Keyuan Petrochemicals Inc. Announces Fourth Quarter and Full Year 2010 Financial Results

NINGBO, China, Oct. 20, 2011 /PRNewswire-Asia-FirstCall/ -- Keyuan Petrochemicals Inc. (OTC: KEYP), ("Keyuan" or "the Company"), a leading manufacturer and supplier of various petrochemical products in China, today announced the Company's financial results for the full year of 2010.

"Our full year 2010 revenues, sales volume and net income were at or slightly ahead of our forecasts," declared Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "Demand for our products in 2010 were strong, as reflected by our production facilities operating at full capacity during the majority of 2010."

The Company achieved several milestones during the last twelve months:

• The Company successfully ramped commercial production of petrochemicals using its proprietary catalytic pyrolysis process. In the twelve months ended December 31, 2010, Keyuan manufactured 635,782 MT of petrochemicals compared to 93,222 MT in the corresponding period in 2009.
• On January 25, 2011, the Company received approval for a utility patent from the National Intellectual Property Bureau in China. The Company's proprietary production process, called multiple ethylene propylene ("MEP") improves the manufacturing efficiency and flexibility for a variety of petrochemicals.
• Keyuan commenced construction of its first Styrene-Butadiene-Styrene ("SBS") production facility adjacent to its existing production facility in September 2010. The facility, completed in September 2011, will have an annual production capacity of 70,000 metric tons.

Full Year 2010 Financial Results

For the twelve months ended December 31, 2011, the Company sold 658,570 metric tons (MT) of petrochemical products, up 777.1% from 75,081 MT of products sold last year. Revenues for the twelve months ended December 31, 2010 totaled $558.8 million, up 714% from $68.7 million of revenues in the full year 2009. For the twelve months of 2010, cost of goods sold was $490.9 million, with gross profit of $67.8 million. Gross margin was 12.1% for the twelve months of 2010 compared to a loss in the corresponding period last year.

Operating expenses for the twelve months of 2010 were approximately $10.1 million, consisting of $0.6 million in selling expenses and $9.5 million in general and administrative expenses. Operating income totaled $57.7 million, with operating margins of approximately 10.3%, compared to an operating loss of $9.4 million during the twelve months of 2009. Excluding approximately $1.5 million of non-cash stock compensation expenses, operating income and operating margin in fiscal 2010 were $59.2 million and 10.6%, respectively. Net income for the twelve months of 2010 was $37.1 million with corresponding earnings per share of $0.66 based on 56.1 million weighted average diluted shares outstanding. The net loss of $8.8 million was reported for the twelve months ended December 31, 2009.

The Company had $127.4 million of cash and restricted cash at December 31, 2010 compared to $20.0 million at December 31, 2009. For the twelve months of 2010, the Company generated $2.4 million in cash flow from operations compared to $46.3 million of net cash used for operations in fiscal 2009. Inventories were $86.8 million at December 31, 2010 and advance payments for the suppliers amounted to $14.1 million. The Company had no accounts receivable at December 31, 2010 as 86% of its sales are done through distributors who pay the entire purchase price prior to shipment. The Company completed a $26.2 million private placement in May 2010, in addition to a $20.3 million raise in September 2010.

*Quarterly financial summaries for 2010 will be provided once they are finalized.

Year-to-date 2011 Business Updates

Operations during the nine months ended September 30, 2011 were negatively impacted by three factors: rising raw materials costs, lower global demand for petrochemicals, and production disruptions. Due to mandatory shutdowns enacted by the local government, production was suspended for 25 days in the second quarter of 2011 and 19 days in the third quarter of 2011. Additionally, from April 2011 to September 2011, Management expended considerable resources on the Independent Investigation commenced by our Audit Committee. The Company incurred approximately $5 million of one-time expenses related to this investigation.

These forces had a negative impact on the Company's revenues and margins. Therefore, although sales increased by approximately 19% for the six months ended June 30, 2011, Keyuan experienced a decrease in profits compared to 2010. The Company will provide additional details when it reports first half 2011 results at the end of October.

GHP Horwath, P.C., hired as the Company's new independent auditor on July 5, 2011, completed the full year 2010 audit. In addition, Keyuan will file amended financial results for the second and third quarter of 2009 once Patrizio & Zhao, LLC, the Company's prior auditor, completes the review.

Corporate Governance Updates

During the process of preparing the Company's annual audit for the year ended December 31, 2010, KPMG, the Company's former independent auditor, raised certain issues related to certain unexplained cash transactions and recorded sales and requested the Company's Audit Committee to conduct an independent investigation. The Audit Committee engaged Pillsbury Winthrop Shaw Pittman LLP ("Pillsbury"), Deloitte Financial Advisory Services LLP ("Deloitte"), and King & Wood to conduct an independent investigation of the issues raised by KPMG.

The Investigation Team completed the investigation on September 28, 2011 and submitted the findings to the Company's Audit Committee. On October 3, 2011, the Company provided the Nasdaq Hearings Panel (the "Panel") with a copy of the final investigation report. The Company was notified on October 5, 2011 that the Panel exercised its discretionary authority pursuant to NASDAQ Listing Rule 5101 to delist the Company's securities from the Nasdaq Stock Market. As a result, the Company's shares resumed trading in the Pink Sheets under the ticker symbol KEYP.PK beginning October 7, 2011.

The Company has taken comprehensive remedial actions to improve its internal controls and procedures and corporate governance. These include but are not limited to hiring Mr. Fan Zhang as VP of Accounting/Chinese CFO to replace Mr. Xue, the former Chinese CFO; engaging an outside firm to assist with SOX-404 compliance; restructuring the accounting department; providing the accounting staff with additional training in U.S. GAAP; hiring additional qualified accounting personnel; and implementing new procedures for identifying and approving potential related party transactions.

About Keyuan Petrochemicals, Inc.

Keyuan Petrochemicals, Inc., established in 2007 and operating through its wholly-owned subsidiary, Keyuan Plastics, Co. Ltd., is located in Ningbo, China and is a leading independent manufacturer and supplier of various petrochemical products. Having commenced production in October 2009, Keyuan's operations include an annual petrochemical manufacturing design capacity of 720,000 MT for a variety of petrochemical products, with facilities for the storage and loading of raw materials and finished goods, and a technology that supports the manufacturing process with low raw material costs and high utilization and yields. In order to meet increasing market demand, Keyuan plans to expand its manufacturing capacity to include a SBS production facility, additional storage capacity, a raw material pre-treatment facility, and an asphalt production facility.

Cautionary Statement Regarding Forward-Looking Information

This press release may contain certain "forward-looking statements" relating to the business of Keyuan Petrochemicals, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding the impact of the proceeds from the private placement on the Company's short term business and operations, the general ability of the Company to achieve its commercial objectives, including the ability of the Company to sustain growth; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. 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 those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov ). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

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SOURCE Keyuan Petrochemicals, Inc.