China Carbon Graphite Group Reports Fiscal Year 2013 Results

XINGHE COUNTY, Inner Mongolia, China, April 24, 2014 /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 fiscal year ended December 31, 2013.

"We have experienced the most difficult year in history, a 69.7%, or $21,956,143, decrease in sales compared to that of 2012," Mr. Donghai Yu, Chief Executive Officer of China Carbon commented.

Mr. Yu continued, "Over-capacity of low grade graphite products is the primary reason of this storm in China which has wiped out most of the small producers, leaving such potential markets to the surviving competitive players, including China Carbon. Given the numerous varieties of the applications of high grade graphite, such as super high efficiency bipolar graphite plate, including solar, wind power, automobile and electronics, we believe the demand will return sooner or later, and China Carbon is fully prepared for it.  With the acquisition in December 2013 of Golden Ivy Ltd., including its subsidiary Royal Elite New Energy Science & Technology (Shanghai) Co., Limited (www.roycarbon.com), one of few companies in the world capable of producing graphene products and running an integrated E-commerce graphite platform, China Carbon has positioned itself to be a pioneer in the high-end graphite markets and the trading field."

Sales.

During the year ended December 31, 2013, we had sales of $9,526,709, compared to sales of $31,482,852 for the year ended December 31, 2012, a decrease of $21,956,143, or approximately 69.7%. Sales decrease was mainly because the graphite industry experienced low demand during the year ended December 31, 2013 as a result of the struggles of steel companies in China relating to severe oversupply. In particular, the market for fine grain graphite and high purity graphite products has experienced extremely low demand.

Cost of goods sold; gross margin.

Our cost of goods sold consists of the cost of raw materials, utilities, labor, depreciation expenses in our manufacturing facilities, and inventory impairment cost. During the year ended December 31, 2013, our cost of goods sold was $32,689,538, compared to $24,707,625 for the cost of goods sold for the year ended December 31, 2012, an increase of $7,981,913, or approximately 32.3%.  The increase in the cost of sales for the year ended December 31, 2013 compared to the same period 2012 was mainly due to $21,089,248 impairment loss of inventory charged to cost of goods sold, and due to decrease in sales volume and due to decreased average raw material cost.

Our gross margin decreased from 21.5% for the year ended December 31, 2012 to gross loss of (243.1)% for the year ended December 31, 2013. Our sales did not offset the costs we incurred during this period for raw materials, utilities, labor, depreciation, and inventory impairment cost. Sales of our higher margin products decreased significantly during the year ended December 31, 2013 due to decreased demand and strong competition. The decrease of gross profit margin is also due to $21,089,248 inventory impairment cost and due to increased allocation of production costs to each unit produced resulting from increased depreciation expenses during the year ended December 31, 2013. There was no inventory impairment cost during the year ended December 31, 2012. The increased allocation is a result of increased property and equipment related to our ongoing expansion for long term development in conjunction with decreased production quantities resulting from decreased sales.

Operating expenses.

Operating expenses totaled $35,377,739 for the year ended December 31, 2013, compared to $7,275,959 for the year ended December 31, 2012, an increase of $28,101,780, or approximately 386.2%.

Selling, general and administrative expenses

Selling expenses decreased from $253,604 for the year ended December 31, 2012 to $59,626 for the year ended December 31, 2013, a decrease of $193,978, or 76.5%. The decrease was mainly due to decreased sales commission and lower shipping and handling expenses during the year ended December 31, 2013 as compared to the year ended December 31, 2012, which resulted from 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 $10,075,818 for the year ended December 31, 2013, compared to $6,785,273 for the year ended December 31, 2012, an increase of $3,290,545, or 48.5%. The increase in general and administrative expenses was mainly due to increased bad debt expenses of $3,372,295 for the year ended December 31, 2013 compared to the year ended December 31, 2012.

Impairment of property and equipment and construction in progress

The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, $24,606,208 and $0 of impairment expenses for property, plant, and equipment and construction in progress was recorded during the years ended December 31, 2013 and 2012, respectively.

Depreciation and amortization expenses

Depreciation and amortization expenses totaled $2,897,885 for the year ended December 31, 2013, compared to $3,298,709 for the year ended December 31, 2012, a decrease of $400,824, or approximately 12.2%. For the year ended December 31, 2013, depreciation and amortization was allocated between costs of goods sold and selling, general and administrative expenses in the amounts of $2,161,798 and $636,087, respectively.  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 $3,061,627 and $237,082, respectively. The decrease in depreciation and amortization expenses is due to Company made adjustments for depreciation and amortization expenses in the year ended December 31, 2012.

Loss from operations.

As a result of the factors described above, operating loss was $(58,540,568) for the year ended December 31, 2013, compared to operating loss of $(500,733) for the year ended December 31, 2012, an increased loss of approximately $58,039,835, or 11,591.0%.

Other income and expenses.

Our interest expense was $5,246,606 for the year ended December 31, 2013, compared to $4,618,413 for the year ended December 31, 2012, reflecting increased interest payments on loans from banks. Other income, which consisted of government grants, was $819,970 for the year ended December 31, 2013, compared to $1,651,640 for the year ended December 31, 2012. Income from changes in the fair value of our warrants as a result of adopting ASC 820-10 was $210,895 for the year ended December 31, 2013, compared to $(49,557) for the year ended December 31, 2012.

Income tax.

During the years ended December 31, 2013 and 2012, 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 $0, respectively, for 2013 and 2012 without consideration of adjustments on taxable income. The tax holiday is from 2008 through 2017.

Net loss.

As a result of the factors described above, our net loss for the year ended December 31, 2013 was $(61,878,880), compared to net loss of $(3,561,515) for the year ended December 31, 2012, an increase of $58,317,365, or 1,637.4% for the reasons stated above.

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: [email protected]
Website: http://www.chinacarboninc.com

SOURCE China Carbon Graphite Group Inc.