $1,775,974

    Other Comprehensive
     income:
    Net Income               516,310      937,366      1,156,720   1,822,251
    Foreign currency
     translation             (42,159)      37,114        (41,854)    377,403
    Comprehensive
     income attributable
     to the Non-controlling
     interest                    251           --        (12,026)         --
    Comprehensive income
     attributable to
     China New Energy
     Group                  $474,402     $974,480     $1,102,840  $2,199,654

    Income (Loss) per
     share - Basic &
     diluted:
    Income (Loss) from
     continuing operations
     attributable to the
     Company's common
     stockholders              $0.00       $(0.06)        $(0.02)     $(0.05)
    Discontinued operations
     attributable to the
     Company's common
     stockholders              $0.00        $0.00          $0.00       $0.00
    Net income (loss)
     attributable to the
     Company's common
     stockholders              $0.00       $(0.06)        $(0.02)     $(0.05)

    Weighted average
     common shares
     outstanding:
    Basic                100,000,041  100,000,041    100,000,041  98,321,560
    Diluted              209,495,669  132,839,829    200,655,139 110,255,834



                        CHINA NEW ENERGY GROUP COMPANY
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
                            (Stated in US Dollars)

                                                For The Nine Months Ended
                                                      September 30,
                                                   2009             2008
    Cash flows from operating activities:
    Net income attributable to China New
     Energy Group Company                       $1,138,520       $1,775,974
    Income attributable to non-controlling
     interest                                       18,200           27,371
    Adjustments to reconcile net income to
     net cash used in operating
     activities:
    Depreciation                                   277,476          125,592
    Amortization                                     9,572            6,429

    Changes in operating assets and
     liabilities:
    Accounts receivable                         (1,741,568)        (374,181)
    Other receivables                              205,909         (650,954)
    Inventories                                    (31,228)         174,757
    Prepayment                                     772,557               --
    Other current assets                           (90,613)              --
    Accounts payable                               164,360         (398,948)
    Accrued expenses                                21,251               --
    Accruals and other payable-Third Party        (710,835)        (790,089)
    Taxes payable                                 (169,093)        (397,601)

    Net cash used in operating activities         (135,492)        (501,650)

    Cash flows from investing activities
    Addition of construction in progress        (2,857,106)        (960,375)
    Addition of fixed assets                    (1,110,147)         (97,692)
    Payments made to acquire subsidiary         (1,838,946)              --
    Acquisition of an associated company                --          483,512

    Net cash used in investing activities       (5,806,199)        (574,555)

    Cash flows from financing activities
    Repayment of cash advanced from
     director                                           --         (210,711)
    Issued preferred stock                       4,752,140        9,000,000
    Payment of offering costs associated
     with preferred stock                               --       (1,507,144)
    Contribution from former
     non-controlling interest                      439,060               --
    Loan from related parties                       24,279               --

    Net cash flows provided by financing
     activities                                  5,215,479        7,282,145

    Effect of exchange rate changes in
     cash                                           (7,393)      (1,308,366)

    Net increase (decrease) in cash               (733,605)       4,897,574

    Cash - beginning of year                     5,612,356        2,311,028

    Cash - end of year                          $4,878,751       $7,208,602

    Supplemental disclosure of cash flow
     information:

    Interest paid in cash                           $4,370              $--
    Income taxes paid in cash                     $522,594              $--

    Supplemental disclosure of non-cash
     investing and financing activities:

    Accrued dividend of preferred stock           $550,946              $--


    For more information, please contact:

    Company Contact:
     Eric Yu, Chief Financial Officer
     Email: ericyu@cnegc.com
     Web:   http://www.cnegc.com

    Investor Relations Contact:
     CCG Investor Relations
     Mr. Athan Dounis, Account Manager
     Phone: +1-646-213-1916
     Email: athan.dounis@ccgir.com
     Mr. Crocker Coulson, President
     Phone: +1-646-213-1915 (New York)
     Email: crocker.coulson@ccgir.com
     Web:   http://www.ccgirasia.com

SOURCE China New Energy Group Company

RELATED LINKS
http://www.cnegc.com