SOURCE: New Oriental Energy & Chemical Corp.

November 14, 2008 08:25 ET

New Oriental Energy & Chemical Reports Second Quarter Results

Company to Host Investor Conference Call on Wednesday, November 19th at 8:00 am (EST)

NEW YORK, NY--(Marketwire - November 14, 2008) - New Oriental Energy & Chemical Corp. (NASDAQ: NOEC), a specialty chemical and emerging coal-based alternative fuel manufacturer (the "Company") in The People's Republic of China (the "PRC"), said today that dramatic shifts in raw material and specialty chemical prices negatively impacted results in its second quarter ended September 30, 2008.

While the average price for Dimethyl Ether (DME) was somewhat higher during the quarter than in the same period last year -- an average price per ton of RMB 4,349 -- the price moved below this during the quarter, at the same time that average coal prices in the quarter nearly doubled to RMB 1,385 per ton. This was coupled with higher methanol prices and reduced demand for DME given the economic uncertainties that developed and led to curtailed sales of the product in the quarter to only 6,435 tons. While the Company was able to sell some of its self-produced methanol in the period, combined sales company-wide of alternative fuel products reached only $4,359,395 or 31% of sales and produced negative gross margins, resulting in a loss in the quarter for this segment of $(615,639). In the comparable quarter last year, DME sales were $12,206,012, representing 67.01% of total sales. DME prices in last year's second quarter averaged RMB 3,584 per ton, while coal costs in the period averaged RMB 721 per ton.

During the quarter, the Company was able to shift production and marketing efforts to increase fertilizer sales as demand for Urea and related products remained strong and international Urea prices were 50% higher. However, the Company was unable to offset a quality decline and dramatic increase in the price of coal, its key raw material. Thus, while fertilizer sales jumped to 69% of overall sales, compared with 33% in the same period last year, the decline in margins produced a loss of $(335,770) compared with a gain in last year's second quarter of $253,717.

Consequently, the Company reported that combined revenues in the second quarter ended September 30, 2008 were $14,260,705, down 21.71% from $18,215,622 in the comparable period last year, while there was a net loss in the second quarter ended September 30, 2008 of $(590,446), compared with net income of $864,012 in the same period last year. The net loss per share in the second quarter ended September 30, 2008 was $(0.05), compared with net income per share in the comparable period last year of $0.07.

For the six months ended September 30, 2008, revenues were $30,107,977, compared with $32,902,228 in last year's second quarter. The Company reported that net income in the first six months of the current fiscal year was $246,123 or $0.02 per share, compared with $1,886,370 or $0.15 per share in the first half of the comparable period last year.

CEO Perspective

Mr. Chen Si Qiang, the Company's President and CEO, commented, "The global economic crisis was not something we and most others were able to predict and it impacted our results and predictions for the quarter."

"Nevertheless," Mr. Chen continued, "we were pleased with several aspects of our performance. In particular, demonstrating the flexibility we have achieved in our operations, we were able to rapidly shift our marketing and production focus to achieve sales gains, as reflected in a 154% increase in fertilizer sales to Guangdong Province, at prices roughly 61% higher for Urea than we experienced last year, and saw an approximate gain of 100% in DME sales in the Shandong Province. Furthermore, while we had previously been utilizing all the methanol we produced for the production of DME, during the second quarter we were able to sell some of the higher priced methanol production in the marketplace. Also, we saw benefits during the second quarter of more than $1 million in government grants achieved on the basis of our performance. We also increased our R&D funding again, where we continue to focus on cost reduction projects as well as new products and new uses for our existing product line-up. Not least of all, we continued to substantially grow and train our labor force, which increased costs in the quarter, but positions us to smoothly ramp up production when our new methanol plant is completed."

"Most importantly," he said, "we continued to progress at a good pace in construction of our new methanol capacity addition which will eliminate the need to purchase higher priced methanol from outside vendors and optimize our production of DME upon completion. In recent months, we have seen the failure of many smaller DME producers who rely on outside methanol purchases, which is narrowing the playing field. This also has been the case in fertilizer production, a very fragmented business, where many smaller companies are having great difficulty, even as prices have increased and the agricultural sector continues to require the product to achieve much needed growth in production."

Outlook

The Company said that the current economic environment has made the ability to predict pricing on commodity costs and its products extremely difficult. As a consequence of this situation and the results in the second quarter, it is reducing its prior forecast of an estimated 20% increase in year over year sales, with an expectation that these results instead could be flat to down, with a corresponding outlook for full year profits.

The Company noted that while it anticipates a pickup in demand for DME -- in good measure a consequence of the government's recently announced $500 billion economic stimulus plan -- a primary issue over the remainder of the year will be the cost of coal, which in recent weeks trended down fairly rapidly but remains unpredictable. In essence, the Company believes it can achieve positive margins on all of its products, even at lower than planned selling prices over the intermediate term, if the cost of coal moderates in some proportion to this.

Finances

Further moderating the outlook for the second half of the Fiscal Year is the Company's cash position, which was reduced during the quarter by lower operating results as well as its continued self funding of the methanol plant expansion. In response to this, the Company said it has entered into discussions with various banks with the purpose of strengthening credit lines and/or considering possible bank financing to accelerate completion of the methanol plant. This reflects a continued expectation that completion of the plant will have a substantial positive impact on the Company's sales and profits, particularly in 2010 and succeeding years. With the plant more than 70% completed, the Company said that start up is still likely by calendar year end, but it remains cautious about the extent of the contribution this will make to its 2009 results. Further, while optimistic about a positive outcome from bank discussions it is holding, timing of bringing the methanol plant to optimal production may be adjusted somewhat to be in line with the results of these discussions.

Longer Term Optimism

Mr. Chen commented, "What we remain focused on are the tremendous gains we continue to strongly believe will develop in time from expanded DME production. This will especially be the case as DME increasingly becomes a substitute for diesel fuel in addition to the smaller Liquefied Petroleum Gas (LPG) replacement market. The demand for methanol may expand, especially if the replacement of gasoline by methanol is legalized as a national standard early next year as many anticipate. Lastly, we have little doubt that there will be a continuing government emphasis on boosting agricultural production in the PRC and thereby the need for an increasing utilization of fertilizers."

Conference Call Invitation

The Company will host a conference call to discuss its second quarter results for the period ended September 30, 2008 on Wednesday, November 19, 2008 at 8:00 am EST.

Interested participants should call 1-800-762-8779 when calling within the United States or 1-480-248-5081 when calling internationally. Please ask for the New Oriental Energy & Chemical Earnings Conference Call, Pass Code 3943634. There will be a playback available until 11/26/2008. To listen to the playback, please call 1-800-406-7325 when calling within the United States or 1-303-590-3030 when calling internationally. Use the Pass Code 3943634 for the replay.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://viavid.net/dce.aspx?sid=00005A0E or at ViaVid's website at www.viavid.net. The webcast can be accessed through 11/19, 2009.

About New Oriental Energy & Chemical Corp.

New Oriental Energy & Chemical Corp., listed on the NASDAQ Global Market (NASDAQ: NOEC), is an emerging coal-based alternative fuels and specialty chemical manufacturer based in Henan Province, PRC. The Company's core products are Urea and other coal-based chemicals primarily utilized as fertilizers. Future growth is anticipated mainly from its focus on expanding production of coal-based alternative fuels, in particular, methanol and dimethyl ether (DME), which is a cheaper, more environmentally friendly alternative to LPG for home heating and cooking, and diesel fuel for cars and buses. All of the Company's sales are made through a network of distribution partners in the PRC. Additional information on the Company is available on its website at www.neworientalenergy.com.

Safe Harbor Statement

This press release may contain forward-looking statements concerning New Oriental Energy & Chemical Corp. The actual results may differ materially depending on a number of risk factors including, but not limited to, the following: general economic and business conditions, development, shipment, market acceptance, additional competition from existing and new competitors, changes in technology or product techniques, and various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risk factors detailed in the Company's reports filed with the Securities and Exchange Commission. New Oriental Energy & Chemical Corp. undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this release.


                  NEW ORIENTAL ENERGY & CHEMICAL CORP.
             (FORMERLY SPORTS SOURCE, INC.) AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED BALANCE SHEETS


                                  ASSETS
                                                September, 30    March 31,
                                                     2008          2008
                                                 ------------  ------------
                                                 (Unaudited)
CURRENT ASSETS
  Cash and cash equivalents                      $  1,860,931  $  7,487,808
  Restricted cash                                   6,717,217     5,438,809
  Notes receivable, net of reserve of $146,664
   and $135,563 at September 30, 2008 and March
   31, 2008, respectively                             593,990       647,908
  Inventories, net                                  2,567,692     2,171,040
  Prepayments for goods                               530,835     1,196,831
  Due from employees                                   17,958        13,213
  Other assets                                         73,218       134,993
  Due from related parties                            172,799             -
                                                 ------------  ------------
    Total current assets                           12,534,640    17,090,602
                                                 ------------  ------------

  Long-term investment                                470,791             -
  Plant and equipment, net                         19,961,732    20,102,938
  Land use rights, net                              1,659,591     1,629,633
  Construction in progress                         21,313,759     9,740,638
  Deposits                                          2,050,323     1,978,389
  Deferred taxes                                      201,200       179,541
  Other long-term assets                               12,471        32,574
                                                 ------------  ------------
    Total long-term assets                         45,669,867    33,663,713
                                                 ------------  ------------

  TOTAL ASSETS                                   $ 58,204,507  $ 50,754,315
                                                 ============  ============


                  LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                               $  6,009,712  $  1,656,883
  Other payables and accrued liabilities              569,145       545,090
  Short-term debt                                  17,749,293    17,954,837
  Customer deposits                                 3,928,665     4,220,527
  Payable to contractors                              964,146       506,364
  Due to related parties                            8,587,539     5,708,995
  Taxes payable                                       845,899     1,424,992
                                                 ------------  ------------
    Total current liabilities                      38,654,399    32,017,688
                                                 ------------  ------------

LONG-TERM LIABILITIES
  Long-term notes payable                             532,391       517,168
  Deferred taxes                                      772,102       773,449
  Due to employees                                    160,684       156,517
                                                 ------------  ------------
    Total long-term liabilities                     1,465,177     1,447,134
                                                 ------------  ------------

TOTAL LIABILITIES                                $ 40,119,576  $ 33,464,822
                                                 ============  ============


SHAREHOLDERS' EQUITY
  Common stock, par value $0.001 per share;
   30,000,000 shares authorized, 12,640,000
   shares issued and outstanding as of
   September 30, 2008 and March 31, 2008,
   respectively                                        12,640        12,640
  Additional paid-in capital                        4,573,205     4,573,205
  Retained earnings (restricted portion was
   $950,327 as of September 30, 2008 and March
   31, 2008, respectively)                         10,872,622    10,626,499
  Accumulated other comprehensive income            2,626,464     2,077,149
                                                 ------------  ------------
TOTAL SHAREHOLDERS' EQUITY                         18,084,931    17,289,493
                                                 ------------  ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 58,204,507  $ 50,754,315
                                                 ============  ============




           Three Months Ended September 30, 2008 as compared to
                  Three Months Ended September 30, 2007


                           Three Months Ended        Three Months Ended
                           September 30, 2008        September 30, 2007
                        ------------------------  ------------------------
                                      Percentage                Percentage
Item                       Amount    of Revenues     Amount    of Revenues
                        -----------  -----------  -----------  -----------
                            US $         (%)          US $         (%)
                        -----------  -----------  -----------  -----------
Revenues                 14,260,705       100.00%  18,215,622       100.00%
                        -----------  -----------  -----------  -----------
Cost of Goods Sold      (15,212,114)   (106.67%)  (16,376,557)    (89.90%)
                        -----------  -----------  -----------  -----------
Gross Profit               (951,409)     (6.67%)    1,839,065        10.10%
                        -----------  -----------  -----------  -----------
General &
 administrative             510,894         3.58%     541,512         2.97%
                        -----------  -----------  -----------  -----------
Selling and
 distribution               291,657         2.05%     208,584         1.15%
                        -----------  -----------  -----------  -----------
Research and
 development                 89,982         0.63%           -         0.00%
                        -----------  -----------  -----------  -----------
Income from operations   (1,843,942)    (12.93%)    1,088,969         5.98%
                        -----------  -----------  -----------  -----------
Interest expense, net      (232,826)     (1.63%)     (161,789)     (0.89%)
                        -----------  -----------  -----------  -----------
Governments grants        1,008,964         7.08%      79,332         0.44%
                        -----------  -----------  -----------  -----------
Other (expenses)
 income, net                 (1,209)     (0.01%)       (2,644)     (0.01%)
                        -----------  -----------  -----------  -----------
Income before tax        (1,069,013)     (7.50%)    1,003,868         5.51%
                        -----------  -----------  -----------  -----------
Income taxes                478,567         3.36%    (160,976)     (0.88%)
                        -----------  -----------  -----------  -----------
Income from continuing
 operation                 (590,446)     (4.14%)      842,892         4.63%
                        -----------  -----------  -----------  -----------
Income from
 discontinued operation           -         0.00%       1,761         0.01%
                        -----------  -----------  -----------  -----------
Gain from disposition
 of discontinued
 operation                        -         0.00%      19,359         0.11%
                        -----------  -----------  -----------  -----------
Net income (loss)          (590,446)     (4.14%)      864,012         4.74%
                        -----------  -----------  -----------  -----------
Foreign currency
 translation gain           117,832         0.83%     145,816         0.80%
                        -----------  -----------  -----------  -----------
Other comprehensive
 income, net                117,832         0.83%      81,213         0.45%
                        -----------  -----------  -----------  -----------
Comprehensive income       (472,614)     (3.31%)      945,225         5.19%
                        -----------  -----------  -----------  -----------
Weighted average shares
 outstanding basic and
 diluted                 12,640,000            -   12,640,000            -
                        -----------  -----------  -----------  -----------
Net income per share,
 basic and diluted            (0.05)           -         0.07            -
                        -----------  -----------  -----------  -----------


                              Comparisons
                        ------------------------
                         Growth in     Increase
Item                      Amount    (Decrease) in
                        -----------   Percentage
                            US $         (%)
                        -----------  -----------
Revenues                 (3,954,917)    (21.71%)
                        -----------  -----------
Cost of Goods Sold        1,164,443      (7.11%)
                        -----------  -----------
Gross Profit             (2,790,474)   (151.73%)
                        -----------  -----------
General &
 administrative             (30,618)     (5.65%)
                        -----------  -----------
Selling and
 distribution                83,073        39.83%
                        -----------  -----------
Research and
 development                 89,982       100.00%
                        -----------  -----------
Income from operations   (2,932,911)   (269.33%)
                        -----------  -----------
Interest expense, net       (71,037)       43.91%
                        -----------  -----------
Governments grants          929,632      1171.82%
                        -----------  -----------
Other (expenses)
 income, net                  1,435     (54.27%)
                        -----------  -----------
Income before tax        (2,072,881)   (206.49%)
                        -----------  -----------
Income taxes                639,543    (397.29%)
                        -----------  -----------
Income from continuing
 operation               (1,433,338)   (170.05%)
                        -----------  -----------
Income from
 discontinued operation      (1,761)   (100.00%)
                        -----------  -----------
Gain from disposition
 of discontinued
 operation                  (19,359)   (100.00%)
                        -----------  -----------
Net income (loss)        (1,454,458)   (168.34%)
                        -----------  -----------
Foreign currency
 translation gain           (27,984)    (19.19%)
                        -----------  -----------
Other comprehensive
 income, net                 36,619        45.09%
                        -----------  -----------
Comprehensive income     (1,417,839)   (150.00%)
                        -----------  -----------
Weighted average shares
 outstanding basic and
 diluted                          -            -
                        -----------  -----------
Net income per share,
 basic and diluted            (0.12)           -
                        -----------  -----------




            Six Months Ended September 30, 2008 as compared to
                    Six Months Ended September 30, 2007


                            Six Months Ended          Six Months Ended
                           September 30, 2008        September 30, 2007
                        ------------------------  ------------------------
                                      Percentage                Percentage
Item                       Amount    of Revenues     Amount    of Revenues
                        -----------  -----------  -----------  -----------
                            US $         (%)          US $         (%)
                        -----------  -----------  -----------  -----------
Revenues                 30,107,977       100.00%  32,902,228       100.00%
                        -----------  -----------  -----------  -----------
Cost of Goods Sold      (28,332,521)    (94.10%)  (28,450,295)    (86.47%)
                        -----------  -----------  -----------  -----------
Gross Profit              1,775,456         5.90%   4,451,933        13.53%
                        -----------  -----------  -----------  -----------
General &
 administrative           1,457,664         4.84%   1,020,280         3.10%
                        -----------  -----------  -----------  -----------
Selling and
 distribution               567,093         1.88%     644,997         1.96%
                        -----------  -----------  -----------  -----------
Research and
 development                109,435         0.36%           -         0.00%
                        -----------  -----------  -----------  -----------
Income from operations     (358,736)     (1.19%)    2,786,656         8.47%
                        -----------  -----------  -----------  -----------
Interest expense, net      (417,440)     (1.39%)     (261,049)     (0.79%)
                        -----------  -----------  -----------  -----------
Governments grants          997,297         3.31%      78,714         0.24%
                        -----------  -----------  -----------  -----------
Other (expenses)
 income, net                (33,457)     (0.11%)        7,905         0.02%
                        -----------  -----------  -----------  -----------
Income before tax           187,664         0.62%   2,612,226         7.94%
                        -----------  -----------  -----------  -----------
Income taxes                 58,459         0.19%    (747,548)     (2.27%)
                        -----------  -----------  -----------  -----------
Income from continuing
 operation                  246,123         0.82%   1,864,678         5.67%
                        -----------  -----------  -----------  -----------
Income from
 discontinued operation           -         0.00%       1,761         0.01%
                        -----------  -----------  -----------  -----------
Gain from disposition
 of discontinued
 operation                        -         0.00%     246,123         0.75%
                        -----------  -----------  -----------  -----------
Net income (loss)           246,123         0.82%   1,886,370         5.73%
                        -----------  -----------  -----------  -----------
Foreign currency
 translation gain           549,315         1.82%     537,348         1.63%
                        -----------  -----------  -----------  -----------
Other comprehensive
 income, net                549,315         1.82%     360,023         1.09%
                        -----------  -----------  -----------  -----------
Comprehensive income        795,438         2.64%   2,246,393         6.83%
                        -----------  -----------  -----------  -----------
Weighted average shares
 outstanding basic and
 diluted                 12,640,000            -   12,640,000            -
                        -----------  -----------  -----------  -----------
Net income per share,
 basic and diluted             0.02            -         0.15            -
                        -----------  -----------  -----------  -----------


                              Comparisons
                        ------------------------
                         Growth in     Increase
Item                      Amount    (Decrease) in
                        -----------   Percentage
                            US $         (%)
                        -----------  -----------
Revenues                 (2,794,251)     (8.49%)
                        -----------  -----------
Cost of Goods Sold          117,774      (0.41%)
                        -----------  -----------
Gross Profit             (2,676,477)    (60.12%)
                        -----------  -----------
General &
 administrative             437,384        42.87%
                        -----------  -----------
Selling and
 distribution               (77,904)    (12.08%)
                        -----------  -----------
Research and
 development                109,435       100.00%
                        -----------  -----------
Income from operations   (3,145,392)   (112.87%)
                        -----------  -----------
Interest expense, net      (156,391)       59.91%
                        -----------  -----------
Governments grants          918,583      1166.99%
                        -----------  -----------
Other (expenses)
 income, net                (41,362)   (523.24%)
                        -----------  -----------
Income before tax        (2,424,562)    (92.82%)
                        -----------  -----------
Income taxes                806,007    (107.82%)
                        -----------  -----------
Income from continuing
 operation               (1,618,555)    (86.80%)
                        -----------  -----------
Income from
 discontinued operation      (1,761)   (100.00%)
                        -----------  -----------
Gain from disposition
 of discontinued
 operation                 (246,123)   (100.00%)
                        -----------  -----------
Net income (loss)        (1,640,247)    (86.95%)
                        -----------  -----------
Foreign currency
 translation gain            11,967         2.23%
                        -----------  -----------
Other comprehensive
 income, net                189,292        52.58%
                        -----------  -----------
Comprehensive income     (1,450,955)    (64.59%)
                        -----------  -----------
Weighted average shares
 outstanding basic and
 diluted                          -            -
                        -----------  -----------
Net income per share,
 basic and diluted            -0.13            -
                        -----------  -----------

Contact Information

  • Contact:
    Mr. Ben Wang
    Chief Financial Officer
    New Oriental Energy & Chemical Corp.
    Xicheng Industrial Zone of Luoshan, Xinyang
    Henan Province, The People's Republic of China
    Tel: (011-86) 10-6709-2670

    Investors:
    Mark Miller
    East West Network Group
    mmeastwest@hotmail.com
    Ph: (770) 436-7429

    Press:
    Ken Donenfeld
    DGI Investor Relations
    donfgroup@aol.com
    kdonenfeld@dgiir.com
    Ph: (212) 425-5700
    Fax: (212) 425-6951