NF Energy Saving Corporation Announces First Quarter 2011 Results

SHENYANG, China, May 11, 2011 /PRNewswire-Asia/ -- NF Energy Saving Corporation. (NASDAQ: NFEC) ("NF Energy" or the "Company"), a leading energy saving services and solutions provider for China's power, petrochemical, coal, metallurgy, construction, and municipal infrastructure development industries, today reported financial results for its first quarter ended March 31, 2011.

First Quarter 2011 Highlights

  • Revenues decreased 7.9% year-over-year to $2.6 million
  • Gross profit increased 17.7% year-over-year to $0.8 million, representing a gross margin of 30.6%
  • Net income was $0.3 million or $0.05 per diluted share, representing a net margin of 11.2%
  • The Company's move to its new factory and development of the facilities on target for completion during the second quarter

"The first quarter is our slowest of the year and this year we used some capacity at our partially-completed facilities to manufacture profitable components for Shenyang's underground railway project, in addition to working on our core energy-saving flow control equipment.  As we near completion of the new factory during the second quarter we expect to be ready to begin work on the bulk of our core product orders in the third and fourth quarters.  We are on schedule with our 2011 plan and our outlook for the full year remains unchanged," said Mr. Gang Li, the Company's Chief Executive Officer.

First quarter 2011 results

Total revenue of $2.6 million for the three months ended March 31, 2011, decreased 7.9% from $2.8 million in the same period of 2010. This decrease is mainly due to a decrease in product revenue due to the partial completion of the Company's new factory and facilities and the consequent deferral of the bulk of the manufacturing of energy-saving flow control equipment to the second half of the year, offset by higher service revenues from sub-contracted fabrication work for Shenyang's underground railway project.

Gross profit in the first quarter of 2011 was $0.8 million, an increase of 17.7% over the $0.7 million in gross profit generated in the first quarter of 2010. The increase in gross profit was primarily due to the period-over-period increase in higher margin service revenues.

Total operating expenses were $327,753 for the three months ended March 31, 2011, as compared to $172,487 for the same period of 2010, mainly due to the increase of general and administrative ("G&A") expenses from land use right taxes on our new facility located in Yinzhou District Industrial Park and amortization of the cost of an intangible asset.

Income from operations was $471,729, for the three months ended March 31, 2011, as compared to $506,964 for the same period of 2010, a decrease of $35,235 or approximately 7.0%. This decrease is primarily due to lower revenue and the increase in operating expenses.

Net income for the first quarter was $292,326, or $0.05 per diluted share compared to net income of $367,183 or $0.07 per diluted share in the same period of 2010. This decrease is primarily due to the decrease in revenue and the increased operating expense. In addition, interest expense rose to $122,478 compared to $80,644 in the same quarter last year

Financial Condition

As of March 31, 2011, the Company had $3.1 million in cash and cash equivalents compared to $0.8 million in cash and cash equivalents on March 31, 2010. Working capital was $11.3 million.

The Company used $0.5 million in net cash from operating activities for the three months ended March 31, 2011, compared to generating $3.1 million in the same period of 2010.  Payments on construction in progress totaled $0.2 million.  Cash provided by financing activities totaled $2.9 million, largely composed of proceeds from the issuance of a $1.5 million short-term loan due June 10, 2011 and an RMB 10 million or approximately $1.5 million loan due February 16, 2012.

Guidance and Business Outlook

NF Energy reiterates its guidance for the full fiscal year 2011 revenue to be in the range of $30 million to $32 million and net income to be in the range of $6.0 million to $6.5 million. Guidance excludes any possible additional expenses for potential future financing activities.

Conference Call

NF Energy will host a conference call at 9:00 a.m. EDT on Wednesday, May 11, 2011, to discuss the Company's first quarter 2011 financial results. Hosting the call will be Mr. Gang Li, Chief Executive Officer, and Ms. Lihua Wang, Chief Financial Officer.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 1-877-275-8968 for U.S. based callers, or +1-706-643-1666 for international callers. The conference pass code for the call is 63765621.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Wednesday, May 11, 2011 at 12:00 p.m. EDT. To access the replay, U.S. based callers should dial 1-800-642-1687, international callers should dial +1-706-645-9291. The conference pass code will remain 63765621.

About NF Energy Saving Corporation

NF Energy Saving Corporation (NASDAQ: NFEC) is a China-based provider of integrated energy conservation solutions utilizing energy-saving equipment, technical services and energy management re-engineering project operations to provide energy saving services to clients. The Company's customers are mainly concentrated in the electrical generation (large-scale thermal power generation, hydroelectric power, wind power, and nuclear power), water supply, and heat supply industries. For more information, visit http://www.nfenergy.com

Safe Harbor Statement

The statements contained herein that are not historical facts are considered "forward-looking statements." Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. In particular, statements regarding the efficacy of investment in research and development are examples of such forward-looking statements. The forward-looking statements include risks and uncertainties, including, but not limited to, the effect of political, economic, and market conditions and geopolitical events; legislative and regulatory changes that affect our business; the availability of funds and working capital; the actions and initiatives of current and potential competitors; investor sentiment; and our reputation. We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events, which may cause actual results to differ from those expressed or implied by any forward-looking statements. The factors discussed herein are expressed from time to time in more detail in our filings with the Securities and Exchange Commission available at http://www.sec.gov.

Company Contact:

Investor Relations Contact:              

Ms. Lihua Wang, Director & CFO                  

Mr. Mark Collinson, Partner

Tel: +86 24-8563 1159

Tel: +1 310-954-1343

Email: wlh@nfenergy.com

Email: mark.collinson@ccgir.com

NF Energy Saving Corp.

CCG Investor Relations

Website: www.nfenergy.com

Website: www.ccgirasia.com



- FINANCIAL TABLES FOLLOW

NF ENERGY SAVING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2011 AND DECEMBER 31, 2010

(Currency expressed in United States Dollars ("US$"), except for number of shares)



March 31, 2011


December 31, 2010


(Unaudited)


(Audited)

ASSETS






Current assets:






   Cash and cash equivalents

$

3,059,939


$

823,717

   Accounts receivable, net


13,208,933



14,658,067

   Retention receivable


1,095,649



813,579

   Inventories


1,289,599



823,398

   Prepayments and other receivables


495,796



1,193,397







Total current assets


19,149,916



18,312,158







Construction in progress


8,271,823



8,027,219

Land use rights, net


3,062,215



3,058,507

Plant and equipment, net


4,064,070



4,166,584

Retention receivable, non-current


7,309



469,377







TOTAL ASSETS

$

34,555,333


$

34,033,845







LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities:






   Accounts payable, trade

$

941,795


$

3,503,697

   Short-term bank borrowings


3,044,094



1,512,447

   Note payable


1,500,000



-

   Amount due to a related party


377,353



318,946

   Income tax payable


57,758



121,136

   Convertible promissory notes


960,000



-

   Current portion of obligation under finance lease


365,994



492,264

   Other payables and accrued liabilities


596,510



902,889







Total current liabilities


7,843,504



6,851,379







Long-term liabilities:






Convertible promissory notes, net


-



889,730

Obligation under finance lease


-



36,827







TOTAL LIABILITIES


7,843,504



7,777,936







Commitments and contingencies












Stockholders' equity:






Common stock, $0.001 par value; 50,000,000 shares authorized; 5,326,501
shares issued and outstanding as of March 31, 2011 and December 31,
2010


5,326



5,326

Additional paid-in capital


8,443,563



8,443,563

Statutory reserve


1,965,556



1,965,556

Accumulated other comprehensive income


2,379,494



2,215,900

Retained earnings


13,917,890



13,625,564







Total stockholders' equity


26,711,829



26,255,909







TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

34,555,333


$

34,033,845




NF ENERGY SAVING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2011 and 2010

(Currency expressed in United States Dollars ("US$"), except for number of shares)

(Unaudited)




Three months ended March 31,



2011


2010

REVENUE, NET:







   Product


$

1,151,432


$

2,514,232

   Services



1,463,969



326,251

Total operating revenues, net



2,615,401



2,840,483








COST OF REVENUES:







   Cost of products



783,229



1,948,347

   Cost of services



1,032,690



212,685

Total cost of revenues



1,815,919



2,161,032








GROSS PROFIT



799,482



679,451








OPERATING EXPENSES:







   Sales and marketing



17,264



17,747

   General and administrative



310,489



154,740

Total operating expenses



327,753



172,487








INCOME FROM OPERATIONS



471,729



506,964








Other (expense) income:







   Interest income



664



243

   Interest expense



(122,478)



(80,644)








Total other expense



(121,814)



(80,401)








INCOME BEFORE INCOME TAXES



349,915



426,563








Income tax expense



(57,589)



(59,380)








NET INCOME


$

292,326


$

367,183








Other comprehensive income:







– Foreign currency translation gain



163,594



619








COMPREHENSIVE INCOME


$

455,920


$

367,802








Net income per share:







– Basic


$

0.05


$

0.07

– Diluted


$

0.05


$

0.07








Weighted average common shares outstanding:







– Basic



5,326,485



5,326,194

– Diluted



5,454,485



5,399,865




NF ENERGY SAVING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 and 2010

(Currency expressed in United States Dollars ("US$"))

(Unaudited)




Three months ended March 31,



2011


2010

Cash flows from operating activities:







Net income


$

292,326


$

367,183

Adjustments to reconcile net income to net cash (used in) provided by operating activities







Depreciation and amortization



144,240



72,674

Gain on disposal of plant and equipment



-



(223)

Interest expenses, non-cash



70,271



44,718

Change in operating assets and liabilities:







Accounts and retention receivable



1,725,242



6,112,379

Inventories



(459,625)



(581,915)

Prepayments and other receivables



702,816



(2,307,007)

Accounts payable



(2,576,571)



(318,645)

Income tax payable



(63,959)



(142,136)

Other payables and accrued liabilities



(311,335)



(107,462)








Net cash (used in) provided by operating activities



(476,595)



3,139,566








Cash flows from investing activities:







Purchase of plant and equipment



-



(13,054)

Payments on construction in progress



(193,088)



(3,253,693)

Proceeds from disposal of plant and equipment



-



1,250








Net cash used in investing activities



(193,088)



(3,265,497)








Cash flows from financing activities:







Advance from a related party



58,193



-

Payments on finance lease



(165,967)



(145,643)

Proceeds from convertible promissory notes



-



900,000

Proceeds from note payable



1,500,000



-

Proceeds from short-term bank borrowings



1,517,589



-








Net cash provided by financing activities



2,909,815



754,357








Effect on exchange rate change on cash and cash equivalents



(3,910)



(2,770)








NET CHANGE IN CASH AND CASH EQUIVALENTS



2,236,222



625,656








BEGINNING OF PERIOD



823,717



227,329








END OF PERIOD


$

3,059,939


$

852,985








SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:




Cash paid for income taxes


$

121,548


$

59,378

Cash paid for interest


$

52,207


$

3,888




SOURCE NF Energy Saving Corporation



RELATED LINKS
http://www.nfenergy.com

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