SOURCE: China Carbon Graphite Group, Inc.

August 15, 2012 11:39 ET

China Carbon Graphite Inc. Releases Second Quarter 2012 Results

INNER MONGOLIA, CHINA--(Marketwire - Aug 15, 2012) - China Carbon Graphite Group, Inc. (OTCQB: CHGI) (PINKSHEETS: 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 second quarter ended June 30, 2012.

Second Quarter (Q2) 2012 Highlights:

  • Gross profit grew 7.6%, from $2.69 million in Q2 2011 to $2.89 million in Q2 2012
  • Gross profit rate grew 10.0%, from 22.1% in Q2 2011 to 24.4% in Q2, 2012
  • Further advanced its product mix optimization process, with higher margin products made from fine grain and high purity graphite still key development priorities
  • Our working capital increased from $1.06 million as of December 31, 2011 to $7.83 million as of June 30, 2012

Summarized Q2 2012 Results:

    Q2 2012   Q2 2011   CHANGE
Revenue   $11.88 million   $12.15 million   -2.2%
Gross Profit   $2.89 million   $2.69 million   +7.6%
Net Income   $0.87 million   $0.88 million   -1.3%
EPS(Diluted) *   $0.04   $0.04   -
 
* Earnings per diluted share of $0.04 on 24.25 million shares for Q2 2012. For Q2 2011, China Carbon reported fully diluted earnings per share of $0.04 on 23.19 million shares.

"We further ramped-up our higher margin business this past quarter," said Donghai Yu, Chief Executive Officer of China Carbon. "Notably, we were able to sustain growth in the percentage of sales of our higher margin products made from fine grain and high purity graphite products. This strategy together with our effort in price and profit control allowed us to increase our gross profit rate during the three months ended June 30, 2012 compared to the same period last year."

Second Quarter 2012 Financial Results

Revenue

China Carbon had sales of $11.88 million in Q2 2012 compared to sales of $12.14 million in Q2 2011, a decrease of $0.27 million or 2.2%. This decrease was mainly attributable to a decrease of $424,116 in the sales of the Company's low-end graphite electrodes products during Q2 2012, which is a reflection of the Company's decision to continue focusing on the manufacturing and selling of its higher margin products.

China Carbon's Q2 2012 sales included $1.50 million in graphite electrodes, $5.31 million in fine grain graphite, and $5.07 million in high purity graphite. In Q2 2011, the Company's sales included $1.92 million in graphite electrodes, $5.28 million in fine grain graphite, and $4.94 million in high purity graphite.

When further comparing Q2 2011 with Q2 2012, the average unit-selling price of China Carbon's products increased 6%, which was offset by the 10% decrease in tonnage sold for the period. During this period, the average unit-selling price of its high purity graphite products, in particular, increased 8%, which is a reflection of an increase in the cost for raw materials for such products. This increase in the average unit-selling price of high purity graphite products was offset by the 7% decrease in tonnage sold for the period as a result of less orders from certain customers due to price increases and a slight dip in the Chinese construction industry. The main reason for the Company's lower sales was due to the average unit-selling price of graphite electrodes products decreased 14%, combined with a 12% decrease in tonnage sold, from Q2 2011 to Q2 2012. The decrease in the average unit selling price and tonnage sold of graphite electrodes products is mainly due to decreased demand on the lower end products.

Cost of Sales & Gross Margin

China Carbon's cost of goods sold consists of the cost of raw materials, utilities, labor, and depreciation expenses in its manufacturing facilities. The Company's cost of goods sold was $8.99 million in Q2 2012 compared to cost of goods sold of $9.46 million in Q2 2011, a decrease of $0.47 million or 4.99%. This decrease was directly associated with the decrease in China Carbon's sales.

China Carbon's gross margin however increased from 22.1% for Q2 2011 to 24.4% for Q2 2012. This increase reflects the variance in China Carbon's product mix, which is attributable to an increase of percentage in the Company's sales of fine grain graphite and high purity graphite products, which are higher margin products compared to graphite electrodes and other products.

Net Income

As a result of the factors described above, China Carbon's net income was $0.87 million in Q2 2012 as compared to $0.88 million in Q2 2011, a decrease of $0.01 million.

Business Outlook

"As we continue to refine our strategy of focusing on our higher margin products made from fine grain and high purity graphite, we will see improved financial results in upcoming quarters," remarked Mr. Yu. "This strategy enables us to maintain profitability while also exploring the significant potential market for these products. High purity and fine grain graphite products have numerous applications in fast developing fields like the nuclear, solar and defense industries, and we are working hard to be in a better position to meet any potential rises in demand for these products, including getting our new facility that will specialize in the manufacture of fine grain and high purity graphite products, plus double our annual production capacity to 60,000 tons, completely up and running."

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 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

Item 1. Financial Statements.
 
 
China Carbon Graphite Group, Inc. and subsidiaries
Condensed Consolidated Balance Sheets
 
    June 30,
2012
  December 31,
2011
    (Unaudited)   (Audited)
ASSETS
  Current Assets            
Cash and cash equivalents   $ 1,350,890   $ 521,450
Restricted cash     10,703,200     11,694,820
Accounts receivable, Net     13,095,700     12,541,321
Notes receivable     444,895     188,880
Advance to suppliers     2,410,409     5,921,970
Inventories     44,151,224     37,430,248
Prepaid expenses     234,917     452,730
Other receivables, net of allowance of $24,397     544,646     513,000
    Total current assets     72,935,881     69,264,419
             
  Property And Equipment, Net     35,742,753     36,719,595
             
  Construction In Progress     7,518,640     6,220,451
             
  Land Use Rights, Net     10,359,654     10,699,059
  Total Assets   $ 126,556,928   $ 122,903,524
             
LIABILITIES AND STOCKHOLDERS' EQUITY
             
  Current Liabilities            
Accounts payable and accrued expenses   $ 3,866,990   $ 1,340,498
Advance from customers     1,552,654     1,360,989
Short term bank loans     38,720,400     45,488,600
Notes payable     17,786,200     16,763,100
Other payables     2,951,364     3,032,671
Loan from unrelated parties     185,610     -
Dividends payable     37,742     28,099
  Total current liabilities     65,100,960     68,013,957
             
  Amount Due To A Related Party     5,432,675     5,542,855
             
  Long term bank loan     4,690,520     -
             
  Warrant Liabilities     208,605     174,805
  Total Liabilities     75,432,760     73,731,617
             
Redeemable convertible series B preferred stock, $0.001 par value; 3,000,000 shares authorized; 305,810 and 426,110 shares issuedand outstanding at June 30, 2012 and December 31, 2011, respectively.    
366,972
   
511,332
  Stockholders' Equity            
Common stock, $0.001 par value; 100,000,000 shares authorized 24,231,708 and 22,981,408 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively    
24,231
   
22,981
Additional paid-in capital     18,044,688     17,054,045
Accumulated other comprehensive income     7,933,485     7,943,542
Retained earnings     24,754,792     23,640,007
             
  Total stockholders' equity     50,757,196     48,660,575
             
  Total Liabilities and Stockholders' Equity   $ 126,556,928   $ 122,903,524

The accompanying notes are an integral part of these condensed consolidated financial statements.

   
China Carbon Graphite Group, Inc and subsidiaries  
   
Condensed Consolidated Statements of Operations and Comprehensive Income  
For the Three Months and Six Months Ended June 30, 2012 and 2011  
(Unaudited)  
   
    Three months ended June 30,     Six months ended June 30,  
    2012     2011     2012     2011  
                                 
Sales   $ 11,877,543     $ 12,145,024     $ 21,938,753     $ 23,608,359  
                                 
Cost of Goods Sold     8,985,125       9,456,762       16,128,731       18,340,023  
Gross Profit     2,892,418       2,688,262       5,810,022       5,268,336  
                                 
Operating Expenses                                
    Selling expenses     29,152       57,312       75,950       107,175  
    General and administrative     1,170,462       1,049,666       2,021,861       2,603,728  
    Depreciation and amortization     46,826       47,152       103,830       93,754  
  Total operating expenses     1,246,440       1,154,130       2,201,641       2,804,657  
                                 
Operating Income Before Other Income (Expense)     1,645,978       1,534,132       3,608,381       2,463,679  
                                 
Other Income (Expense)                                
    Interest expense     (1,220,173 )     (693,274 )     (2,449,918 )     (1,406,804 )
    Interest income     21       -       43       -  
    Other expense     (215,468 )     (765 )     (215,468 )     (766 )
    Other income, net     215,190       15,670       215,190       76,550  
    Change in fair value of warrants     445,763       26,540       (33,800 )     82,692  
  Total other expense     (774,667 )     (651,829 )     (2,483,953 )     (1,248,328 )
                                 
Net Income   $ 871,311     $ 882,303     $ 1,124,428     $ 1,215,351  
                                 
Dividend Distribution     (4,625 )     (6,985 )     (9,643 )     17,882  
                                 
Net Income Available To Common Shareholders   $ 866,686     $ 875,318     $ 1,114,785     $ 1,233,233  
                                 
Other Comprehensive Income (Loss)                                
Foreign currency translation gain (loss)     (433,954 )     553,200       (10,057 )     821,448  
Total Comprehensive Income   $ 437,357     $ 1,435,503     $ 1,114,371     $ 2,036,799  
                                 
Share Data                                
                                 
    Basic earnings per share   $ 0.04     $ 0.04     $ 0.05     $ 0.05  
                                     
    Diluted earnings per share   $ 0.04     $ 0.04     $ 0.05     $ 0.05  
                                     
    Weighted average common shares outstanding, basic     23,948,851       22,350,263       23,632,248       21,993,435  
                                     
    Weighted average common shares outstanding, diluted     24,254,661       23,194,542       23,938,058       22,671,285  

The accompanying notes are an integral part of these condensed consolidated financial statements.

   
   
China Carbon Graphite Group, Inc. and subsidiaries  
Condensed Consolidated Statements of Cash Flows  
For the Six Months Ended June 30, 2012 and 2011  
(Unaudited)  
   
    Six months ended June 30,  
    2012     2011  
Cash flows from operating activities                
  Net Income   $ 1,124,428     $ 1,215,351  
  Adjustments to reconcile net cash provided by operating activities                
      Depreciation and amortization     1,360,692       870,310  
      Related party interest expenses contribution     222,860       -  
      Stock compensation     374,333       623,450  
      Change in fair value of warrants     33,800       (82,692 )
  Change in operating assets and liabilities                
      Accounts receivable     (557,196 )     (4,308,178 )
      Notes receivable     (257,316 )     173,556  
      Other receivable     (31,808 )     (1,107,235 )
      Advance to suppliers     3,529,409       (889,008 )
      Inventories     (6,755,136 )     (4,121,825 )
      Prepaid expenses     (2,719 )     226,703  
      Accounts payable and accrued liabilities     2,684,917       (141,785 )
      Advance from customers     192,640       2,807,114  
      Taxes payable     (444,341 )     1,476,262  
      Other payables     353,241       90,132  
Net cash provided by (used in) operating activities     1,827,804       (3,167,845 )
                 
Cash flows from investing activities                
      Acquisition of property and equipment     (37,756 )     (27,088 )
      Construction in progress     (1,109,403 )     (2,459,521 )
Net cash used in investing activities     (1,147,159 )     (2,486,609 )
                 
Cash flows from financing activities                
  Proceeds from issuing common stock     472,000       -  
  Proceeds from warrants exercise     -       371,714  
  Dividends paid for series B preferred stock     -       (32,996 )
    Proceeds from short-term bank loans     11,074,000       11,176,300  
    Payment to short-term bank loans     (17,876,600 )     (6,047,450 )
  Proceeds from long-term bank loans     4,714,360          
    Proceeds from loans from unrelated parties     9,162,944       -  
    Payment of loans from unrelated parties     (9,162,944 )        
    Payments to an related party     (142,380 )     -  
    Proceeds from an related party     31,640       -  
    Proceeds from stock not yet issued     (145,000 )     -  
  Restricted cash     996,660       (6,491,440 )
  Proceeds from notes payable     17,876,600       10,410,800  
  Payment to notes payable     (16,848,300 )     -  
Net cash provided by financing activities     152,980       9,386,928  
                 
Effect of exchange rate fluctuation     (4,185 )     42,368  
                 
Net increase in cash     829,440       3,774,842  
                 
Cash and cash equivalents at beginning of period     521,450       296,312  
                 
Cash and cash equivalents at end of period   $ 1,350,890     $ 4,071,154  
                 
Supplemental disclosure of cash flow information                
                 
  Interest paid   $ 1,643,371     $ 1,406,804  
                 
Non-cash activities:                
                 
  Preferred stock conversion to common stock   $ 144     $ 753  
                 
  Reclassfication of warrant liability with equity   $ -     $ 14,993  
                 
  Issuance of common stock for compensation   $ 153,800     $ 1,787,600  

Contact Information

  • Investor Contact:

    Mr. Kevin Fickle
    President
    NUWA Group, LLC
    Tel: +1-925-330-8315
    Email: kevin@nuwagroup.com

    Company Contact:

    Mr. Donghai Yu
    Chief Executive Officer
    China Carbon Graphite Group Inc.
    Tel: +1-626-589-6525
    Email: ir@chinacarboninc.com