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China Carbon Graphite Inc. Releases First Quarter 2013 Results

China Carbon Graphite Group, Inc. logo

INNER MONGOLIA, China, May 16, 2013 (GLOBE NEWSWIRE) -- China Carbon Graphite Group, Inc. (OTCBB: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 first quarter ended March 31, 2013.

"The recession of China's steel industry continues to impact our sales this quarter. We strongly believe the market demand will return very soon just as the last recession in 2008 ended the following year. I am glad our management decided to not only dedicate most of our resources to produce high-grade and high margin graphite products like fine grain and high purity graphite but also continue to explore more applications of our products in order to diversify our risks. I believe this effort will be reflected on our future financials," said Donghai Yu, Chief Executive Officer of China Carbon Graphite Group Inc.

Sales

During the three months ended March 31, 2013, we had sales of $3,060,918, compared to sales of $10,061,210 for the three months ended March 31, 2012, a decrease of $7,000,292, or approximately 69.6%. The sales decrease was mainly attributable to a significant decline in the demand for our products during the three months ended March 31, 2013, which resulted from the struggle of steel companies.

The breakdown of revenues for each of graphite electrodes, fine grain graphite and high purity graphite, during the three months ended March 31, 2013 and 2012, respectively, is as follows:

March 31, 2013
Sales
% of Total
Sales
March 31, 2012
Sales
% of Total
Sales
Graphite Electrodes $ 80,960 2.6% $ 456,647 4.5%
Fine Grain Graphite 1,394,956 45.6% 4,467,350 44.4%
High Purity Graphite 1,491,521 48.7% 5,051,089 50.2%
Others (1) 93,481 3.1% 86,124 0.9%
Total $ 3,060,918 100.0% $ 10,061,210 100.0%
(1) "Other" sales represent revenue generated by sales of semi-processed products and other types of products.

Cost of goods sold; gross margin

Our cost of goods sold consists of the price of raw materials, utilities, labor, and depreciation expenses in our manufacturing facilities. During the three months ended March 31, 2013, our cost of goods sold was $3,320,320, compared to $7,143,606 for the three months ended March 31, 2012, a decrease of $3,823,286 or approximately 53.5%. The decrease in the cost of sales was due to the decline in sales volume.

Our gross margin decreased from 29.0% for the three months ended March 31, 2012 to (8.5)% for the three months ended March 31, 2013. This decline is mainly attributed to a reduction in sales price due to competition, less demand and an increase of cost of goods sold, which is due to increased depreciation allocated to the cost of goods sold resulting from the transfer of construction in progress to property and equipment since the end of 2012.

Operating expenses

Operating expenses totaled $470,411 for the three months ended March 31, 2013, compared to $955,201 for the three months ended March 31, 2012, a decrease of $484,790, or approximately 50.8%.

Selling, general and administrative expenses

Selling expenses decreased from $46,798 for the three months ended March 31, 2012 to $17,941 for the three months ended March 31, 2013, a decrease of $28,857, or 61.7%. The decline was mainly due to lower sales, decreased sales commission and lower shipping and handling expenses during the three months ended March 31, 2013 as compared to the three months ended March 31, 2012.

Our general and administrative expenses consist of salaries, office expenses, utilities, business travel, amortization expenses, public company expenses (including legal, accounting and investor relations) and stock compensation. General and administrative expenses were $384,582 for the three months ended March 31, 2013, compared to $851,399 for the three months ended March 31, 2012, a decrease of $466,817, or 54.8%. The decline in general and administrative expenses was mainly due to decreased consulting expenses and bad debt expenses offset by increased salary expenses for the three months ended March 31, 2013 compared to the three months ended March 31, 2012.

Depreciation and amortization expenses

Depreciation and amortization expenses totaled $655,449 for the three months ended March 31, 2013, compared to $567,584 for the three months ended March 31, 2012, an increase of $87,865, or approximately 15.48%. For the three months ended March 31, 2013, depreciation and amortization was allocated between costs of goods sold, selling and general administrative expenses in the amounts of $587,561 and $67,888, respectively. For the three months ended March 31, 2012, depreciation and amortization was allocated between costs of goods sold, selling, and general administrative expenses in the amounts $510,580 and $57,004, respectively. The increase in depreciation and amortization expenses is due to additional fixed assets placed in service.

Income (Loss) from operations

As a result of the factors described above, operating loss was $729,813 for the three months ended March 31, 2013, compared to operating income of $1,962,403 for the three months ended March 31, 2012, a decrease of approximately $2,692,216, or 137.2%.

Other income and expenses

Our interest expense was $862,448 for the three months ended March 31, 2013, compared to $1,229,745 for the three months ended March 31, 2012, reflecting decreased interest expenses on loans from banks. Expenses from changes in the fair value of our warrants as a result of adopting ASC 820-10 was $44,368 for the three months ended March 31, 2013, compared to $(479,563) for the three months ended March 31, 2012.

Income tax

During the three months ended March 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 $165,203, respectively, for the three months ended March 31, 2013 and 2012 without consideration of adjustments on taxable income. The tax holiday is from 2008 through 2017.

Net income (loss)

As a result of the factors described above, our net loss for the three months ended March 31, 2013 was $1,502,268, compared to net income of $253,117 for the three months ended March 31, 2012, a decrease of $1,755,385, or 693.5%.

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 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.

PART 1 - FINANCIAL INFORMATION
China Carbon Graphite Group, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31,
2013
December 31,
2012
(Unaudited ) (Audited)
ASSETS
Current Assets
Cash and cash equivalents $ 1,680,254 $ 129,746
Restricted cash 22,379,000 22,149,000
Accounts receivable, Net 7,142,892 11,239,002
Notes receivable 7,401,165
Advance to suppliers 12,503,217 1,177,462
Inventories 48,181,039 48,417,875
Prepaid expenses 785,438 280,779
Other receivables, net of allowance of $221,026 and $220,339, respectively 104,639 35,655
Total current assets 100,177,644 83,429,519
Property And Equipment, Net 40,481,778 40,964,363
Construction In Progress 18,943,945 7,324,379
Land Use Rights, Net 9,643,328 9,657,419
Total Assets $ 169,246,695 $ 141,375,680
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,431,323 $ 2,250,745
Advance from customers 1,740,402 1,368,525
Short term bank loans 45,241,000 38,680,500
Notes payable 40,733,000 40,606,500
Other payables 1,489,655 630,179
Loan from unrelated parties 11,351,604 338,002
Dividends payable 51,353 46,816
Total current liabilities 102,038,337 83,921,267
Amounts Due To Related Parties 4,637,132 4,795,593
Long Term Bank Loans 16,067,800 4,782,900
Warrant Liabilities 179,994 224,362
Total Liabilities 122,923,263 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 March 31, 2013 and December 31, 2012, respectively. 360,000 360,000
Stockholders' Equity
Common stock, $0.001 par value; 100,000,000 shares authorized 25,137,518 and 25,077,518 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively 25,137 25,077
Additional paid-in capital 18,256,121 18,223,781
Accumulated other comprehensive income 9,129,202 8,982,925
Retained earnings 18,552,972 20,059,775
Total stockholders' equity 45, 963,432 47,291,558
Total Liabilities and Stockholders' Equity $ 169,246,695 $ 141,375,680
The accompanying notes are an integral part of these consolidated financial statements.
China Carbon Graphite Group, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
Three months ended
March 31,
2013 2012
Sales $3,060,918 $10,061,210
Cost of Goods Sold 3,320,320 7,143,606
Gross Profit (loss) (259,402) 2,917,604
Operating Expenses
Selling expenses 17,941 46,798
General and administrative 384,582 851,399
Depreciation and amortization 67,888 57,004
Total operating expenses 470,411 955,201
Operating Income (Loss) Before Other Income (Expense) (729,813) 1,962,403
Other Income (Expense)
Interest expense (862,448) (1,229,745)
Interest income 45,304 22
Other income, net 321 --
Change in fair value of warrants 44,368 (479,563)
Total other expense (772,455) (1,709,286)
Net Income (Loss) (1,502,268) 253,117
Preferred Stock Dividends (4,537) (5,018)
Net Income (Loss) Available To Common Shareholders (1,506,805) 248,099
Other Comprehensive Income
Foreign currency translation gain 146,277 423,897
Total Comprehensive Income $ (1,355,991) $ 677,014
Share Data
Basic earnings (loss) per share $ (0.06) $ 0.01
Diluted earnings (loss) per share $ (0.06) $ 0.01
Weighted average common shares outstanding,
Basic 25,103,518 23,315,645
Weighted average common shares outstanding,
Diluted 25,103,518 23,647,455
The accompanying notes are an integral part of these consolidated financial statements.
China Carbon Graphite Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31,
2013 2012
Cash Flows from Operating Activities
Net income (loss) $ (1,502,268) $ 253,117
Adjustments to reconcile net cash provided by operating activities
Depreciation and Amortization 655,449 567,584
Stock compensation 60,345 --
Change in fair value of warrants (44,368) 479,563
Recovery of bad debt expenses (166,601) --
Changes in operating assets and liabilities
Accounts receivable 4,290,026 (1,310,189)
Notes receivable (7,387,374) (142,124)
Other receivables (68,745) (44,531)
Advance to suppliers (11,300,990) (5,197,009)
Inventory 386,948 (4,075,391)
Prepaid expenses (530,927) 169,188
Accounts payable and accrued liabilities (824,186) 594,274
Advance from customers 366,928 592,123
Taxes payable 99,446 (110,310)
Other payables 755,723 133,762
Net cash used in operating activities (15,210,594) (8,089,943)
Cash flows from investing activities
Acquisition of property, plant and equipment (2,292) (15,831)
Proceeds from land bureau against cost of land use rights 237,749
Addition of construction in progress (11,575,140) (651,528)
Net cash used in investing activities (11,577,432) (429,610)
Cash flows from financing activities
Proceeds from issuing common stock -- 50,000
Proceeds from short term loans 11,249,000 4,755,000
Repayments for short term loans (4,821,000) (4,755,000)
Proceeds from long term loans 11,249,000 --
Proceeds from loan from unrelated parties 10,992,029 9,313,808
Proceeds from loan from related parties 448,994 79,727
Repayments to related parties (622,072) --
Proceeds from stock not yet issued -- 77,500
Restricted cash (160,700) 4,945,200
Proceeds from notes payable 17,677,000 10,778,000
Repayments to notes payable (17,677,000) (16,880,250)
Net cash provided by financing activities 28,335,251 8,363,985
Effect of exchange rate fluctuation 3,283 3,819
Net increase (decrease) in cash 1,550,508 (151,749)
Cash and cash equivalents at beginning of period 129,746 521,450
Cash and cash equivalents at end of period $1,680,254 $ 369,701
Supplemental disclosure of cash flow information
Interest paid $1,040,625 $ 984,830
Income taxes paid $ -- $ --
Non-cash activities:
Preferred stock conversion to common stock $ -- $ 94

CONTACT: Investor Contact: Ms. Renee Volaric Director RB Milestone Group, LLC Tel: (212) 661-0075 ext. 113 Email: RVolaric@RBMilestone.com Company Contact: Mr. Donghai Yu Chief Executive Officer China Carbon Graphite Group Inc. Email: ir@chinacarboninc.com

Source:China Carbon Graphite Group, Inc.